CHANTILLY, Va., Feb. 13, 2019 /PRNewswire/ -- Perspecta Inc.
(NYSE:PRSP), a leading U.S. government services provider, today
announced financial results for the third quarter of fiscal year
2019, which ended December 31, 2018.
"With another strong quarter of operations, Perspecta is
building a solid track record of execution," said Mac Curtis, president and chief executive
officer, Perspecta. "Our third quarter performance speaks to our
differentiated market position, as we leverage innovation across
the entire company to create compelling solutions for our customers
and drive important new wins. Our focus on mission-essential work
has positioned us well to thrive in any budget environment."
Summary Operating Results (Unaudited)
|
|
Three Months
Ended
|
(in millions,
except margin and per share data)
|
|
December 31,
2018
|
|
December 31,
2017*
|
Revenue
|
|
$
|
1,075
|
|
|
$
|
722
|
|
Income before
taxes
|
|
48
|
|
|
45
|
|
Operating
Margin
|
|
4.5
|
%
|
|
6.2
|
%
|
Net income
|
|
38
|
|
|
104
|
|
Diluted earnings per
share (EPS)
|
|
0.23
|
|
|
0.73
|
|
|
|
|
|
|
Non-GAAP
Measures*:
|
|
|
|
|
Revenue
|
|
$
|
1,075
|
|
|
$
|
1,071
|
|
Adjusted Net
Income
|
|
77
|
|
|
69
|
|
Adjusted
EBITDA
|
|
182
|
|
|
163
|
|
Adjusted EBITDA
Margin
|
|
16.9
|
%
|
|
15.2
|
%
|
Adjusted Diluted
EPS
|
|
0.47
|
|
|
0.42
|
|
|
|
|
|
|
* Non-GAAP financial
measures should be considered in addition to, but not as a
substitute for, the information provided in accordance with GAAP.
Reconciliations for non-GAAP financial items to the most directly
comparable GAAP financial items are provided under
Reconciliation of Non-GAAP Financial Measures at the end of
this press release. Note that amounts for the three months ended
December 31, 2017 are pro forma and that revenue for the three
months ended December 31, 2018 is a GAAP measure.
|
On May 31, 2018, Perspecta became
an independent company through consummation of the spin-off by DXC
Technology Company (DXC) of its U.S. Public Sector Business (USPS)
and merger of USPS with Vencore Holding Corp. (Vencore) and KGS
Holding Corp. (KeyPoint). On June 1,
2018, Perspecta began trading on the New York Stock
Exchange. Accordingly, results provided in accordance with U.S.
generally accepted accounting principles (GAAP) through
May 31, 2018, reflect the operations
of USPS and thereafter reflect the combined operations of USPS,
Vencore and KeyPoint. To aid investors and analysts with
year-over-year comparability, Perspecta presents certain pro forma
financial information that combines the stand-alone USPS, Vencore
and KeyPoint financial information as if the mergers had taken
place on April 1, 2017. Also,
Perspecta provides adjusted results that exclude costs directly
associated with the spin-off and mergers and the ongoing
integration process. The tables in Reconciliation of Non-GAAP
Financial Measures at the end of this press release provide all
appropriate reconciliations from pro forma and adjusted results to
GAAP.
Revenue for the quarter was $1.08
billion, up 49 percent compared to the third quarter of
fiscal year 2018, primarily as a result of the mergers. Revenue for
the quarter was up slightly from pro forma revenue for the third
quarter of fiscal year 2018. Continued growth in background
investigations support and ramp-ups of new Department of Defense
programs offset the completion of a large engineering support
contract for the Kennedy Space Center in December 2017.
Income before taxes for the third quarter of fiscal year 2019
was $48 million (4.5 percent
operating margin), which was up 7 percent from $45 million (6.2 percent operating margin) in the
third quarter of fiscal year 2018. The year-over-year decrease in
operating margin is due in part to the $17
million in separation, integration and restructuring
expenses and an increase in interest expense of $37 million associated with the debt from the
mergers. Net income was $38 million,
or $0.23 per diluted share. Net
income was down 63 percent from the third quarter of fiscal year
2018, which included a tax benefit of $59
million as a result of the enactment of the Tax Cuts and
Jobs Act of 2017.
Adjusted net income was $77
million for the third quarter, which was up 12 percent
year-over-year on a pro forma basis. Adjusted EBITDA was
$182 million for the third quarter,
up 12 percent compared to pro forma adjusted EBITDA for the third
quarter of fiscal year 2018; adjusted EBITDA margin improved from
15.2 percent (pro forma) to 16.9 percent over the same period. The
year-over-year increase in profitability primarily reflects strong
program execution on fixed price programs as well as cost synergies
associated with the mergers. Adjusted diluted earnings per share
for the third quarter was $0.47, up
12 percent compared to pro forma adjusted diluted EPS for the third
quarter of fiscal year 2018.
