Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
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: 001-38028

Presidio, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
47-2398593
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification Number)

One Penn Plaza, Suite 2832
New York, New York 10119
(212) 652-5700
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 filer
 
 
  
 
Accelerated filer
 
Non-accelerated filer
(Do not check if a smaller reporting company)
  
 
Smaller reporting company
 
Emerging growth company
 
 
 
 
    
If an emerging growth company, indicate by check mark whether 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 ☒

As of April 30, 2017, there were 90,912,727 shares of common stock, $0.01 par value, outstanding.




Presidio, Inc.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets as of March 31, 2017 and June 30, 2016
 
 
Consolidated Statements of Operations for the three and nine months ended March 31, 2017 and 2016
 
 
Consolidated Statements of Cash Flows for the nine months ended March 31, 2017 and 2016
 
 
Consolidated Statements of Stockholders' Equity for the nine months ended March 31, 2017
 
 
Notes to the Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
Signatures
 
Exhibit Index
 

2




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

Presidio, Inc.
Consolidated Balance Sheets
(in millions, except share data)
(unaudited)
 
 
As of
June 30, 2016
 
As of
March 31, 2017
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
33.0

 
$
27.8

Accounts receivable, net
 
503.0

 
449.4

Unbilled accounts receivable, net
 
135.7

 
151.9

Financing receivables, current portion
 
83.1

 
86.5

Inventory
 
48.3

 
24.1

Prepaid expenses and other current assets
 
68.2

 
67.4

Total current assets
 
871.3

 
807.1

Property and equipment, net
 
32.9

 
32.7

Equipment under operating leases, net
 
2.9

 
1.8

Financing receivables, less current portion
 
102.0

 
111.5

Goodwill
 
781.5

 
781.5

Identifiable intangible assets, net
 
825.5

 
770.3

Other assets
 
7.0

 
31.9

Total assets
 
$
2,623.1

 
$
2,536.8

Liabilities and Stockholders’ Equity
 
 
 
 
Current Liabilities
 
 
 
 
Current maturities of long-term debt
 
$
7.4

 
$

Accounts payable – trade
 
382.3

 
346.6

Accounts payable – floor plan
 
223.3

 
184.6

Accrued expenses and other current liabilities
 
167.1

 
168.8

Discounted financing receivables, current portion
 
75.3

 
82.1

Total current liabilities
 
855.4

 
782.1

Long-term debt, net of debt issuance costs and current maturities
 
1,030.6

 
754.0

Discounted financing receivables, less current portion
 
87.1

 
103.4

Deferred income tax liabilities
 
288.0

 
273.6

Other liabilities
 
15.1

 
33.0

Total liabilities
 
2,276.2

 
1,946.1

Commitments and contingencies (Note 11)
 

 

Stockholders’ Equity
 
 
 
 
Preferred stock:
 
 
 
 
$0.01 par value; 100 shares authorized and zero shares issued and outstanding at March 31, 2017, 100 shares authorized and zero shares issued and outstanding at June 30, 2016
 

 

Common stock:
 
 
 
 
$0.01 par value; 250,000,000 shares authorized and 90,882,540 shares issued and outstanding at March 31, 2017, 100,000,000 shares authorized and 71,922,836 shares issued and outstanding at June 30, 2016
 
0.7

 
0.9

Additional paid-in capital
 
373.9

 
623.5

Accumulated deficit
 
(27.7
)
 
(33.7
)
Total stockholders’ equity
 
346.9

 
590.7

Total liabilities and stockholders’ equity
 
$
2,623.1

 
$
2,536.8

See Notes to the Consolidated Financial Statements.

3



Presidio, Inc.
Consolidated Statements of Operations
(in millions, except share and per-share data)
(unaudited)
 
 
 
Three months ended March 31,
 
Nine months ended March 31,
 
 
2016
 
2017
 
2016
 
2017
Revenue
 
 
 
 
 
 
 
 
Product
 
$
485.0

 
$
519.1

 
$
1,675.4

 
$
1,757.8

Service
 
101.4

 
109.7

 
285.6

 
330.5

Total revenue
 
586.4

 
628.8

 
1,961.0

 
2,088.3

Cost of revenue
 
 
 
 
 
 
 
 
Product
 
385.9

 
403.8

 
1,344.3

 
1,394.9

Service
 
76.8

 
82.9

 
223.2

 
259.8

Total cost of revenue
 
462.7

 
486.7

 
1,567.5

 
1,654.7

Gross margin
 
123.7

 
142.1

 
393.5

 
433.6

Operating expenses
 
 
 
 
 
 
 
 
Selling expenses
 
63.5

 
70.8

 
178.0

 
204.9

General and administrative expenses
 
24.6

 
27.9

 
69.5

 
80.7

Transaction costs
 
6.7

 
8.5

 
15.6

 
14.5

Depreciation and amortization
 
19.2

 
20.5

 
54.5

 
61.3

Total operating expenses
 
114.0

 
127.7

 
317.6

 
361.4

Operating income
 
9.7

 
14.4

 
75.9

 
72.2

Interest and other (income) expense
 
 
 
 
 
 
 
 
Interest expense
 
21.5

 
18.3

 
60.9

 
59.9

Loss on disposal of business
 

 

 
6.8

 

Loss on extinguishment of debt
 
0.8

 
26.9

 
0.9

 
27.7

Other (income) expense, net
 

 
0.1

 
0.2

 
0.2

Total interest and other (income) expense
 
22.3

 
45.3

 
68.8

 
87.8

Income (loss) before income taxes
 
(12.6
)
 
(30.9
)
 
7.1

 
(15.6
)
Income tax expense (benefit)
 
(6.2
)
 
(15.9
)
 
3.1

 
(9.6
)
Net income (loss)
 
$
(6.4
)
 
$
(15.0
)
 
$
4.0

 
$
(6.0
)
Earnings (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.09
)
 
$
(0.20
)
 
$
0.06

 
$
(0.08
)
Diluted
 
$
(0.09
)
 
$
(0.20
)
 
$
0.06

 
$
(0.08
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
71,504,578

 
75,374,606

 
70,851,186

 
73,064,789

Diluted
 
71,504,578

 
75,374,606

 
72,575,274

 
73,064,789

See Notes to the Consolidated Financial Statements.


