S-1 1 d226259ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on November 22, 2016

Registration No. 333-          

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Presidio, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   5045   47-2398593

(State or other jurisdiction of

incorporation)

  (Primary Industrial Classification Code Number)  

(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)

Robert Cagnazzi

Chief Executive Officer

Presidio, Inc.

One Penn Plaza, Suite 2832

New York, New York 10119

(212) 652-5700

(Name, address, including zip, code and telephone number, including area code, of agent for service)

 

 

Copy to:

Elliot Brecher

Senior Vice President and

General Counsel

Presidio, Inc.

One Penn Plaza, Suite 2832

New York, New York 10119

(212) 652-5700

 

Andrew J. Nussbaum

Gordon S. Moodie

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

Ian D. Schuman

Stelios G. Saffos

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

(212) 906-1200

 

 

Approximate date of commencement of proposed sale to the public: As promptly as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act of 1934.

 

¨       Large accelerated filer      ¨       Accelerated filer
x       Non-accelerated filer   (Do not check if a smaller reporting company)    ¨       Smaller reporting company

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of
Registration Fee

Common Stock, $0.01 par value per share

  $100,000,000   $11,590

 

(1) Includes shares of common stock that may be sold if the underwriters exercise their option to purchase additional shares. See “Underwriting.”

 

(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. This amount represents the proposed maximum aggregate offering price of the securities registered hereunder to be sold by the registrant.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

 

Subject to completion, dated November 22, 2016

Preliminary prospectus

                     shares

 

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Common stock

This is an initial public offering of common stock of Presidio, Inc. We are selling                  shares of our common stock. The estimated initial public offering price is between $     and $     per share.

After the completion of this offering (this “Offering”), investment funds affiliated with or managed by Apollo Global Management, LLC will continue to own a majority of the voting power of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of                 . See “Principal Stockholders.”

Prior to this Offering, there has been no public market for our common stock. We intend to apply to list our common stock on              under the symbol “        .”

 

     Per share      Total  

Initial public offering price

   $                    $                        

Underwriting discounts and commissions(1)

   $         $     

Proceeds to us, before expenses

   $         $     

 

(1) See “Underwriting” for additional information regarding total underwriter compensation.

We have granted the underwriters an option for a period of 30 days to purchase up to an additional                  shares of common stock from us at the initial public offering price less underwriting discounts and commissions.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 23.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to investors on or about             ,             .

 

J.P. Morgan   Citigroup
Barclays   RBC Capital Markets

Prospectus dated             ,             .


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TABLE OF CONTENTS

 

Prospectus Summary

     1   

Summary Historical and Pro Forma Financial Information

     17   

Risk Factors

     23   

Cautionary Statement Concerning Forward-looking Statements

     45   

Use of Proceeds

     47   

Dividend Policy

     48   

Capitalization

     49   

Dilution

     51   

Selected Historical Consolidated Financial Data

     53   

Unaudited Pro Forma Condensed Consolidated Financial Information

     60   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     67   

Business

     133   

Management

     149   

Compensation Discussion and Analysis

     154   

Principal Stockholders

     155   

Certain Relationships and Related Party Transactions

     157   

Description of Certain Indebtedness

     159   

Description of Capital Stock

     165   

Shares Eligible for Future Sale

     172   

Certain Material United States Federal Income Tax Considerations for Non-U.S. Holders

     174   

Underwriting

     178   

Legal Matters

     185   

Experts

     185   

Available Information

     185   

Index to Consolidated Financial Statements

     F-1   

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us or on our behalf that we have referred you to. We and the underwriters have not authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We are not making an offer of these securities in any state or other jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus and any free writing prospectus is accurate as of any date other than the date of the applicable document regardless of its time of delivery or the time of any sales of our common stock. Our business, financial condition, results of operations or cash flows may have changed since the date of the applicable document.


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Basis of Presentation

Presidio, Inc. (formerly named Aegis Holdings, Inc.) (the “Successor”) was incorporated on November 20, 2014 by certain investment funds affiliated with or managed by Apollo, including Apollo Investment Fund VIII, L.P., along with their parallel investment funds (collectively, the “Apollo Funds”) in order to complete the acquisition of Presidio Holdings Inc. (the “Predecessor”). The Apollo Funds completed the acquisition of the Predecessor on February 2, 2015 (the “Presidio Acquisition”), at which time the Predecessor became a direct wholly owned subsidiary of the Successor. See “Principal Stockholders.” As a result of this acquisition, the resulting change in control and changes due to the impact of purchase accounting, we are required to present separately the operating results of (A) the Predecessor for periods ending prior to February 2, 2015 and (B) of the Successor for periods ending on or after February 2, 2015. Accordingly, unless otherwise indicated or the context otherwise requires, all references in this prospectus to the “Company,” “Presidio,” “we,” “us,” “our” and other similar terms mean (1) the Predecessor for periods ending prior to February 2, 2015 and (2) the Successor for periods ending on or after February 2, 2015, in each case together with its consolidated subsidiaries. From November 20, 2014 to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition.

Unless otherwise indicated, all references in this prospectus to “dollars” and “$” are to U.S. dollars, and all amounts in this prospectus are presented in, U.S. Dollars.

Our fiscal year ends on June 30 of each year. References in this prospectus to a fiscal year mean the year in which that fiscal year ends. References in this prospectus to “fiscal 2012” or “our 2012 fiscal year” relate to the fiscal year ended June 30, 2012, references in this prospectus to “fiscal 2013” or “our 2013 fiscal year” relate to the fiscal year ended June 30, 2013, references in this prospectus to “fiscal 2014” or “our 2014 fiscal year” relate to the fiscal year ended June 30, 2014 and references in this prospectus to “fiscal 2016” or “our 2016 fiscal year” relate to the fiscal year ended June 30, 2016. References in this prospectus to “fiscal 2015” or “our Combined 2015 fiscal year” represent the sum of the results of the period from July 1, 2014 to February 1, 2015 (Predecessor) and the period from November 20, 2014 to June 30, 2015 (Successor) (collectively, the “Combined period” or sometimes referred to herein as the “Combined fiscal year,” “Combined 2015 fiscal year” or “Combined fiscal year ended June 30, 2015”). We believe that our use of the Combined period, which represents the mathematical addition of Successor’s fiscal 2015 period and Predecessor’s fiscal 2015 period, provides meaningful information about our results of operations on a period-to-period basis. This approach is not consistent with GAAP, may yield results that are not strictly comparable on a period-to-period basis and may not reflect the actual results we would have achieved if the Presidio Acquisition had occurred at the beginning of the Combined period. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus for additional information including the pro forma adjustments necessary to reflect the Presidio Acquisition as if it had occurred on July 1, 2014.

Unless otherwise indicated, in this prospectus:

 

    “Apollo” means Apollo Global Management, LLC, together with its subsidiaries;

 

    “Apollo Group” means (A) Apollo, (B) the Apollo Funds, (C) any other investment fund or other collective investment vehicle affiliated with or managed by Apollo or whose general partner or managing member is owned, directly or indirectly, by Apollo and (D) any affiliate of the foregoing (in each case, other than the Company and its subsidiaries);

 

    “CAGR” refers to compound annual growth rate;

 

    “Data analytics” refers to data from sensors, cameras, wearables and machines that can be accessed and shaped to derive actionable insights and business outcomes. Spanning a wide range of application use cases, analytics solutions include real-time and predictive data analytics, IT operations analytics, cyber security analytics, and physical security analytics;

 

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    “IaaS” refers to Infrastructure-as-a-Service, which is a standardized, highly automated offering, where computer resources, complemented by storage and networking capabilities, are owned and hosted by a service provider and offered to customers on-demand;

 

    “IoT” refers to Internet of Things, which is the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment;

 

    “IT” refers to information technology;

 

    “Netech” means Netech Corporation;

 

    “OEM” refers to original equipment manufacturer;

 

    “PaaS” refers to Platform-as-a-Service, which is a broad collection of application infrastructure (middleware) services (including application platform, integration, business process management and database services);

 

    We calculate revenue per existing client (exclusive of Netech) as our GAAP revenue, excluding revenue produced by Netech, divided by the total number of customers, excluding Netech customers, that produced revenue in the relevant period;

 

    “SaaS” refers to Software-as-a-Service, which is defined as software that is owned, delivered and managed remotely by one or more providers; and

 

    “SDN” refers to software-defined networks, which are emerging networking architectures that separate the control plane from the data plane in networking equipment.

Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements.”

Trademarks and Trade Names

This prospectus contains references to a number of our trademarks (including service marks) that are registered trademarks or trademarks for which we have pending applications or common-law rights. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective owners.

Market, Industry and Other Data

This prospectus contains industry and market data, forecasts and projections that are based on internal data and estimates, independent industry publications, reports by market research firms and other independent sources, such as Gartner, Inc. (“Gartner”). Although we believe them to be accurate, there can be no assurance as to the accuracy or completeness of such information. Although we are responsible for all of the disclosures contained in this prospectus, we have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. In addition, while we believe that the industry information included herein is generally reliable, such information is inherently imprecise. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the caption “Risk Factors” in this prospectus.

 

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Net Promoter Score (“NPS”) is a measure of customer satisfaction on a scale ranging from -100 to 100 developed by Bain and Co. It measures satisfaction using a scale of one to 10 based on a customer’s response to the following question: “How likely is it that you would recommend Presidio to a friend or colleague?” Scores of 9 or 10 are considered “Promoters.” Scores of 7 or 8 are considered neutral. Scores of 6 or less are considered “Detractors.” The NPS, a percentage expressed as a numerical value, is calculated by subtracting the percentage of respondents who are Promoters from the percentage who are Detractors. The NPS calculation gives no weight to customers who decline to answer the survey question. We measure our NPS quarterly by surveying all customers with whom we have transacted in such quarter, except for those who responded to the survey in the previous quarter. Our NPS for the quarter ended September 30, 2016 is 68, which is 8 points higher than our NPS for the fourth quarter of our 2016 fiscal year.

The Gartner Reports described herein (the “Gartner Reports”) represent research opinions or viewpoints published, as part of a syndicated subscription service, by Gartner and are not representations of fact. The Gartner Reports speak as of their original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice.

In certain instances where the Gartner Reports are identified as the sources of market and industry data contained in this prospectus, the applicable report is identified by superscript notations. The sources of these data are provided below:

 

  (1) Gartner, Market Databook, 2Q16 Update, dated as of June 29, 2016.

 

  (2) Gartner, 2016 CIO Agenda: A U.S. Perspective, dated as of February 19, 2016.

 

  (3) Gartner, Report to Presidio, dated as of May 10, 2016.

 

  (4) Gartner, Forecast: Information Security, Worldwide, 2014-2020, 2Q16 Update, dated as of August 25, 2016.

