AP NEWS

Presidio, Inc. Reports First Quarter Fiscal 2019 Results

November 7, 2018

Record Quarterly RevenueStrong Growth in Backlog and Recurring Revenue

NEW YORK, Nov. 07, 2018 (GLOBE NEWSWIRE) -- Presidio, Inc. (NASDAQ:PSDO) (together with its subsidiaries, “Presidio” or the “Company”), a leading North American IT solutions provider delivering Digital Infrastructure, Cloud and Security solutions to create agile, secure infrastructure platforms for its customers, today announced its financial results for its fiscal first quarter ended September 30, 2018.

Three months ended (in $ millions, except per share data) September September % Chg 30, 2017 30, 2018 -------------------------------------- --------- --------- -------- (as adjusted)1 Total revenue $ 731.2 $ 749.9 2.6 % Gross Margin $ 156.4 $ 159.0 1.7 % Gross Margin % 21.4 % 21.2 % Net income $ 19.9 $ 14.7 (26.1 )% Diluted EPS $ 0.21 $ 0.15 (28.6 )% Adjusted EBITDA2 $ 67.6 $ 62.6 (7.4 )% Adj. EBITDA margin %2 9.2 % 8.3 % Adjusted Net Income2 $ 34.9 $ 37.9 8.6 % Pro Forma Adjusted Net Income3 $ 36.3 $ 36.7 1.1 % Pro Forma Diluted EPS3 $ 0.38 $ 0.42 10.5 % 1Amounts shown “as adjusted” throughout this release reflect the full retrospective adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). 2This financial measure is not based on U.S. GAAP. Please refer to the section of this press release entitled “About Non-GAAP and Pro Forma Financial Measures” for additional information and to the attached reconciliation to the most directly comparable U.S. GAAP measure. 3This non-GAAP financial measure adjusts certain historical data on a pro forma basis following certain transactions. Please refer to the section of this press release entitled “About Non-GAAP and Pro Forma Financial Measures” for additional information and to the section entitled “Non-GAAP Reconciliations” for reconciliation to the most directly comparable U.S. GAAP measure.

“We are pleased with our results for the first quarter, where we delivered total revenue growth of 2.6%, and Pro Forma Diluted EPS growth of 10.5%; solid results following a strong comparable quarter in the prior year. In addition, our strong cash flow allowed us to prepay $25.0 million of our outstanding term loan” said Bob Cagnazzi, Chief Executive Officer of Presidio. “We are encouraged by our start to the year. The quarter was in line with our expectations, providing us confidence in our ability to achieve our outlook for Fiscal 2019. Furthermore, we are pleased to announce our Board of Directors has declared a quarterly cash dividend of $0.04 per share to be paid in January 2019. We continue to execute against our strategic growth initiatives to deliver strong earnings growth and capitalize on our free cash flow profile to drive shareholder value creation,” Cagnazzi continued.

Financial Highlights for the Fiscal First Quarter Ended September 30, 2018

-- Revenue - Total Revenue was $749.9 million, up 2.6%, with product revenue up 2.5% and service revenue up 3.0%. Revenue growth in the quarter was driven by Digital Infrastructure solutions growth of 7.1%, as we continue to see increased traction for next generation software defined infrastructure with automation and analytics leading to greater client demand for network upgrades. Security revenue increased 4.1% and Cloud revenue decreased 16.2%. Cloud revenue was impacted by the ongoing shift in revenue recognition from a point in time accounting to recognition over the life of the contract with the customer, as our Cloud revenue base continues to migrate to multi-year, recurring revenue contracts. In addition, we lapped a very strong first quarter fiscal 2018 where we achieved 29% growth in Cloud revenue driven by a number of large non-recurring data center modernization projects. The success of our public cloud initiative, as well as strong growth in managed services, drove our recurring revenue up 24% over the prior year, and recurring revenue now represents 5.7% of our Total Revenue. -- Gross Margin - Our Gross Margin percentage, Product gross margin percentage, and Service gross margin percentage were 21.2%, 21.6%, and 19.3%, respectively, as compared to 21.4%, 21.6%, and 20.4% in the prior year. Service revenue from vendor partner engagements grew 9%, ahead of total services revenue growth for the first quarter. As these engagements are at a lower margin, they negatively impacted our Service gross margin percentage leading to the overall decline in Gross Margin percentage for the quarter.

