CHANTILLY, Va., Feb. 12, 2020 /PRNewswire/ -- Perspecta Inc.
(NYSE: PRSP), a leading U.S. government services provider, today
announced financial results for the third quarter of fiscal year
2020, which ended December 31, 2019.
"Our third quarter results reflect another period of solid
execution across the enterprise, delivering strong revenue,
earnings and free cash flow conversion," said Mac Curtis, president and chief executive
officer, Perspecta. "I am pleased with our operational performance
and business development efforts in the market as we succeeded in
closing $1.6 billion in awards this
quarter."
"We continue to leverage our deep customer insight,
discriminating offerings and focus on delivery excellence to drive
long-term partnerships with our customers," Curtis
continued. "Our message is resonating and our ability to
quickly and successfully deploy a broad set of capabilities
directly supports our customers' objectives to transform and
modernize. Key new business wins have sustained positive momentum
in both of our segments while securing new customers. Our strong
execution, talented leadership team and laser focus on customer
needs has us well positioned to generate value for all our
stakeholders."
Summary operating results (unaudited)
|
|
Three Months
Ended
|
(in millions, except
margin and per share amounts)
|
|
December 31,
2019
|
|
December 31,
2018
|
Revenue
|
|
$
|
1,126
|
|
|
$
|
1,075
|
|
Income before
taxes
|
|
75
|
|
|
48
|
|
Operating
margin
|
|
6.7
|
%
|
|
4.5
|
%
|
Net income
|
|
53
|
|
|
38
|
|
Diluted earnings per
share (EPS)
|
|
0.33
|
|
|
0.23
|
|
|
|
|
|
|
Non-GAAP
Measures*:
|
|
|
|
|
Adjusted Net
Income
|
|
90
|
|
|
77
|
|
Adjusted
EBITDA
|
|
195
|
|
|
182
|
|
Adjusted EBITDA
Margin
|
|
17.3
|
%
|
|
16.9
|
%
|
Adjusted Diluted
EPS
|
|
0.55
|
|
|
0.47
|
|
|
|
|
|
|
* Adjusted Net
Income, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted
Diluted EPS are non-GAAP financial measures. Non-GAAP financial
measures should be considered in addition to, but not as a
substitute for, the information provided in accordance with GAAP.
See Selected Financial Data and Reconciliation of Non-GAAP
Financial Measures at the end of this press release for more
information.
|
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. and KGS Holding Corp.
Perspecta provides adjusted results that exclude costs directly
associated with the spin-off, mergers and the ongoing integration
process. The tables in Selected Financial Data and
Reconciliation of Non-GAAP Financial Measures at the end of
this press release provide all appropriate reconciliations from
adjusted results to GAAP.
Revenue for the quarter was $1.13
billion, up 5% compared to the third quarter of fiscal year
2019, and down 4% compared to the second quarter of fiscal year
2020. The decline in revenue compared to the second quarter was
primarily due to approximately $60
million from the sale of IT assets to conclude the
National Aeronautics and Space Administration Agency
Consolidated End-user Services (NASA ACES) contract recorded in the
second quarter.
Income before taxes for the third quarter of fiscal year 2020
was $75 million, which was up 56%
from the third quarter of fiscal year 2019. Operating margin
increased from 4.5% to 6.7% year-over-year. Net income was
$53 million, or $0.33 per diluted share. Net income was up 39%
and diluted earnings per share (EPS) was up 43% from the third
quarter of fiscal year 2019.
Adjusted net income was $90
million for the third quarter, which was up 17%
year-over-year. Adjusted EBITDA was $195
million for the third quarter, up 7% compared to adjusted
EBITDA for the third quarter of fiscal year 2019; adjusted EBITDA
margin increased from 16.9% to 17.3% over the same period. The
year-over-year increase in profitability primarily reflects strong
program execution on fixed price programs. Adjusted diluted EPS for
the third quarter was $0.55, up 17%
compared to adjusted diluted EPS for the third quarter of fiscal
year 2019.