 

  (5) Gartner, Market Share: IT Services, 2015, dated as of April 6, 2016.

 

  (6) Gartner, Market Trends: Cloud Adoption Trends Favor Public Cloud with a Hybrid Twist, dated as of August 4, 2016.

 

  (7) Gartner, Market Databook 2010 – Q1 2016, dated as of March 28, 2016.

In the Gartner Reports, the market and industry data presented is based on end-user spending and represents calendar year data.

Unless otherwise indicated, in this prospectus, companies in the North American IT market are divided into four categories. These categories are those used by Gartner, and are based on the size of the company. SOHO (Small Office/Home Office) companies are characterized by one-nine employees. Small businesses are characterized by 10-99 employees and less than $50 million in revenue. Midsize, or middle market, companies are characterized by 100-1,000 employees and $50 million to $1 billion in revenue. Large, or enterprise, companies are characterized by over 1,000 employees and more than $1 billion in revenue.

Unless otherwise indicated, in this prospectus, spend in the North American IT market is divided into five categories:

 

    The “Data Center Systems / Network” category includes servers, external controller-based storage, enterprise network equipment and unified communications;

 

    The “Devices” category includes PCs, tablets, phones and printers;

 

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    The “Software” category includes enterprise application software (enterprise resource planning (“ERP”), human resources (“HR”), collaborative, client relationship management (“CRM”) and engineering software) and infrastructure software (application development, information management, enterprise system management, security system software and operating systems);

 

    The “IT Services” category includes business IT services (consulting, implementation, IT outsourcing and “business process outsourcing”) and IT product support (software support and hardware support); and

 

    The “Communications Services” category includes enterprise fixed and mobile services (wide area network (“WAN”), core network, voice services, mobile data services, etc.) and consumer fixed and mobile services (fixed-line voice services, broadband, mobile access and traffic fees, etc.).

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables and charts may not be the arithmetic aggregation of the figures that precede them and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.

Non-GAAP Financial Measures

The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules to regulate the use in filings with the SEC and in other public disclosures of “non-GAAP financial measures,” which include Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue and ratios related thereto. These measures are derived on the basis of methodologies other than in accordance with accounting principles generally accepted in the United States (“GAAP”). These rules govern the manner in which non-GAAP financial measures are publicly presented and require, among other things:

 

    a presentation with equal or greater prominence of the most comparable financial measure or measures calculated and presented in accordance with GAAP; and

 

    a statement disclosing the purposes for which the registrant’s management uses the non-GAAP financial measure.

The rules prohibit, among other things:

 

    exclusion of charges or liabilities that require cash settlement or would have required cash settlement absent an ability to settle in another manner from non-GAAP liquidity measures; and

 

    adjustment of a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to occur.

In addition to financial information presented in accordance with GAAP, management uses Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue (all of which are non-GAAP measures) in this prospectus in its evaluation of past performance and prospects for the future. We define Adjusted EBITDA as net income (loss) plus (i) total depreciation and amortization, (ii) interest and other (income) expense and (iii) income tax expense (benefit), as further adjusted to eliminate noncash share-based compensation expense, purchase accounting adjustments, transaction costs, other costs and earnings from disposed business. We believe that Adjusted EBITDA provides helpful information with respect to our operating performance as viewed by management, including a view of our business that is not dependent on (1) the impact of our capitalization structure and (2) items that are not part of our day-to-day operations.

 

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Management also uses Adjusted Net Income, a non-GAAP measure, in this prospectus in its evaluation of past performance and prospects for the future. We define Adjusted Net Income as net income (loss) adjusted to exclude (i) amortization of intangible assets, (ii) amortization of debt issuance costs, (iii) losses recognized on the disposal of business, (iv) losses on extinguishment of debt, (v) noncash share-based compensation expense, (vi) purchase accounting adjustments, (vii) transaction costs, (viii) other costs, (ix) earnings from disposed business and (x) the income tax impact associated with the foregoing items. We believe that Adjusted Net Income provides additional information regarding our operating performance while considering the interest expense associated with our outstanding debt, as well as the impact of depreciation on our fixed assets and income tax expense. We believe Adjusted Net Income is utilized by investors and other interested parties to facilitate period–over–period comparisons and, relative to other performance measures, provides additional information as to how trends impact our operating performance.

Management also uses Adjusted Revenue, a non-GAAP measure, in its evaluation of historical revenue activity. We define Adjusted Revenue as revenue adjusted to exclude (i) total revenue generated by disposed businesses and (ii) noncash purchase accounting adjustments to total revenue as a result of our acquisitions. We believe that Adjusted Revenue provides supplemental information with respect to our revenue activity associated with our ongoing operations. However, Adjusted Revenue does not represent and should not be considered an alternative to Revenue as determined under GAAP and may not be comparable to other similarly titled measures of other businesses.

Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. They are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income (loss) or revenue, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue have limitations as analytical tools and you should not consider them in isolation or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations include:

 

    noncash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;

 

    Adjusted EBITDA and Adjusted Net Income do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

 

    other companies in our industry may calculate Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations to Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue by relying primarily on our GAAP results and using Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue only for supplemental purposes. Adjusted EBITDA and Adjusted Net Income include adjustments for items that may occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other peer companies over time. For example, it is useful to exclude noncash, share-based compensation expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of the Company’s business operations and these expenses can vary significantly across periods due to timing of new share-based awards. We also exclude certain discrete, unusual or noncash costs, including noncash purchase accounting adjustments, transaction costs (including professional fees and other expenses associated with acquisition and disposition activity) and other costs (such as costs incurred to integrate our managed services customers onto a

 

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single platform) in order to facilitate a more useful period-over-period comparison of the Company’s financial performance. Each of the normal recurring adjustments and other adjustments described in this paragraph help management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are noncash expenses. See our historical consolidated financial statements included elsewhere in this prospectus for our GAAP results. For reconciliations of Adjusted EBITDA, Adjusted Net Income and Adjusted Revenue to the most comparable GAAP measure, see “Prospectus Summary—Summary Historical and Pro Forma Financial Information” and “Selected Historical Consolidated Financial Data.”

 

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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and historical consolidated financial statements included elsewhere in this prospectus. This summary is not complete and may not contain all of the information that may be important to you. You should carefully read the entire prospectus, including the “Risk Factors” section and our historical consolidated financial statements and related notes, before making an investment decision.

Company Overview

Presidio is a leading provider of IT solutions to the middle market in North America. We enable business transformation through our expertise in IT solutions, with a specific focus on Digital Infrastructure, Cloud and Security solutions. Our solutions are delivered through a broad suite of professional services, including strategy, consulting, design and implementation. We complement our professional services with project management, technology acquisition, managed services, maintenance and support to offer a full lifecycle model. Our services-led, lifecycle model leads to ongoing client engagement. As of June 30, 2016, we serve approximately 7,000 middle-market, large and government organizations across a diverse range of industries.

We have three solution areas: (i) Digital Infrastructure, (ii) Cloud and (iii) Security. Through our increasing focus on cloud and security, we believe we are well positioned to benefit from the rapid growth in demand for these technologies and expect our business mix to continue shifting toward them. Within our three solutions areas, we offer customers enterprise-class solutions that are critical to driving digital transformation and expanding business capabilities. Examples of our solutions include advanced networking, IoT, data analytics, data center modernization, hybrid and multi-cloud, cyber risk management and enterprise mobility. These solutions are enabled by our expertise in foundational technologies, built upon our investments in network, data center, security, collaboration and mobility.

The middle market is a highly attractive segment of the IT Services market. We believe we are the leading middle-market provider of IT solutions and are differentiated by our strategic focus on this attractive segment. The increasing potential and complexity of emerging technologies and digital transformation are creating more demand for our solutions and services. As a trusted solutions provider, our clients rely on us for IT investment decisions. We simplify IT for them by building solutions utilizing what we view as the best possible technologies. Customers in the middle market are usually large enough to have substantial technology needs but typically have fewer IT resources and lack the broad expertise required to develop the necessary solutions as compared to larger companies. Since many large-scale IT Services providers focus on larger enterprises, and because many resellers are unable to provide end-to-end solutions, we believe the middle market has remained underpenetrated and underserved.

We develop and maintain our long-term client relationships through a localized direct sales force of over 500 employees based in over 60 offices across the United States as of June 30, 2016. As a strategic partner and trusted advisor to our clients, we provide the expertise to implement new solutions, as well as optimize and better leverage existing IT resources. We provide strategy, consulting, design, customized deployment, integration and lifecycle management through our team of approximately 1,600 engineers as of June 30, 2016, enabling us to architect and manage the ideal IT solutions for our clients. Our local delivery model, combining relationship managers and expert engineering teams, allows us to win, retain and expand our client relationships.

Our client base is diversified across individual customers and industry verticals. In our fiscal year ended June 30, 2016, only 19% of our revenue was attributable to our top 25 clients by revenue and no industry vertical accounted for more than 20% of our revenue. Among the verticals that we serve, healthcare, professional services, financial services, governments and education are our largest categories. We believe that our diversified business profile is a key driver of our ability to generate growth across different economic and technology cycles.

 



 

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Our strategic focus on the middle market and high-growth solutions areas has enabled us to achieve 11% annualized growth in our revenue from our fiscal year ended June 30, 2012 to our fiscal year ended June 30, 2016. Over the same period, we have significantly outpaced the overall IT market growth rate, according to Gartner. We believe that we are well positioned for continued success as IT becomes more transformative and complex, driving demand for our solutions.

Our revenue was $1,393 million for the Predecessor period beginning July 1, 2014 and ending February 1, 2015 and $985 million for the Successor period beginning November 20, 2014 and ending June 30, 2015. From November 20, 2014 to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition. Our revenue for our Combined fiscal year ended June 30, 2015 was $2,378 million and increased 14.2% to $2,715 million in our fiscal year ended June 30, 2016. In our fiscal year ended June 30, 2016, our net loss was $3.4 million. In the same period, Adjusted EBITDA and Adjusted Net Income were $211.1 million and $81.2 million, respectively. Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures. See “Non-GAAP Financial Measures” and footnotes 2 and 4 under “—Summary Historical and Pro Forma Financial Information” for the definitions of Adjusted EBITDA and Adjusted Net Income, the reasons for their inclusion and a reconciliation to net income.

Market Overview

We operate in the large and growing North American IT market. According to Gartner, the overall North American IT market is expected to grow to $1.3 trillion by 2020, representing a 2.6% CAGR from 2015, and the IT Services sub-market is expected to grow by 5.3% over the same period, to $497 billion.