-- Provision for Income Taxes - The GAAP tax provision rate was 26.1%, and the non-GAAP tax provision rate was 21.7%.

-- Net Income and Diluted EPS - Net Income was $14.7 million and diluted EPS was $0.15. Pro Forma Adjusted Net Income was $36.7 million, an increase of 1.1% over the prior year and Pro Forma Adjusted diluted EPS was $0.42, an increase of 10.5% over the prior year.

-- Adjusted EBITDA - Adjusted EBITDA was $62.6 million, down 7.4% due to higher Selling, General and Administrative expenses (“SG&A”) primarily associated with investments in sales and support personnel, paid for through the benefits of tax reform, and the additional SG&A related to acquisitions completed during the fiscal year ended June 30, 2018. Adjusted EBITDA margin was 8.3% compared to 9.2% in the prior year.

Capital Resources and Free Cash Flow

-- Debt - As of September 30, 2018, cash and cash equivalents were $30.2 million, total long-term debt was $821.6 million comprised entirely of our term loan facility (excluding debt issuance costs), and total net debt was $791.4 million defined as total long-term debt less cash and cash equivalents, representing 3.6x net total leverage. During the quarter, the Company voluntarily prepaid an aggregate of $25.0 million in principal amount of its term loans.

-- Free Cash Flow - Free Cash Flow in the first quarter was $18.0 million, after the impact of $7.8 million of cash outflows for public cloud resale and managed services investments.

-- September 2018 Share Repurchase -On September 13, 2018, the Company completed the repurchase of 10,750,000 of its shares from funds affiliated with Apollo Global Management, LLC (the “Share Repurchase”) for approximately $160 million, funded with the net proceeds of incremental term loans. The Share Repurchase is expected to deliver EPS accretion of 7% for the fiscal year.

-- Backlog - As of September 30, 2018, we had firm, executed backlog of $639 million, up 20% over the prior year, driven by strong growth in both product and service backlog. Sequentially, our firm, executed backlog increased 9% over Q4 of fiscal 2018.

-- Dividend -On September 6, 2018, the Company declared a quarterly cash dividend of $0.04 per share of Common Stock. The dividend was paid on October 5, 2018 to stockholders of record as of September 26, 2018. Dividends paid for the quarter to stockholders of record totaled $3.2 million.

Quarterly Cash Dividend

Presidio announced today that its Board of Directors declared a quarterly cash dividend of $0.04 per share to stockholders. The dividend will be paid on January 7, 2019 to stockholders of record as of the close of business on December 26, 2018. The declaration and payment of future dividends will continue to be subject to the discretion and approval of the Company’s Board of Directors and will be dependent upon, among other things, the Company’s financial position, results of operations and cash flow.

Business Outlook

We reaffirm our outlook for the fiscal year ending June 30, 2019, which is as follows:

-- Total Revenue: $2,850 million to $2,900 million representing Total Revenue growth of 3% to 5%; -- Adjusted EBITDA margin: approximately 8%; -- Pro Forma Diluted EPS: growth in the mid to high teens including the impact of the share repurchase; -- Free Cash Flow is expected to average $30 million per quarter before public cloud resale and managed services investments, as well as any tuck-in acquisitions funded through free cash flow; and -- Total net leverage is expected to be in the low-3x range at the end of fiscal 2019, excluding any strategic acquisitions.

During the first quarter, we made $7.8 million of public cloud and managed service investments due to strong client demand for multi-year public cloud contracts.