Segment operating results (unaudited)
For the three months ended December 31, 2019, Defense and
Intelligence segment revenue of $813 million increased by 15%,
primarily due to new business wins and growth on existing programs.
Civilian and Health Care segment revenue of $313 million decreased by 14% compared to revenue
from the same period of the prior year due to NASA ACES and other
program run offs.
Defense and Intelligence adjusted segment margin for the third
quarter of fiscal year 2020 improved to 14.4% from 13.8% in the
third quarter of fiscal year 2019. Civilian and Health Care
adjusted segment margin for the third quarter of fiscal year 2020
improved to 12.8% from 12.0% in the third quarter of fiscal year
2019. Total adjusted segment profit for the third quarter of fiscal
year 2020 increased to $157 million
from $142 million in the third
quarter of fiscal year 2019.
Cash management and capital deployment
Perspecta generated $120 million
of net cash provided by operating activities in the third quarter
of fiscal year 2020. Quarterly adjusted free cash flow was
$98 million, or 109% of adjusted net
income. During the third quarter of fiscal year 2020, Perspecta
paid down $149 million of debt and
returned $23 million to shareholders,
including $10 million as part of its
regular quarterly cash dividend program and $13 million in share repurchases (excluding
$1 million of second quarter
repurchases that settled during the quarter).
At quarter end, Perspecta had $69 million in cash and
cash equivalents, $700 million of
undrawn capacity in its revolving credit facility, and $2.7 billion in total debt, including
$271 million in finance lease
obligations. On February 11, 2020, the Perspecta Board of
Directors declared that Perspecta will pay a cash dividend of
$0.06 per share on April 15,
2020 to Perspecta stockholders of record at the close of business
on March 3, 2020.
Contract awards
Contract awards (bookings) totaled $1.6
billion in the third quarter of fiscal year 2020,
representing a book-to-bill ratio of 1.4x. Included in the
quarterly bookings were several particularly important single-award
prime contracts:
- U.S. Department of State Consular Affairs Office Enterprise
Infrastructure and Operations Support (CAEIO) contract:
Perspecta will provide the U.S. Department of State's Bureau of
Consular Affairs with enterprise infrastructure support to plan,
engineer, implement, enhance, maintain and operate the global
Consular Affairs IT environment. Work will support the bureau's
headquarters office in Washington,
D.C. and more than 350 Consular Affairs locations around the
world. The program, which represents new work for the company, has
a one-year base period of performance with six one-year option
periods and a potential value of $810
million.
- U.S. Department of Homeland Security (DHS) contract:
Perspecta will provide DHS with security architecture, assessment
support, vulnerability testing, incident response and security
administration services. The award, which represents new work for
the company, has a five-year period of performance and maximum
ceiling value of $147 million.
- Received several awards on both classified and
non-classified programs in our Defense and Intelligence
segment: Perspecta will provide support to various U.S.
government customers. The total potential contract value of these
awards is $515 million with a period
of performance of up to 10 years.
- U.S. Air Force Material Command (AFMC) Small Business
Enterprise Applications Solutions (SBEAS): Invictus JV, LLC, a
joint venture between Oasys International Corporation and a
Perspecta subsidiary, was awarded a position on the AFMC SBEAS
program. Invictus will compete for task orders to provide systems
engineering, system architecture and design, cloud migration and
advisory services, cybersecurity and risk management and agile
software development services. SBEAS has a total value of
$13 billion, which includes a
five-year base period of performance plus five one-year option
periods.
Perspecta's backlog of signed business orders at the end of the
third quarter of fiscal year 2020 was $13.2 billion; funded backlog at the end of
the third quarter was $1.8
billion.
The U.S. Navy announced on February 5,
2020 that Perspecta was not awarded the Service Management,
Integration, and Transport (SMIT) contract, the re-compete of the
Next Generation Enterprise Network (NGEN) contract currently held
by Perspecta. The NGEN contract currently expires on September 30, 2020, with three one-month options
that may be exercised by the U.S. Navy. Perspecta will receive a
post-award debriefing from the agency providing the basis for the
selection decision and contract award on February 24, 2020. The company will assess next
steps with respect to the award decision at that time.