 

North America IT Spend by Category1

 

  North America IT Spend by Company Size              

 

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Our primary focus is on the attractive middle market, which, according to Gartner, is projected to grow from $226 billion in 2015 to $293 billion in 2020, representing a 5.3% CAGR. The middle market is one of the fastest growing segments of the overall North American IT market in part because its companies often employ smaller internal IT teams that do not have the broad expertise required to keep pace with increasingly complex IT environments and constant technology changes. Industry dynamics continue to favor services-led solutions providers, as businesses increasingly rely on us to advise them on complex IT projects, enabling them to better focus on their core capabilities and enhance productivity.

We believe that growth in IT spending will continue to be driven by the adoption of new technologies and market-related trends in cloud, security and IoT and the desire to integrate people, process and technology into digital business

 

1  See Gartner note (1) in the section titled “Market, Industry and Other Data.”

 



 

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models. These trends reflect expanding IT complexity that organizations must manage to remain competitive; however, many middle-market companies lack the resources to design, integrate and manage full life cycle solutions across multiple technology silos to capitalize on these new technologies. A recent survey by Gartner2 predicted that the four biggest drivers of increased IT budget spend would be in the areas of analytics, infrastructure and datacenter, security and cloud, all of which are areas addressed by our core solutions.

Because of our strategic focus on high-growth solutions areas, our North American total addressable market (“TAM”) is expected to grow at a 12% CAGR from $189 billion in 2015 to $328 billion in 2020, according to Gartner and management estimates.3

 

Digital Infrastructure TAM

 

 

Cloud TAM        

 

  Security TAM                

 

LOGO

Specific components of our TAM are as follows:

 

    Digital infrastructure solutions: Gartner estimates that our addressable enterprise-class infrastructure market was $160 billion in 2015 and is projected to grow at a 10% CAGR through 2020. Gartner defines infrastructure solutions as infrastructure services, network services, data center hardware and software, data center outsourcing, enterprise network outsourcing, data center systems support and network systems support, as well as IoT implementation, operations and consulting. Gartner defines enterprise-class as “the ability of a given tool or product to handle complex processes or services.” We believe key emerging trends driving this growth include increased infrastructure requirements for cloud (public, private and multi) usage including integration of SaaS applications into environments, low-latency requirements, SDN, IoT-connected devices and data management strategies supporting data analytics. We enable businesses to capitalize on these emerging trends by designing and deploying new solutions and by refreshing and replacing their inflexible or under-provisioned existing networks and infrastructure.

 

    Cloud solutions: Over the past several years, the SaaS, PaaS and IaaS markets have provided a viable complement to traditional on-premise, enterprise-class infrastructure solutions. Clients are deploying multi-cloud solutions that drive increased demand for private clouds, networking, storage and virtualization, as well as public-cloud integration. Gartner estimates that the North American cloud infrastructure opportunity was approximately $10 billion in 2015 and is projected to grow at a CAGR of more than 35% through 2020. Gartner defines cloud solutions as cloud computing services.

 

    Security solutions: The information security market has been driven by an increase in threats and targeted attacks over the last several years. This is due to the substantial increase in sophistication of attacks (including organized crime and state-sponsored entities) and client adoption of new technologies such as cloud computing and IoT that have created new security exposures for businesses. Security attacks have affected nearly every

 

2  See Gartner note (2) in the section titled “Market, Industry and Other Data.”
3  See Gartner note (3) in the section titled “Market, Industry and Other Data.”

 



 

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organization, making security a top priority for senior management teams and boards of directors. Despite years of effort and an estimated tens of billions of dollars spent annually,4 we believe that most organizations are still not sufficiently protected against cyberattacks. Additionally, heightened sensitivity around data security has introduced new regulation and contractual requirements in a number of the industries we serve. According to Gartner and management estimates, the North American security market was $19 billion in 2015, with a projected CAGR of more than 10% through 2020.5 Gartner defines security solutions as consulting, hardware support, implementation and IT outsourcing.

We believe that we are well positioned within the fragmented North American IT Services market—where no individual company has over 5% market share, according to Gartner.6 We have become a trusted advisor to our middle-market clients by providing enterprise-class, vendor-agnostic and end-to-end solutions through our national team of engineers and strong local relationships. We believe that our value proposition will allow us to take market share because local and regional service providers lack our scale, technology expertise and end-to-end solution capabilities and the larger national and global firms do not have the focus, local relationships and organizational structure to provide solutions to the middle market.

Our Solutions

We consider ourselves to be a leading provider of end-to-end and innovative IT solutions across our three solution areas: (i) Digital Infrastructure, (ii) Cloud and (iii) Security. Due to the accelerated growth and adoption of cloud and security solutions, as seen in Gartner’s projected growth in our total addressable markets, we expect Cloud and Security to continue to drive a mix shift in our revenue base over time.

(Percentage of fiscal 2016 revenue)

 

Digital Infrastructure           Cloud   Security            

 

LOGO

At the core of our solutions is our services expertise, which combines professional services, project management and technology acquisition, as well as managed, maintenance and support services across our clients’ IT lifecycle. Our offerings are focused on five core foundational IT technologies: network, data center, security, collaboration and mobility. We enable our clients to capitalize on technology advances, simplify IT complexity and optimize existing environments, which drives business transformation through new applications, user experiences and revenue models. As a services-led organization, we work with our clients to understand their unique business challenges and opportunities. Once a client’s needs have been identified, a team of Presidio engineers designs a vendor-agnostic IT solution tailored to the client’s

 

4  See Gartner note (4) in the section titled “Market, Industry and Other Data.”
5  See Gartner note (4) in the section titled “Market, Industry and Other Data.”
6  See Gartner note (5) in the section titled “Market, Industry and Other Data.”

 



 

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objectives and then acquires the technology and implements the solution. As part of our full lifecycle model, we also provide managed, maintenance and support services to our clients.

 

LOGO

Across each of our solution areas, we focus on building expertise in the emerging trends and leading-edge technologies that matter most to our clients. Specifically, in Digital Infrastructure, we have deployed next-generation, converged network and data center technologies to support the increasing demands of multi-channel client interaction and an increasingly mobile workforce. In Cloud, we have developed solutions that allow us to deploy hybrid and multi-cloud environments and software-defined infrastructure, in an automated and orchestrated fashion, giving our clients agility and powerful governance over their application environments. In Security, we have developed strong capabilities in risk assessment, gap remediation, proactive risk management and incident response.

Digital Infrastructure Solutions: Our enterprise-class Digital Infrastructure solutions enable clients to deploy IT infrastructure that is cloud-flexible, mobile-ready, secure and insight-driven. We also make clients’ existing IT infrastructure more efficient and flexible for emerging technologies. Within Digital Infrastructure, we are focused on networking, collaboration, enterprise mobility, IoT and data analytics. In networking, we are designing and deploying the intelligent interconnectivity that will enable our customers to take advantage of the advances in IT, including cloud and data analytics. In collaboration, we help our clients create environments that allow for faster decision-making by integrating all

 



 

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their critical business and communications applications into a unified solution. Our solutions are mobile-ready, as we extend our clients’ local and wide area networks by enabling reliable, secure and scalable access to all types of mobile devices. In IoT, we are helping our clients move from traditional manual processes to automated machine-to-machine connectivity, enabling enhanced efficiency, powerful data insights and integration of historically non-IT assets into the IT environment. Given the millions of potential configurations across technologies, our clients rely on our expertise to simplify the highly complex IT landscape.

Cloud Solutions: We have found that businesses are increasingly required to deliver new products and services to market in shortened time frames by leveraging technology to transform the rate at which they can innovate. Part of this transformation is the proliferation and adoption of the cloud. As a result, companies are increasingly turning to us for help with their cloud strategy and adoption. A recent survey by Gartner7 indicated that 71% of organizations currently deploy or plan to deploy cloud services by the end of 2017. Through our acquisition of Sequoia Worldwide LLC (“Sequoia”) and our organic investments, we provide cloud enablement and migration services as well as private, hybrid and multi-cloud solutions, including data center modernization, managed cloud, orchestration and automation and operational support to our clients. We combine our highly specialized cloud professional services with our deep experience in cloud-managed services, converged infrastructure, server, storage, support and capacity-on-demand economic models to provide a complete lifecycle of cloud infrastructure solutions for our clients. Our proprietary tools, technical expertise and vendor-agnostic approach help our clients accelerate and simplify cloud adoption across the entire IT lifecycle.

Security Solutions: We use a risk-based security consulting methodology to assess, design, implement, manage and maintain information security solutions that protect our customers’ critical business data and protects against loss of client loyalty, corporate reputation and disruptions in ongoing operations. We offer cyber risk management, infrastructure security and managed security solutions to our clients. Through our Next Generation Risk Management (“NGRM”), we provide comprehensive risk assessments, detailed reporting, ongoing reviews, process and program development, and training services. NGRM ensures that identified vulnerabilities are mitigated and business risk has been properly addressed. Because our customers’ infrastructures are constantly changing, our NGRM offering is structured as a recurring service with regular periodic assessments of the current security posture combined with ongoing monitoring and surveillance through our 7x24 Security Operations Centers. Our experience spans all major verticals including retail, education, healthcare, government, banking, pharmaceutical and others. We have expertise with the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), Payment Card Industry Data Security Standard (“PCI DSS”), the Federal Information Security Management Act (“FISMA”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and others. We help our clients design and implement information security programs consistent with industry best practices and comply with the regulatory mandates of their specific vertical that are flexible enough to help ensure information security in an ever-changing risk environment. Findings, recommendations and real time security posture status, including our proprietary Risk Management Score, are provided through a 7x24 portal that is accessible by our clients and is updated with the up to date vulnerabilities identified by several industry sources.

We help our clients establish both technical and non-technical security controls and practices to prevent, detect, correct and minimize the risk of loss or damage to information resources, disruption of access to information resources, and unauthorized disclosure of information. In addition to our NGRM program, we offer options for security strategy program development, security awareness training, technology exposure assessments and incident response.

We offer our end-to-end solutions through our full lifecycle model. Our lifecycle approach is delivered through professional services, which includes strategy and consulting, solutions design, testing and configuration and custom deployment, as well as project management and technology acquisition, managed services and maintenance and support. Once a solution has been designed and agreed upon, our engineers provide expert implementation and integration of the customized solution into the client’s IT environment. As part of deployment, we stage and test solutions before installing them and then coordinate resources and manage timelines to make sure we deliver according to our client’s exact

 

7  See Gartner note (6) in the section titled “Market, Industry and Other Data.”

 



 

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specifications. Once a solution has been deployed, we provide managed maintenance and support services to ensure our clients IT environments are operating according to plan. As part of our ongoing support, we help our clients identify areas where they can further strengthen their IT solutions.

 

Presidio’s Lifecycle Model

 

 

LOGO

Our ability to provide a full lifecycle of services creates multiple ongoing touch points with our clients, which we believe drives deep client relationships and high satisfaction because we are able to serve as the single source for their IT solutions needs.