The above forward-looking statements reflect Presidio’s expectations as of today’s date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. Presidio does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publicly available statements. Refer to the Safe Harbor Statement below for additional information regarding forward-looking statements.

About Non-GAAP and Pro Forma Financial Measures

Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. In addition to financial information presented in accordance with GAAP, management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Diluted EPS and Free Cash Flow (collectively, “non-GAAP measures”, as further described below) in its evaluation of past performance and prospects for the future. These non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income or revenue, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. These non-GAAP measures have limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of our operating results as reported under GAAP and they include adjustments for items that may occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other peer companies over time.

We also adjust certain historical data on a pro forma basis following certain significant transactions. Specifically, we have provided a calculation of Pro Forma Adjusted Net Income to adjust our reported results for the three months ended September 30, 2017 for:

-- the net after-tax interest savings associated with the borrowing of incremental term loans used for the redemption of the senior notes in January 2018, as if the transaction occurred on July 1, 2017; and

-- lower after-tax interest expense associated with the term loan repricing completed in January 2018 as if it occurred on July 1, 2017.

We have also provided a calculation of Pro Forma Adjusted Net Income to adjust our reported results for the three months ended September 30, 2018 for higher after-tax interest expense associated with the incremental term loans used to fund the Share Repurchase that occurred in September 2018, as if the transaction occurred on July 1, 2018.

Pro Forma Adjusted Net Income is for illustrative and informational purposes and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the transactions occurred on the dates indicated. Pro Forma Adjusted Net Income should not be considered representative of our future financial condition or results of operations.

Conference Call Information

We have scheduled a conference call for Wednesday, November 7, 2018, at 5:00 p.m. Eastern Time to discuss our financial results for the fiscal first quarter ended September 30, 2018. Financial results will be released after the close of the U.S. financial markets on November 7, 2018.

Those wishing to participate via webcast should access the call through Presidio’s Investor Relations website at http://investors.presidio.com. Those wishing to participate via telephone may dial in at 1-877-407-4018 (USA) or 1-201-689-8471 (International). The conference call replay will be available via webcast through Presidio’s Investor Relations website. The telephone replay will be available from 8:00 p.m. Eastern Time on November 7, 2018, through November 14, 2018, by dialing 1-844-512-2921 (USA) or 1-412-317-6671 (International). The replay passcode will be 13683814.

About Presidio

Presidio is a leading North American IT solutions provider focused on Digital Infrastructure, Cloud and Security solutions to create agile, secure infrastructure platforms for its customers. We deliver this technology expertise through a full life cycle model of professional, managed, and support services including strategy, consulting, implementation and design. By taking the time to deeply understand how our clients define success, we help them harness technology advances, simplify IT complexity and optimize their environments today while enabling future applications, user experiences, and revenue models. As of June 30, 2018, we serve approximately 8,000 middle-market, large, and government organizations across a diverse range of industries. Approximately 2,900 Presidio professionals, including more than 1,600 technical engineers, are based in 60+ offices across the United States in a unique, local delivery model combined with the national scale of a $2.8 billion dollar industry leader. We are passionate about driving results for our clients and delivering the highest quality of service in the industry. Presidio is majority owned by investment funds managed by affiliates of Apollo Global Management, LLC (NYSE:APO). For more information visit: www.presidio.com.

Source: Presidio, Inc.