Segment Operating Results (Unaudited)
For the three months ended December 31, 2018, Defense and
Intelligence segment revenue of $709 million increased by
$34 million, or 5 percent compared to
pro forma revenue from the same period of the prior year. Major
drivers of the year-over-year increase include continued growth in
background investigations support and ramp ups of new Department of
Defense programs.
Civilian and Health Care segment revenue of $366 million decreased by $30 million, or 8
percent compared to pro forma revenue from the same period of the
prior year, with $26 million of the
revenue decrease due to the successful completion in fiscal year
2018 of a large engineering support contract for the Kennedy Space
Center.
Defense and Intelligence adjusted segment operating margin for
the third quarter of fiscal year 2019 improved to 13.8 percent from
10.4 percent (pro forma) in the third quarter of fiscal year 2018.
Civilian and Health Care adjusted segment operating margin for the
third quarter of fiscal year 2019 decreased to 12.0 percent from
15.9 percent (pro forma) in the third quarter of fiscal year 2018.
Total adjusted segment operating profit for the third quarter of
fiscal year 2019 increased to $142
million from $133 million (pro
forma) in the third quarter of fiscal year 2018 even though
depreciation and amortization excluding acquisition-related
intangibles amortization increased $10
million.
Cash Management and Capital Deployment
Perspecta generated $57 million of
net cash provided by operating activities in the third quarter of
fiscal year 2019. Quarterly adjusted free cash flow was
$33 million, or 43 percent of
adjusted net income.
During the third quarter of fiscal year 2019, Perspecta deployed
$32 million to pay down debt and
returned $29 million to shareholders,
including $8 million as part of its
regular quarterly cash dividend program and $21 million in share repurchases (less than
$1 million of which was settled after
the end of the third quarter). At quarter end, Perspecta
had $100 million in cash and cash equivalents,
$600 million of undrawn capacity in
its revolving credit facility, and $2.8
billion in total debt, including $289
million in capital lease obligations. Management believes
Perspecta's steady cash flows and $700
million of total liquidity provides substantial financial
flexibility to manage the business.
On February 13, 2019, the Board of Directors declared that
Perspecta would pay a cash dividend of $0.05 per share on April 16, 2019 to
Perspecta stockholders of record at the close of business on
March 27, 2019.
Contract Awards
Contract awards (bookings) totaled $1.7
billion in the third quarter of fiscal year 2019,
representing a book-to-bill ratio of 1.6x. New business awards
constituted approximately 35 percent of the total awards in the
third quarter.
Included in the quarterly bookings were several particularly
important single-award prime contracts:
- Next Generation Enterprise Network (NGEN)
Extension. Perspecta received an eight-month, $485 million contract extension from the U.S.
Department of the Navy for the continuation of IT services under
the NGEN contract. Under NGEN, Perspecta operates the Navy Marine
Corps Intranet (NMCI), the world's largest intranet, with
approximately 350,000 seats representing 700,000 Navy and Marine
Corps uniformed and civilian users. This extension is incremental
to the one-year, $787 million award
in the second quarter of fiscal year 2019 and enables Perspecta to
provide the Navy and Marine Corps with uninterrupted IT and network
security services through May
2020.
- Veterans Health Information Systems and Technology
Architecture (VistA) Support. Under a potential five-year,
$155 million contract from the
Department of Veterans Affairs (VA), Perspecta will continue to
maintain and support VistA, the agency's electronic health records
(EHR) system. Perspecta will provide a full range of technical,
managerial and administrative services as well as execute an
expertise center that will be used to diagnose and troubleshoot
complex issues.
- United States Air Force (USAF) Enterprise Logging Phase 2
(EL2). The USAF awarded Perspecta a new five-year, $71 million contract to increase cyber
situational awareness by implementing an enterprise-wide logging
architecture.
In addition, Perspecta won a large multiple-award Indefinite
Delivery, Indefinite Quantity (IDIQ) contract that is not included
in bookings but supports future growth:
- United States Army's Information Technology Enterprise
Solutions 3 Services (ITES-3S). Perspecta was awarded a
prime contract under the ITES-3S program, which has an estimated
potential ceiling value of $12
billion for all awardees over nine years. Under the
contract, Perspecta will compete for task orders to provide the
U.S. Army with a full range of enterprise-level IT services and
solutions to satisfy and support its Enterprise Network Vision
worldwide.
Perspecta's backlog of signed business orders at the end of
third quarter of fiscal year 2019 was $10.4 billion, which was up 3 percent
compared to the second quarter of fiscal year 2019. Funded backlog
at the end of the third quarter was $2.2
billion, an increase of 12 percent sequentially.
Forward Guidance
Perspecta is raising its previously announced fiscal year 2019
guidance to reflect strong quarterly results and positive outlook.
The table below provides the current and previous guidance ranges
for pro forma revenue, pro forma adjusted EBITDA margin, pro forma
adjusted diluted EPS, and pro forma adjusted free cash flow
conversion (as a percentage of pro forma adjusted net income). All
forward-looking non-GAAP measures exclude estimates for
amortization of intangible assets; stock-based compensation
expenses; restructuring, separation, transaction, and
integration-related costs; mark-to-market changes associated with
pension and other post-retirement benefit plans; and other
non-recurring items. Perspecta is unable to provide a
reconciliation of non-GAAP guidance measures to corresponding GAAP
measures on a forward-looking basis without unreasonable effort due
to the overall high variability and low visibility of most of the
excluded items. Material changes to any one of these items could
have a significant effect on future GAAP results.