Our Go-to-market Approach

Our approach is to deliver engineering and services-led solutions to best meet our clients’ evolving IT needs. We have built an innovative and flexible organization with a proven history of identifying and capitalizing on disruptive technologies and market transitions. As of June 30, 2016, we have over 500 direct sales professionals and a team of approximately 1,600 engineers across more than 60 offices nationally who we believe provide high-quality, consistent service to our clients. Our model is focused on developing long-standing, deep relationships through local touch-points, combined with strong technical expertise and the ability to provide an end-to-end solution to solve our clients’ complex IT needs. Our relationships with our clients extend beyond the solutions we provide to include full lifecycle services such as managed services, maintenance and support, which drive our ongoing client engagement. Our service-led model resulted in 92% of our revenue for our fiscal year ended June 30, 2016 coming from clients that purchased our services. We believe the differentiated combination of our national scale, local reach, technology expertise, end-to-end solution capabilities and full lifecycle services separates us from other providers in the market.

 



 

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Our vendor-agnostic approach to the market allows us to develop optimal solutions based on what we view as the best mix of technologies. Our best-of-breed philosophy is a significant differentiator versus reseller and fulfillment models. Rather than responding to simple procurement requests, we advise clients on solutions that drive business transformation. We then design the solutions with what we view as the best technologies available.

To cater to certain clients’ desires to lower capital expenditures, we offer flexible consumption models. For example, we have the ability to deliver our full range of IT solutions in an ITaaS model. This provides clients with the option to consume technology “as a service,” accessing and paying for technology as it is consumed.

Our Competitive Strengths

Leading Provider of IT Solutions to the Middle Market

We focus on serving the attractive middle-market segment of the IT Services market. The middle market is one of the fastest growing segments of the overall IT Services market. We believe this is due to the strong demand for IT expertise in the segment, the massive number of companies in the segment and significant underpenetration in the segment. We believe we have created a compelling brand and reputation as a leading provider of enterprise-class IT solutions. We have a differentiated combination of national scale, local reach, technology expertise, end-to-end solution capabilities and full lifecycle services that we believe separates us from other providers in the market. Our ability to provide end-to-end solutions and solve complex needs has allowed us to become a partner of choice for our middle-market clients.

End-to-end Enterprise-class Solutions

We deliver our end-to-end solutions through a full lifecycle model, which combines consulting, engineering, managed services and technology to give us a significant competitive advantage compared to other IT providers. We believe that businesses are increasingly seeking a single provider of integrated multi-vendor, multi-technology solutions for their complex and mission-critical IT needs. Our ability to take a client’s high-level vision and distill it into a tangible IT roadmap is a key differentiator for our company; it requires a high degree of investment and technical know-how across technologies that would be difficult and costly to replicate. Our solutions enhance the technology capabilities that our clients believe are most important to their businesses by empowering enhanced productivity and expanded offerings to their clients. With our clients, our lifecycle approach allows for ongoing engagement across new projects and upgrades, as well as ongoing managed services and support. This service-led model resulted in 92% of our revenue for our fiscal year ended June 30, 2016 coming from clients that purchased our services.

Cutting-edge Technology Capabilities with a Proven Record of Capitalizing on Technological Shifts

We believe that our flexible business model has enabled us to stay at the forefront of technology trends and develop a strong track record of growing across technology innovation cycles. We actively make organic and inorganic investments in the future of IT solutions, including multi-cloud, IoT, security and managed services. Recent examples of solutions developed for clients include our connected-vehicle solutions, Presidio Managed Cloud and our proprietary NGRM security offering. To ensure our clients have access to a wide range of technologies and best-of-breed solutions, we have developed strong relationships with over 500 OEMs as of June 30, 2016. We partner with leading IT providers, such as Cisco, Citrix, Dell, EMC, F5, NetApp and VMware, as well as with emerging OEMs who specialize in next-generation technology such as Arista, FireEye, Nutanix, Palo Alto and Pure. We also partner with cloud service providers, such as Amazon Web Services and Microsoft Azure, to help our clients capitalize on public and multi-cloud environments.

National Scale with Local Relationships Driven by an Industry-leading Team of Engineers

While we operate on a national scale, our go-to-market approach is highly localized, helping to ensure a high degree of connectivity and continuity with our clients. Our solutions capability is powered by our services-led organization with

 



 

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specialized expertise across over 60 offices in the United States and over 2,800 employees nationally (in each case, as of June 30, 2016) to provide a high degree of connectivity with our clients. We deploy our end-to-end IT solutions through our team of over 1,600 engineers as of June 30, 2016, providing our middle-market client base with expertise that is difficult to replicate in-house. Our productive sales force, combined with our strong consulting capabilities, drive what we believe is our industry-leading engineer-to-sales-person ratio. We believe that the talent, experience and credibility of our engineering team help make us a preferred provider for advanced IT solutions.

The following map shows our office locations, which we believe demonstrates our broad geographic reach.

 

Presidio’s Geographic Footprint

 

 

LOGO

Broad and Loyal Client Base

As of June 30, 2016, we have approximately 7,000 clients primarily in the middle market and government segments. In addition, we also serve clients that have grown beyond the middle market, as well as targeted large enterprises. Our clients span a number of large and economically important verticals, including financial services, healthcare, professional services, retail, media and education, as well as local and federal government. Our broad client base provides us a diversified and reoccurring revenue opportunity that helps us grow across economic and technology cycles. Our high-touch, lifecycle approach has resulted in strong client satisfaction as demonstrated by our Net Promoter Score (NPS) of 49 in 2014 and 59 in 2015, which compares very favorably to the “Tech Vendor” average NPS score of 31.8 according to Satmetrics. This positive client satisfaction helps drive our long-term and expanding client relationships. Since 2013, we have grown the number of clients to whom we have sold solutions across all three of our solutions areas from approximately 500 to approximately 1,600. Our relationship with our top 25 clients averages over six years. Our clients are loyal and continue to rely on us for services and new solutions, as evidenced by the fact that clients comprising 95% of our fiscal 2013 revenue made repeat purchases during our 2014 to 2016 fiscal years.

Strong Domain Expertise

Our engineers develop custom solutions for clients within specific technologies and verticals and drive them across our national network. We have expertise in digital infrastructure, cloud and security solutions, and we have a deep

 



 

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understanding of the emerging trends, technologies and best practices. Our extensive experience designing solutions based on a broad set of technologies allows us to create differentiated and best-in-class solutions, which we expect to be increasingly important as IT solutions become increasingly multi-vendor and clients desire a trusted advisor to design best-in-class solutions. Across our national platform, we develop insights into the specific IT challenges facing our clients, which provide us with a significant advantage in developing superior solutions and winning new clients. We are able to leverage this domain expertise within and across verticals and technologies. Our ability to replicate and scale our knowledge and practices greatly enhances our efficiency and the quality of our solutions. Through our proprietary iConnect internal intranet, Presidio engineering and sales teams are able to access prior work product including successful proposals, scopes of work, design and as-built drawings, configurations and technical training. By leveraging this knowledgebase our professionals are able to quickly and efficiently respond to new opportunities with validated technical details based on previous work for that client or another of a similar size or in a similar vertical.

Our Growth Strategies

Expand and Deepen Relationships with Existing Clients

We have a long history of expanding revenue from existing clients by selling additional solutions based on their evolving needs. Our sales force and consulting teams grew our revenue per existing client (exclusive of Netech) from $382,000 in our fiscal year ended June 30, 2014 to $459,000 in our fiscal year ended June 30, 2016 by expanding the breadth of technical solutions we provide and further penetrating our client base. We believe increasing complexity in the market combined, with our end-to-end IT solutions and our high-touch, lifecycle approach, position us for continued growth. This approach has resulted in strong client satisfaction and increasing client engagement that we believe will enable us to continue expanding our revenue per client as our clients leverage our expertise to adopt emerging technologies. As middle-market businesses embrace cloud capabilities and enhance digital security, we believe we are well positioned to capture increased spend from our existing client relationships.

Develop New Client Relationships

We believe the diverse and fragmented nature of the North American IT Services market provides us with a significant opportunity to further grow our client base. We have developed domain expertise managing complex technologies and vertical specific-challenges, which makes us a compelling choice for potential clients looking for an IT solutions partner. Our efforts to develop new client relationships are supported by our existing referenceable client base. With our technological capabilities and proven record of success with clients, we are well positioned to acquire more clients as the need grows for consulting, deployment, integration and managed services. We also conduct highly coordinated marketing and sales activities using the strength of the Presidio brand to win new clients and penetrate highly localized markets. In these markets, we are well positioned against smaller regional IT providers who lack the resources to invest in increasingly advanced IT solutions.

Develop and Offer New Services and Solutions

We focus on providing our clients with the highest quality, optimal solutions for their complex IT needs. We have developed innovative solutions for our clients across technology cycles and are currently developing and providing solutions based on emerging IT trends. Digital Infrastructure, Cloud and Security are some of the fastest growing areas of IT spend and we are focused on developing and deploying new solutions to serve these markets. For example, we have a proprietary connected-vehicle solution, Presidio Managed Cloud and NGRM security offering that help solve complex IT problems associated with these trends. Through our national team of engineers, we maintain institutional knowledge and services capabilities that are adaptable, scalable and transferrable. We are constantly improving our offerings and developing new services and solutions for our clients, which we expect to drive incremental growth from existing and new clients.

 



 

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Further Penetrate the North American Market

We have been expanding our geographic footprint in North America organically and inorganically and see new opportunities in several major regions. We take a deliberate and strategic approach to deciding which markets to pursue and consider a number of factors. Our expertise and solutions are scalable from region to region, so as we continue to expand we expect to take market share and create opportunities in new markets. For example, through organic investment in the Great Lakes region we generated a revenue CAGR of 36% from fiscal year 2012 to fiscal year 2016 in that region. Over that time period, we expanded our sales organization in key markets in Chicago, Indianapolis, Detroit, Cincinnati and Cleveland, and at the same time we made investments in engineering personnel to support our expanded activities in the region.

Pursue Strategic Acquisitions

We expect to continue to consider strategic acquisitions that can increase our technology expertise and geographic presence. We believe that our M&A strategy enhances and augments all of our growth avenues, including gaining capabilities, cross-selling to our existing clients and entering new markets and verticals. Since 2004, we have acquired and successfully integrated ten companies, capitalizing on our scale, client relationships and vendor partnerships to drive margin expansion post-acquisition. In 2015, we acquired Sequoia, a consulting, integration and services company headquartered in California, which provides us with improved cloud consulting and integration capabilities. Most recently, in 2016, we acquired Netech Corporation, an IT solutions provider headquartered in Michigan, which provides us with 11 offices to penetrate significant opportunities in the Midwestern United States. We have been successful at integrating our acquisitions and at retaining key management talent. These acquisitions are complementary with new office openings and the organic expansion of our presence in existing geographic markets. We expect to continue to selectively pursue acquisition opportunities within the highly fragmented IT solutions market, with a focus on enhancing our solutions offerings and geographic presence.

