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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________

FORM 10-Q
__________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 29, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-38643
__________________________
PAE INCORPORATED
(Exact name of registrant as specified in its charter)
__________________________
Delaware82-3173473
(State or other jurisdiction of incorporation or organization(I.R.S. Employer Identification No.

7799 Leesburg Pike, Suite 300 North, Falls Church, Virginia 22043
(Address of principal executive offices) (Zip Code)

(703) 717-6000
(Registrant’s telephone number, including area code)
__________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Class A Common StockPAENasdaq Stock Market
WarrantsPAEWWNasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The number of shares of the registrant’s common stock outstanding as of April 30, 2020 was 92,040,654.

 











EXPLANATORY NOTE

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains our condensed consolidated financial statements for the three-month period ended March 29, 2020.

We were originally incorporated in Delaware on October 23, 2017 under the name “Gores Holdings, III, Inc.” as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On September 11, 2018, we consummated our initial public offering (the “IPO”), following which our shares began trading on the Nasdaq Stock Market (“Nasdaq”).

On February 10, 2020 (the “Closing Date”), we consummated the previously announced business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger, dated November 1, 2019, by and among Gores Holdings III, Inc. (“Gores III”), EAP Merger Sub, Inc. (“First Merger Sub”), EAP Merger Sub II, LLC (“Second Merger Sub”), Shay Holding Corporation (“Shay”), and Platinum Equity Advisors, LLC (in its capacity as the Stockholder Representative, the “Stockholder Representative”) (the “Merger Agreement”), as more fully described in the Company’s Form 8-K filed with the Securities and Exchange Commission on February 14, 2020, and the amendment thereto filed on March 11, 2020. In connection with the closing of the Business Combination (the “Closing”), we acquired 100% of the stock of Shay (as it existed immediately prior to the Second Merger) and its subsidiaries, changed our name from “Gores Holdings III, Inc.” to “PAE Incorporated”, and changed the trading symbols of our Class A Common Stock and warrants on Nasdaq from “GRSH” and “GRSHW,” to “PAE” and “PAEWW,” respectively.

For accounting purposes, the Business Combination is treated as a reverse acquisition and recapitalization, in which Shay is considered the accounting acquirer (and legal acquiree) and Gores III is considered the accounting acquiree (and legal acquirer). Additionally, unless otherwise stated or the context indicates otherwise, with respect to the financial information contained in this Form 10-Q, including in “Part I, Item 1. Financial Statements” and the notes thereto and in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the financial information relating to the quarter ended March 31, 2019 are those of Shay and its subsidiaries, and for the quarter ended March 29, 2020, the financial information includes the financial information of Shay and its subsidiaries for the period prior to the Closing and the financial information of PAE Incorporated and its subsidiaries for the period subsequent to the Closing. See “Note 1 – Description of Business” and “Note 6 – Business Combinations and Acquisitions” of the Notes to the condensed consolidated financial statements for additional information.

Unless the context indicates otherwise, the terms “PAE,” the “Company,” “we,” “us,” and “our” refer to PAE Incorporated and its subsidiaries taken as a whole.

        




              


           












PAE Incorporated
Form 10-Q
For the Quarter Ended March 29, 2020
Table of Contents

Page No.



        




              


           












PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAE Incorporated
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)

Three Months Ended
March 29,March 31,
20202019
Revenues$617,253  $673,484  
Cost of revenues465,208  517,159  
Selling, general and administrative expenses137,326  135,035  
Amortization of intangible assets8,047  8,657  
Total operating expenses610,581  660,851  
Program profit6,672  12,633  
Other income, net785  1,720  
Operating income7,457  14,353  
Interest expense, net(20,948) (22,660) 
Loss before income taxes(13,491) (8,307) 
Benefit from income taxes(8,714) (3,147) 
Net loss(4,777) (5,160) 
Noncontrolling interest in earnings of ventures166  559  
Net loss attributed to PAE Incorporated$(4,943) $(5,719) 
Net loss per share attributed to PAE Incorporated:
   Basic and diluted$(0.08) $(0.27) 
Weighted average shares outstanding59,807,549  21,127,823  
See accompanying notes
1