In connection with the April 1,
2017 merger of Computer Sciences Corporation with the
Enterprise Services business of Hewlett Packard Enterprise Company
to form DXC, the reporting unit with the NGEN contract was
allocated $623 million of goodwill
and $299 million of intangible assets
($236 million of net book value as of
December 31, 2019). Perspecta is evaluating the impact this
contract loss has on the existing carrying value of the reporting
unit, and in connection with filing its quarterly report on Form
10-Q for the quarter ending December 31,
2019 management determined that an impairment charge will be
required as a result of the U.S. Navy's decision. Based on current
estimates, the company expects to incur a non-cash, pre-tax
impairment charge of approximately $860
million primarily related to goodwill and intangible assets
in the fourth quarter of fiscal year 2020.
Forward guidance
Perspecta is raising the low end of its previously announced
fiscal year 2020 revenue, adjusted diluted EPS and adjusted free
cash flow conversion percent guidance to reflect strong third
quarter results. The table below provides the current and previous
guidance ranges for revenue, adjusted EBITDA margin, adjusted
diluted EPS, and adjusted free cash flow conversion (as a
percentage of 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 FY20
Guidance
|
Prior FY20
Guidance
|
Revenue
(millions)
|
$4,450 -
$4,500
|
$4,425 -
$4,500
|
Adjusted EBITDA
Margin
|
17.0% -
18.0%
|
17.0% -
18.0%
|
Adjusted Diluted
EPS
|
$2.12 -
$2.18
|
$2.10 -
$2.18
|
Adjusted Free Cash
Flow Conversion
|
110%+
|
105%+
|
John Kavanaugh, senior vice
president and chief financial officer of Perspecta, commented, "We
continue to deliver strong financial and business development
results. We believe that our execution and balanced capital
allocation model continues to generate value for our
shareholders."
Conference call
Perspecta executive management will hold a conference call on
February 12, 2020, 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 888-348-3873 (domestic), 855-669-9657 (Canada), or 412-902-4234 (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 270+ 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 and assumptions in this press release that do not
directly and exclusively relate to historical facts could be deemed
"forward-looking statements." Forward-looking statements are often
identified by the use of words such as "anticipates," "believes,"
"estimates," "expects," "may," "could," "should," "forecast,"
"goal," "intends," "objective," "plans," "projects," "strategy,"
"target" and "will" and similar words and terms or variations of
such. 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.
Forward-looking statements include, among other things, statements
with respect to our financial condition, results of operations,
cash flows, business strategies, prospects, guidance, contract
value, revenue acceleration, profitability and revenue generation.
Such 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, many of
which are outside of our control. Important factors that could
cause actual results to differ materially from those described in
forward-looking statements include, but are not limited to, (i) any
issue that compromises our relationships with the U.S. federal
government, or any state or local governments, or damages our
professional reputation; (ii) changes in the U.S. federal,
state and local governments' spending and mission priorities that
shift expenditures away from agencies or programs that we support;
(iii) any delay in completion of the U.S. federal government's
budget process; (iv) failure to comply with numerous laws,
regulations and rules, including regarding procurement,
anti-bribery and organizational conflicts of interest; (v) failure
by us or our employees to obtain and maintain necessary security
clearances or certifications; (vi) our ability to compete
effectively in the competitive bidding process and delays, contract
terminations or cancellations caused by competitors' protests of
major contract awards received by us; (vii) our ability to
accurately estimate or otherwise recover expenses, time and
resources for our contracts; (viii) problems or delays in the
development, delivery and transition of new products and services
or the enhancement of existing products and services to meet
customer needs and respond to emerging technological trends; (ix)
failure of third parties to deliver on commitments under contracts
with us; (x) misconduct or other improper activities from our
employees or subcontractors; (xi) delays, terminations, or
cancellations of our major contract awards, including as a result
of our competitors protesting such awards; (xii) failure of our
internal control over financial reporting to detect fraud or other
issues; (xiii) failure or disruptions to our systems, due to
cyber-attack, service interruptions or other security threats;
(xiv) failure to be awarded task orders under our indefinite
delivery/indefinite quantity contracts; (xv) changes in government
procurement, contract or other practices or the adoption by the
government of new laws, rules and regulations in a manner adverse
to us; and (xvi) uncertainty from the expected discontinuance of
LIBOR and transition to any other interest rate benchmark; 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, 2019, 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 press release or to reflect the occurrence
of unanticipated events except as required by law.
