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 September 30, 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 October 31, 2017, there were 91,672,682 shares of common stock, $0.01 par value, outstanding.




Presidio, Inc.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

2



PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements

PRESIDIO, INC.
Consolidated Balance Sheets
(in millions, except share data)
(unaudited)
 
 
As of
June 30, 2017
 
As of
September 30, 2017
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
27.5

 
$
24.9

Accounts receivable, net
 
576.3

 
564.4

Unbilled accounts receivable, net
 
159.8

 
190.2

Financing receivables, current portion
 
84.2

 
82.9

Inventory
 
27.7

 
25.9

Prepaid expenses and other current assets
 
63.4

 
84.3

Total current assets
 
938.9

 
972.6

Property and equipment, net
 
32.1

 
35.0

Financing receivables, less current portion
 
113.6

 
109.7

Goodwill
 
781.5

 
784.1

Identifiable intangible assets, net
 
751.9

 
737.8

Other assets
 
32.7

 
33.0

Total assets
 
$
2,650.7

 
$
2,672.2

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

 
$

Accounts payable – trade
 
350.5

 
473.5

Accounts payable – floor plan
 
264.9

 
215.7

Accrued expenses and other current liabilities
 
216.3

 
176.7

Discounted financing receivables, current portion
 
79.9

 
78.9

Total current liabilities
 
911.6

 
944.8

Long-term debt, net of debt issuance costs and current maturities
 
730.7

 
707.5

Discounted financing receivables, less current portion
 
104.7

 
99.8

Deferred income tax liabilities
 
270.4

 
264.9

Other liabilities
 
30.4

 
28.8

Total liabilities
 
2,047.8

 
2,045.8

Commitments and contingencies (Note 10)
 

 

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

 

Common stock:
 
 
 
 
$0.01 par value; 250,000,000 shares authorized, 91,528,701 shares issued and outstanding at September 30, 2017 and 90,969,919 shares issued and outstanding at June 30, 2017
 
0.9

 
0.9

Additional paid-in capital
 
625.3

 
629.0

Accumulated deficit
 
(23.3
)
 
(3.5
)
Total stockholders’ equity
 
602.9

 
626.4

Total liabilities and stockholders’ equity
 
$
2,650.7

 
$
2,672.2



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
September 30, 2016
 
Three months ended
September 30, 2017
Revenue
 
 
 
 
Product
 
$
626.4

 
$
628.6

Service
 
111.3

 
136.4

Total revenue
 
737.7

 
765.0

Cost of revenue
 
 
 
 
Product
 
499.5

 
498.0

Service
 
89.6

 
110.6

Total cost of revenue
 
589.1

 
608.6

Gross margin
 
148.6

 
156.4

Operating expenses
 
 
 
 
Selling expenses
 
67.5

 
65.6

General and administrative expenses
 
27.0

 
25.7

Transaction costs
 
3.4

 
0.4

Depreciation and amortization
 
20.4

 
20.6

Total operating expenses
 
118.3

 
112.3

Operating income
 
30.3

 
44.1

Interest and other (income) expense
 
 
 
 
Interest expense
 
20.7

 
12.4

Loss on extinguishment of debt
 

 
0.7

Other (income) expense, net
 

 
(0.1
)
Total interest and other (income) expense
 
20.7

 
13.0

Income before income taxes
 
9.6

 
31.1

Income tax expense
 
4.0

 
11.3

Net income
 
$
5.6

 
$
19.8

Earnings per share:
 
 
 
 
Basic
 
$
0.08

 
$
0.22

Diluted
 
$
0.08

 
$
0.21

Weighted-average common shares outstanding:
 
 
 
 
Basic
 
71,932,470

 
91,169,612

Diluted
 
73,881,526

 
96,046,736















See Notes to the Consolidated Financial Statements.