Measure
|
Current FY19
Guidance
|
Prior FY19
Guidance
|
Pro Forma Revenue
(millions)
|
$4,235 -
$4,260
|
$4,200 -
$4,250
|
Pro Forma Adjusted
EBITDA Margin
|
17.1% -
17.3%
|
16.5% -
17.0%
|
Pro Forma Adjusted
Diluted EPS
|
$1.90 -
$1.95
|
$1.85 -
$1.95
|
Pro Forma Adjusted
Free Cash Flow Conversion
|
100%+
|
95%+
|
John Kavanaugh, Perspecta CFO,
commented, "Our strong performance to date in fiscal year 2019
enables us once again to raise our outlook for the year. This
performance is a testament to the hard work of all of our
employees, who have delivered for our customers while integrating
one Perspecta. The large volume of wins and our culture of
disciplined execution provide an excellent foundation for fiscal
year 2020."
Conference Call
Perspecta executive management will hold a conference call on
Feb. 13, 2019, at 5 p.m. Eastern to discuss the financial results
and outlook and answer questions. Analysts and investors may
participate on the conference call by dialing 888-317-6016
(domestic), 855-669-9657 (Canada),
or 412-317-6016 (international). The conference call will be
webcast simultaneously through a link on the Investor Relations
section of the Perspecta website. A replay of the conference call
will be available on the Investor Relations section of the
Perspecta website approximately two hours after the conclusion of
the call.
About Perspecta Inc.
At Perspecta (NYSE: PRSP), we question, we seek and we solve.
Perspecta brings a diverse set of capabilities to our U.S.
government customers in defense, intelligence, civilian, health
care and state and local markets. Our 260+ issued, licensed and
pending patents are more than just pieces of paper, they tell the
story of our innovation. With offerings in mission services,
digital transformation and enterprise operations, our team of more
than 14,000 engineers, analysts, investigators and architects work
tirelessly to not only execute the mission, but build and support
the backbone that enables it. Perspecta was formed to take on big
challenges. We are an engine for growth and success and we enable
our customers to build a better nation. For more information about
Perspecta, visit perspecta.com.
Forward-looking Statements
All statements in this press release that do not directly and
exclusively relate to historical facts constitute "forward-looking
statements." These statements represent current intentions,
expectations, beliefs or projections, and no assurance can be given
that the results described in such statements will be achieved.
These statements are subject to numerous assumptions, risks,
uncertainties and other factors that could cause actual results to
differ materially from those described in such statements,
including, but not limited to, risks relating to (i) our
relationships with the U.S. federal government, or any state or
local governments or changes in such governments' spending and
mission priorities that shift expenditures away from agencies or
programs that we support; (ii) delay in completion of the U.S.
federal government's budget process; (iii) failure by us or our
employees to obtain and maintain necessary security clearances or
certifications; (iv) our ability to compete effectively in the
competitive bidding process; (v) delays, contract terminations or
cancellations of our major contract awards; (vi) our ability to
accurately estimate or otherwise recover expenses, time and
resources for our contracts; (vii) problems or delays in the
development, delivery, transition or enhancement of products and
services; (viii) failure of third parties to deliver on commitments
under contracts with us; (ix) failure to be awarded task orders
under our indefinite delivery, indefinite quantity contracts; and
(x) changes in government procurement, contract or other practices
or the adoption by the government of new laws, rules and
regulations adverse to us; as well as the matters described in the
"Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors" sections of Perspecta's Annual Report on Form 10-K
for the year ended March 31, 2018, as
may be updated or supplemented in our Quarterly Reports on Form
10-Q and our other filings with the Securities and Exchange
Commission, which discuss these and other factors that could
adversely affect our results. Readers are cautioned not to place
undue reliance on such statements which speak only as of the date
they are made. We do not undertake any obligation to update or
release any revisions to any forward-looking statement or to report
any events or circumstances after the date of this presentation or
to reflect the occurrence of unanticipated events except as
required by law.