Condensed
Consolidated Statements of Operations
|
(preliminary and
unaudited)
|
|
|
|
Three Months
Ended
|
(in millions, except
per share amounts)
|
|
December 31,
2019
|
|
December 31,
2018
|
Revenue
|
|
$
|
1,126
|
|
|
$
|
1,075
|
|
|
|
|
|
|
Costs of
services
|
|
863
|
|
|
816
|
|
Selling, general and
administrative
|
|
77
|
|
|
76
|
|
Depreciation and
amortization
|
|
92
|
|
|
76
|
|
Restructuring
costs
|
|
—
|
|
|
1
|
|
Separation,
transaction and integration-related costs
|
|
20
|
|
|
19
|
|
Interest expense,
net
|
|
34
|
|
|
37
|
|
Other (income)
expense, net
|
|
(35)
|
|
|
2
|
|
Total costs and
expenses
|
|
1,051
|
|
|
1,027
|
|
|
|
|
|
|
Income before
taxes
|
|
75
|
|
|
48
|
|
Income tax
expense
|
|
22
|
|
|
10
|
|
Net income
|
|
$
|
53
|
|
|
$
|
38
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.23
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
0.23
|
|
Selected Condensed
Consolidated Balance Sheet Data
|
(preliminary and
unaudited)
|
|
(in
millions)
|
|
December 31,
2019
|
|
March 31,
2019
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
69
|
|
|
$
|
88
|
|
Receivables, net of
allowance for doubtful accounts of $1 and $0
|
|
526
|
|
|
484
|
|
Other
receivables
|
|
45
|
|
|
92
|
|
Prepaid
expenses
|
|
115
|
|
|
141
|
|
Other current
assets
|
|
89
|
|
|
73
|
|
Total current
assets
|
|
844
|
|
|
878
|
|
Property and
equipment, net of accumulated depreciation of $182 and
$148
|
|
326
|
|
|
368
|
|
Goodwill
|
|
3,294
|
|
|
3,179
|
|
Intangible assets,
net of accumulated amortization of $460 and $299
|
|
1,422
|
|
|
1,466
|
|
Other
assets
|
|
303
|
|
|
192
|
|
Total
assets
|
|
$
|
6,189
|
|
|
$
|
6,083
|
|
|
|
|
|
|
LIABILITIES and
STOCKHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Current maturities of
long-term debt
|
|
$
|
88
|
|
|
$
|
80
|
|
Current finance lease
obligations
|
|
116
|
|
|
137
|
|
Current operating
lease obligations
|
|
41
|
|
|
—
|
|
Accounts
payable
|
|
206
|
|
|
246
|
|
Accrued payroll and
related costs
|
|
146
|
|
|
91
|
|
Accrued
expenses
|
|
372
|
|
|
396
|
|
Other current
liabilities
|
|
58
|
|
|
64
|
|
Total current
liabilities
|
|
1,027
|
|
|
1,014
|
|
Long-term debt, net
of current maturities
|
|
2,294
|
|
|
2,297
|
|
Non-current finance
lease obligations
|
|
155
|
|
|
168
|
|
Deferred tax
liabilities
|
|
171
|
|
|
171
|
|
Other long-term
liabilities
|
|
336
|
|
|
271
|
|
Total
liabilities
|
|
3,983
|
|
|
3,921
|
|
Commitments and
contingencies
|
|
|
|
|
Total stockholders'
equity
|
|
2,206
|
|
|
2,162
|
|
Total liabilities and
stockholders' equity
|
|
$
|
6,189
|
|
|
$
|
6,083
|
|
Condensed
Consolidated Combined Statements of Cash Flows
|
(preliminary and
unaudited)
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in
millions)
|
|
December 31,
2019
|
|
December 31,
2018
|
|
December 31,
2019
|
|