Our History

Since our founding in 2004, the hallmarks of our culture have centered around client service and collaboration. Our business model has been defined by delivering engineering- and services-led solutions using a cost-effective, localized model that leverages a powerful OEM vendor ecosystem. This formula has driven our internal organic growth while at the same time setting the criteria for identifying acquisition opportunities. From our 2012 fiscal year to our 2016 fiscal year, we have grown our revenue from $1.76 billion to $2.71 billion, representing an 11% CAGR, which is significantly faster than U.S. IT spending and U.S. real GDP, which have grown at 2.1% and 1.9%, respectively, over the same periods, according to Gartner8 and the Bureau of Economic Analysis, respectively.9

We are led by Chief Executive Officer Bob Cagnazzi, Chief Financial Officer Paul Fletcher, Chief Operating Officer Dave Hart and Chief Technology Officer Vinu Thomas. They are joined by a management team with an extensive track record of performance and execution, drawing on approximately 280 collective years of experience in the North American IT solutions markets. Our senior leadership team is backed by a deep bench of management and technology talent that we believe provides us with a pipeline of future leaders and innovators.

Under this team’s leadership, we have entered new geographies and adjacent technologies and achieved above-market growth. Presidio has grown into a national business with the scale and capability to serve a diverse set of end markets and technology challenges. We believe that the depth and extensive industry experience of our management team will serve to provide solid leadership for continued growth and profitability.

 

8  See Gartner note (7) in the section titled “Market, Industry and Other Data.”
9  Source: Bureau of Economic Analysis—U.S. Department of Commerce, “NIPA Tables.”

 



 

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Acquisitions

We have a long and successful track record of growing and improving our business and retaining key personnel through strategic tuck-in acquisitions. Since 2004, we have made ten strategic acquisitions. We acquire assets to improve our technology expertise and expand our geographic footprint. Recent examples include:

 

    2016, we acquired Netech to expand our reach in the U.S. Midwest / Great Lakes region;

 

    2015, we acquired Sequoia to improve our highly specialized cloud professional services;

 

    2012, we acquired BlueWater Communications to expand our portfolio of advanced IT solutions and managed services; and

 

    2011, we acquired INX to broaden our portfolio of services and solutions and to significantly expand our footprint across the United States.

Through this experience we have created specific methodologies and processes related to the identification and integration of targets.

Risk Factors

Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are several risks related to our business and our ability to leverage our strengths that are described under “Risk Factors.” Among these important risks are the following:

 

    our reliance on key vendors and any potential termination of those relationships;

 

    the role of rapid innovation and the introduction of new products in our industry;

 

    our ability to compete effectively in a competitive industry;

 

    risks pertaining to our substantial level of indebtedness; and

 

    risks associated with investing in a controlled company.

Our Sponsor

Our principal stockholders are the Apollo Funds, as described below.

AP VIII Aegis Holdings, L.P. (“Aegis LP”) is the beneficial owner of most of our common stock. See “Principal Stockholders.” AP VIII Aegis Holdings GP, LLC (“Aegis GP”) is the general partner of Aegis LP and Apollo Investment Fund VIII, L.P. (“Apollo VIII”), Apollo Overseas Partners VIII, L.P. (“Apollo Overseas VIII”), Apollo Overseas Partners (Delaware) VIII, L.P. (“Apollo Overseas Delaware”) and Apollo Overseas Partners (Delaware 892) VIII, L.P. (“Apollo Overseas Delaware 892”) (collectively, the “Equity Funds”) are members of Aegis GP. Apollo VIII serves as the investment manager of the Equity Funds and as the non-member manager of Aegis GP. Apollo Management, L.P. (“Apollo Management”) is the sole member and manager of Apollo VIII and Apollo Management GP, LLC (“Apollo Management GP”) is the general partner of Apollo Management. Apollo Management Holdings, L.P. (“Management Holdings”) is the sole member and manager of Apollo Management GP and Apollo Management Holdings GP, LLC (“Management Holdings GP”) is the general partner of Management Holdings. Leon Black, Joshua Harris and Marc Rowan are the managers, as well as

 



 

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executive officers, of Management Holdings GP. The address of each of the entities and individuals, respectively, listed in this paragraph is 9 West 57th Street, New York, New York 10019.

Founded in 1990, Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, Chicago, Bethesda, Toronto, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong and Shanghai. As of September 30, 2016, Apollo had assets under management of approximately $189 billion in private equity, credit and real estate funds, invested across a core group of nine industries in which Apollo has considerable knowledge and resources. For more information about Apollo, please visit www.agm.com. Information contained on Apollo’s website is not intended to form a part of or be incorporated by reference into this prospectus.

Additional Information

We were incorporated in Delaware on November 20, 2014 under the name Aegis Holdings, Inc. On September 15, 2016, we changed our name to Presidio, Inc. Our principal executive offices are located at One Penn Plaza, Suite 2832, New York, New York 10119 and our telephone number is (212) 652-5700. We also maintain a website at http://www.Presidio.com. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which this prospectus forms a part and you should not rely on any such information in making your decision whether to purchase our common stock.

 



 

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Ownership and Organizational Structure

The following diagram sets forth our ownership and organizational structure immediately following the completion of this Offering. See “Principal Stockholders” and “Capitalization.”

 

LOGO

 



 

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THE OFFERING

 

Common stock offered

                shares.

 

Underwriters’ option to purchase additional shares

                shares.

 

Common stock to be outstanding after this Offering

                 shares (                 shares if the underwriters exercise their option to purchase additional shares in full).

 

Listing

We expect to apply to list our common stock on                 under the symbol “                 .”

 

Use of proceeds

Assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our common stock will be $ million (or $         million if the underwriters exercise in full their option to purchase additional shares of common stock from us), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this Offering to repay or redeem certain of our indebtedness, with any remaining net proceeds to be used for working capital or general corporate purposes.

 

  Affiliates of Apollo hold an economic interest in 100% of our outstanding Subordinated Notes pursuant to derivative arrangements entered into with a nonaffiliated third party who is the holder of 100% of the Subordinated Notes. As such, we presently anticipate that any portion of the proceeds of this Offering which is used by the Company to redeem the Subordinated Notes, if any, would be paid, directly or indirectly, to such affiliates of Apollo. See “Use of Proceeds.”

 

Controlled company

After the completion of this Offering, the Apollo Funds will continue to own a majority of the voting power of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of           . See “Principal Stockholders.”

 

Dividends

We currently expect to retain all available funds and any future earnings for use in the operation and expansion of our business. We do not currently anticipate paying dividends on our common stock following this Offering. Any declaration and payment of future dividends to holders of our common stock may be limited by restrictive covenants in our debt agreements and will be at the sole discretion of our Board of Directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. See “Dividend Policy.”

 

Risk factors

You should carefully read and consider the information set forth under “Risk Factors,” beginning on page 23 of this prospectus, and all the other information set forth in this prospectus before investing in our stock.

 



 

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Unless otherwise noted, references in this prospectus to the number of shares outstanding exclude:

 

                shares of our common stock issuable upon the exercise of options outstanding as of September 30, 2016 at a weighted average exercise price of $         per share; and

 

                shares of common stock reserved for issuance under our share-based compensation plans.

Unless otherwise indicated, the information contained in this prospectus assumes:

 

    no exercise of the underwriters’ option to purchase                 additional shares;

 

    an initial public offering price of $            , which is the midpoint of the price range set forth on the cover page of this prospectus;

 

    the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this Offering; and

 

    the completion of a         -for-         split of our common stock, which was effectuated by the filing of the certificate of amendment to our certificate of incorporation on                 , 2017.

 



 

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following tables present our summary historical and pro forma financial data for the periods presented. The summary historical consolidated statements of operations for the three months ended September 30, 2016 and 2015 and the summary historical consolidated balance sheet information as of September 30, 2016 have been derived from our unaudited interim consolidated financial statements, included elsewhere in this prospectus. The summary historical statements of operations for the fiscal years ended June 30, 2016, 2015 and 2014 and the summary historical balance sheet information as of June 30, 2016 and 2015 have been derived from our audited historical consolidated financial statements, included elsewhere in this prospectus.

The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, consist only of normal and recurring adjustments necessary for a fair presentation of the information set forth herein.

The summary pro forma condensed consolidated statement of operations for the three months ended September 30, 2016 and the summary pro forma condensed consolidated balance sheet information as of September 30, 2016 have been derived from our unaudited pro forma condensed consolidated financial statements, included elsewhere in this prospectus and have been adjusted to reflect the completion of this Offering, including the issuance of common stock and the use of proceeds therefrom, as described under “Use of Proceeds.” The summary pro forma condensed consolidated statement of operations for the fiscal year ended June 30, 2016 has been derived from our unaudited pro forma condensed consolidated financial statements, included elsewhere in this prospectus and has been adjusted to reflect the completion of this Offering, including the issuance of common stock and the use of proceeds therefrom, as described under “Use of Proceeds,” to the extent they have not been fully reflected in the historical consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet gives effect to transactions as if they had occurred on September 30, 2016. The unaudited pro forma condensed consolidated statement of operations for the three months ended September 30, 2016 gives effect to the transactions described above as if they had occurred on July 1, 2015. The unaudited pro forma condensed consolidated statement of operations for the fiscal year ended June 30, 2016 gives effect to the transactions described above as if they had occurred on July 1, 2015.

The unaudited pro forma condensed consolidated financial information set forth below is based upon available information and assumptions that we believe are reasonable. The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the above transactions occurred on the dates indicated. The unaudited pro forma condensed consolidated financial information also should not be considered representative of our future financial condition or results of operations.

On February 2, 2015, the Apollo Funds completed the Presidio Acquisition. Under the terms of the Presidio Acquisition, Presidio Holdings Inc. (the Predecessor) became a wholly owned subsidiary of Presidio, Inc. (the Successor). As a result of the Presidio Acquisition, the financial information for all periods ending on or after February 2, 2015 represent the financial information of the Successor. Periods ending prior to February 2, 2015 represent the financial information of the Predecessor. From November 20, 2014 (its date of inception) to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition.

For purposes of presenting a comparison of our fiscal 2016 and fiscal 2014 results to our fiscal 2015 results, we have presented summary historical condensed financial information on a combined basis as the mathematical addition of the Predecessor and Successor periods that comprise our fiscal 2015 period. We believe that the presentation with mathematical addition to form the Combined period provides meaningful information about our results of operations that is consistent with how management views the business. This approach may yield results that are not strictly comparable on a period to period basis and may not reflect the actual results we would have achieved if the Presidio Acquisition had occurred at the beginning of the Combined period. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of

 



 

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Operations” in this prospectus for additional information including the pro forma adjustments necessary to reflect the Presidio Acquisition as if it had occurred on July 1, 2014.