PAE Incorporated
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)

Three Months Ended
March 29,March 31,
20202019
Net loss$(4,777) $(5,160) 
Other comprehensive (loss) income:
Change in foreign currency translation adjustment, net of tax(976) 290  
Other, net281  422  
Other comprehensive (loss) income(695) 712  
Comprehensive loss(5,472) (4,448) 
Comprehensive income attributed to noncontrolling interests498  582  
Comprehensive loss attributed to PAE Incorporated$(5,970) $(5,030) 
See accompanying notes
2









PAE Incorporated
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and par value amounts)
March 29,December 31,
20202019
Assets
Current assets:
Cash and cash equivalents$99,790  $68,035  
Accounts receivable, net420,765  442,180  
Prepaid expenses and other current assets46,760  43,549  
Total current assets567,315  553,764  
Property and equipment, net28,079  30,404  
Deferred income taxes, net16,597  3,212  
Investments17,747  17,925  
Goodwill409,588  409,588  
Purchased intangibles, net172,417  180,464  
Operating lease right-of-use assets, net161,731  162,184  
Other noncurrent assets9,484  13,758  
Total assets$1,382,958  $1,371,299  
Liabilities and equity
Current liabilities:
Accounts payable$122,126  $124,661  
Accrued expenses100,456  102,315  
Customer advances and billings in excess of costs69,662  51,439  
Salaries, benefits and payroll taxes106,995  130,633  
Accrued taxes16,058  18,488  
Current portion of long-term debt22,894  22,007  
Operating lease liabilities, current portion35,324  36,997  
Other current liabilities32,703  30,893  
Total current liabilities506,218  517,433  
Long-term debt, net595,598  727,930  
Long-term operating lease liabilities130,426  129,244  
Other long-term liabilities7,397  8,601  
Total liabilities1,239,639  1,383,208  
Stockholders' equity:
Preferred stock, $0.0001 par value per share, 1,000,000 shares authorized;
no shares issued and outstanding
    
Common stock, $0.0001 par value per share: 210,000,000 shares authorized; 92,040,654 and 21,127,823 shares issued and outstanding as of March 29, 2020 and December 31, 2019, respectively
9  2  
Additional paid-in capital262,284  101,743  
Accumulated deficit(150,314) (145,371) 
Accumulated other comprehensive loss(829) (134) 
Total PAE Incorporated stockholders' equity 111,150  (43,760) 
Noncontrolling interests32,169  31,851  
Total liabilities and equity$1,382,958  $1,371,299  
See accompanying notes
3


PAE Incorporated
Condensed Consolidated Statements of Equity (Unaudited)
(In thousands, except share data)
Accumulated
OtherTotal
Common StockAdditionalAccumulatedComprehensivePAE IncorporatedNoncontrollingTotal
SharesAmountPaid-in CapitalDeficit(Loss) / Income  EquityInterestsEquity
Balance at December 31, 2018282,047  $3  $101,742  $(95,562) $(2,138) $4,045  $27,440  $31,485  
Retrospective application of the capitalization20,845,776  (1) 1  —  —  —  —    
Adjusted balance at December 31, 201821,127,823  2  101,743  (95,562) (2,138) 4,045  27,440  31,485  
   Net loss—  —  —  (5,719) —  (5,719) 559  (5,160) 
   Other comprehensive income, net—  —  —  —  712  712  —  712  
   Equity contributions from venture
partners
—  —  —  —  —  —  1,350  1,350  
Balance at March 31, 201921,127,823  $2  $101,743  $(101,281) $(1,426) $(962) $29,349  $28,387  
Accumulated
OtherTotal
Common StockAdditionalAccumulatedComprehensivePAE IncorporatedNoncontrollingTotal
SharesAmountPaid-in CapitalDeficitLossEquityInterestsEquity
Balance at December 31, 2019282,047  $3  $101,742  $(145,371) $(134) $(43,760) $31,851  $(11,909) 
Retrospective application of the capitalization20,845,776  (1) 1  —  —  —  —    
Adjusted balance at December 31, 201921,127,823  2  101,743  (145,371) (134) (43,760) 31,851  (11,909) 
   Net (loss) income—  —  —  (4,943) —  (4,943) 166  (4,777) 
   Other comprehensive loss, net—  —  —  —  (695) (695) (695) 
   Distributions to venture partners and
other
—  —  —  —  —  —  152  152  
   Equity contributions from venture
partners
—  —  13  —  —  13  —  13  
   Equity infusion from Gores III46,999,787  5  364,773  —  —  364,778  —  364,778  
   Private placement23,913,044  2  219,998  —  —  220,000  —  220,000  
   Payment to Shay stockholders—  —  (424,243) —  —  (424,243) —  (424,243) 
Balance at March 29, 202092,040,654  $9  $262,284  $(150,314) $(829) $111,150  $32,169  $143,319  
See accompanying notes
4