Condensed
Consolidated Combined Statements of Operations
(preliminary and
unaudited)
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in millions,
except per share amounts)
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Revenue
|
|
$
|
1,075
|
|
|
$
|
722
|
|
|
$
|
2,936
|
|
|
$
|
2,104
|
|
|
|
|
|
|
|
|
|
|
Costs of services
(excludes depreciation and amortization and
restructuring costs)
|
|
816
|
|
|
550
|
|
|
2,226
|
|
|
1,632
|
|
Selling, general, and
administrative (excludes depreciation and
amortization and restructuring
costs)
|
|
76
|
|
|
51
|
|
|
226
|
|
|
132
|
|
Depreciation and
amortization
|
|
76
|
|
|
46
|
|
|
214
|
|
|
116
|
|
Restructuring
costs
|
|
1
|
|
|
3
|
|
|
3
|
|
|
10
|
|
Separation and
integration-related costs
|
|
19
|
|
|
27
|
|
|
84
|
|
|
44
|
|
Interest expense,
net
|
|
37
|
|
|
—
|
|
|
84
|
|
|
7
|
|
Other expense
(income), net
|
|
2
|
|
|
—
|
|
|
(26)
|
|
|
—
|
|
Total costs and
expenses
|
|
1,027
|
|
|
677
|
|
|
2,811
|
|
|
1,941
|
|
|
|
|
|
|
|
|
|
|
Income before
taxes
|
|
48
|
|
|
45
|
|
|
125
|
|
|
163
|
|
Income tax expense
(benefit)
|
|
10
|
|
|
(59)
|
|
|
34
|
|
|
(13)
|
|
Net income
|
|
$
|
38
|
|
|
$
|
104
|
|
|
$
|
91
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share (a):
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
0.73
|
|
|
$
|
0.55
|
|
|
$
|
1.24
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
0.73
|
|
|
$
|
0.55
|
|
|
$
|
1.24
|
|
|
|
(a)
|
Earnings per share
information for the three and nine months ended December 31,
2017, is computed using the 142.43 million shares of Perspecta
common stock resulting from the distribution by DXC, as Perspecta
did not operate as a stand-alone entity during the period and
therefore, no Perspecta common stock, options or other equity
awards were outstanding and no dividends were declared or paid by
Perspecta.
|
Selected Condensed
Consolidated Combined Balance Sheet Data
(preliminary and
unaudited)
|
|
|
|
|
As
of
|
(in
millions)
|
|
December 31,
2018
|
|
March 31,
2018
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
100
|
|
|
$
|
—
|
|
Receivables, net of
allowance for doubtful accounts of $1 and $0
|
|
487
|
|
|
354
|
|
Other
receivables
|
|
58
|
|
|
—
|
|
Prepaid expenses and
other current assets
|
|
158
|
|
|
74
|
|
Deferred contract
costs
|
|
40
|
|
|
21
|
|
Total current
assets
|
|
843
|
|
|
449
|
|
Property and
equipment, net of accumulated depreciation of $119 and
$66
|
|
354
|
|
|
290
|
|
Goodwill
|
|
3,272
|
|
|
2,022
|
|
Intangible assets,
net of accumulated amortization of $220 and $98
|
|
1,406
|
|
|
897
|
|
Other
assets
|
|
191
|
|
|
21
|
|
Total
assets
|
|
$
|
6,066
|
|
|
$
|
3,679
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current maturities of
long-term debt
|
|
$
|
79
|
|
|
$
|
—
|
|
Current capital lease
liability
|
|
140
|
|
|
160
|
|
Accounts
payable
|
|
268
|
|
|
195
|
|
Accrued payroll and
related costs
|
|
94
|
|
|
17
|
|
Accrued expenses and
other current liabilities
|
|
356
|
|
|
180
|
|
Deferred revenue and
advance contract payments
|
|
28
|
|
|
53
|
|
Income taxes
payable
|
|
48
|
|
|
—
|
|
Total current
liabilities
|
|
1,013
|
|
|
605
|
|
Non-current portion
of long-term debt
|
|
2,384
|
|
|
—
|
|
Non-current capital
lease liability
|
|
149
|
|
|
144
|
|
Non-current deferred
tax liabilities
|
|
111
|
|
|
176
|
|
Other long-term
liabilities
|
|
212
|
|
|
25
|
|
Total
liabilities
|
|
3,869
|
|
|
950
|
|
Commitments and
contingencies
|
|
|
|
|
Total stockholders'
equity
|
|
2,197
|
|
|
2,729
|
|
Total liabilities and
stockholders' equity
|
|
$
|
6,066
|
|
|
$
|
3,679
|
|
Condensed
Consolidated Combined Statements of Cash Flows
(preliminary and
unaudited)
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in
millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
38
|
|
|
$
|
104
|
|
|
$
|
91
|
|
|
$
|
176
|
|
Adjustments to
reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
76
|
|
|
46
|
|
|
214
|
|
|
116
|
|
Stock-based
compensation
|
|
4
|
|
|
4
|
|
|
7
|
|
|
4
|
|
Deferred income
taxes
|
|
(6)
|
|
|
(71)
|
|
|
(17)
|
|
|
(71)
|
|
Gain on sale of
assets
|
|
—
|
|
|
—
|
|
|
(25)
|
|
|
—
|
|
Other non-cash
charges, net
|
|
1
|
|
|
3
|
|
|
(13)
|
|
|
10
|
|
Changes in assets and
liabilities, net of effects of acquisitions and
dispositions:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
82
|
|
|
8
|
|
|
78
|
|
|
37
|
|
Prepaid expenses and
other current assets
|
|
(4)
|
|
|
(15)
|
|
|
(22)
|
|
|
(20)
|
|
Accounts payable and
accrued liabilities
|
|
(115)
|
|
|
1
|
|
|