4


PRESIDIO, INC.
Consolidated Statements of Cash Flows
(in millions)
(unaudited)


 
 
Three months ended
September 30, 2016
 
Three months ended
September 30, 2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
5.6

 
$
19.8

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Amortization of intangible assets
 
18.4

 
18.4

Depreciation of property and equipment in operating expenses
 
2.0

 
2.2

Depreciation of property and equipment in cost of revenue
 
1.4

 
1.4

Provision for sales returns and credit losses
 
0.4

 
0.3

Amortization of debt issuance costs
 
1.7

 
1.3

Loss on extinguishment of debt
 

 
0.7

Noncash lease income
 
(1.4
)
 
(0.6
)
Share-based compensation expense
 
0.5

 
0.8

Deferred income tax benefit
 
(4.6
)
 
(5.6
)
Other
 

 
0.1

Change in assets and liabilities, net of acquisitions and dispositions:
 
 
 
 
Unbilled and accounts receivable
 
12.8

 
(14.5
)
Inventory
 
11.2

 
1.9

Prepaid expenses and other assets
 
(65.9
)
 
(21.6
)
Accounts payable – trade
 
56.8

 
120.9

Accrued expenses and other liabilities
 
(18.1
)
 
(41.9
)
Net cash provided by operating activities
 
20.8

 
83.6

Cash flows from investing activities:
 
 
 
 
Acquisition of businesses, net of cash and cash equivalents acquired
 

 
(9.5
)
Proceeds from collection of escrow related to acquisition of business
 
0.6

 

Additions of equipment under sales-type and direct financing leases
 
(34.3
)
 
(19.7
)
Proceeds from collection of financing receivables
 
3.3

 
1.1

Additions to equipment under operating leases
 
(0.5
)
 
(0.3
)
Proceeds from disposition of equipment under operating leases
 
0.2

 
0.6

Purchases of property and equipment
 
(3.3
)
 
(4.7
)
Net cash used in investing activities
 
(34.0
)
 
(32.5
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of common stock under share-based compensation plans
 

 
2.9

Proceeds from the discounting of financing receivables
 
33.9

 
17.8

Retirements of discounted financing receivables
 
(4.1
)
 
(0.2
)
Net repayments on the receivables securitization facility
 
(5.0
)
 

Repayments of term loans
 
(1.8
)
 
(25.0
)
Net change in accounts payable — floor plan
 
4.9

 
(49.2
)
Net cash provided by (used in) financing activities
 
27.9

 
(53.7
)
Net increase (decrease) in cash and cash equivalents
 
14.7

 
(2.6
)
Cash and cash equivalents:
 
 
 
 
Beginning of the period
 
33.0

 
27.5

End of the period
 
$
47.7

 
$
24.9

Supplemental disclosures of cash flow information
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
26.4

 
$
14.2

Income taxes, net of refunds
 
$
0.9

 
$
8.0

Reduction of discounted lease assets and liabilities
 
$
21.4

 
$
26.4







See Notes to the Consolidated Financial Statements.

5


PRESIDIO, INC.
Consolidated Statement 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, 2017
 

 
$

 
90,969,919

 
$
0.9

 
$
625.3

 
$
(23.3
)
 
$
602.9

Common stock issued
  under share-based
  compensation plans
 

 

 
558,782

 

 
2.9

 

 
2.9

Net income
 

 

 

 

 

 
19.8

 
19.8

Share-based compensation
  expense
 

 

 

 

 
0.8

 

 
0.8

Balance, September 30, 2017
 

 
$

 
91,528,701

 
$
0.9

 
$
629.0

 
$
(3.5
)
 
$
626.4












































See Notes to the Consolidated Financial Statements.

6


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.

During the three months ended September 30, 2017, the Company made an acquisition, which expands our geographic footprint in Minnesota, that is immaterial to the consolidated financial statements.

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 historical periods presented.

Initial Public Offering

On March 15, 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 on March 21, 2017, pursuant to the underwriters’ option to purchase additional shares, at the public offering price of $14.00 per share. 

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, 2017 included within the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017. 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.


7


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


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 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, vendor rebates and consideration, goodwill, identifiable intangibles, 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 July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which restricts the valuation of inventory to the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The standard has an effective date for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years, with early adoption permitted. 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 following additional accounting pronouncements not yet adopted as of September 30, 2017.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) along with subsequent clarifying ASUs, which outline a single, comprehensive model for accounting for revenue from contracts with customers. 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 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 has an effective date for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. 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.    