Contact Information

Investor Relations Contact:Ed Yuen866-232-3762investors@presidio.com

Media Contact:Dori WhiteVice President of Corporate Marketing212-324-4301doriwhite@presidio.com

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements include statements relating to: future financial performance, business prospects and strategy, anticipated trends, prospects in the industries in which our businesses operate and other similar matters. These forward looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from those contained in these forward looking statements for a variety of reasons, including, among others: risks and uncertainties related to the capital markets, changes in senior management at Presidio, changes in our relationship with our vendor partners, adverse changes in economic conditions, risks resulting from a decreased demand for Presidio’s information technology solutions, risks relating to rapid technological change in Presidio’s industry, risks relating to the inability to realize the full amount of our backlog and risks relating to acquisitions or regulatory changes. Certain of these and other risks and uncertainties are discussed in Presidio’s filings with the Securities and Exchange Commission. Other unknown or unpredictable factors that could also adversely affect our business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, these forward looking statements may not prove to be accurate. Accordingly, you should not place undue reliance on these forward looking statements, which only reflect the views of our management as of the date of this press release. We do not undertake to update these forward-looking statements.

Non-GAAP Reconciliations

The reconciliation of Adjusted EBITDA from Net Income for each of the periods presented is as follows:

Three months ended September 30, (in millions) 2017 2018 -------- -------- Adjusted EBITDA reconciliation: (as adjusted) Net income $ 19.9 $ 14.7 Total depreciation and amortization (1) 22.0 22.7 Interest and other (income) expense 13.0 11.6 Income tax expense 11.4 5.2 ------ - ------ - EBITDA 66.3 54.2 Adjustments: Share-based compensation expense 0.8 2.1 Purchase accounting adjustments (2) 0.1 0.1 Transaction costs (3) 0.4 5.5 Other costs (4) — 0.7 ------ - ------ - Total adjustments 1.3 8.4 Adjusted EBITDA $ 67.6 $ 62.6 - ---- - - ---- - Adjusted EBITDA %(5) 9.2 % 8.3 % (1) Includes depreciation and amortization included within total operating expenses and cost of revenue. (2) Includes noncash adjustments associated with purchase accounting. (3) Includes transaction-related expenses such as: stay, retention bonuses and earnout, transaction-related advisory and diligence fees and transaction-related legal, accounting and tax fees. (4) Includes certain one-time cost optimization expenses. (5) Adjusted EBITDA % represents the ratio of Adjusted EBITDA to total revenue.

The reconciliation of Adjusted Net Income and Pro Forma Adjusted Net Income from Net Income for each of the periods presented is as follows:

Three months ended September 30, (in millions) 2017 2018 -------- -------- Adjusted Net Income reconciliation: (as adjusted) Net income $ 19.9 $ 14.7 Adjustments: Amortization of intangible assets 18.4 18.9 Amortization of debt issuance costs 1.3 0.9 Loss on extinguishment of debt 0.7 0.5 Share-based compensation expense 0.8 2.1 Purchase accounting adjustments 0.1 0.1 Transaction costs 0.4 5.5 Other costs — 0.7 Income tax impact of adjustments (1) (6.7 ) (5.5 ) ------ - Total adjustments 15.0 23.2 ------ - ------ - Adjusted Net Income 34.9 37.9 Pro Forma Adjustments: Interest on notes redeemed, net savings 1.7 — Interest savings on January 2018 term loan repricing 0.7 — Interest expense on September 2018 term loan borrowing — (1.7 ) Income tax impact of adjustments (1.0 ) 0.5 ------ - ------ - Total Pro Forma adjustments 1.4 (1.2 ) ------ - ------ - Pro Forma Adjusted Net Income $ 36.3 $ 36.7 - ---- - - ---- - (1) Includes an estimated tax impact of the adjustments to net income at our average statutory rate to arrive at an appropriate effective tax rate on Adjusted Net Income, except for (i) the adjustment of certain transaction costs that are permanently nondeductible for tax purposes and (ii) the impact of tax-deductible goodwill and intangible assets resulting from certain historical acquisitions and further adjusted for discrete tax items such as: the tax benefit associated with excess stock compensation deductions and the remeasurement of deferred tax liabilities due to tax rate changes.