(23)
|
|
|
99
|
|
Deferred revenue and
advanced contract payments
|
|
(26)
|
|
|
(5)
|
|
|
(13)
|
|
|
3
|
|
Income taxes
payable
|
|
14
|
|
|
—
|
|
|
20
|
|
|
—
|
|
Other operating
activities, net
|
|
(7)
|
|
|
(2)
|
|
|
(3)
|
|
|
(7)
|
|
Net cash provided by
operating activities
|
|
57
|
|
|
73
|
|
|
294
|
|
|
347
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Payments for
acquisitions, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(312)
|
|
|
—
|
|
Extinguishment of
Vencore HC and KGS HC debt and related costs
|
|
—
|
|
|
—
|
|
|
(994)
|
|
|
—
|
|
Proceeds from sale of
assets
|
|
1
|
|
|
—
|
|
|
25
|
|
|
—
|
|
Purchases of
property, equipment and software
|
|
(1)
|
|
|
(3)
|
|
|
(12)
|
|
|
(8)
|
|
Payments for
outsourcing contract costs
|
|
(1)
|
|
|
(3)
|
|
|
(7)
|
|
|
(9)
|
|
Net cash used in
investing activities
|
|
(1)
|
|
|
(6)
|
|
|
(1,300)
|
|
|
(17)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on
long-term debt
|
|
(32)
|
|
|
—
|
|
|
(82)
|
|
|
—
|
|
Proceeds from debt
issuance
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
—
|
|
Payment of debt
issuance costs
|
|
(3)
|
|
|
—
|
|
|
(46)
|
|
|
—
|
|
Proceeds from
revolving credit facility
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
Payments on revolving
credit facility
|
|
—
|
|
|
—
|
|
|
(50)
|
|
|
—
|
|
Payments on lease
liability
|
|
(42)
|
|
|
(41)
|
|
|
(124)
|
|
|
(117)
|
|
Repurchases of common
stock
|
|
(22)
|
|
|
—
|
|
|
(43)
|
|
|
—
|
|
Repurchases of common
stock to satisfy tax withholding obligations
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
Dividend to
DXC
|
|
—
|
|
|
—
|
|
|
(984)
|
|
|
—
|
|
Dividends paid to
Perspecta stockholders
|
|
(8)
|
|
|
—
|
|
|
(17)
|
|
|
—
|
|
Net transfers to
Parent
|
|
—
|
|
|
(26)
|
|
|
(88)
|
|
|
(213)
|
|
Net cash provided by
(used in) financing activities
|
|
(108)
|
|
|
(67)
|
|
|
1,115
|
|
|
(330)
|
|
Net increase
(decrease) in cash and cash equivalents, including
restricted
|
|
(52)
|
|
|
—
|
|
|
109
|
|
|
—
|
|
Cash and cash
equivalents, including restricted, at beginning of
period
|
|
161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash
equivalents, including restricted, at end of period
|
|
109
|
|
|
—
|
|
|
109
|
|
|
—
|
|
Less restricted cash
and cash equivalents included in prepaid
expenses and other current
assets
|
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
Cash and cash
equivalents at end of period
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
—
|
|
Reconciliation of Non-GAAP Financial Measures
To aid investors and analysts with year-over-year comparability
for the combined businesses of USPS, Vencore and KeyPoint,
Perspecta is including certain pro forma financial information that
combines the stand-alone USPS and Vencore and KeyPoint financial
information as if the acquisition had taken place on April 1, 2017. These pro forma results include a
full period of Vencore and KeyPoint results and assess the impact
of interest, depreciation and amortization, recurring elements of
pension income, and other costs as if the spin-off and mergers had
occurred at the beginning of the period. Perspecta is also
including adjusted results that exclude costs directly associated
with the spin-off and mergers and the ongoing integration
process.
The following tables reconcile non-GAAP financial measures to
the most directly comparable financial measures calculated and
presented in accordance with GAAP. Perspecta management believes
that these non-GAAP financial measures provide useful additional
information to investors regarding Perspecta's results of
operations as they provide another measure of Perspecta's
profitability and ability to service its debt and are considered
important to financial analysts covering Perspecta's industry.
These non-GAAP financial measures have limitations as an
analytical tool and should not be considered in isolation or as a
substitute for income from operations, net income or any other
measure of financial performance reported in accordance with GAAP.
Perspecta's non-GAAP measures may be calculated differently than
similarly named measures reported by other companies. In addition,
using non-GAAP measures may have limited value as they exclude
certain items that may have a material impact on reported financial
results and cash flows. When analyzing Perspecta's performance, it
is important to evaluate each adjustment in the reconciliation
tables and use adjusted measures in addition to, and not as an
alternative to, GAAP measures.