Note 2.         Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in millions):
 
 
June 30, 2017
 
September 30, 2017
Partner incentive program receivable
 
$
26.2

 
$
39.4

Deferred product costs and other current assets
 
37.2

 
44.9

Total prepaid expenses and other current assets
 
$
63.4

 
$
84.3


8


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)



Note 3.         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, 2017 (in millions):
 
 
Discounted to
financial institutions
 
Not discounted to
financial institutions
 
Total
Financing receivables:
 
 
 
 
 
 
Minimum lease payments
 
$
197.2

 
$
4.2

 
$
201.4

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
 
$
187.8

 
$
10.0

 
$
197.8

Reported as:
 
 
 
 
 
 
Current
 
$
80.8

 
$
3.4

 
$
84.2

Long-term
 
107.0

 
6.6

 
113.6

Total, net
 
$
187.8

 
$
10.0

 
$
197.8

Discounted financing receivables:
 
 
 
 
 
 
Nonrecourse
 
$
183.7

 
$

 
$
183.7

Recourse
 

 

 

Total
 
$
183.7

 
$

 
$
183.7

Reported as:
 
 
 
 
 
 
Current
 
$
79.3

 
$

 
$
79.3

Long-term
 
104.4

 

 
104.4

Total
 
$
183.7

 
$

 
$
183.7



9


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


The assets and related liabilities for discounted and not discounted sales-type and direct financing leases to financial institutions were as follows as of September 30, 2017 (in millions):
 
 
Discounted to
financial institutions
 
Not discounted to
financial institutions
 
Total
Financing receivables:
 
 
 
 
 
 
Minimum lease payments
 
$
192.9

 
$
3.1

 
$
196.0

Estimated net residual values
 

 
7.2

 
7.2

Unearned income
 
(9.5
)
 
(0.7
)
 
(10.2
)
Provision for credit losses
 

 
(0.4
)
 
(0.4
)
Total, net
 
$
183.4

 
$
9.2

 
$
192.6

Reported as:
 
 
 
 
 
 
Current
 
$
79.8

 
$
3.1

 
$
82.9

Long-term
 
103.6

 
6.1

 
109.7

Total, net
 
$
183.4

 
$
9.2

 
$
192.6

Discounted financing receivables:
 
 
 
 
 
 
Nonrecourse
 
$
177.9

 
$

 
$
177.9

Recourse
 

 

 

Total
 
$
177.9

 
$

 
$
177.9

Reported as:
 
 
 
 
 
 
Current
 
$
78.3

 
$

 
$
78.3

Long-term
 
99.6

 

 
99.6

Total
 
$
177.9

 
$

 
$
177.9


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 are reported as part of Other Assets and were as follows (in millions): 
 
 
June 30, 2017
 
September 30, 2017
Equipment under operating leases
 
$
4.6

 
$
3.8

Accumulated depreciation
 
(2.9
)
 
(2.6
)
Total equipment under operating leases, net
 
$
1.7

 
$
1.2


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 $0.5 million for the three months ended September 30, 2017 and 2016, respectively.

Liabilities for discounted operating leases to financial institutions were as follows (in millions):
 
 
June 30, 2017
 
September 30, 2017
Discounted operating leases:
 
 
 
 
Current
 
$
0.7

 
$
0.6

Noncurrent
 
0.2

 
0.2

Total
 
$
0.9

 
$
0.8



10


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


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.

Note 4.         Property and Equipment

Property and equipment and accumulated depreciation and amortization were as follows (in millions):
 
 
Estimated
useful lives
 
June 30, 2017
 
September 30, 2017
Furniture and fixtures
 
3 to 7 years
 
$
5.3

 
$
5.5

Equipment
 
3 to 7 years
 
22.2

 
26.1

Software
 
3 years
 
19.9

 
20.9

Leasehold improvements
 
Life of lease
 
13.3

 
14.1

Total property and equipment
 
 
 
60.7

 
66.6

Accumulated depreciation and amortization
 
 
 
(28.6
)
 
(31.6
)
Total property and equipment, net
 
 
 
$
32.1

 
$
35.0


Depreciation and amortization associated with property and equipment that is included in depreciation and amortization within the Company’s consolidated statements of operations was $2.2 million and $2.0 million for the three months ended September 30, 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 $1.1 million and $0.9 million for the three months ended September 30, 2017 and 2016, respectively.