4



Presidio, Inc.
Consolidated Statements of Cash Flows
(in millions)
(unaudited)
 
 
 
Nine months ended
March 31, 2016
 
Nine months ended
March 31, 2017
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
4.0

 
$
(6.0
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 

 

Amortization of intangible assets
 
48.8

 
55.2

Depreciation of property and equipment in operating expenses
 
5.7

 
6.1

Depreciation of property and equipment in cost of revenue
 
4.2

 
4.0

Provision for sales returns and credit losses
 
0.6

 
1.6

Amortization of debt issuance costs
 
5.6

 
5.1

Loss on extinguishment of debt
 
0.9

 
27.7

Loss on disposal of business
 
6.8

 

Noncash lease income
 
(1.9
)
 
(3.1
)
Share-based compensation expense
 
1.8

 
8.9

Deferred income tax benefit
 
(17.7
)
 
(14.4
)
Other
 
(0.1
)
 
0.3

Change in assets and liabilities, net of acquisitions and dispositions:
 

 

Unbilled and accounts receivable
 
23.2

 
37.0

Inventory
 
7.8

 
24.2

Prepaid expenses and other assets
 
(5.2
)
 
(25.2
)
Accounts payable – trade
 
(14.3
)
 
(35.7
)
Accrued expenses and other liabilities
 
(13.5
)
 
10.6

Net cash provided by operating activities
 
56.7

 
96.3

Cash flows from investing activities:
 

 

Acquisition of businesses, net of cash and cash equivalents acquired
 
(251.3
)
 

Proceeds from collection of escrow related to acquisition of business
 

 
0.6

Proceeds from disposition of business
 
36.3

 

Additions of equipment under sales-type and direct financing leases
 
(58.4
)
 
(76.3
)
Proceeds from collection of financing receivables
 
4.8

 
8.8

Additions to equipment under operating leases
 
(2.5
)
 
(1.6
)
Proceeds from disposition of equipment under operating leases
 
1.0

 
1.4

Purchases of property and equipment
 
(9.9
)
 
(8.9
)
Net cash used in investing activities
 
(280.0
)
 
(76.0
)
Cash flows from financing activities:
 

 

Proceeds from initial public offering, net of underwriter discounts and commissions
 

 
247.5

Payment of initial public offering costs
 

 
(0.7
)
Proceeds from issuance of common stock under share-based compensation plans
 

 
0.6

Payment of future consideration on acquisitions
 
(10.3
)
 

Deferred financing costs
 
(1.1
)
 

Proceeds from the discounting of financing receivables
 
55.5

 
86.5

Retirements of discounted financing receivables
 
(1.7
)
 
(4.4
)
Net borrowings (repayments) on the receivables securitization facility
 
25.0

 
(5.0
)
Repayments of senior and subordinated notes
 
(37.4
)
 
(230.8
)
Borrowings on term loans, net of original issue discount
 
142.5

 

Repayments of term loans
 
(19.2
)
 
(80.5
)
Net repayments on the floor plan facility
 
(7.3
)
 
(38.7
)
Net cash provided by (used in) financing activities
 
146.0

 
(25.5
)
Net decrease in cash and cash equivalents
 
(77.3
)
 
(5.2
)
Cash and cash equivalents:
 

 

Beginning of the period
 
88.3

 
33.0

End of the period
 
$
11.0

 
$
27.8


5



 
 
Nine months ended
March 31, 2016
 
Nine months ended
March 31, 2017
Supplemental disclosures of cash flow information
 

 

Cash paid during the period for:
 

 

Interest
 
$
62.0

 
$
68.7

Income taxes, net of refunds
 
$
23.3

 
$
2.6

Reduction of discounted lease assets and liabilities
 
$
62.3

 
$
65.3

Initial public offering costs not yet paid
 
$

 
$
6.5

See Notes to the Consolidated Financial Statements.

6



Presidio, Inc.
Consolidated Statements of Stockholders’ Equity
(in millions, except share data)
(unaudited)
 

 
 
Preferred stock
 
Common stock
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Total
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance, June 30, 2016
 

 
$

 
71,922,836

 
$
0.7

 
$
373.9

 
$
(27.7
)
 
$
346.9

Common stock issued for initial public offering, net of underwriting discounts and commissions
 

 

 
18,766,465

 
0.2

 
247.3

 

 
247.5

Costs related to initial public offering
 

 

 

 

 
(7.2
)
 

 
(7.2
)
Common stock issued for awards under share-based compensation plans
 

 

 
193,239

 

 
0.6

 

 
0.6

Net loss
 

 

 

 

 

 
(6.0
)
 
(6.0
)
Share-based compensation expense
 

 

 

 

 
8.9

 

 
8.9

Balance, March 31, 2017
 

 
$

 
90,882,540

 
$
0.9

 
$
623.5

 
$
(33.7
)
 
$
590.7


See Notes to the Consolidated Financial Statements.

7



Presidio, Inc.
Notes to the Consolidated Financial Statements
(unaudited)

Note 1. Nature of Business and Significant Accounting Policies

Description of the Company

Presidio, Inc., a Delaware corporation, through its subsidiaries (collectively, the “Company”, “we” and “our”) is a leading provider of information technology (“IT”) solutions to the middle market in North America, assisting clients as they harness technology innovation and simplify IT complexity to digitally transform their businesses and drive return on IT investment. Our Digital Infrastructure, Cloud and Security solutions enable our middle market, enterprise and government clients to take advantage of new digital revenue streams, omnichannel customer experience models, and the rich data insights generated by those interactions. We deliver this technology expertise through a full life-cycle model of professional, managed, and ongoing support services, including strategy, consulting, design and implementation.

The Company is headquartered in New York, New York and all of its direct and indirect subsidiaries are located in the United States.

Stock Split

On February 24, 2017, the Company's Board of Directors declared a 2-for-1 stock split of the Company’s common stock in the form of a stock dividend payable on each share of common stock issued and outstanding as of February 24, 2017. The number of shares subject to and the exercise price of the Company’s outstanding options were adjusted to equitably reflect the split. All common stock share and per-share data included in these financial statements give effect to the stock split and have been adjusted retroactively for the periods presented.

Initial Public Offering

In March 2017, the Company completed an initial public offering (“IPO”) in which the Company issued and sold 18,766,465 shares of common stock, inclusive of 2,099,799 shares issued and sold pursuant to the underwriters’ option to purchase additional shares, at the public offering price of $14.00 per share.  The Company received net proceeds of $247.5 million, after deducting underwriting discounts and commissions from the sale of its shares in the IPO.  In addition, the Company incurred $7.2 million of offering expenses in connection with the IPO, of which $6.5 million had not been paid as of March 31, 2017.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Securities and Exchange Commission ("SEC") rules and regulations for interim reporting periods. The consolidated financial statements do not include all disclosures normally made in annual financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended June 30, 2016 included within the Company's prospectus dated March 10, 2017 pursuant to Rule 424(b) of the Securities Act (the "March 10, 2017 Prospectus"). All financial information presented in the financial statements and notes herein is presented in millions except for share and per share information and percentages.