Pro Forma Revenue (Unaudited)
PERSPECTA
INC.
|
PRO FORMA REVENUE
(Unaudited)
|
|
|
|
|
(in
millions)
|
|
Three Months
Ended
December 31, 2017
|
Revenue
(a)
|
|
$
|
722
|
Historical Vencore
revenue (b) (c)
|
|
349
|
Pro forma
revenue
|
|
$
|
1,071
|
|
|
|
|
Notes:
|
(a)
|
For the three months
ended December 31, 2017, GAAP results reflect the operations of
USPS.
|
(b)
|
Revenue prior to the
May 31, 2018 mergers is from the most closely corresponding
reporting period, which is October 1, 2017 to December 31, 2017,
for the three months ended December 31, 2017.
|
(c)
|
In this and all
subsequent tables, financial data for "Vencore" includes the
combined results of Vencore Holding Corp. and KGS Holding
Corp.
|
Adjusted EBITDA, Net Income, and Diluted Earnings Per Share
(Unaudited)
Adjusted EBITDA excludes the following items: mark-to-market
adjustments to the pension and other post-employment benefit (OPEB)
programs, stock-based compensation, and the fiscal year 2018
start-up costs associated with the National Background
Investigations Bureau (NBIB) program. There were no mark-to-market
changes in either the current or year-ago quarterly periods.
Adjusted net income and adjusted diluted earnings per share also
exclude acquisition-related intangible amortization.
PERSPECTA
INC.
|
UNAUDITED ADJUSTED
EBITDA, ADJUSTED NET INCOME AND ADJUSTED DILUTED EPS
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Perspecta for
the
Three Months Ended
December 31, 2018
|
|
Effect of
Spin-Off
and Mergers
|
|
Adjusted
|
Net
income
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
38
|
|
Income tax
expense
|
|
10
|
|
|
—
|
|
|
10
|
|
Interest expense,
net
|
|
37
|
|
|
—
|
|
|
37
|
|
Depreciation and
amortization
|
|
76
|
|
|
—
|
|
|
76
|
|
EBITDA
|
|
161
|
|
|
—
|
|
|
161
|
|
Restructuring
costs
|
|
1
|
|
|
—
|
|
|
1
|
|
Separation and
integration costs
|
|
19
|
|
|
—
|
|
|
19
|
|
Stock-based
compensation
|
|
4
|
|
|
—
|
|
|
4
|
|
Separation related
cost
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
Adjusted
EBITDA
|
|
$
|
182
|
|
|
$
|
—
|
|
|
182
|
|
Depreciation and
amortization
|
|
|
|
|
|
(76)
|
|
Amortization of
acquired intangibles
|
|
|
|
|
|
37
|
|
Interest expense,
net
|
|
|
|
|
|
(37)
|
|
Earnings before
taxes
|
|
|
|
|
|
106
|
|
Income tax expense
(a)
|
|
|
|
|
|
29
|
|
Adjusted net
income
|
|
|
|
|
|
$
|
77
|
|
Adjusted diluted
EPS (b)
|
|
|
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
Notes:
|
(a)
|
Represents income tax
expense utilizing an adjusted effective tax rate of approximately
27% that adjusts for non-GAAP measures including: transaction
costs, integration costs, and tax add backs for non-deductible
prior-merger goodwill amortization.
|
(b)
|
Represents adjusted
net income divided by the weighted-average common shares on a
diluted basis of 164.54 million.
|
Pro Forma Adjusted EBITDA, Net Income, and Diluted Earnings
Per Share (Unaudited)
Previously, in its Current Report on Form 8-K filed on
July 19, 2018, Perspecta provided
reconciliations of pro forma adjusted EBITDA, pro forma adjusted
net income, and pro forma adjusted diluted earnings per share to
net income. The pro forma presentations of these measures contained
in this press release differ for three reasons:
- In the Current Report on Form 8-K filed on July 19, 2018, Perspecta provided separate
reconciliations of (1) pro forma adjusted EBITDA and (2) pro forma
adjusted net income and pro forma adjusted diluted earnings per
share. In the current press release, Perspecta has updated this
presentation to combine the separate reconciliations and to apply a
pro forma effective tax rate of 34 percent in the reconciliations
for pro forma adjusted net income and pro forma adjusted diluted
earnings per share for fiscal year 2018. This change adjusts
for the effects of implementing the Tax Cuts and Jobs Act of 2017
for purposes of comparison to the financial results for fiscal year
2019.
- As required by the SEC, the pro forma presentations in the
Current Report on Form 8-K filed on July 19,
2018, were prepared in accordance with Article 11 of
Regulation S-X. Conversely, the pro forma presentations in this
press release are prepared in accordance with using ASC 805, which
requires a different treatment of "non-recurring" costs.
- The pro forma presentations in the Current Report on Form 8-K
filed on July 19, 2018, were based on
a preliminary valuation of intangibles reflected in Amendment 3 to
the Form 10 filed on April 30, 2018.
Perspecta received a new valuation report as of July 20, 2018, with updated preliminary fair
values of net tangible assets purchased, including intangibles, and
has reflected this update in this press release.