Note 5.         Goodwill and Identifiable Intangible Assets

Goodwill

As described in Note 1, we completed an acquisition during the three months ended September 30, 2017 that is immaterial to the consolidated financial statements which resulted in a $2.6 million increase in goodwill.

From June 30, 2017 through the date of the consolidated financial statements, no significant events have occurred that would lead us to believe that goodwill was more likely than not impaired.

Identifiable Intangible Assets

Identifiable intangible assets consisted of the following as of June 30, 2017 (in millions):
 
 
Range of life
(years)
 
Gross amount
 
Accumulated
amortization
 
Total, net
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
Customer relationships
 
5 – 10
 
$
703.2

 
$
(159.8
)
 
$
543.4

Developed technology
 
5
 
3.6

 
(1.6
)
 
2.0

Trade names
 
2
 
5.1

 
(3.6
)
 
1.5

Indefinite-lived intangible assets:
 
 
 

 

 

Trade names
 
Indefinite
 
205.0

 

 
205.0

Total intangible assets
 
 
 
$
916.9

 
$
(165.0
)
 
$
751.9



11


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Identifiable intangible assets consisted of the following as of September 30, 2017:
 
 
Range of life
(years)
 
Gross amount
 
Accumulated
amortization
 
Total, net
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
Customer relationships
 
5 – 10
 
$
707.0

 
$
(177.3
)
 
$
529.7

Developed technology
 
5
 
3.6

 
(1.8
)
 
1.8

Trade names
 
2
 
5.6

 
(4.3
)
 
1.3

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
Trade names
 
Indefinite
 
205.0

 

 
205.0

Total intangible assets
 
 
 
$
921.2

 
$
(183.4
)
 
$
737.8


Amortization associated with intangible assets was $18.4 million for both the three months ended September 30, 2017 and 2016. The weighted-average remaining useful life of the finite-lived intangible assets was 7.4 years and 7.7 years as of September 30, 2017 and June 30, 2017, respectively.

As described in Note 1, we completed an acquisition during the three months ended September 30, 2017 that was immaterial to the consolidated financial statements which resulted in a $4.3 million increase in finite-lived intangible assets.

From June 30, 2017 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 September 30, 2017, the future amortization expense is expected to be as follows (in millions):
 
Years ending June 30,
2018 (remaining nine months)
$
55.2

2019
71.9

2020
71.6

2021
71.1

2022
71.1

2023 and thereafter
191.9

Total
$
532.8


Note 6.         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 September 30, 2017 and June 30, 2017, 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 $215.7 million and $264.9 million as of September 30, 2017 and June 30, 2017, respectively.

12


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Note 7.         Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in millions):
 
 
June 30, 2017
 
September 30, 2017
Accrued compensation
 
$
64.5

 
$
50.4

Accrued interest
 
11.7

 
8.5

Accrued equipment purchases/vendor expenses
 
78.3

 
47.8

Accrued income taxes
 
7.3

 
16.2

Accrued non-income taxes
 
7.4

 
7.2

Customer deposits
 
5.1

 
3.4

Unearned revenue
 
40.0

 
41.6

Other accrued expenses and current liabilities
 
2.0

 
1.6

Total accrued expenses and other current liabilities
 
$
216.3

 
$
176.7


Note 8.         Long-Term Debt and Credit Agreements

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

 
$

Receivables securitization facility
 

 

Term loan facility, due February 2022
 
626.6

 
601.6

Senior notes, 10.25% due February 2023
 
125.0

 
125.0

Total long-term debt
 
751.6

 
726.6

Unamortized debt issuance costs
 
(20.9
)
 
(19.1
)
Total long-term debt, net of debt issuance costs
 
$
730.7

 
$
707.5

Reported as:
 
 
 
 
Current
 
$

 
$

Long-term
 
730.7

 
707.5

Total long-term debt, net of debt issuance costs
 
$
730.7

 
$
707.5


As of September 30, 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 September 30, 2017.