December 31,
2018
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
53
|
|
|
$
|
38
|
|
|
$
|
113
|
|
|
$
|
91
|
|
Adjustments to
reconcile net income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
92
|
|
|
76
|
|
|
283
|
|
|
214
|
|
Stock-based
compensation
|
|
6
|
|
|
4
|
|
|
21
|
|
|
7
|
|
Deferred income
taxes
|
|
24
|
|
|
(6)
|
|
|
4
|
|
|
(17)
|
|
Gain on sale or
disposal of assets, net
|
|
(33)
|
|
|
—
|
|
|
(23)
|
|
|
(25)
|
|
Other non-cash
charges, net
|
|
(1)
|
|
|
1
|
|
|
3
|
|
|
(13)
|
|
Changes in assets and
liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
(1)
|
|
|
82
|
|
|
49
|
|
|
78
|
|
Prepaid expenses and
other current assets
|
|
(8)
|
|
|
(4)
|
|
|
38
|
|
|
(22)
|
|
Accounts payable,
accrued expenses and other current
liabilities
|
|
(4)
|
|
|
(115)
|
|
|
(20)
|
|
|
(23)
|
|
Deferred revenue and
advanced contract payments
|
|
(8)
|
|
|
(26)
|
|
|
(24)
|
|
|
(13)
|
|
Income taxes payable
and liability
|
|
(4)
|
|
|
14
|
|
|
(6)
|
|
|
20
|
|
Other assets and
liabilities, net
|
|
4
|
|
|
(7)
|
|
|
2
|
|
|
(3)
|
|
Net cash provided by
operating activities
|
|
120
|
|
|
57
|
|
|
440
|
|
|
294
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Payments for
acquisitions, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(265)
|
|
|
(312)
|
|
Extinguishment of
acquired debt and related costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(994)
|
|
Proceeds from sale of
assets
|
|
77
|
|
|
1
|
|
|
77
|
|
|
25
|
|
Purchases of
property, equipment and software
|
|
(7)
|
|
|
(1)
|
|
|
(11)
|
|
|
(12)
|
|
Payments for
outsourcing contract costs
|
|
(1)
|
|
|
(1)
|
|
|
(4)
|
|
|
(7)
|
|
Net cash provided by
(used in) investing activities
|
|
69
|
|
|
(1)
|
|
|
(203)
|
|
|
(1,300)
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on
long-term debt
|
|
(24)
|
|
|
(32)
|
|
|
(69)
|
|
|
(82)
|
|
Proceeds from debt
issuance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
Payments of debt
issuance costs
|
|
—
|
|
|
(3)
|
|
|
(3)
|
|
|
(46)
|
|
Proceeds from
revolving credit facility
|
|
—
|
|
|
—
|
|
|
175
|
|
|
50
|
|
Payments on revolving
credit facility
|
|
(125)
|
|
|
—
|
|
|
(125)
|
|
|
(50)
|
|
Payments on finance
lease obligations
|
|
(33)
|
|
|
(42)
|
|
|
(110)
|
|
|
(124)
|
|
Repurchases of common
stock
|
|
(14)
|
|
|
(22)
|
|
|
(46)
|
|
|
(43)
|
|
Repurchases of common
stock to satisfy tax withholding
obligations
|
|
(2)
|
|
|
(1)
|
|
|
(2)
|
|
|
(1)
|
|
Dividend to
DXC
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(984)
|
|
Dividends paid to
Perspecta stockholders
|
|
(10)
|
|
|
(8)
|
|
|
(28)
|
|
|
(17)
|
|
Net transfers to
Parent
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(88)
|
|
Net cash (used in)
provided by financing activities
|
|
(208)
|
|
|
(108)
|
|
|
(208)
|
|
|
1,115
|
|
Net change in cash