The reconciliation of Pro Forma weighted-average shares - diluted and Pro Forma Diluted EPS from GAAP weighted-average shares for each of the periods presented is as follows:

Three months ended September 30, 2017 2018 --------- -------- Share count: Weighted-average shares – basic 91,169, 90,846, 612 817 4,877,1 4,187,4 Dilutive effect of stock options 24 34 ------ -- ------ - Weighted-average shares – diluted 96,046, 95,034, 736 251 — (8,646,) Pro Forma share adjustment for share repurchase (1) 739 Pro Forma weighted-average shares – diluted 96,046, 86,387, 736 512 ------ -- ------ - (as adjusted) Diluted EPS $ 0.21 $ 0.15 Pro Forma Diluted EPS $ 0.38 $ 0.42 (1) Includes an adjustment to reflect the 10,750,000 shares repurchased during the period as if the repurchase had occurred at the beginning of the period that are not already reflected in the basic weighted-average shares presented.

We define free cash flow as our net cash provided by operating activities adjusted to include: (i) the net change in accounts payable - floor plan, (ii) the aggregate net cash impact of our leasing business and (iii) the purchases of property and equipment.

The following table presents the aggregate net cash impact of our leasing business for the three months ended September 30, 2017 and 2018:

Three months ended September 30, (in millions) 2017 2018 --------- --------- Additions of equipment under sales-type and direct financing leases $ (19.7 ) $ (33.3 ) Proceeds from collection of financing receivables 1.1 1.2 Additions to equipment under operating leases (0.3 ) — Proceeds from disposition of equipment under operating leases 0.6 — Proceeds from the discounting of financing receivables 17.8 41.1 Retirements of discounted financing receivables (0.2 ) (4.9 ) Aggregate net cash impact of leasing business $ (0.7 ) $ 4.1 - ----- - - ----- -

The following table presents reconciliation of Free Cash Flow from net cash provided by operating activities for the three months ended September 30, 2017 and 2018:

Three months ended September 30, (in millions) 2017 2018 -------- -------- Net cash provided by operating activities $ 83.6 $ 2.7 Adjustments to reconcile to Free Cash Flow: Net change in accounts payable - floor plan (49.2 ) 15.0 Aggregate net cash impact of leasing business (0.7 ) 4.1 Purchases of property and equipment (4.7 ) (3.8 ) ------ - ------ - Total adjustments (54.6 ) 15.3 ------ - ------ - Free Cash Flow $ 29.0 $ 18.0 - ---- - - ---- -

PRESIDIO, INC. Consolidated Balance Sheets (in millions, except share data) As of As of June 30, 2018 September 30, 2018 ------------- ------------------ Assets (as adjusted) Current Assets Cash and cash equivalents $ 37.0 $ 30.2 Accounts receivable, net 608.7 606.4 Unbilled accounts receivable, net 171.5 231.8 Financing receivables, current portion 88.3 91.7 Inventory 27.7 35.1 Prepaid expenses and other current assets 112.5 109.9 --------- --- --------- -------- Total current assets 1,045.7 1,105.1 Property and equipment, net 35.9 36.1 Financing receivables, less current portion 116.8 128.7 Goodwill 803.7 803.7 Identifiable intangible assets, net 700.3 681.4 Other assets 33.9 54.4 --------- --- --------- -------- Total assets $ 2,736.3 $ 2,809.4 - ------- --- - ------- -------- Liabilities and Stockholders’ Equity Current Liabilities Current maturities of long-term debt $ — $ — Accounts payable – trade 457.7 480.9 Accounts payable – floor plan 210.6 225.6 Accrued expenses and other current liabilities 228.2 256.0 Discounted financing receivables, current portion 85.2 87.3 --------- --- --------- -------- Total current liabilities 981.7 1,049.8 Long-term debt, net of debt issuance costs and current maturities 671.2 805.2 Discounted financing receivables, less current portion 108.6 115.6 Deferred income tax liabilities 180.5 176.6 Other liabilities 34.0 45.9 --------- --- --------- -------- Total liabilities 1,976.0 2,193.1 Commitments and contingencies Stockholders’ Equity Preferred stock: $0.01 par value; 100 shares authorized and zero shares issued and — — outstanding at September 30, 2018 and June 30, 2018 Common stock: $0.01 par value; 250,000,000 shares authorized, 82,298,312 shares issued and outstanding at September 30, 2018 and 92,853,983 shares issued and 0.9 0.8 outstanding at June 30, 2018 Additional paid-in capital 644.3 488.9 Retained Earnings 115.1 126.6 --------- --- --------- -------- Total stockholders’ equity 760.3 616.3 --------- --- --------- -------- Total liabilities and stockholders’ equity $ 2,736.3 $ 2,809.4 - ------- --- - ------- --------