As of September 30, 2017, there were no outstanding borrowings under the receivables securitization facility. The Company had $250.0 million available under the receivables securitization facility based on the collateral available as of September 30, 2017.

February 2015 Term Loan

On August 8, 2017, the Borrowers entered into Amendment No. 5 to the credit agreement executed on February 2, 2015 to, among other things, revise certain reporting requirements thereunder.

During the three months ended September 30, 2017, the Company made aggregate voluntary prepayments of $25.0 million on the term loan, resulting in a $0.7 million loss on extinguishment of debt in the Company’s consolidated statement of operations associated with the write-off of debt issuance costs.    

13


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)



Note 9.         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, 2017 (in millions):
 
 
 
 
Fair value measurement
 
 
Carrying value
 
Level 1
 
Level 2
 
Level 3
Term loan
 
$
626.6

 
$

 
$
627.4

 
$

Senior notes
 
125.0

 

 
138.8

 

Total
 
$
751.6

 
$

 
$
766.2

 
$


The fair value hierarchy for the Company’s financial assets and liabilities measured at fair value were as follows as of September 30, 2017 (in millions):
 
 
 
 
Fair value measurement
 
 
Carrying value
 
Level 1
 
Level 2
 
Level 3
Term loan
 
$
601.6

 
$

 
$
603.1

 
$

Senior notes
 
125.0

 

 
137.5

 

Total
 
$
726.6

 
$

 
$
740.6

 
$


The fair value of the Company’s term loan and senior 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 and senior notes exclude 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 10.     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

14


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


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 11.     Share-based Compensation

During the three months ended September 30, 2017, the Company did not issue any equity awards pursuant to the Company's Amended and Restated 2015 Long-Term Incentive Plan (the "2015 LTIP"). During the three months ended September 30, 2017, the Company granted 193,000 service-based non-qualified stock options that vest in four equal installments on each of the first four anniversaries of the grant date and 150,000 service-based restricted stock units that vest in two equal installments over a two-year period; all of which were issued pursuant to the Company's 2017 Long-Term Incentive Plan (the "2017 LTIP").

During the three months ended September 30, 2017, there were 451,062 service-based and rolled options exercised and 288,086 service and rolled options expired or forfeited. As of September 30, 2017, 6,255,443 service and rolled options were outstanding, of which 2,307,564 were vested.

During the three months ended September 30, 2017, there were 299,998 performance-based and market-based options forfeited. As of September 30, 2017, the performance condition for these options was deemed met; however, as the market condition for vesting had not yet been realized, the total balance of 3,153,038 options outstanding were unvested.

At September 30, 2017, there were 1,392,280 remaining shares available for issuance under the Presidio, Inc. Employee Stock Purchase Plan (the "ESPP"). On September 30, 2017, we held $0.9 million of contributions made by employees that were used to purchase 50,185 shares under the ESPP on October 3, 2017.

Share-Based Compensation Expense

The following table summarizes the share-based compensation expense as follows (in millions):
 
 
Three months ended
September 30, 2016
 
Three months ended
September 30, 2017
Selling expenses
 
$
0.2

 
$
0.4

General and administrative expenses
 
0.3

 
0.4

Total
 
$
0.5

 
$
0.8


As of September 30, 2017, there was $10.9 million of unrecognized share-based compensation expense, $8.9 million of which relates to service awards from the 2015 LTIP and 2017 LTIP grants and $2.0 million of which relates to the restricted stock unit grants.