The following financial information should be read in conjunction with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical consolidated financial statements and the related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future, and interim financial results are not necessarily indicative of results that may be expected for the full fiscal year.

 

    Predecessor     Combined     Successor     Pro Forma  
(in millions, except share and
per share data)
  Fiscal year
ended
June 30,
2014
    Fiscal year
ended
June 30,
2015
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2016
 

Statement of operations data:

             

Revenue

  $ 2,266.0      $ 2,378.3      $ 2,714.9      $ 692.0      $ 737.7      $        $     

Gross margin

  $ 454.0      $ 486.3      $ 540.6      $ 136.9      $ 148.6      $        $     

Operating income

  $ 91.5      $ 37.4      $ 98.9      $ 36.7      $ 30.3      $        $     

Net income (loss)

  $ 32.5      $ (29.4   $ (3.4   $ 9.7      $ 5.6      $        $     

Earnings (loss) per share:

             

Basic

  $ 0.06      $ (0.84   $ (0.10   $ 0.28      $ 0.16      $        $     

Diluted

  $ 0.06      $ (0.84   $ (0.10   $ 0.27      $ 0.15      $        $     

Weighted average shares used to compute earnings (loss) per share:

             

Basic

    561,829,775        35,005,269        35,558,981        35,245,974        35,966,235       

Diluted

    572,656,299        35,005,269        35,558,981        35,906,253        36,940,763       

Balance sheet data (at end of period):

             

Cash and cash equivalents

  $ 8.5      $ 88.3      $ 33.0      $ 67.6      $ 47.7       

Total assets

    1,545.0        2,444.4        2,623.1        2,491.0        2,678.6       

Total long-term debt

    618.7        933.7        1,038.0        896.5        1,032.6       

Total liabilities

    1,448.5        2,108.6        2,276.2        2,144.9        2,325.5       

Total stockholders’ equity

    96.5        335.8        346.9        346.1        353.1       

Cash dividends declared per common share

  $ 0.46      $      $      $      $       

Other financial data:

             

Adjusted Revenue (1)

  $ 2,149.9      $ 2,264.2      $ 2,683.7      $ 665.5      $ 738.0      $        $     

Adjusted EBITDA (2)

  $ 167.0      $ 184.8      $ 211.1      $ 59.3      $ 58.2      $        $     

Adjusted EBITDA
margin (2)(3)

    7.8     8.2     7.9     8.9     7.9                                  

Adjusted Net Income (4)

  $ 81.7      $ 72.0      $ 81.2      $ 24.1      $ 24.5      $        $     

Adjusted Net Income per share:

             

Basic

  $ 0.15      $ 2.06      $ 2.28      $ 0.68      $ 0.68      $        $     

Diluted

  $ 0.14      $ 2.02      $ 2.23      $ 0.67      $ 0.66      $        $     

Weighted average shares used to compute Adjusted Net Income per share:

             

Basic

    561,829,775        35,005,269        35,558,981        35,245,974        35,966,235       

Diluted

    572,656,299        35,655,707        36,415,101        35,906,253        36,940,763       

 

(1) We define Adjusted Revenue as revenue adjusted to exclude (i) revenue generated by disposed businesses and (ii) noncash purchase accounting adjustments to revenue as a result of our acquisitions. The following table presents a reconciliation of Adjusted Revenue from Revenue.

 



 

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    Predecessor     Combined     Successor     Pro Forma  
(in millions)   Fiscal year
ended
June 30,
2014
    Fiscal year
ended
June 30,
2015
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2016
 

Revenue

  $ 2,266.0      $ 2,378.3      $ 2,714.9      $ 692.0      $ 737.7      $               $            

Adjustments:

             

Revenue from disposed business (a)

    (116.1     (115.4     (32.8     (27.1           

Purchase accounting adjustments (b)

           1.3        1.6        0.6        0.3       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    (116.1     (114.1     (31.2     (26.5     0.3       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Revenue

  $ 2,149.9      $ 2,264.2      $ 2,683.7      $ 665.5      $ 738.0      $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) “Revenue from disposed business” represents the removal of the historical revenue of Atlantix prior to the sale of the business.

 

  (b) “Purchase accounting adjustments” includes the noncash reduction to revenue associated with deferred revenue step down fair value adjustments in connection with purchase accounting.

 

(2) We define Adjusted EBITDA as net income (loss) plus (i) total depreciation and amortization, (ii) interest and other (income) expense and (iii) income tax expense (benefit), as further adjusted to eliminate noncash share-based compensation expense, purchase accounting adjustments, transaction costs, other costs and earnings from disposed business. The following table presents a reconciliation of Adjusted EBITDA from Net income (loss).

 

    Predecessor     Combined     Successor     Pro Forma  
(in millions)   Fiscal year
ended
June 30,
2014
    Fiscal year
ended
June 30,
2015
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2016
 

Adjusted EBITDA Reconciliation:

             

Net income (loss)

  $ 32.5      $ (29.4   $ (3.4   $ 9.7      $ 5.6      $        $            

Total depreciation and amortization (a)

    50.6        57.0        81.7        19.4        21.8       

Interest and other (income) expense

    34.6        76.2        98.5        20.2        20.7       

Income tax expense (benefit)

    24.4        (9.4     3.8        6.8        4.0       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    142.1        94.4        180.6        56.1        52.1       

Adjustments:

             

Share-based compensation expense

    5.5        21.1        2.2        0.6        0.5       

Purchase accounting adjustments (b)

           4.9        3.9        1.3        0.4       

Transaction costs (c)

    14.8        63.9        20.6        2.3        3.4       

Other costs (d)

    13.0        6.4        5.6        1.0        1.8       

Earnings from disposed business (e)

    (8.4     (5.9     (1.8     (2.0           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    24.9        90.4        30.5        3.2        6.1       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 167.0      $ 184.8      $ 211.1      $ 59.3      $ 58.2      $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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  (a) “Total depreciation and amortization” equals the sum of (i) depreciation and amortization within total operating expenses and (ii) depreciation and amortization recorded as part of cost of revenue within our consolidated financial statements.

 

  (b) “Purchase accounting adjustments” includes charges associated with noncash adjustments to acquired assets and liabilities in connection with purchase accounting, such as recognition of increased cost of revenue in connection with an inventory step up fair value adjustment, recognition of reduced revenue in connection with a deferred revenue step down fair value adjustment and recognition of increased office rent expense associated with a fair value adjustment to the liabilities associated with deferred rent.

 

  (c) “Transaction costs” (1) of $14.8 million for the fiscal year ended June 30, 2014 includes acquisition-related expenses of $0.8 million related to stay and retention bonuses, $0.3 million related to severance charges, $0.7 million related to transaction-related legal, accounting and tax fees and $13.0 million related to professional fees and expenses associated with debt refinancings; (2) of $63.9 million for the Combined fiscal year ended June 30, 2015 includes acquisition-related expenses of $0.9 related to stay and retention bonuses, $0.8 million related to severance charges, $49.7 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $12.5 million related to professional fees and expenses associated with debt refinancings; (3) of $20.6 million for the fiscal year ended June 30, 2016 includes acquisition-related expenses of $3.0 million related to stay and retention bonuses, $1.1 million related to severance charges, $8.7 million related to transaction-related advisory and diligence fees, $6.0 million related to transaction-related legal, accounting and tax fees and $1.8 million related to professional fees and expenses associated with debt refinancings; (4) of $2.3 million for the three months ended September 30, 2015 includes acquisition-related expenses of $0.4 million related to stay and retention bonuses, $0.5 million related to severance charges, $0.3 million related to transaction-related advisory and diligence fees and $1.1 million related to transaction-related legal, accounting and tax fees; and (5) of $3.4 million for the three months ended September 30, 2016 includes acquisition-related expenses of $1.5 million related to stay and retention bonuses, $1.7 million related to transaction-related advisory and diligence fees and $0.2 million related to transaction-related legal, accounting and tax fees.

 

  (d) “Other costs” (1) of $13.0 million for the fiscal year ended June 30, 2014 includes expenses of $3.7 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $1.1 million related to unusual office start-up development costs, an unusual and non-recurring loss of $1.7 million related to an Atlantix customer receivable, certain unusual legal expenses of $2.2 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $2.2 million related to certain acquisition-related integration and related costs; (2) of $6.4 million for the Combined fiscal year ended June 30, 2015 includes expenses of $3.2 million associated with the integration of previously acquired managed services platforms into one system, $0.7 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.4 million related to unusual office start-up development costs, certain unusual legal expenses of $0.2 million, $1.6 million related to payments to our former sponsor for advisory and consulting services and $0.3 million related to other non-recurring items; (3) of $5.6 million for the fiscal year ended June 30, 2016 includes expenses of $0.5 million associated with the integration of previously acquired managed services platforms into one system, $3.4 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.5 million related to unusual office start-up development costs and certain unusual legal expenses of $1.2 million; (4) of $1.0 million for the three months ended September 30, 2015 includes expenses of $0.3 million associated with the integration of previously acquired managed services platforms into one system, $0.4 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.3 million; and (5) of $1.8 million for the three months ended September 30, 2016 represents costs incurred in the development of our new cloud service offerings.

 

  (e) “Earnings from disposed business” represents the removal of the historical earnings contribution of Atlantix prior to the sale of the business.

 



 

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(3) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to Adjusted Revenue.

 

(4) We define Adjusted Net Income as net income (loss) adjusted to exclude (i) amortization of intangible assets, (ii) amortization of debt issuance costs, (iii) losses recognized on the disposal of business, (iv) losses on extinguishment of debt, (v) noncash share-based compensation expense, (vi) purchase accounting adjustments, (vii) transaction costs, (viii) other costs, (ix) earnings from disposed business and (x) the income tax impact associated with the foregoing items. The following table presents a reconciliation of Adjusted Net Income from Net income (loss).