In management’s opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All other adjustments are of a normal recurring nature.

The Company has evaluated subsequent events through the issue date of these consolidated financial statements.

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of Presidio, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.


8



Use of Estimates

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates are used when accounting for items and matters, including, but not limited to, revenue recognition, asset residual values, partner incentive rebate programs, goodwill, identifiable intangible assets, measurement of income tax assets and liabilities, and provisions for doubtful accounts, credit losses, inventory obsolescence and other contingencies. Actual results could differ from management’s estimates.

Other Comprehensive Income (Loss)

The Company did not have any components of other comprehensive income (loss) for any of the periods presented.

Recent Accounting Pronouncements Adopted During the Period

In August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in practice regarding the presentation of eight specific cash flow situations and to provide additional accounting guidance to reduce that diversity. These situations include, but are not limited to, debt prepayment and debt extinguishment costs and contingent consideration payments made after a business combination. The standard has an effective date for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt this standard in the current period which requires retrospective application for all periods presented. The adoption of this standard resulted in $21.5 million of debt extinguishment costs incurred by the Company in the current period being presented as a financing cash outflow in the consolidated statement of cash flows.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which provides areas for simplification in the accounting for share-based payment transactions. Areas included for simplification include, but are not limited to, accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, and minimum statutory withholding. The standard has an effective date for public companies for annual periods beginning after December 15, 2016 and interim periods within these annual periods, with early adoption permitted. The Company elected to early adopt this standard in the second quarter ended December 31, 2016. Early adoption of this standard requires that adjustments be reflected back to the beginning of the fiscal year. Adopting this standard had an immaterial impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

The Company is still evaluating the impact of the additional accounting pronouncements not yet adopted as of June 30, 2016.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) along with subsequent clarifying ASUs issued in 2015 and 2016, which outline a single, comprehensive model for accounting for revenue from contracts with customers. As amended, the standard will be effective for the Company beginning in its first quarter of the fiscal year ending June 30, 2018. The Company has formed an internal committee which is overseeing the assessment and implementation process associated with the adoption of this standard. The Company continues to assess the impact of the standard on the timing and amount of revenue recognized by the Company, including the impact of the modifications to principal versus agent considerations. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). As the Company is still evaluating the impact of the standard, we have not yet elected an adoption method.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which changes the accounting for leases in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard will be effective for the Company beginning in its first quarter of the fiscal year ending June 30, 2019. The Company is currently evaluating the impact that the standard will have on the consolidated financial statements. The adoption of the standard is not expected to have a material impact on the Company’s leasing business from a lessor perspective.



9



Note 2. Acquisitions

Netech Corporation

In August 2016, the Company collected the $0.6 million that was due back to the Company from escrow accounts as a result of final post-closing purchase price adjustments related to the net working capital as of the closing date of February 1, 2016.
 
Note 3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in millions):
 
 
June 30, 2016
 
March 31, 2017
Partner incentive program receivable
 
$
27.3

 
$
13.9

Prepaid income taxes
 
10.4

 
8.1

Deferred product costs
 
5.3

 
32.3

Other prepaid expenses and other current assets
 
25.2

 
13.1

Total prepaid expenses and other current assets
 
$
68.2

 
$
67.4


Note 4. Financing Receivables and Operating Leases

The Company records the lease receivables related to discounted sales-type or direct financing leases as financing receivables, and the related liability resulting from discounting customer payment streams as discounted financing receivables, in the Company’s consolidated balance sheets. Discounted customer payment streams are typically collateralized by a security interest in the underlying assets being leased.

Financing receivable – The assets and related liabilities for discounted and not discounted sales-type and direct financing leases to financial institutions were as follows as of June 30, 2016 (in millions):
 
 
Discounted to
financial institutions
 
Not discounted to
financial institutions
 
Total
Financing receivables:
 
 
 
 
 
 
Minimum lease payments
 
$
168.5

 
$
18.4

 
$
186.9

Estimated net residual values
 

 
7.9

 
7.9

Unearned income
 
(7.4
)
 
(1.6
)
 
(9.0
)
Provision for credit losses
 

 
(0.7
)
 
(0.7
)
Total, net
 
$
161.1

 
$
24.0

 
$
185.1

Reported as:
 
 
 
 
 
 
Current
 
$
74.4

 
$
8.7

 
$
83.1

Long-term
 
86.7

 
15.3

 
102.0

Total, net
 
$
161.1

 
$
24.0

 
$
185.1

Discounted financing receivables:
 
 
 
 
 
 
Nonrecourse
 
$
159.2

 
$

 
$
159.2

Recourse
 
1.0

 

 
1.0

Total
 
$
160.2

 
$

 
$
160.2

Reported as:
 
 
 
 
 
 
Current
 
$
73.9

 
$

 
$
73.9

Long-term
 
86.3

 

 
86.3

Total
 
$
160.2

 
$

 
$
160.2



10



The assets and related liabilities for discounted and not discounted sales-type and direct financing leases to financial institutions were as follows as of March 31, 2017 (in millions):
 
 
Discounted to
financial institutions
 
Not discounted to
financial institutions
 
Total
Financing receivables:
 
 
 
 
 
 
Minimum lease payments
 
$
197.3

 
$
4.3

 
$
201.6

Estimated net residual values
 

 
7.2

 
7.2

Unearned income
 
(9.4
)
 
(0.8
)
 
(10.2
)
Provision for credit losses
 

 
(0.6
)
 
(0.6
)
Total, net
 
$
187.9

 
$
10.1

 
$
198.0

Reported as:
 
 
 
 
 
 
Current
 
$
82.4

 
$
4.1

 
$
86.5

Long-term
 
105.5

 
6.0

 
111.5

Total, net
 
$
187.9

 
$
10.1

 
$
198.0

Discounted financing receivables:
 
 
 
 
 
 
Nonrecourse
 
$
184.4

 
$

 
$
184.4

Recourse
 

 

 

Total
 
$
184.4

 
$

 
$
184.4

Reported as:
 
 
 
 
 
 
Current
 
$
81.3

 
$

 
$
81.3

Long-term
 
103.1

 

 
103.1

Total
 
$
184.4

 
$

 
$
184.4


The discounted financing receivables associated with sales-type and direct financing type leases are presented in the consolidated balance sheets together with the discounted financing receivables associated with operating leases, which is discussed below.