15


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Note 12.     Earnings Per Share

The following is a reconciliation of the weighted-average number of shares used to compute basic and diluted earnings per share (in millions, except share and per-share data):
 
 
Three months ended
September 30, 2016
 
Three months ended
September 30, 2017
Numerator:
 
 
 
 
Earnings
 
$
5.6

 
$
19.8

Denominator:
 
 
 
 
Weighted-average shares – basic
 
71,932,470

 
91,169,612

Effect of dilutive securities:
 
 
 
 
Share-based awards
 
1,949,056

 
4,877,124

Weighted-average shares – diluted
 
73,881,526

 
96,046,736

Earnings per share:
 
 
 
 
Basic
 
$
0.08

 
$
0.22

Diluted
 
$
0.08

 
$
0.21


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
September 30, 2016
 
Three months ended
September 30, 2017
Share-based awards excluded from EPS because of anti-dilution
 
460,520

 
1,931,611

Share-based awards excluded from EPS because performance or market
  condition had not been met(1) 
 
3,532,856

 
357,340

Total stock options excluded from EPS
 
3,993,376

 
2,288,951

___________________________________
(1) For the three months ended September 30, 2016, all performance and market stock options were excluded from EPS as the performance condition was not considered probable. For the three months ended September 30, 2017, the performance condition for all performance and market stock options had been deemed met due to the completion of the Company's IPO. As a result, the performance and market stock options are included in the Company's EPS calculation to the extent the market condition was deemed to have been met on September 30, 2017 as if it was the end of the contingency period.

Note 13.     Income Taxes

The Company’s income tax expense for the three months ended September 30, 2017 and 2016 was $11.3 million and $4.0 million, respectively. The Company’s effective tax rates for the three months ended September 30, 2017 and 2016 were 36.3% and 41.7%, respectively. The effective tax rates differed from the U.S. federal statutory rate primarily due to state taxes and permanently non-deductible expenses, offset in the current three months by the favorable excess benefit deduction related to share-based compensation of $1.2 million, representing a 3.9% tax rate benefit in the period.

Note 14.     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 $0.6 million and $0.2 million for the three months ended September 30, 2017 and 2016, respectively. As of September 30, 2017 and June 30, 2017, the outstanding receivables associated with parties affiliated with Apollo or its directors were $0.7 million and $1.7 million, respectively.

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 for both the three months ended September 30, 2017 and 2016, respectively.

16


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Note 15.     Segment Information

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
September 30, 2016
 
Three months ended
September 30, 2017
Cloud
 
$
111.7

 
$
135.5

Security
 
66.7

 
109.0

Digital Infrastructure
 
559.3

 
520.5

Total revenue
 
$
737.7

 
$
765.0


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

Note 16.     Supplemental Consolidating Information

The following financial statements set forth condensed consolidating financial information for the Company. The condensed consolidating financial information presents Presidio, Inc. on a standalone basis, Presidio Holdings Inc. and subsidiaries on a consolidated basis as borrowers or guarantors of the credit agreement executed on February 2, 2015 and Senior Notes indenture, and 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):



17


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Condensed Consolidating Balance Sheet
As of June 30, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
0.7

 
$
26.8

 
$

 
$
27.5

Accounts receivable, net
 

 
576.3

 

 
576.3

Unbilled accounts receivable, net
 

 
159.8

 

 
159.8

Financing receivables, current portion
 

 
84.2

 

 
84.2

Inventory
 

 
27.7

 

 
27.7

Prepaid expenses and other current assets
 
1.3

 
69.1

 
(7.0
)
 
63.4

Total current assets
 
2.0

 
943.9

 
(7.0
)
 
938.9

Property and equipment, net
 

 
32.1

 

 
32.1

Deferred tax asset
 
2.7

 

 
(2.7
)
 

Financing receivables, less current portion
 

 
113.6

 

 
113.6

Goodwill
 

 
781.5

 

 
781.5

Identifiable intangible assets, net
 

 
751.9

 

 
751.9

Other assets
 
605.2

 
32.7

 
(605.2
)
 
32.7

Total assets
 
$
609.9

 
$
2,655.7

 
$
(614.9
)
 
$
2,650.7

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
Accounts payable – trade
 

 
350.5

 

 
350.5

Accounts payable – floor plan
 

 
264.9

 

 
264.9

Accrued expenses and other current liabilities
 
7.0

 
216.3

 
(7.0
)
 
216.3

Discounted financing receivables, current portion
 

 
79.9

 

 
79.9

Total current liabilities
 
7.0

 
911.6

 
(7.0
)
 
911.6

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

 
730.7

 

 
730.7

Discounted financing receivables, less current portion
 

 
104.7

 