PAE Incorporated
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 29,March 31,
20202019
Operating activities
Net loss$(4,777) $(5,160) 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment2,583  3,010  
Amortization of intangible assets8,047  8,657  
Amortization of debt issuance cost6,063  2,050  
Net undistributed income from unconsolidated ventures(663) (1,300) 
Deferred income taxes, net(9,081) 440  
Other non-cash activities, net270  419  
Changes in operating assets and liabilities, net:
Accounts receivable, net20,869  (21,368) 
Accounts payable(2,417) 53,784  
Accrued expenses(3,779) (7,412) 
Customer advances and billings in excess of costs18,223  23,390  
Salaries, benefits and payroll taxes(21,307) (6,701) 
Inventories, net1,342  (2,001) 
Prepaid expenses and other current assets(2,921) (5,754) 
Other current and noncurrent liabilities(4,545) (2,307) 
Investments750  836  
Other noncurrent assets4,729  780  
Accrued taxes(2,473) (2,000) 
Net cash provided by operating activities10,913  39,363  
Investing activities
Expenditures for property and equipment(404) (3,614) 
Net cash used in investing activities(404) (3,614) 
Financing activities
Net contributions from noncontrolling interests150  1,350  
Borrowings on long-term debt60,000  17,888  
Repayments on long-term debt(196,544) (62,938) 
Payments of debt issuance costs(964)   
Recapitalization from merger with Gores III605,708    
Payment of underwriting and transaction costs(27,268)   
Distribution to selling stockholders(419,548)   
Net cash provided by (used in) financing activities21,534  (43,700) 
Effect of exchange rate changes on cash and cash equivalents(288) (458) 
Net increase (decrease) in cash and cash equivalents31,755  (8,409) 
Cash and cash equivalents at beginning of period68,035  51,097  
Cash and cash equivalents at end of period$99,790  $42,688  
Supplemental cash flow information
Cash paid for interest$10,900  $19,411  
Cash paid for taxes$1,523  $2,608  

See accompanying notes
5


PAE Incorporated
Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business
PAE Incorporated, formerly known as Gores Holdings III, Inc. (“Gores III”), was originally incorporated in Delaware on October 23, 2017 as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On September 11, 2018, Gores III consummated its initial public offering (the “IPO”), following which our shares began trading on the Nasdaq Stock Market (“Nasdaq”). Unless the context otherwise indicates, references herein to the “Company" or “PAE” refer to PAE Incorporated and its consolidated subsidiaries.

On February 10, 2020 (the “Closing Date”), the Company completed the previously announced business combination (the “Business Combination”) in which Shay Holding Corporation (“Shay”) was acquired by Gores III. The transaction was completed in a multi-step process pursuant to which Shay ultimately merged with and into a wholly-owned subsidiary of Gores III, with the Gores III subsidiary continuing as the surviving company. As a result of the Business Combination, each share of common stock of Shay was cancelled and converted into the right to receive a portion of the consideration payable in connection with the transaction and Gores III acquired Shay (as it existed immediately prior to the Business Combination) and its subsidiaries. Additionally, the stockholders of Shay as of immediately prior to the transaction hold a portion of the common stock of the Company.