 

    Predecessor     Combined     Successor     Pro Forma  
(in millions)   Fiscal year
ended
June 30,
2014
    Fiscal year
ended
June 30,
2015
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2016
 

Adjusted Net Income reconciliation:

             

Net income (loss)

  $ 32.5      $ (29.4   $ (3.4   $ 9.7      $ 5.6      $        $                          

Adjustments:

             

Amortization of intangible assets

    38.3        44.7        67.2        15.9        18.4       

Amortization of debt issuance costs

    4.4        5.1        7.6        1.7        1.7       

Loss on disposal of business

                  6.8                     

Loss on extinguishment of debt

    2.7        8.2        9.7        0.1              

Share-based compensation expense

    5.5        21.1        2.2        0.6        0.5       

Purchase accounting adjustments (a)

           4.9        3.9        1.3        0.4       

Transaction costs (b)

    14.8        63.9        20.6        2.3        3.4       

Other costs (c)

    13.0        6.4        5.6        1.0        1.8       

Earnings from disposed business (d)

    (8.4     (5.9     (1.8     (2.0           

Income tax impact of adjustments (e)

    (21.1     (47.0     (37.2     (6.5     (7.3    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    49.2        101.4        84.6        14.4        18.9       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

  $ 81.7      $ 72.0      $ 81.2      $ 24.1      $ 24.5      $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) “Purchase accounting adjustments” includes charges associated with noncash adjustments to acquired assets and liabilities in connection with purchase accounting, such as recognition of increased cost of revenue in connection with an inventory step up fair value adjustment, recognition of reduced revenue in connection with a deferred revenue step down fair value adjustment and recognition of increased office rent expense associated with a fair value adjustment to the liabilities associated with deferred rent.

 

  (b)

“Transaction costs” (1) of $14.8 million for the fiscal year ended June 30, 2014 includes acquisition-related expenses of $0.8 million related to stay and retention bonuses, $0.3 million related to severance charges, $0.7 million related to transaction-related legal, accounting and tax fees and $13.0 million related to professional fees and expenses associated with debt refinancings; (2) of $63.9 million for the Combined fiscal year ended June 30, 2015 includes acquisition-related expenses of $0.9 related to stay and retention bonuses, $0.8 million related to severance charges, $49.7 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $12.5 million related to professional fees and expenses associated with debt refinancings; (3) of $20.6 million for the fiscal year ended June 30, 2016 includes acquisition-related expenses of $3.0 million related to stay and retention bonuses, $1.1 million related to severance charges, $8.7 million related to transaction-related advisory and diligence fees, $6.0 million related

 



 

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  to transaction-related legal, accounting and tax fees and $1.8 million related to professional fees and expenses associated with debt refinancings; (4) of $2.3 million for the three months ended September 30, 2015 includes acquisition-related expenses of $0.4 million related to stay and retention bonuses, $0.5 million related to severance charges, $0.3 million related to transaction-related advisory and diligence fees and $1.1 million related to transaction-related legal, accounting and tax fees; and (5) of $3.4 million for the three months ended September 30, 2016 includes acquisition-related expenses of $1.5 million related to stay and retention bonuses, $1.7 million related to transaction-related advisory and diligence fees and $0.2 million related to transaction-related legal, accounting and tax fees.

 

  (c) “Other costs” (1) of $13.0 million for the fiscal year ended June 30, 2014 includes expenses of $3.7 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $1.1 million related to unusual office start-up development costs, an unusual and non-recurring loss of $1.7 million related to an Atlantix customer receivable, certain unusual legal expenses of $2.2 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $2.2 million related to certain acquisition-related integration and related costs; (2) of $6.4 million for the Combined fiscal year ended June 30, 2015 includes expenses of $3.2 million associated with the integration of previously acquired managed services platforms into one system, $0.7 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.4 million related to unusual office start-up development costs, certain unusual legal expenses of $0.2 million, $1.6 million related to payments to our former sponsor for advisory and consulting services and $0.3 million related to other non-recurring items; (3) of $5.6 million for the fiscal year ended June 30, 2016 includes expenses of $0.5 million associated with the integration of previously acquired managed services platforms into one system, $3.4 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.5 million related to unusual office start-up development costs and certain unusual legal expenses of $1.2 million; (4) of $1.0 million for the three months ended September 30, 2015 includes expenses of $0.3 million associated with the integration of previously acquired managed services platforms into one system, $0.4 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.3 million; and (5) of $1.8 million for the three months ended September 30, 2016 represents costs incurred in the development of our new cloud service offerings.

 

  (d) “Earnings from disposed business” represents the removal of the historical earnings contribution of Atlantix prior to the sale of the business.

 

  (e) “Income tax impact of adjustments” includes an estimated tax impact of the adjustments to net income at the Company’s average statutory rate of 39.0%, except for (i) the adjustment of certain transaction costs that are permanently nondeductible for taxes purposes and (ii) the impact of tax-deductible goodwill and intangible assets resulting from certain historical acquisitions, and further adjusted for discrete tax items such as the remeasurement of deferred tax liabilities due to state rate changes and writeoff of deferred tax assets resulting from reorganizations.

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors set forth below as well as the other information contained in this prospectus before investing in our common stock. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. In such a case, you may lose part or all of your original investment.

Risks Related to Our Business

General economic conditions could adversely impact technology spending by our clients and put downward pressure on prices, which could adversely impact our business, financial condition or results of operations.

Weak economic conditions generally, sustained uncertainty about global economic conditions, U.S. federal or other government spending cuts or a tightening of credit markets could cause our clients and potential clients to postpone or reduce spending on technology solutions, products or services. If our industry becomes more price-sensitive, these conditions could also result in customers demanding lower prices for our solutions. Any downward pressure on prices could affect our sales growth and profitability, which could adversely impact our business, financial condition or results of operations.

Changes and innovation in the information technology industry may result in reduced demand for our information technology solutions.

Our results of operations are influenced by a variety of factors, including the condition of the information technology industry and shifts in demand for, or availability of, information technology solutions. The information technology industry is characterized by rapid technological change and the frequent introduction of new products, product enhancements and new distribution methods or channels, each of which can decrease demand for current solutions or render them obsolete. In addition, demand for the solutions we sell to our customers could decrease if we are unable to adapt in areas like cloud technology, IaaS, SaaS, PaaS, SDN or other emerging technologies. Cloud offerings may influence our customers to move workloads to cloud providers, which may reduce the procurement of products and solutions from us. Changes in the information technology industry may also negatively impact the demand for our solutions, which could adversely impact our business, financial condition or results of operations.

Our financial performance could be adversely impacted if our federal, state and local government clients decrease their spending on technology products.

We provide IT services to various government agencies, including federal, state and local government entities. For the fiscal year ended June 30, 2016, 11% of our revenue came from sales to state and local governments and 6% of our revenue was derived from sales to the federal government. These sales may be impacted by government spending policies, budget priorities and revenue levels.

While our sales to public sector clients are diversified across various agencies and departments, an across-the-board change in government spending policies, including budget cuts at the federal level, could result in our public sector clients reducing their purchases and terminating their service contracts, which could adversely impact our business, financial condition or results of operations.

Our solutions business depends on our vendor partner relationships and the availability of their products.

Our solutions depend on the resale of products that we purchase from vendor partners, which include OEMs, software publishers and wholesale distributors. Under our agreements with our vendor partners, we are authorized to sell all or some of their products in connection with our end-to-end solutions, such as pre- and post-sales network design, configuration, troubleshooting and the support and sale of complementary products and services. Our

 

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authorization with each vendor partner has specific terms and conditions with respect to product return privileges, purchase discounts and vendor partner programs and financing programs. These include purchase rebates, sales volume rebates, purchasing incentives and cooperative advertising reimbursements. However, we do not have any long-term contracts with our vendor partners and our agreements with key vendors may be terminable upon notice by any party. As such, from time to time, vendor partners may limit or terminate our right to sell some or all of their products, or change the terms and conditions under which we obtain their products for integration into our solutions.

We also receive payments and credits from vendors, including consideration under volume incentive programs, shared marketing expense programs and early pay discounts. Our vendor partners may decide to terminate or reduce the benefits under their incentive programs, or change the conditions under which we may obtain such benefits. Any sizable reduction, termination or significant delay in receiving benefits under these programs could adversely impact our business, financial condition or results of operations. If we are unable to timely react to any changes in our vendors’ programs, such as the elimination of funding for some of the activities for which we have been compensated in the past, such changes could adversely impact our business, financial condition or results of operations.

While we purchase from a diverse vendor base, we have significant supplier relationships with our vendor partners Cisco Systems, Inc. (“Cisco”) and EMC Corporation (“EMC”). For the fiscal year ended June 30, 2016, Cisco provided products that made up 67% of our purchases from all manufacturers, while EMC provided products that constituted 10% of our purchases from all manufacturers. Other significant vendor partners are VMware, Inc. and VCE Company, LLC, which provided hardware products that generated 2% and 1%, respectively, of our purchases from all manufacturers in the fiscal year ended June 30, 2016. Our portfolio has been heavily concentrated in Cisco products. Though we do not maintain a long-term contractual arrangement with Cisco, historically Cisco has held a dominant position in the IT infrastructure market. The loss of, or change in business relationship with, Cisco, any of the other vendors named in this registration statement or any other key vendor partners, or the diminished availability of their products, could reduce the supply and increase the cost of the products we sell, eroding our competitive position.

Given the significance of our vendor partners to our business model, any geographic relocation of key distributors used in our purchasing model could increase our cost of working capital, which would have a negative impact on our business, financial condition or results of operations. Similarly, the sale, spin-off or combination of any of our vendor partners and/or of certain of their business units, including a sale or combination with a vendor with whom we do not have an existing relationship, could adversely impact our business, financial condition or results of operations.

Our solutions depend on the innovation and adaptability of our vendor partners, as well as our ability to partner with emerging technology providers.

The technology industry has experienced rapid innovation and the introduction of new hardware, software and services offerings, such as cloud-based solutions. We have been and will expect to continue to be dependent on innovations in hardware, software and services offerings, as well as the acceptance of these products by clients. If we are unable to keep up with changes in technology and new offerings—for example, by providing the appropriate training to our account managers, technology sales specialists and engineers—it could adversely impact our business, financial condition or results of operations.

Because our solutions involve the resale of vendor products, our business depends on the ability of our vendor suppliers to develop and provide competitive hardware, software and other products. If our vendor partners cannot compete effectively against vendors with whom we do not have a supply relationship, our business, financial condition or results of operations could be adversely impacted. Further, we depend on developing and maintaining relationships with new vendors who can provide products and services in emerging areas of technology, such as cloud, security, mobility, data analytics, software-defined networking and the IoT. To the extent that we cannot develop or maintain relationships with vendors who provide desirable hardware, software and other services, it could adversely impact our business, financial condition or results of operations.

 

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Substantial competition could reduce our market share and significantly harm our financial performance.

Our current competition includes large system integrators and resellers, such as Accenture, Dimension Data and Computer Sciences Corporation; large value-added resellers, such as CDW Corporation and ePlus; local providers in the four regional markets in which we operate (North, South, Tri-State and West); manufacturers who sell directly to end users, such as Dell, Hewlett-Packard and Apple; cloud providers, such as AT&T, Amazon Web Services and Box; and boutique solutions providers, such as Optiv, Cognizant Infrastructure Services and Equinix. Strong performance by these competitors, the increasing number of services providers in the market and rapid innovation in our industry could erode our market share and adversely impact our business, financial condition or results of operations.