Operating leases – Equipment under operating leases and accumulated depreciation were as follows (in millions): 
 
 
June 30, 2016
 
March 31, 2017
Equipment under operating leases
 
$
5.6

 
$
4.7

Accumulated depreciation
 
(2.7
)
 
(2.9
)
Total equipment under operating leases, net
 
$
2.9

 
$
1.8


Depreciation expense associated with equipment under operating leases that is included in cost of product revenue within the Company’s consolidated statements of operations was $0.3 million and $0.6 million for the three months ended March 31, 2017 and 2016 and $1.3 million and $1.9 million for the nine months ended March 31, 2017 and 2016, respectively.

Liabilities for discounted operating leases to financial institutions were as follows (in millions):
 
 
June 30, 2016
 
March 31, 2017
Discounted operating leases:
 
 
 
 
Current
 
$
1.4

 
$
0.8

Noncurrent
 
0.8

 
0.3

Total
 
$
2.2

 
$
1.1


The discounted financing receivables associated with operating leases are presented in the consolidated balance sheets together with the discounted financing receivables associated with sales-type and direct financing type leases which are discussed above.


11



Note 5. Property and Equipment

Property and equipment and accumulated depreciation and amortization were as follows (in millions):
 
 
Estimated
useful lives
 
June 30, 2016
 
March 31, 2017
Furniture and fixtures
 
3 to 7 years
 
$
4.7

 
$
5.2

Equipment
 
3 to 7 years
 
18.1

 
21.0

Software
 
3 years
 
14.4

 
17.8

Leasehold improvements
 
Life of lease
 
11.2

 
13.0

Total property and equipment
 
 
 
48.4

 
57.0

Accumulated depreciation and amortization
 
 
 
(15.5
)
 
(24.3
)
Total property and equipment, net
 
 
 
$
32.9

 
$
32.7


Depreciation and amortization associated with property and equipment that is included in depreciation and amortization within the Company’s consolidated statements of operations was $2.1 million and $1.8 million for the three months ended March 31, 2017 and 2016 and $6.1 million and $5.7 million for the nine months ended March 31, 2017 and 2016, respectively.

Depreciation and amortization expense associated with property and equipment directly utilized in support of managed services and managed cloud contracts that is included in cost of service revenue within the Company’s consolidated statements of operations was $0.9 million and $0.9 million for the three months ended March 31, 2017 and 2016 and $2.7 million and $2.3 million for the nine months ended March 31, 2017 and 2016, respectively.

Note 6. Goodwill and Identifiable Intangible Assets

Goodwill

There were no changes to the goodwill balance during the period from June 30, 2016 to March 31, 2017.

The Company performed an assessment as of March 31, 2017 to determine whether it was more likely than not that the fair value of the Company's reporting unit was less than its carrying amount. Based on the results of this assessment, the Company determined that it was not more likely than not that the fair value of its reporting unit was less than its carrying amount. As a result, the Company concluded that its goodwill was not impaired. The Company did not identify or record any impairment losses related to its goodwill during any of the periods presented.

Identifiable Intangible Assets

Identifiable intangible assets consisted of the following as of June 30, 2016 (in millions):
 
 
Range of life
(years)
 
Gross amount
 
Accumulated
amortization
 
Total, net
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
Customer relationships
 
5 – 10
 
$
703.2

 
$
(89.4
)
 
$
613.8

Developed technology
 
5
 
3.6

 
(0.9
)
 
2.7

Non-compete agreements
 
1
 
0.6

 
(0.6
)
 

Trade names
 
2
 
5.1

 
(1.1
)
 
4.0

Indefinite-lived intangible assets:
 
 
 

 

 

Trade names
 
Indefinite
 
205.0

 

 
205.0

Total intangible assets
 
 
 
$
917.5

 
$
(92.0
)
 
$
825.5



12



Identifiable intangible assets consisted of the following as of March 31, 2017 (in millions):
 
 
Range of life
(years)
 
Gross amount
 
Accumulated
amortization
 
Total, net
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
Customer relationships
 
5 – 10
 
$
703.2

 
$
(142.2
)
 
$
561.0

Developed technology
 
5
 
3.6

 
(1.4
)
 
2.2

Noncompete agreements
 
1
 
0.6

 
(0.6
)
 

Trade names
 
2
 
5.1

 
(3.0
)
 
2.1

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
Trade names
 
Indefinite
 
205.0

 

 
205.0

Total intangible assets
 
 
 
$
917.5

 
$
(147.2
)
 
$
770.3


Amortization associated with intangible assets was $18.4 million and $17.4 million for the three months ended March 31, 2017 and 2016 and $55.2 million and $48.8 million for the nine months ended March 31, 2017 and 2016, respectively. The weighted-average remaining useful life of the finite-lived intangible assets was 7.9 years and 8.7 years as of March 31, 2017 and June 30, 2016, respectively.

From June 30, 2016 through the date of the consolidated financial statements, no significant events have occurred that would lead us to believe that the indefinite-lived trade names were more likely than not impaired.

Based on the finite-lived intangible assets recorded at March 31, 2017, the future amortization expense is expected to be as follows (in millions):
Years ending June 30,
 
2017 (remaining three months)
$
18.4

2018
72.5

2019
71.1

2020
70.8

2021
70.4

2022 and thereafter
262.1

Total
$
565.3

 
 

Note 7. Accounts Payable – Floor Plan

The accounts payable – floor plan balances on the consolidated balance sheets relate to an agreement with a financial institution that provides an indirect wholly owned subsidiary of the Company with funding for discretionary inventory purchases from approved vendors. Payables are due within 90 days and are noninterest bearing, provided they are paid when due. In accordance with the agreement, the financial institution has been granted a senior security interest in the indirect wholly owned subsidiary’s inventory purchased under the agreement and accounts receivable arising from the sale thereof. Payments on the facility are guaranteed by Presidio, LLC and subsidiaries. As of March 31, 2017 and June 30, 2016, the aggregate availability for purchases under the floor plan was the lesser of $325.0 million or the liquidation value of the pledged assets. The balances outstanding under the accounts payable - floor plan facility were $184.6 million and $223.3 million as of March 31, 2017 and June 30, 2016, respectively.