For accounting purposes, the Business Combination is treated as a reverse acquisition and recapitalization, in which Shay is considered the accounting acquirer (and legal acquiree) and Gores III is considered the accounting acquiree (and legal acquirer).

Accordingly, as of the Closing Date, Shay’s historical results of operations replaced Gores III’s historical results of operations for periods prior to the Business Combination and the results of operations of both companies are included in the accompanying condensed consolidated financial statements for periods following the Closing Date. See “Note 6 - Business Combinations and Acquisitions” for additional information.

PAE provides integrated support solutions, including defense and military readiness, diplomacy, peacekeeping, development, host nation capacity building, aircraft and ground equipment maintenance and logistics, and operations and maintenance of facilities and infrastructure. Customers include agencies of the U.S. Government, such as the Department of Defense (“DoD”) and Department of State (“DoS”), allied foreign governments, and international organizations such as the United Nations.

The Company’s operations are organized into the following two reportable segments:

Global Mission Services (“GMS”): GMS provides infrastructure and logistics management, international logistics and stabilization support, and aircraft and vehicle readiness and sustainment support. The segment focuses on customer relationships with DoD, DoS, National Aeronautics and Space Administration, United Nations, and other government agencies for work in the United States and outside of the United States.

6


National Security Solutions (“NSS”): NSS provides counter-threat solutions, business process outsourcing, adjudication support services and full life cycle support for complex legal matters. NSS focuses on customer relationships in the areas of intelligence, defense and security, and with civilian agencies.

The Company separately presents the costs associated with certain corporate functions as Corporate, which primarily include costs that are not reimbursed by the Company’s U.S. Government customers.
2. Significant Accounting Principles and Policies
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In management’s opinion, all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019, which are filed as Exhibit 99.3 to the Company’s Form 8-K/A filed with the SEC on March 11, 2020.

The Company closes its books and records on the last Sunday of the calendar quarter to align its financial closing with its business processes, which was on March 29, 2020 and March 31, 2019. The condensed consolidated financial statements and disclosures included herein are labeled based on that convention. This practice only affects interim periods, as the Company’s fiscal year ends on December 31.

The condensed consolidated financial statements include the accounts of PAE Incorporated and subsidiaries and ventures in which the Company owns more than 50% or otherwise controls. All intercompany amounts have been eliminated in consolidation.

Update to Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies in the Company’s 8-K/A filed with the SEC on March 11, 2020, other than Accounts Receivable, net and Net Loss Per Share as described below.
Accounts Receivable, net

Amounts billed and due from customers are recorded as billed receivables within accounts receivable, net on the condensed consolidated balance sheets. Generally, customer accounts are due within 30 to 45 days of billings. The Company recognizes an allowance for credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The Company assesses its overall allowance for credit losses on an at least a quarterly basis. Prior to the implementation of the allowance for credit losses the Company recorded adjustments to an allowance for doubtful accounts when collectability was uncertain.

7


Net Loss Per Share
Basic net loss per common share is determined by dividing the net loss allocable to stockholders by the weighted average number of common shares outstanding during the periods presented. Diluted loss per share is computed by dividing the net loss allocable to common stockholders by the weighted average number of shares of common stock and common stock equivalents outstanding for the period.
Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants at the measurement date. The valuation techniques the Company utilized to measure the fair value of financial instruments are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions.

These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Significant inputs to the valuation model are unobservable.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value because of the short-term nature of these amounts.

