Presidio, Inc. (PSDO) Tops Q3 EPS by 1c, Revenues Beat; Offers FY19 Revenue Mid-Point Guidance Above Consensus

Presidio, Inc. (NASDAQ: PSDO) reported Q3 EPS of $0.34, $0.01 better than the analyst estimate of $0.33. Revenue for the quarter came in at $705.2 million versus the consensus estimate of $679.27 million.

Financial Highlights for the Fiscal Third Quarter Ended March 31, 2019

• Revenue - Total revenue was $705.2 million, up 7.9%, with product revenue up 8.7% and service revenue up 4.8%. Total revenue growth in the quarter was driven by 29.5% growth in Cloud solutions, which included strong revenue performance from our public cloud offerings. In addition, we experienced growth in Security revenue, up 16.3% driven by an increase in managed security services especially around security incident and event management along with security architecture and technology solutions, and Digital Infrastructure revenue grew 2.2%. The investments in our public cloud initiative, as well as growth in our managed services offerings, drove our recurring revenue in the third quarter up 52.4% over the prior year, and recurring revenue now represents 8.5% of our Total revenue. We continued to experience accelerating growth in our backlog orders believed to be firm which totaled $674.4 million as of March 31, 2019, an increase of 33% compared to the prior year period. We saw our backlog of contracted recurring revenuemore than double over the prior year period.
• Gross margin - Our Gross margin percentage, Product gross margin percentage, and Service gross margin percentage were 22.2%, 22.9%, and 19.1%, respectively, as compared to 21.4%, 21.8%, and 19.3% in the prior year. Product revenue led by cloud solutions and a higher revenue mix of software grew faster than services revenue growth for the quarter. Strong revenue growth of software recognized on a net basis led to the overall increase in Gross margin percentage for the quarter.
• Provision for Income Taxes - The GAAP tax provision rate was 27.5%, and the non-GAAP tax provision rate was 21.0%.
• Net income and Diluted EPS - Net income was $5.0 million and diluted EPS was $0.06. Pro Forma Adjusted Net Income was $29.0 million, an increase of 8.2% over the prior year and Pro Forma Adjusted Diluted EPS was $0.34, an increase of 21.4% over the prior year driven by our strong revenue growth and the accretive impact of the Share Repurchase (as defined below).
• Adjusted EBITDA - Adjusted EBITDA was $52.7 million, up 7.8% due to Gross margin growth of 12.2% partly offset by increases in Selling, General and Administrative expenses (“SG&A”) as a percentage of revenue in the third quarter associated with the investments in cloud and security sales resources. Adjusted EBITDA margin was 7.5% which was flat compared to the prior year.

“We are extremely pleased with our third quarter results, where we delivered revenue growth of 7.9%. The growth in revenue was broad-based across all three of our solution areas reflecting our clients' increasing demand for Presidio's assistance to digitally transform their businesses. In addition, our strong cash flow allowed us to prepay an additional $25.0 million of our outstanding term loans, bringing year-to-date voluntary prepayments to $75.0 million. We continue to evaluate all accretive uses for the capital we generate, including investing in new business offerings organically and continuing our strategic program of M&A inorganically,” said Bob Cagnazzi, Chief Executive Officer of Presidio. “We believe these results highlight the effectiveness of our multi-cloud, multi-vendor strategy, which drives deep relationships with our clients. We have successfully leveraged these relationships into our new offerings including: public cloud, managed security services and software-defined networking projects. Based on our strong performance in the third quarter, we have raised our revenue outlook for Fiscal 2019, as we now expect total revenue growth of 6% to 8% for the full year. Furthermore, we are pleased to announce our Board of Directors has declared a quarterly cash dividend of $0.04 per share to be paid in July 2019. We believe our 9.3% total revenue growth for the year-to-date period demonstrates the execution of our strategic growth initiatives as we continue to capitalize on our favorable free cash flow profile to drive shareholder value creation,” Cagnazzi continued.

GUIDANCE:

Presidio, Inc. sees FY2019 revenue of $2.94-2.98 billion, versus the consensus of $2.95 billion.

Our revised outlook for the fiscal year ending June 30, 2019 is as follows:

• Adjusted EBITDA margin: approximately 8% prior to investments in public cloud offerings and approximately 7.8% after investments in public cloud offerings;
• Pro Forma Diluted EPS: growth in the mid to high teens including the impact of the Share Repurchase;
• Free Cash Flow is expected to average $35 million per quarter before public cloud resale and managed services investments, as well as any tuck-in acquisitions funded through free cash flow; and
• Total net leverage is expected to be in the low-3x range at the end of fiscal 2019, excluding any strategic acquisitions.

For earnings history and earnings-related data on Presidio, Inc. (PSDO) click here.

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