PRESIDIO, INC. Consolidated Statements of Operations (in millions, except share and per-share data) Three months ended September 30, 2017 2018 --------- --------- Revenue (as adjusted) Product $ 604.7 $ 619.6 Service 126.5 130.3 ------- - ------- - Total revenue 731.2 749.9 Cost of revenue Product 474.1 485.7 Service 100.7 105.2 ------- - ------- - Total cost of revenue 574.8 590.9 ------- - ------- - Gross margin 156.4 159.0 Operating expenses Selling expenses 65.4 70.8 General and administrative expenses 25.7 29.7 Transaction costs 0.4 5.5 Depreciation and amortization 20.6 21.5 ------- - ------- - Total operating expenses 112.1 127.5 ------- - ------- - Operating income 44.3 31.5 Interest and other (income) expense Interest expense 12.4 11.2 Loss on extinguishment of debt 0.7 0.5 Other (income) expense, net (0.1 ) (0.1 ) ------- - ------- - Total interest and other (income) expense 13.0 11.6 ------- - ------- - Income before income taxes 31.3 19.9 Income tax expense 11.4 5.2 ------- - ------- - Net income $ 19.9 $ 14.7 - ----- - - ----- - Earnings per share: Basic $ 0.22 $ 0.16 Diluted $ 0.21 $ 0.15 Weighted-average common shares outstanding: 91,169,6 90,846,8 Basic 12 17 96,046,7 95,034,2 Diluted 36 51 Cash dividends per common share $ — $ 0.04

PRESIDIO, INC. Consolidated Statements of Cash Flows (in millions) Three months ended September 30, 2017 2018 -------- -------- Net cash provided by operating activities $ 83.6 $ 2.7 Cash flows from investing activities: Acquisition of businesses, net of cash and cash equivalents acquired (9.5 ) — Additions of equipment under sales-type and direct financing leases (19.7 ) (33.3 ) Proceeds from collection of financing receivables 1.1 1.2 Additions to equipment under operating leases (0.3 ) — Proceeds from disposition of equipment under operating leases 0.6 — Purchases of property and equipment (4.7 ) (3.8 ) ------ - ------ - Net cash used in investing activities (32.5 ) (35.9 ) ------ - ------ - Cash flows from financing activities: Proceeds from issuance of common stock under share-based compensation plans 2.9 1.0 Common stock repurchased — (158.6 ) Proceeds from the discounting of financing receivables 17.8 41.1 Retirements of discounted financing receivables (0.2 ) (4.9 ) Deferred financing costs — (0.3 ) Borrowings of term loans, net of original issue discount — 158.1 Repayments of term loans (25.0 ) (25.0 ) Net change in accounts payable — floor plan (49.2 ) 15.0 ------ - ------ - Net cash provided by (used in) financing activities (53.7 ) 26.4 ------ - ------ - Net decrease in cash and cash equivalents (2.6 ) (6.8 ) Cash and cash equivalents: Beginning of the period 27.5 37.0 End of the period $ 24.9 $ 30.2 - ---- - - ---- - Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 14.2 $ 9.7 Income taxes, net of refunds $ 8.0 $ 5.7 Reduction of discounted lease assets and liabilities $ 26.4 $ 28.0

AP RADIO
Update hourly