and cash equivalents, including
restricted
|
|
(19)
|
|
|
(52)
|
|
|
29
|
|
|
109
|
|
Cash and cash
equivalents, including restricted, at
beginning of period
|
|
147
|
|
|
161
|
|
|
99
|
|
|
—
|
|
Cash and cash
equivalents, including restricted, at end of
period
|
|
128
|
|
|
109
|
|
|
128
|
|
|
109
|
|
Less restricted cash
and cash equivalents included in other
current assets
|
|
59
|
|
|
9
|
|
|
59
|
|
|
9
|
|
Cash and cash
equivalents at end of period
|
|
$
|
69
|
|
|
$
|
100
|
|
|
$
|
69
|
|
|
$
|
100
|
|
Selected Financial Data and Reconciliation of Non-GAAP
Financial Measures
The following tables present selected financial data, including
the reconciliation of 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, diluted EPS 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.
Adjusted EBITDA, Net Income, and Diluted EPS
(Unaudited)
Adjusted EBITDA excludes the following items: interest, income
taxes, depreciation and amortization, restructuring, separation,
transaction and integration-related cost, mark-to-market
adjustments to the pension and other post-employment benefit
programs, stock-based compensation, and other non-recurring items.
There were no mark-to-market changes in either the current or
year-ago quarterly periods. Adjusted net income and adjusted
diluted EPS also exclude acquisition-related intangible
amortization.
|
|
|
Three Months
Ended
|
(in
millions)
|
|
December 31,
2019
|
|
December 31,
2018
|
Net
income
|
|
$
|
53
|
|
|
$
|
38
|
|
Income tax
expense
|
|
22
|
|
|
10
|
|
Interest expense,
net
|
|
34
|
|
|
37
|
|
Depreciation and
amortization
|
|
92
|
|
|
76
|
|
EBITDA
|
|
201
|
|
|
161
|
|
Restructuring
costs
|
|
—
|
|
|
1
|
|
Separation,
transaction and integration-related costs
|
|
20
|
|
|
19
|
|
Stock-based
compensation
|
|
6
|
|
|
4
|
|
Gain on sale of
assets
|
|
(33)
|
|
|
—
|
|
Separation related
cost
|
|
1
|
|
|
(3)
|
|
Adjusted
EBITDA
|
|
195
|
|
|
182
|
|
Adjusted EBITDA
margin (a)
|
|
17.3
|
%
|
|
16.9
|
%
|
Depreciation and
amortization
|
|
(92)
|
|
|
(76)
|
|
Amortization of
acquired intangibles
|
|
54
|
|
|
37
|
|
Interest expense,
net
|
|
(34)
|
|
|
(37)
|
|
Adjusted earnings
before taxes
|
|
123
|
|
|
106
|
|
Income tax expense
(b)
|
|
33
|
|
|
29
|
|
Adjusted net
income
|
|
$
|
90
|
|
|
$
|
77
|
|
Adjusted diluted EPS
(c)
|
|
$
|
0.55
|
|
|
$
|
0.47
|
|
Notes:
|
(a)
|
Adjusted EBITDA
margin is calculated as the ratio of adjusted EBITDA to revenue for
both quarters ended December 31, 2019 and 2018.
|
(b)
|
Represents income tax
expense utilizing an adjusted effective tax rate that adjusts for
non-GAAP measures including: transaction costs, integration costs,
and tax add backs for non-deductible prior-merger goodwill
amortization. Adjusted effective tax rates are 27% for both
quarters ended December 31, 2019 and 2018.