13



Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in millions):
 
 
June 30, 2016
 
March 31, 2017
Accrued compensation
 
$
66.1

 
$
59.3

Accrued interest
 
21.4

 
7.4

Accrued equipment purchases/vendor expenses
 
27.5

 
41.5

Accrued non-income taxes
 
12.2

 
9.1

Customer deposits, current portion
 
8.8

 
5.9

Unearned revenue
 
30.8

 
43.8

Other accrued expenses and current liabilities
 
0.3

 
1.8

Total accrued expenses and other current liabilities
 
$
167.1

 
$
168.8


Note 9. Long-Term Debt and Credit Agreements

Long-term debt consisted of the following (in millions):
 
 
June 30, 2016
 
March 31, 2017
Revolving credit facility
 
$

 
$

Receivables securitization loan
 
5.0

 

Term loan facility, due February 2022
 
732.3

 
651.9

Senior notes, 10.25% due February 2023
 
222.5

 
125.0

Senior subordinated notes, 10.25% due February 2023
 
111.8

 

Total long-term debt
 
1,071.6

 
776.9

Unamortized debt issuance costs
 
(33.6
)
 
(22.9
)
Total long-term debt, net of debt issuance costs
 
$
1,038.0

 
$
754.0

Reported as:
 
 
 
 
Current
 
$
7.4

 
$

Long-term
 
1,030.6

 
754.0

Total long-term debt, net of debt issuance costs
 
$
1,038.0

 
$
754.0


As of March 31, 2017, there were no outstanding borrowings on the revolving credit facility and there were $1.5 million in letters of credit outstanding. The Company was in compliance with the covenants and had $48.5 million available for borrowings under the facility as of March 31, 2017.

As of March 31, 2017, there were no outstanding borrowings under the receivables securitization facility. The Company had $159.4 million available under the receivables securitization facility based on the collateral available as of March 31, 2017.

February 2015 Term Loan

On December 30, 2016, the Company made a $25.0 million voluntary prepayment on the term loan, resulting in a $0.8 million loss on extinguishment of debt in the Company’s consolidated statement of operations associated with the write-off of debt issuance costs.

On January 19, 2017, the terms of the February 2015 Credit Agreement were amended pursuant to Incremental Assumption Agreement and Amendment No. 4 (the “January 2017 Amendment”) to, among other things, lower the applicable margin for all term loans outstanding under the February 2015 Credit Agreement to 3.50% in the case of LIBOR rate borrowings and 2.50% in the case of base rate borrowings. In addition, the January 2017 Amendment provided that from and after the date that Presidio Holdings Inc. ("Presidio Holdings") delivers a certificate to the administrative agent certifying that (i) a qualifying initial public offering has occurred and (ii) as of the date of such certificate, the net total leverage ratio, calculated on a pro forma basis, is less than 4.00 to 1.00, the applicable margin for term loans outstanding under the February 2015 Credit Agreement would be reduced by an additional 0.25%. In addition, the January 2017 Amendment reset the amortization payments at a rate of 1.00% per annum, payable quarterly on the principal amount of term loans outstanding as of the date of the January 2017 Amendment, which principal amount was $703.6 million.

14




Pursuant to the January 2017 Amendment, on March 16, 2017 the Company delivered the certificate to the administrative agent certifying that (i) a qualifying initial public offering had occurred and (ii) as of the date of such certificate, the net total leverage ratio, calculated on a pro forma basis, was less than 4.00 to 1.00, which reduced the applicable margin for term loans outstanding under the February 2015 Credit Agreement by an additional 0.25%.

On March 31, 2017, the Company made a $50.0 million voluntary prepayment on the term loan, resulting in a $1.6 million loss on extinguishment of debt in the Company’s consolidated statement of operations associated with the write-off of debt issuance costs.

Senior and Senior Subordinated Notes

On February 15, 2017, the Company entered into a senior subordinated notes purchase agreement with Deutsche Bank AG, who was the holder of 100% of the outstanding senior subordinated notes originally issued on February 2, 2015 (the "Senior Subordinated Notes"), pursuant to which the Company agreed to use the net proceeds of the IPO to repurchase, and Deutsche Bank AG agreed to sell, all of the outstanding Senior Subordinated Notes at the Senior Subordinated Notes Repurchase Price as defined in the indenture.

On March 15, 2017 (the “Repurchase Date”), the Company used proceeds from the initial public offering, together with cash on hand, to repurchase from the holder thereof and cancel all of the $111.8 million in aggregate principal amount of outstanding 10.25% Senior Subordinated Notes at a repurchase price equal to 110.25% of the principal amount of the Senior Subordinated Notes being repurchased, plus accrued and unpaid interest to, but excluding, the Repurchase Date. In connection with the cancellation, the Company satisfied and discharged its obligations under the indenture. As a result of the repurchase and cancellation of the Senior Subordinated Notes, the Company recorded a $13.5 million loss on extinguishment of debt which includes the repurchase premium of $11.5 million and the write-off of $2.0 million of related debt issuance costs.

On February 17, 2017, the Company provided notice to the trustee of the senior notes originally issued on February 2, 2015 (the "Senior Notes") that on March 20, 2017 (the “Redemption Date”), the Company intended to redeem up to $97.5 million in aggregate principal amount of its 10.25% Senior Notes, subject to the satisfaction or waiver of certain conditions.

Pursuant to the IPO, such conditions had been satisfied and so on March 20, 2017, $97.5 million in aggregate principal amount of the Senior Notes were redeemed at a redemption price equal to 110.25% of the principal amount of the Senior Notes being redeemed, plus accrued and unpaid interest to, but excluding, the Redemption Date. As a result of the redemption of the $97.5 million in aggregate principal amount of Senior Notes, the Company recorded a $11.8 million loss on extinguishment of debt which includes the redemption premium of $10.0 million and the write-off of $1.8 million of related debt issuance costs.

Note 10. Fair Value Measurements

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts and unbilled receivables, accounts payable – trade, accounts payable – floor plan, and other accrued liabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments. Additionally, the Company’s financing receivables, and acquisition-related liabilities were measured at their respective fair values upon initial recognition.

The fair value hierarchy for the Company’s financial assets and liabilities measured at fair value were as follows as of June 30, 2016 (in millions):
 
 
 
 
Fair value measurement
 
 
Carrying value
 
Level 1
 
Level 2
 
Level 3
Receivable securitization facility
 
$
5.0

 
$

 
$

 
$
5.0

Term loan
 
732.3

 

 
714.0

 

Senior notes
 
222.5

 

 
227.6

 

Senior subordinated notes
 
111.8

 

 
115.7

 

Total
 
$
1,071.6

 
$

 
$
1,057.3

 
$
5.0



15



The fair value hierarchy for the Company’s financial assets and liabilities measured at fair value were as follows as of March 31, 2017 (in millions):
 
 
 
 
Fair value measurement
 
 
Carrying value
 
Level 1
 
Level 2
 
Level 3
Term loan
 
$
651.9

 
$

 
$
657.6

 
$

Senior notes
 
125.0

 

 
138.1

 

Total
 
$
776.9

 
$

 
$
795.7

 
$


The fair value of the Company’s term loan, senior notes and senior subordinated notes are estimated based on quoted market prices for the debt which is traded in over-the-counter secondary markets that are not considered active. The carrying value of the Company’s term loans, senior notes and senior subordinated notes excludes unamortized debt issuance costs.