 
104.7

Deferred income tax liabilities
 

 
273.1

 
(2.7
)
 
270.4

Other liabilities
 

 
30.4

 

 
30.4

Total liabilities
 
7.0

 
2,050.5

 
(9.7
)
 
2,047.8

Total stockholders’ equity
 
602.9

 
605.2

 
(605.2
)
 
602.9

Total liabilities and stockholders’ equity
 
$
609.9

 
$
2,655.7

 
$
(614.9
)
 
$
2,650.7












18


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Condensed Consolidating Balance Sheet
As of September 30, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
4.1

 
$
20.8

 
$

 
$
24.9

Accounts receivable, net
 

 
564.4

 

 
564.4

Unbilled accounts receivable, net
 

 
190.2

 

 
190.2

Financing receivables, current portion
 

 
82.9

 

 
82.9

Inventory
 

 
25.9

 

 
25.9

Prepaid expenses and other current assets
 
1.4

 
93.3

 
(10.4
)
 
84.3

Total current assets
 
5.5

 
977.5

 
(10.4
)
 
972.6

Property and equipment, net
 

 
35.0

 

 
35.0

Deferred tax asset
 
2.6

 

 
(2.6
)
 

Financing receivables, less current portion
 

 
109.7

 

 
109.7

Goodwill
 

 
784.1

 

 
784.1

Identifiable intangible assets, net
 

 
737.8

 

 
737.8

Other assets
 
627.2

 
33.0

 
(627.2
)
 
33.0

Total assets
 
$
635.3

 
$
2,677.1

 
$
(640.2
)
 
$
2,672.2

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
Accounts payable – trade
 

 
473.5

 

 
473.5

Accounts payable – floor plan
 

 
215.7

 

 
215.7

Accrued expenses and other current liabilities
 
9.0

 
178.1

 
(10.4
)
 
176.7

Discounted financing receivables, current portion
 

 
78.9

 

 
78.9

Total current liabilities
 
9.0

 
946.2

 
(10.4
)
 
944.8

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

 
707.5

 

 
707.5

Discounted financing receivables, less current portion
 

 
99.8

 

 
99.8

Deferred income tax liabilities
 

 
267.5

 
(2.6
)
 
264.9

Other liabilities
 

 
28.8

 

 
28.8

Total liabilities
 
9.0

 
2,049.8

 
(13.0
)
 
2,045.8

Total stockholders’ equity
 
626.3

 
627.3

 
(627.2
)
 
626.4

Total liabilities and stockholders’ equity
 
$
635.3

 
$
2,677.1

 
$
(640.2
)
 
$
2,672.2



19


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Condensed Consolidating Statement of Operations
Three months ended September 30, 2016
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Total revenue
 
$

 
$
737.7

 
$

 
$
737.7

Total cost of revenue
 

 
589.1

 

 
589.1

Gross margin
 

 
148.6

 

 
148.6

Operating expenses
 
 
 
 
 
 
 
 
Selling, general and administrative, and transaction costs
 

 
97.9

 

 
97.9

Depreciation and amortization
 

 
20.4

 

 
20.4

Total operating expenses
 

 
118.3

 

 
118.3

Operating income
 

 
30.3

 

 
30.3

Interest and other (income) expense
 
 
 
 
 
 
 
 
Interest expense
 

 
20.7

 

 
20.7

Loss on extinguishment of debt
 

 

 

 

Other (income) expense, net
 
(5.6
)
 

 
5.6

 

Total interest and other (income) expense
 
(5.6
)
 
20.7

 
5.6

 
20.7

Income before income taxes
 
5.6

 
9.6

 
(5.6
)
 
9.6

Income tax expense
 

 
4.0

 

 
4.0

Net income
 
$
5.6

 
$
5.6

 
$
(5.6
)
 
$
5.6


Condensed Consolidating Statement of Operations
Three months ended September 30, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Total revenue
 
$

 
$
765.0

 
$

 
$
765.0

Total cost of revenue
 

 
608.6

 

 
608.6

Gross margin
 

 
156.4

 

 
156.4

Operating expenses
 
 
 
 
 
 
 