|
(c)
|
Represents adjusted
net income divided by the weighted average common shares on a
diluted basis of 162.47 million and 164.54 million for the quarters
ended December 31, 2019 and 2018, respectively.
|
Adjusted Free Cash Flow (Unaudited)
Perspecta defines adjusted free cash flow as net cash provided
by operating activities less purchases of property, equipment and
software, and adjusted for certain items, such as (i) payments on
finance lease obligations, (ii) business acquisitions,
dispositions, and investments, (iii) restructuring payments, (iv)
payments on separation, 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.
|
|
|
Three Months
Ended
|
(in
millions)
|
|
December 31,
2019
|
|
December 31,
2018
|
Net cash provided by
operating activities
|
|
$
|
120
|
|
|
$
|
57
|
|
Purchases of
property, equipment and software
|
|
(7)
|
|
|
(1)
|
|
Payments on finance
lease obligations
|
|
(33)
|
|
|
(42)
|
|
Payments on
restructuring, separation, transaction and integration-related
costs
|
|
35
|
|
|
19
|
|
Initial sale of
qualifying receivables
|
|
(17)
|
|
|
—
|
|
Adjusted free cash
flow
|
|
$
|
98
|
|
|
$
|
33
|
|
Segment Revenue and Profit (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
U.S. 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 reportable segment profit and
reconciliation of reportable segment profit to income before
taxes:
Selected Segment
Measures and Reconciliation of Reportable Segment Profit to Income
Before Taxes
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
December 31,
2019
|
|
December 31,
2018
|
(in
millions)
|
|
Defense and
Intelligence
|
|
Civilian and
Health Care
|
|
Total
|
|
Defense and
Intelligence
|
|
Civilian and
Health Care
|
|
Total
|
Revenue
|
|
$
|
813
|
|
|
$
|
313
|
|
|
$
|
1,126
|
|
|
$
|
709
|
|
|
$
|
366
|
|
|
$
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
$
|
115
|
|
|
$
|
39
|
|
|
$
|
154
|
|
|
$
|
102
|
|
|
$
|
46
|
|
|
$
|
148
|
|
Non-GAAP adjustments
(a)
|
|
2
|
|
|
1
|
|
|
3
|
|
|
(4)
|
|
|
(2)
|
|
|
(6)
|
|
Adjusted segment
profit
|
|
$
|
117
|
|
|
$
|
40
|
|
|
$
|
157
|
|
|
$
|
98
|
|
|
$
|
44
|
|
|
$
|
142
|
|
Segment profit
margin
|
|
14.1
|
%
|
|
12.5
|
%
|
|
13.7
|
%
|
|
14.4
|
%
|
|
12.6
|
%
|
|
13.8
|
%
|
Adjusted segment
profit margin
|
|
14.4
|
%
|
|
12.8
|
%
|
|
13.9
|
%
|
|
13.8
|
%
|
|
12.0
|
%
|
|
13.2
|
%
|
|
Total segment
profit
|
|
|
|
|
|
$
|
154
|
|
|
|
|
|
|
$
|
148
|
|
Not allocated to
segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
(6)
|
|
|
|
|
|
|
(4)
|
|
Amortization of
acquired intangible assets
|
|
|
|
|
|
(54)
|
|
|
|
|
|
|
(37)
|
|
Restructuring
costs
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(1)
|
|
Separation,
transaction and integration-
related costs
|
|
|
|
|
|
(20)
|
|
|
|
|
|
|
(19)
|
|
Interest expense,
net
|
|
|
|
|
|
(34)
|
|
|
|
|
|
|
(37)
|
|
Other unallocated,
net
|
|
|
|
|
|
35
|
|
|
|
|
|
|
(2)
|
|
Income before
taxes
|
|
|
|
|
|
$
|
75
|
|
|
|
|
|
|
$
|
48
|
|
Notes:
|
(a)
|
Non-GAAP adjustments
include non-operating net periodic pension benefit, and certain
separation-related and other costs.
|
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SOURCE Perspecta Inc.