For certain of the Company’s nonfinancial assets, including goodwill, intangible assets, and property and equipment the Company may be required to assess the fair values of these assets, on a recurring or nonrecurring basis, and record an impairment if the carrying value exceeds the fair value. In determining the fair value of these assets, the Company may use a combination of valuation methods which include Level 3 inputs. For the periods presented, there were no impairments charges.

Note 11. Commitments and Contingencies

Claims and assessments – In the normal course of business, the Company is subject to certain claims and assessments that arise in the ordinary course of business. The Company records a liability when the Company believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. Significant judgment is required to determine the outcome and the estimated amount of a loss related to such matters. Management believes that there are no claims or assessments outstanding which would materially affect the consolidated results of operations or financial position of the Company.

On July 14, 2015, the Company received a subpoena from the Office of Inspector General for the General Services Administration (“GSA”) seeking various records relating to GSA contracting activity by us during the period beginning in April 2005 through the present. The subpoena is part of an ongoing law enforcement investigation being conducted by the GSA and requests a broad range of documents relating to business conduct in the GSA Multiple Award Schedule program. The Company is fully cooperating with the Inspector General in connection with the subpoena.

On March 11, 2016, the Company received a subpoena from the Office of Treasury Inspector General for Tax Administration for the Department of the Treasury seeking various records from January 1, 2014 through the present, relating to Company contracts with the Internal Revenue Service as well as the Company’s interactions with other parties named in the subpoena who were involved in such contracts. The Company is fully cooperating with the Treasury Inspector General in connection with the subpoena.

As these matters are ongoing, the Company is unable to determine their likely outcome and is unable to reasonably estimate a range of loss, if any, at this time. Accordingly, no provision for these matters has been recorded.

Note 12. Share-based Compensation

Effective as of February 24, 2017, the Company's Board of Directors adopted the Amended and Restated 2015 Long Term Incentive Plan (the “2015 LTIP”), the 2017 Long-Term Incentive Plan (the “2017 LTIP”) and the Employee Stock Purchase Plan (the “ESPP”). Following the adoption of the 2017 LTIP Plan, no additional grants will be made under the 2015 LTIP. The first offering period for the ESPP starts April 1, 2017.

2017 Long-Term Incentive Plan

The 2017 LTIP authorized the issuance of up to 7,200,000 shares of common stock pursuant to the grant or exercise of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other equity-based awards. The maximum number of shares of common stock that may be delivered pursuant to incentive stock options is 1,600,000 shares of common stock. In addition, no participant may be granted stock options or stock appreciation rights covering in excess of 1,600,000 shares, restricted stock, restricted stock units, or performance stock units covering in excess of 550,000 shares, or other long-term incentive awards covering in excess of 550,000 shares, in each such case, during any given fiscal year of the Company. Furthermore, no non-employee director may be granted awards under the 2017 LTIP that have a grant date fair value in excess of $500,000 in any given fiscal year.

16




The 2017 LTIP has a term of ten years from the date of its adoption by our Board of Directors. The Board of Directors may amend, alter, or discontinue the 2017 LTIP, but no amendment, alteration, or discontinuance may materially impair the rights of an equity award previously granted under the 2017 LTIP without the award holder’s consent.

As indicated above, several types of awards are available for grant under the 2017 LTIP. As of March 31, 2017, only nonqualified stock options have been granted pursuant to the 2017 LTIP as discussed further below.

Stock Options and Stock Appreciation Rights - Stock options granted under the 2017 LTIP may either be incentive stock options or nonqualified stock options. Stock appreciation rights granted under the plan may either be granted alone or in tandem with a stock option. The exercise price of stock options and stock appreciation rights cannot be less than 100% of the fair market value of the stock underlying the stock options or stock appreciation rights on the date of grant. Optionees may pay the exercise price in cash or by “cashless exercise” through a broker or by withholding shares otherwise receivable on exercise. The term of stock options and stock appreciation rights may not have a term longer than ten years from the date of grant. Generally, and subject to the terms of the applicable award agreement, unvested stock options and stock appreciation rights will terminate upon the termination of employment and vested stock options and stock appreciation rights will remain exercisable for 90 days after the award holder’s termination for any other reason. Vested stock options and stock appreciation rights also will terminate upon the award holder’s termination for cause (as defined in the 2017 LTIP). Stock options and stock appreciation rights are transferable only by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order or, in the case of nonqualified stock options or stock appreciation rights, as otherwise expressly permitted by the committee including, if so permitted, pursuant to a transfer to the participant’s family members, to a charitable organization, whether directly or indirectly, or by means of a trust or partnership or otherwise.

Nonqualified Stock Option Activity

During the nine months ended March 31, 2017, pursuant to the 2015 LTIP, the Company issued 96,734 Tranche A and 96,736 Tranche B and C nonqualified stock options. On March 9, 2017, 1,813,060 nonqualified stock options were granted under the 2017 LTIP Plan ("2017 LTIP Grants"). The 2017 LTIP Grants vest in four equal installments on each of the first four anniversaries of the grant date, subject to continued service through such vesting date.

During the nine months ended March 31, 2017, there were 193,239 Tranche A and Rollover options exercised and 131,744 Tranche A and Rollover options cancelled or forfeited. As of March 31, 2017, 5,073,327 Rollover and Trance A options were outstanding, of which 2,831,547 were vested.

During the nine months ended March 31, 2017, there were 147,786 Tranche B and C options canceled or forfeited. As of March 31, 2017, the market condition for vesting the Tranche B and C options had not been met and none of the 3,483,662 options outstanding were vested.

Share-Based Compensation Expense

The following table summarizes the share-based compensation expense and realized tax benefits upon exercise as follows (in millions):
 
 
Three months ended March 31,
 
Nine months ended March 31,
 
 
2016
 
2017
 
2016
 
2017
Selling expenses
 
$
0.2

 
$
3.4

 
$
0.9

 
$
3.9

General and administrative expenses
 
0.4

 
4.5

 
0.9

 
5.0

Total
 
$
0.6

 
$
7.9

 
$
1.8

 
$
8.9

Tax benefits realized
 
$

 
$
0.6

 
$

 
$
0.6


The occurrence of the initial public offering satisfied the performance condition associated with the Tranche B and C options and as a result, the Company recognized $7.3 million in compensation expense associated with these awards during the three months ended March 31, 2017. As of March 31, 2017, there was no unrecognized compensation expense related to the Tranche B and Tranche C options as all compensation expense was recognized in connection with the initial public offering.

As of March 31, 2017, there was $11.1 million of unrecognized compensation costs, comprised of $2.2 million related to Tranche A awards from the 2015 LTIP and $8.9 million related to the 2017 LTIP Grants.