 
Selling, general and administrative, and transaction costs
 

 
91.7

 

 
91.7

Depreciation and amortization
 

 
20.6

 

 
20.6

Total operating expenses
 

 
112.3

 

 
112.3

Operating income (loss)
 

 
44.1

 

 
44.1

Interest and other (income) expense
 
 
 
 
 
 
 
 
Interest expense
 

 
12.4

 

 
12.4

Loss on extinguishment of debt
 

 
0.7

 

 
0.7

Other (income) expense, net
 
(19.8
)
 
(0.1
)
 
19.8

 
(0.1
)
Total interest and other (income) expense
 
(19.8
)
 
13.0

 
19.8

 
13.0

Income before income taxes
 
19.8

 
31.1

 
(19.8
)
 
31.1

Income tax expense
 

 
11.3

 

 
11.3

Net income
 
$
19.8

 
$
19.8

 
$
(19.8
)
 
$
19.8


20


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Condensed Consolidating Statement of Cash Flows
Three months ended September 30, 2016
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Net cash provided by operating activities
 
$
0.3

 
$
20.5

 
 
 
$
20.8

Cash flows from investing activities:
 
 
 
 
 
 
 
 
Proceeds from collection of escrow related to acquisition
  of business
 

 
0.6

 

 
0.6

Additions of equipment under sales-type and direct
  financing leases
 

 
(34.3
)
 

 
(34.3
)
Proceeds from collection of financing receivables
 

 
3.3

 

 
3.3

Additions to equipment under operating leases
 

 
(0.5
)
 

 
(0.5
)
Proceeds from disposition of equipment under operating
  leases
 

 
0.2

 

 
0.2

Purchases of property and equipment
 

 
(3.3
)
 

 
(3.3
)
Net cash used in investing activities
 

 
(34.0
)
 

 
(34.0
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Proceeds from the discounting of financing receivables
 

 
33.9

 

 
33.9

Retirements of discounted financing receivables
 

 
(4.1
)
 

 
(4.1
)
Net repayments on the receivables securitization facility
 

 
(5.0
)
 

 
(5.0
)
Repayments of term loans
 

 
(1.8
)
 

 
(1.8
)
Net change in accounts payable — floor plan
 

 
4.9

 

 
4.9

Net cash provided by financing activities
 

 
27.9

 

 
27.9

Net increase in cash and cash equivalents
 
0.3

 
14.4

 

 
14.7

Cash and cash equivalents:
 
 
 
 
 
 
 
 
Beginning of the period
 
26.1

 
6.9

 

 
33.0

End of the period
 
$
26.4

 
$
21.3

 
$

 
$
47.7
























21


PRESIDIO, INC.
Notes to the Consolidated Financial Statements
(unaudited)


Condensed Consolidating Statement of Cash Flows
Three months ended September 30, 2017
 
 
 
Presidio, Inc.
 
Presidio Holdings Inc. & Subsidiaries
 
Intercompany Eliminations
 
Consolidated
Net cash provided by operating activities
 
$
1.9

 
$
81.7

 
$

 
$
83.6

Cash flows from investing activities:
 
 
 
 
 
 
 
 
Acquisition of businesses, net of cash and cash equivalents
  acquired
 

 
(9.5
)
 

 
(9.5
)
Additions of equipment under sales-type and direct financing
  leases
 

 
(19.7
)
 

 
(19.7
)
Proceeds from collection of financing receivables
 

 
1.1

 

 
1.1

Additions to equipment under operating leases
 

 
(0.3
)
 

 
(0.3
)
Proceeds from disposition of equipment under operating leases
 

 
0.6

 

 
0.6

Purchases of property and equipment
 

 
(4.7
)
 

 
(4.7
)
Net cash used in investing activities
 

 
(32.5
)
 

 
(32.5
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Proceeds from issuance of common stock under share-based
  compensation plans
 
1.5

 
1.4

 

 
2.9

Proceeds from the discounting of financing receivables
 

 
17.8

 

 
17.8

Retirements of discounted financing receivables
 

 
(0.2
)
 

 
(0.2
)
Repayments of term loans
 

 
(25.0
)