PERSPECTA
INC.
|
UNAUDITED PRO
FORMA ADJUSTED EBITDA, ADJUSTED NET INCOME AND ADJUSTED DILUTED
EPS
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Historical
USPS
for the Three
Months Ended
December 31,
2017
|
|
Historical
Vencore for the
Three Months
Ended December
31, 2017
|
|
Effect of
Spin-Off
and Mergers
|
|
Pro
Forma
|
Net income
(loss)
|
|
$
|
104
|
|
|
$
|
20
|
|
|
$
|
(32)
|
|
|
$
|
92
|
|
Income tax expense
(benefit)
|
|
(59)
|
|
|
(20)
|
|
|
(16)
|
|
|
(95)
|
|
Interest expense,
net
|
|
—
|
|
|
20
|
|
|
9
|
|
|
29
|
|
Depreciation and
amortization
|
|
46
|
|
|
7
|
|
|
16
|
|
|
69
|
|
EBITDA
|
|
91
|
|
|
27
|
|
|
(23)
|
|
|
95
|
|
Restructuring
costs
|
|
3
|
|
|
—
|
|
|
1
|
|
|
4
|
|
Separation and
integration costs
|
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
Pension and OPEB
actuarial and settlement losses
|
|
—
|
|
|
(2)
|
|
|
30
|
|
|
28
|
|
Stock-based
compensation
|
|
4
|
|
|
5
|
|
|
(5)
|
|
|
4
|
|
NBIB
adjustment
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Adjusted
EBITDA
|
|
$
|
125
|
|
|
$
|
35
|
|
|
$
|
3
|
|
|
163
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
|
(69)
|
|
Amortization of
acquired intangibles
|
|
|
|
|
|
|
|
40
|
|
Interest expense, net
(a)
|
|
|
|
|
|
|
|
(29)
|
|
Earnings before
taxes
|
|
|
|
|
|
|
|
105
|
|
Income tax expense
(b)
|
|
|
|
|
|
|
|
36
|
|
Adjusted net
income
|
|
|
|
|
|
|
|
$
|
69
|
|
Adjusted diluted
EPS (c)
|
|
|
|
|
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
(a)
|
Pro Forma interest
expense is derived based on the average of the applicable one-month
LIBOR rates for the three month period ended June 30, 2018 to
enhance comparability to the period during which the debt was
established.
|
(b)
|
Represents the income
tax impact of the adjustments to net income using an estimated
effective tax rate of approximately 34%.
|
(c)
|
Represents adjusted
net income divided by the weighted-average common shares on a
diluted basis of 165.70 million.
|
Adjusted EBITDA Margin and Pro Forma Adjusted EBITDA Margin
(Unaudited)
Adjusted EBITDA margin is calculated as the ratio of adjusted
EBITDA to revenue, and pro forma adjusted EBITDA margin is
calculated as the ratio of pro forma adjusted EBITDA to pro forma
revenue.
PERSPECTA
INC.
|
ADJUSTED EBITDA
MARGIN AND PRO FORMA ADJUSTED EBITDA MARGIN
(Unaudited)
|
|
|
|
|
|
|
|
Three Months
Ended
|
(in millions
except for margin)
|
|
December 31,
2018
|
|
December 31, 2017
(a)
|
Adjusted
EBITDA
|
|
$
|
182
|
|
|
$
|
163
|
|
Revenue
|
|
$
|
1,075
|
|
|
$
|
1,071
|
|
Adjusted EBITDA
margin
|
|
16.9
|
%
|
|
15.2
|
%
|
|
|
|
|
|
|
Notes:
|
(a)
|
Amounts for the three
months ended December 31, 2017 are pro forma.
|
Adjusted Free Cash Flow (Unaudited)
Perspecta defines adjusted free cash flow as the sum of net cash
provided by operating activities and net cash used in investing
activities adjusted for certain items, such as (i) payments on
lease liabilities, (ii) business acquisitions, dispositions, and
investments, (iii) payments and amortization related to
restructuring activities, (iv) payments on restructuring,
transaction and integration-related costs, (v) the impact arising
from the initial sale of accounts receivables under the Master
Accounts Receivable Purchase Agreement, and (vi) other
non-recurring payments.
PERSPECTA
INC.
|
ADJUSTED FREE CASH
FLOW (Unaudited)
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
(in
millions)
|
|
Perspecta for
the
three months ended
December 31, 2018
|
Net cash provided by
operating activities
|
|
$
|
57
|
Net cash used in
investing activities
|
|
(1)
|
Acquisitions net of
cash acquired, and other (a)
|
|
—
|
Payments on lease
liability (b)
|
|
(42)
|
Payments on
restructuring, transaction and integration-related costs
|
|
19
|
Adjusted free cash
flow
|
|
$
|
33
|
|
|
|
|
Notes:
|
(a)
|
Includes payments for
outsourcing contract costs and proceeds from sale of
assets.
|
(b)
|
Represents payments
on capital leases.
|
PERSPECTA
INC.