17



Note 13. Stockholders’ Equity

Common Stock

Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. The holders of common stock will not have cumulative voting rights in the election of directors. Holders of common stock are entitled to ratably receive dividends if, and when dividends are declared from time to time by our Board of Directors out of funds legally available for that purpose, after payment of dividends required to be paid on outstanding preferred stock, if any. Under Delaware law, the Company can only pay dividends either out of “surplus” or the current or immediately preceding year’s net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value. Upon liquidation, dissolution or winding-up, the holders of common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and accrued but unpaid dividends and liquidation preferences on any outstanding preferred stock. Common stock does not have preemptive or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock
 
As of March 31, 2017, no preferred stock has been issued by the Company.

Dividends

In accordance with the terms of the credit agreements and the notes indentures, Presidio Holdings has certain limitations on its ability to declare and pay dividends. These limitations include restrictions on the transfer of cash and/or other property between Presidio LLC, Presidio Holdings and Presidio, Inc.

All dividends declared are subject to Board approval and will depend on the Company’s results of operations, financial condition, business prospects, capital requirements, contractual restrictions, potential indebtedness the Company may incur, restrictions imposed by applicable law, tax considerations and other factors that the Company’s Board of Directors deems relevant.

Note 14. Earnings Per Share

The following is a reconciliation of the weighted-average number of shares used to compute basic and diluted earnings per share (“EPS”) (in millions except for share and per share data):
 
 
Three months ended March 31,
 
Nine months ended March 31,
 
 
2016
 
2017
 
2016
 
2017
Numerator:
 
 
 
 
 
 
 
 
Earnings (loss)
 
$
(6.4
)
 
$
(15.0
)
 
$
4.0

 
$
(6.0
)
Denominator:
 
 
 
 
 
 
 
 
Weighted-average shares – basic
 
71,504,578

 
75,374,606

 
70,851,186

 
73,064,789

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options
 

 

 
1,724,088

 

Weighted-average shares – diluted
 
71,504,578

 
75,374,606

 
72,575,274

 
73,064,789

Earnings (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.09
)
 
$
(0.20
)
 
$
0.06

 
$
(0.08
)
Diluted
 
$
(0.09
)
 
$
(0.20
)
 
$
0.06

 
$
(0.08
)

The weighted average shares outstanding used to compute basic and diluted earnings per share have been adjusted to give effect to the stock split, which was effected on February 24, 2017. In addition, the weighted average shares outstanding used to compute diluted earnings per share have been further adjusted to include the dilutive impact of outstanding Tranche B and Tranche C stock options based upon market conditions as of March 31, 2017.


18



Potentially dilutive securities that have been excluded from the computation of diluted weighted-average common shares outstanding because their inclusion would have been anti-dilutive consisted of the following:
 
 
Three months ended March 31,
 
Nine months ended March 31,
 
 
2016
 
2017
 
2016
 
2017
Stock options excluded from EPS because of anti-dilution
 
5,276,580

 
10,370,049

 
388,384

 
10,370,049

Stock options excluded from EPS because performance or market condition has not been met
 
3,528,708

 

 
3,528,708

 

Total stock options excluded from EPS
 
8,805,288

 
10,370,049

 
3,917,092

 
10,370,049


Note 15. Income Taxes

The Company applies an estimated annual effective tax rate to the current period operating results related to ordinary income or loss in order to determine the interim provision for income taxes and recognizes tax effects outside of ordinary income discretely in the interim period in which they occur.

The Company’s effective tax rate was 51.5% and 49.2% for the three months ended March 31, 2017 and 2016, respectively. The Company’s effective tax rate was 61.5% and 43.7% for the nine months ended March 31, 2017 and 2016, respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to state taxes and permanently non-deductible expenses, which were in greater proportion to the pre-tax book losses resulting in an increase of effective tax rate compared to prior periods. The effective tax rate for the three months and nine months ended March 31, 2017 includes a $0.6 million tax benefit associated with the Company’s adoption of FASB ASU 2016-09.

Note 16. Related Party Transactions

Apollo Global Management, LLC (together with its subsidiaries, “Apollo”) is a leading alternative investment management firm which owns and operates businesses across a variety of industries. The Company recorded revenue to parties affiliated with Apollo or its directors of $3.0 million and $0.4 million for the three months ended March 31, 2017 and 2016 and $5.1 million and $1.6 million for the nine months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and June 30, 2016, the outstanding receivables associated with parties affiliated with Apollo or its directors were $0.7 million and $0.2 million, respectively.

As a result of the redemption of the Senior Subordinated Notes on March 15, 2017 as described in Note 10, Apollo no longer holds an economic interest in the Company's outstanding debt.

On January 19, 2017, in connection with the January 2017 Amendment, the Company paid certain fees totaling approximately $60,000 to Apollo Global Securities, LLC, an affiliate of Apollo, for certain engagement and co-manager services provided in connection with such refinancing.

The Company paid $0.2 million in fees to Apollo Global Securities, LLC, which is an affiliate of Apollo, in connection with its role as an underwriter in the Company's IPO.

The Company leases an office that is owned by members of the Company’s management. The office location was carried over from a prior acquisition and the Company has continued to renew the lease. Rent expense for the office was $0.1 million and $0.1 million for the three months ended March 31, 2017 and 2016 and $0.3 million and $0.3 million for the nine months ended March 31, 2017 and 2016, respectively.

Note 17. Segment Information

Since October 22, 2015, the Company has operated as one reportable segment, the PNS segment. The change in reportable segments was made in connection with the sale of the Company’s other reportable segment, the Atlantix segment, to an unaffiliated third party on October 22, 2015.


19



Geographic Areas

Revenue earned by the Company from customers outside of the United States is not material for any of the periods presented. Additionally, the Company does not have long-lived assets outside of the United States.

Revenue by Solution Area

The following table presents total revenue by solution area (in millions):
 
 
Three months ended March 31,
 
Nine months ended March 31,
 
 
2016
 
2017
 
2016
 
2017
Cloud
 
$
78.1

 
$
119.0

 
$
271.8

 
$
367.1

Security
 
48.3

 
89.2

 
178.3

 
225.7

Digital Infrastructure
 
460.0

 
420.6

 
1,510.9

 
1,495.5

Total revenue
 
$
586.4

 
$
628.8

 
$
1,961.0

 
$
2,088.3


The type of solution sold by the Company to its customers is based upon internal classifications.

Note 18. Supplemental Consolidating Information

The following financial statements set forth condensed consolidating financial information for the Company. The condensed consolidating financial information is presented as Presidio Holdings Inc. and subsidiaries, as borrowers or guarantors of the February 2015 Credit Agreement and Note Indentures, and Presidio, Inc., as the registrant, as well as the consolidating intercompany eliminations between the entities.