The carrying value of the Company’s outstanding debt obligations approximates its fair value. The fair value of long-term debt is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.
3. Recent Accounting Pronouncements
Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for financial instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, replacing the existing incurred loss impairment model. The new standard is effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance effective January 1, 2020 under the modified retrospective method and such adoption did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which requires the tracking and recognition
8


of costs that will be capitalized as an asset and amortized over the assets useful life. The new standard is effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance effective January 1, 2020 prospectively and the standard did not have a material impact on the Company’s financial statements.
4. Revenues
Disaggregated Revenues
Disaggregated revenues by customer type were as follows (in thousands):
Three Months Ended March 29, 2020
GMSNSSTotal
DoD$187,605  $67,178  $254,783  
Other U.S. government agencies250,042  70,722  320,764  
Commercial and non-U.S. customers19,797  21,909  41,706  
Total$457,444  $159,809  $617,253  

Disaggregated revenues by contract type were as follows (in thousands):
Three Months Ended March 29, 2020
GMSNSSTotal
Cost-reimbursable$266,080  $36,903  $302,983  
Fixed-price162,038  68,958  230,996  
Time and materials29,326  53,948  83,274  
Total$457,444  $159,809  $617,253  
Disaggregated revenues by geographic location were as follows (in thousands):
Three Months Ended March 29, 2020
GMSNSSTotal
United States$248,909  $158,139  $407,048  
International208,535  1,670  210,205  
Total$457,444  $159,809  $617,253  
9


Disaggregated revenues by customer type were as follows (in thousands):
Three Months Ended March 31, 2019
GMSNSSTotal
DoD$200,402  $58,752  $259,154  
Other U.S. government agencies274,11289,209363,321  
Commercial and non-U.S. customers29,96621,04351,009  
Total$504,480  $169,004  $673,484  
Disaggregated revenues by contract type were as follows (in thousands):
Three Months Ended March 31, 2019
GMSNSSTotal
Cost-reimbursable$290,691  $22,222  $312,913  
Fixed-price175,39976,514251,913  
Time and materials38,39070,268108,658  
Total$504,480  $169,004  $673,484  
Disaggregated revenues by geographic location were as follows (in thousands):
Three Months Ended March 31, 2019
GMSNSSTotal
United States$260,088  $167,783  $427,871  
International244,3921,221245,613  
Total$504,480  $169,004  $673,484  
Remaining Performance Obligations
The Company’s remaining performance obligations balance represents the expected revenue to be recognized for the satisfaction of remaining performance obligations on existing contracts. This balance excludes unexercised contract option years and task orders that may be issued underneath an indefinite delivery, indefinite quantity contract. The remaining performance obligations balance as of March 29, 2020 and December 31, 2019 was $1,386.0 million and $1,640.0 million, respectively.
The Company expects to recognize approximately 97.9% and 2.1% of the remaining performance obligations balance as revenue over the next year and thereafter, respectively.
10


5. Contract Assets and Contract Liabilities
Contract assets consist of unbilled receivables which represent rights to payment for work or services completed but not billed as of the reporting date. Contract assets are recorded as unbilled receivables within accounts receivable, net on the condensed consolidated balance sheets.
Contract liabilities are advances and milestone payments from customers on certain contracts that exceed revenue earned to date. Contract liabilities are recorded as customer advances and billings in excess of costs on the condensed consolidated balance sheets.
Contract assets and contract liabilities consisted of the following as of the dates presented (in thousands):
March 29,December 31,
20202019
Contract assets$279,459  $295,103  
Contract liabilities$69,662  $51,439  