|
PRO FORMA ADJUSTED
FREE CASH FLOW (Unaudited)
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Perspecta for the
three
months ended
December 31, 2017
|
|
Historical Vencore
for
the three months
ended December 31,
2017
|
|
Pro Forma for the
three
months ended
December 31, 2017
|
Net cash provided by
operating activities
|
|
$
|
73
|
|
|
$
|
31
|
|
|
$
|
104
|
|
Net cash used in
investing activities
|
|
(6)
|
|
|
(4)
|
|
|
(10)
|
|
Acquisitions net of
cash acquired, and other (a)
|
|
3
|
|
|
—
|
|
|
3
|
|
Payments on lease
liability (b)
|
|
(41)
|
|
|
—
|
|
|
(41)
|
|
Payments on
restructuring, transaction and
integration-related costs
|
|
2
|
|
|
2
|
|
|
4
|
|
Adjusted free cash
flow
|
|
$
|
31
|
|
|
$
|
29
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
Notes:
|
(a)
|
Represents
outsourcing contract costs.
|
(b)
|
Represents payments
on capital leases.
|
Segment Operating Results (Unaudited)
Perspecta delivers IT, mission, and operations-related services
across the U.S. federal government through two reportable
segments—Defense and Intelligence, which provides services to the
Department of Defense (DoD), intelligence community, branches of
the U.S. Armed Forces, and other DoD agencies; and Civilian and
Health Care, which provides services to the Departments of Homeland
Security, Justice, and Health and Human Services, as well as other
federal civilian and state and local government agencies. The
following tables summarize revenue and segment operating profit by
reportable segment:
PERSPECTA
INC.
|
RECONCILIATION OF
REPORTABLE SEGMENT PROFIT TO INCOME BEFORE TAXES
(Unaudited)
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2018 AND 2017
|
|
|
|
|
|
|
|
Three Months
Ended
|
(in
millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
Total profit for
reportable segments
|
|
$
|
111
|
|
|
$
|
79
|
|
Less:
|
|
|
|
|
Stock-based
compensation
|
|
4
|
|
|
4
|
|
Restructuring
costs
|
|
1
|
|
|
3
|
|
Separation and
integration-related costs
|
|
19
|
|
|
27
|
|
Interest expense,
net
|
|
37
|
|
|
—
|
|
Other unallocated,
net
|
|
2
|
|
|
—
|
|
Income before
taxes
|
|
$
|
48
|
|
|
$
|
45
|
|
PERSPECTA
INC.
|
REVENUE AND
ADJUSTED SEGMENT OPERATING PROFIT (Unaudited)
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Perspecta for
the
three months ended
December 31, 2018
|
|
Adjustments for
the
three months ended
December 31, 2018 (a)
|
|
Adjusted for
the
three months ended
December 31, 2018
|
Revenue
|
|
|
|
|
|
|
|
Defense and
Intelligence
|
|
$
|
709
|
|
|
$
|
—
|
|
|
$
|
709
|
|
|
Civilian and Health
Care
|
|
366
|
|
|
—
|
|
|
366
|
|
|
|
|
$
|
1,075
|
|
|
$
|
—
|
|
|
$
|
1,075
|
|
|
|
|
|
|
|
|
Segment operating
profit
|
|
|
|
|
|
|
|
Defense and
Intelligence
|
|
$
|
85
|
|
|
$
|
13
|
|
|
$
|
98
|
|
|
Civilian and Health
Care
|
|
26
|
|
|
18
|
|
|
44
|
|
|
|
|
$
|
111
|
|
|
$
|
31
|
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
Notes:
|
(a)
|
Represents
adjustments for amortization of acquired intangibles and
separation-related, integration and other costs, which are included
in the segment results of operations.
|
PERSPECTA
INC.
|
PRO FORMA REVENUE
AND ADJUSTED SEGMENT OPERATING PROFIT (Unaudited)
|
FOR THE THREE
MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Historical USPS
for the
three months ended
December 31, 2017
|
|
Historical Vencore
and
Adjustments for the
three months ended
December 31, 2017 (a)
|
|
Pro Forma Adjusted
for
the three months ended
December 31, 2017
|
Revenue
|
|
|
|
|
|
|
|
Defense and
Intelligence
|
|
$
|
374
|
|
|
$
|
301
|
|
|
$
|
675
|
|
|
Civilian and Health
Care
|
|
348
|
|
|
48
|
|
|
396
|
|
|
|
|
$
|
722
|
|
|
$
|
349
|
|
|
$
|
1,071
|
|
|
|
|
|
|
|
|
Segment operating
profit
|
|
|
|
|
|
|
|
Defense and
Intelligence
|
|
$
|
31
|
|
|
$
|
39
|
|
|
$
|
70
|
|
|
Civilian and Health
Care
|
|
48
|
|
|
15
|
|
|
63
|
|
|
|
|
$
|
79
|
|
|
$
|
54
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
Notes:
|
(a)
|
Includes adjustments
for amortization of acquired intangibles and separation-related,
integration and other costs, which are in the segment results of
operations.
|
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SOURCE Perspecta Inc.