The following condensed consolidating financing information was prepared on the same basis as the Consolidated Financial Statements (in millions):


20



Condensed Consolidating Balance Sheet
As of March 31, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
27.8

 
$

 
$
27.8

Accounts receivable, net
 

 
449.4

 

 
449.4

Unbilled accounts receivable, net
 

 
151.9

 

 
151.9

Financing receivables, current portion
 

 
86.5

 

 
86.5

Inventory
 

 
24.1

 

 
24.1

Prepaid expenses and other current assets
 
1.4

 
66.3

 
(0.3
)
 
67.4

Total current assets
 
1.4

 
806.0

 
(0.3
)
 
807.1

Property and equipment, net
 

 
32.7

 

 
32.7

Equipment under operating leases, net
 

 
1.8

 

 
1.8

Financing receivables, less current portion
 

 
111.5

 

 
111.5

Goodwill
 

 
781.5

 

 
781.5

Identifiable intangible assets, net
 

 
770.3

 

 
770.3

Other assets
 
593.1

 
31.9

 
(593.1
)
 
31.9

Total assets
 
$
594.5

 
$
2,535.7

 
$
(593.4
)
 
$
2,536.8

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
Current maturities of long-term debt
 
$

 
$

 
$

 
$

Accounts payable – trade
 

 
346.6

 

 
346.6

Accounts payable – floor plan
 

 
184.6

 

 
184.6

Accrued expenses and other current liabilities
 
6.6

 
162.5

 
(0.3
)
 
168.8

Discounted financing receivables, current portion
 

 
82.1

 

 
82.1

Total current liabilities
 
6.6

 
775.8

 
(0.3
)
 
782.1

Long-term debt, net of debt issuance costs and current maturities
 

 
754.0

 

 
754.0

Discounted financing receivables, less current portion
 

 
103.4

 

 
103.4

Deferred income tax liabilities
 
(2.8
)
 
276.4

 

 
273.6

Other liabilities
 

 
33.0

 

 
33.0

Total liabilities
 
3.8

 
1,942.6

 
(0.3
)
 
1,946.1

Total stockholders’ equity
 
590.7

 
593.1

 
(593.1
)
 
590.7

Total liabilities and stockholders’ equity
 
$
594.5

 
$
2,535.7

 
$
(593.4
)
 
$
2,536.8



21



Condensed Consolidating Statement of Operations
Three months ended March 31, 2016
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Total revenue
 
$

 
$
586.4

 
$

 
$
586.4

Total cost of revenue
 

 
462.7

 

 
462.7

Gross margin
 

 
123.7

 

 
123.7

Operating expenses
 
 
 
 
 
 
 
 
Selling, general and administrative, and transaction costs
 
0.2

 
94.6

 

 
94.8

Depreciation and amortization
 

 
19.2

 

 
19.2

Total operating expenses
 
0.2

 
113.8

 

 
114.0

Operating income (loss)
 
(0.2
)
 
9.9

 

 
9.7

Interest and other (income) expense
 
 
 
 
 
 
 
 
Interest expense
 

 
21.7

 
(0.2
)
 
21.5

Loss on extinguishment of debt
 

 
0.8

 

 
0.8

Other (income) expense, net
 
6.2

 

 
(6.2
)
 

Total interest and other (income) expense
 
6.2

 
22.5

 
(6.4
)
 
22.3

Income (loss) before income taxes
 
(6.4
)
 
(12.6
)
 
6.4

 
(12.6
)
Income tax expense (benefit)
 

 
(6.2
)
 

 
(6.2
)
Net income (loss)
 
$
(6.4
)
 
$
(6.4
)
 
$
6.4

 
$
(6.4
)

Condensed Consolidating Statement of Operations
Three months ended March 31, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Total revenue
 
$

 
$
628.8

 
$

 
$
628.8

Total cost of revenue
 

 
486.7

 

 
486.7

Gross margin
 

 
142.1

 

 
142.1

Operating expenses
 
 
 
 
 
 
 
 
Selling, general and administrative, and transaction costs
 
0.3

 
106.9

 

 
107.2

Depreciation and amortization
 

 
20.5

 

 
20.5

Total operating expenses
 
0.3

 
127.4

 

 
127.7

Operating income (loss)
 
(0.3
)
 
14.7

 

 
14.4

Interest and other (income) expense
 
 
 
 
 
 
 
 
Interest expense
 

 
18.3

 

 
18.3

Loss on extinguishment of debt
 

 
26.9

 

 
26.9

Other (income) expense, net
 
14.9

 
0.1

 
(14.9
)
 
0.1

Total interest and other (income) expense
 
14.9

 
45.3

 
(14.9
)
 
45.3

Income (loss) before income taxes
 
(15.2
)
 
(30.6
)
 
14.9

 
(30.9
)
Income tax expense (benefit)
 
(0.2
)
 
(15.7
)
 

 
(15.9
)
Net income (loss)
 
$
(15.0
)
 
$
(14.9
)
 
$
14.9

 
$
(15.0
)


22



Condensed Consolidating Statement of Operations
Nine months ended March 31, 2016
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Total revenue
 
$

 
$
1,961.0

 
$

 
$
1,961.0

Total cost of revenue
 

 
1,567.5

 

 
1,567.5

Gross margin
 

 
393.5

 

 
393.5

Operating expenses
 
 
 
 
 
 
 
 
Selling, general and administrative, and transaction costs
 
0.2

 
262.9

 

 
263.1

Depreciation and amortization
 

 
54.5

 

 
54.5

Total operating expenses
 
0.2

 
317.4

 

 
317.6

Operating income (loss)
 
(0.2
)
 
76.1

 

 
75.9

Interest and other (income) expense
 
 
 
 
 
 
 
 
Interest expense
 

 
61.1

 
(0.2
)
 
60.9

Loss on disposal of business
 

 
6.8

 

 
6.8

Loss on extinguishment of debt
 

 
0.9

 

 
0.9

Other (income) expense, net
 
(4.2
)
 
0.2

 
4.2

 
0.2

Total interest and other (income) expense
 
(4.2
)
 
69.0

 
4.0

 
68.8

Income (loss) before income taxes
 
4.0

 
7.1

 
(4.0
)
 
7.1

Income tax expense (benefit)
 

 
3.1

 

 
3.1

Net income (loss)
 
$
4.0

 
$
4.0

 
$
(4.0
)
 
$
4.0


Condensed Consolidating Statement of Operations
Nine months ended March 31, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Total revenue
 
$

 
$
2,088.3

 
$

 
$
2,088.3

Total cost of revenue