The decrease in contract assets of $15.6 million during the three months ended March 29, 2020 was primarily due to the timing of billings, partially offset by revenue recognized related to the satisfaction of performance obligations.
The increase in contract liabilities of $18.2 million during the three months ended March 29, 2020 was primarily due to the timing of advance payments from customers partially offset by revenue recognized during the period. During the three months ended March 29, 2020 and March 31, 2019, the Company recognized $38.0 million and $15.2 million, respectively, relating to amounts that were included in the beginning balance of contract liabilities for each of the periods.
6. Business Combinations and Acquisitions
As described in Note 1, the Business Combination was consummated on February 10, 2020. For financial accounting and reporting purposes under U.S. GAAP, the Business Combination was accounted for as a reverse acquisition and recapitalization, with no goodwill or other intangible asset recorded. Under this method of accounting, Gores III is treated as the acquired entity and Shay (legal acquiree) is deemed to have issued common stock for the net assets and equity of Gores III consisting of mainly cash, accompanied by simultaneous equity recapitalization of Shay (“Recapitalization”). The net assets of Gores III are stated at historical cost, and accordingly the equity and net assets of Shay have not been adjusted to fair value. Consequently, the consolidated assets, liabilities and results of operations of Shay are the historical financial statements of PAE Incorporated and the Gores III assets, liabilities and results of operations are consolidated with the assets, liabilities and results of operations of Shay beginning on the Closing Date. Shares and earnings per share information prior to the Business Combination have been retroactively restated to reflect the exchange ratio established in the Recapitalization.
Other than professional fees paid to consummate the transaction, the Business Combination primarily involved the exchange of cash and equity between Gores III, Shay and the stockholders of the respective companies. The aggregate proceeds paid to the Shay
11


stockholders on the Closing Date was approximately $424.2 million. The remainder of the consideration paid to the Shay stockholders consisted of 21,127,823 newly issued shares of Class A Common Stock of PAE Incorporated, par value $0.00001 per share (“Class A Common Stock”).

In addition to the foregoing consideration paid on the Closing Date, former stockholders of Shay are entitled to receive additional Earn-Out Shares from PAE of up to an aggregate of 4,000,000 shares of Class A Common Stock if the price of Class A Common Stock trading on the Nasdaq exceeds certain thresholds during the five-year period following the completion of the Business Combination. See “Note 11 - Stockholders’ Equity - Earn-Out Agreement” for additional information.

The Company also has certain warrants issued by Gores III that remain outstanding after the Business Combination. “See Note 11 - Stockholders’ Equity” for further information about the warrants.  

In connection with the Business Combination, the Company recorded $20.9 million, net of tax as a reduction to Additional Paid in Capital related to the transaction costs. These costs were directly attributable to the Recapitalization.
7. Accounts Receivable, net
The components of Accounts receivable, net consisted of the following as of the dates presented (in thousands):
March 29,December 31,
20202019
Billed receivables$142,976  $148,747  
Unbilled receivables279,459  295,103  
Less allowance for credit losses(1,670) (1,670) 
    Total accounts receivables, net  $420,765  $442,180  

As of March 29, 2020 approximately 93% of the Company’s accounts receivable are with the U.S. government.

8. Goodwill and Intangible Assets, net
Goodwill
Based on management’s assessment of goodwill, there was no impairment or change for the three months ended March 29, 2020.
The Company considered the implications of COVID-19 as it relates to the carrying value of goodwill and indefinite-lived assets. Although COVID-19 has had an adverse effect on the Company’s result of operations for the first quarter of 2020, management does not currently expect that such impact will be material to the Company’s full year results. Since the Company’s primary customers are departments and agencies within the U.S. Government, it has not historically had significant issues collecting its receivables and management does not foresee
12


issues collecting receivables in the foreseeable future. In addition, the Company’s contract awards typically extend to at least five years, including options, and it has a strong history of being awarded a majority of these contract options. Management does not anticipate that the pandemic will have a materially adverse impact on such awards. The Company’s liquidity position has not been materially impacted, and management continues to believe that the Company has adequate liquidity to fund its operations and meet its debt service obligations for the foreseeable future.

Intangible Assets, net
The components of intangible assets, net consisted of the following as of the dates presented (in thousands):
March 29, 2020
Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Customer relationships$286,900  $(124,515) $162,385  
Technology1,700  (1,700)   
Trade name16,900  (6,868) 10,032  
Total$305,500  $(133,083) $172,417  
December 31, 2019
Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Customer relationships$286,900  $(116,923) $169,977  
Technology1,700(1,700)