We expect our competitive landscape to continue to change as new technologies are developed, resulting in increasingly short technology refresh cycles. Innovation could disrupt our business model and create new and stronger competitors. Some of our hardware and software vendor partners sell and could intensify their efforts to sell their products directly to our clients. For example, ERP systems vendors and other major software vendors increasingly sell their procurement and asset management products along with their application suites. Because of their significant installed client base, these ERP vendors may have the opportunity to offer additional products to existing clients. Further, traditional OEMs have increased their services capabilities through mergers and acquisitions with services providers, which could potentially increase competition in the market to provide clients with comprehensive technology solutions. Any of these trends could adversely impact our business, financial condition or results of operations.

Some solutions providers in our industry compete on the basis of price. To the extent that we face increased competition to gain or retain clients, we may be required to reduce prices, increase advertising expenditures or take other actions that could impact our cash flows. If we are forced to reduce prices and in doing so we are unable to attract new clients or sell increased quantities of products, our sales growth and profitably could be negatively affected, which could adversely impact our business, financial condition or results of operations.

Our earnings could be affected if we lose several larger clients.

Generally, our contracts with our clients are nonexclusive agreements that are terminable upon either party’s discretion with 30 days’ notice. Only certain of our client agreements require longer periods of notice (60 days’ to 90 days’ notice). As of June 30, 2016, we have approximately 7,000 middle-market, large and government clients across a diverse range of industries. In our fiscal year ended June 30, 2016, 19% of our revenue was attributable to our top 25 clients (measured by revenue generated by client). Further, we do not have guaranteed purchasing volume commitments from our clients. As a result, the loss of several of our larger clients, the failure of such clients to pay amounts due to us or a material reduction in purchases made by such clients could adversely impact our business, financial condition or results of operations.

The success of our business depends on the continuing development, maintenance and operation of our information technology systems.

Our success is dependent on the accuracy, proper use and continuing development of our information technology systems, including our business systems and our operational platforms. Our ability to effectively use the information generated by our information technology systems, as well as our success in implementing new systems and upgrades, affects our ability to:

 

    conduct business with our clients, including delivering services and solutions;

 

    manage our inventory and accounts receivable;

 

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    purchase, sell, ship and invoice our products and services efficiently and on a timely basis; and

 

    maintain our cost-efficient operating model while expanding our business in revenue and in scale.

Disruption or breaches of security to our information technology systems and the misappropriation of our clients’ data could adversely impact our business.

Our information technology systems are vulnerable to disruption by forces outside our control. We have taken steps to protect our information technology systems from a variety of internal and external threats, including computer viruses, malware, phishing, social engineering, unauthorized access and other malicious attacks, but there can be no guarantee that these steps will be effective. Any disruption to or infiltration of our information technology systems could adversely impact our business, financial condition or results of operations. In addition, in order to ensure customer confidence in our solutions and services, we may choose to remediate actual or perceived security concerns by implementing further security measures which could require us to expend significant resources.

Further, our business may involve the storage and transmission of proprietary, sensitive or confidential information. In addition, we operate data centers and other information technology for our clients, which host our clients’ technology infrastructure and may store and transmit business-critical and confidential data. We have privacy and data security policies in place that are designed to prevent security breaches and confidentiality and data security provisions are standard in our client contracts. However, as newer technologies evolve, our security practices and products may be sabotaged or circumvented by third parties, such as hackers, which could result in disruptions to our clients’ businesses, unauthorized procurement and the disclosure of sensitive corporate information or private personal information. Such breaches in security could damage our reputation and our business; they could also expose us to legal claims, proceedings and liability and to regulatory penalties under laws that protect the privacy of personal information, which could adversely impact our business, financial condition or results of operations.

Our investments in new services and technologies may not be successful.

We have recently begun and continue to invest in new services and technologies, including cloud, security, mobility, data analytics, software-defined networking and IoT. The complexity of these solutions, our learning curve in developing and supporting them and significant competition in the markets for these solutions could make it difficult for us to market and implement these solutions successfully. There is further risk that we will be unable to protect and enforce our rights to use such intellectual property. Additionally, there is a risk that our clients may not adopt these solutions widely, which would prevent us from realizing expected returns on these investments. Even if these solutions are successful in the market, these solutions still rely on third-party hardware and software and our ability to meet stringent service levels; if we are unable to deploy these solutions successfully or profitably, it would adversely impact our business, financial condition or results of operations.

If we infringe on the intellectual property rights of third parties, we may be subject to costly disputes or indemnification obligations that could adversely impact our business, financial condition or results of operations.

We cannot assure you that our activities will not infringe on patents, trademarks or other intellectual property rights owned by others. If we are required to defend ourselves against intellectual property rights claims, we may spend significant time and effort and incur significant litigation costs, regardless of whether such claims have merit. If we are found to have infringed on the patents, trademarks or other intellectual property rights of others, we may also be subject to substantial claims for damages or a requirement to cease the use of such disputed intellectual property, which could have an adverse effect on our operations. Such litigation or claims and the consequences that could follow could distract our management from the ordinary operation of our

 

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business and could increase our costs of doing business, resulting in a negative impact on our business, financial condition or results of operations.

Furthermore, third parties may assert infringement claims against our clients for infringement by our products on the intellectual property rights of such third parties. These claims may require us to initiate or defend protracted and costly litigation on behalf of our clients, regardless of the merits of these claims. We also generally extend the indemnification granted by our OEMs to our clients for any such infringement. If any of these claims succeed, we may be forced to pay damages on behalf of our clients or may be required to obtain licenses for the products they use, even though our OEMs may in turn be liable for any such damages. Any infringement on the intellectual property rights of third parties could adversely impact our business, financial condition or results of operations.

Our engagements with our clients are based on estimated pricing terms. If our estimates are incorrect, these terms could become unprofitable.

Some of our client contracts for professional services are fixed-price contracts to which we commit before we provide services to these clients. In pricing such fixed-price client contracts, we are required to make estimates and assumptions at the time we enter into these contracts that could differ from actual results. As a result, the profit that is anticipated at a contract’s inception may not be guaranteed. Our estimates reflect our best judgments about the nature of the engagement and our expected costs in providing the contracted services. However, any increased or unexpected costs, or any unanticipated delays in connection with our performance of these engagements—including delays caused by our third-party providers or by factors outside our control—could make these contracts less profitable or unprofitable and could have an adverse impact on our business, financial condition or results of operations.

Failure to comply with the terms of our contracts with our public sector clients, or with applicable laws and regulations, could result in the termination of our contracts, fines or liabilities. Further, changes in government procurement regulations could adversely impact our business.

We provide information technology services to various government agencies, including federal, state and local government entities, as well as international and intergovernmental agencies. Sales to such public sector clients are highly regulated. Any noncompliance with contract provisions, government procurement regulations or other applicable laws or regulations—including, but not limited to, the False Claims Act and the Foreign Corrupt Practices Act—could result in civil, criminal and administrative liability, such as substantial monetary fines or damages, the termination of government contracts or other public sector client contracts and suspension, debarment or ineligibility from doing business with the government and with other clients in the public sector.

Our contracts with our public sector clients are terminable at any time at the convenience of the contracting agency or group purchasing organization (“GPO”). As such, our relationships with public sector clients are susceptible to government budget, procurement and other policies. Our inability to enter into or retain contracts with GPOs could threaten our ability to sell to current and potential clients in those GPOs. Further, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, financial condition or results of operations.

We also provide services to certain government agencies that require us to have and maintain security clearance at an appropriate level. If an acquisition or any other action we take causes us to lose our security clearance status, or results in our having a lower level of security clearance, we could lose the business of such clients, which could adversely impact our business, financial condition or results of operations.

 

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We rely on third-party companies to perform certain of our obligations to clients, which could impact our business if not performed.

We deliver and manage mission-critical software, systems and network solutions for our clients. We also offer certain services, such as implementation, installation and deployment services, to our clients through various third-party providers who are engaged to perform these services on our behalf. We are also required, as a component of some of our contracts with our OEM partners, to utilize their engineers as part of our solutions. For the fiscal year ended June 30, 2016, 5% of our revenue was attributable to these third-party services. Further, to provide services to our clients outside of the United States, we rely heavily on an international network of preferred sales partners that are generally vetted by our OEM vendor partners. If we or our third-party services providers fail to provide high-quality services to our clients, or if such services result in a disruption of our clients’ businesses, we could be subject to legal claims, proceedings and liability.

As we expand our services and solutions business, we may be exposed to additional operational, regulatory and other risks. For example, we could incur liability for failure to comply with the rules and regulations applicable to the new services and solutions we provide to our clients. Such issues could adversely affect our reputation with our clients, tarnish our brand or render us unable to compete for new work and could adversely impact our business, financial condition or results of operations.

We rely on third-party commercial delivery services to provide products and services to our clients, which if not performed could lead to significant disruption to our business.

We also depend heavily on commercial delivery services to provide products and services to our clients. For example, we generally ship hardware products to our clients by FedEx, United Parcel Service and other commercial delivery services and invoice clients for delivery charges. However, our inability to pass future increases in the cost of commercial delivery services to our clients could decrease our profitability. Additionally, strikes, inclement weather, natural disasters or other service interruptions by such shippers could affect our ability to deliver products to our clients in a timely manner and could adversely impact our business, financial condition or results of operations.

Our business depends on our ability to attract and retain talented personnel.

Our success depends on our ability to attract, develop, engage and retain key personnel to manage and grow our business, including our key executive, management, sales, services and technical employees.

For example, as we seek to expand our offerings of value-added services and solutions, our success depends on attracting and retaining highly skilled technology specialists and engineers, for whom the market is extremely competitive. Increasingly, our competitors are requiring their employees to sign Non-Compete and Non-Solicitation agreements as part of their employment, making it more difficult for us to hire talented individuals with experience in our industry. We do not carry any “key man insurance”—that is, an insurance policy that would cover any financial loss that would arise from the death or incapacity of an important member of our business. Our failure to recruit and retain mission-critical employees could adversely impact our business, financial condition or results of operations.

International trade laws and Anti-Corruption regulations and policies may adversely impact our ability to generate revenue from sales outside of the United States.

A small portion of our revenue is derived from our sales outside of the United States, mostly from the non-U.S. activities of our clients based in the United States. Specifically, non-U.S. sales represented approximately 2% of our total revenue for each of the fiscal years ended June 30, 2016, June 30, 2015, and June 30, 2014, respectively. We are exposed to risk under international trade laws because of our sales derived from countries associated with higher risks of corruption and our use of third-party preferred agents to provide

 

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services to our clients outside of the United States. We have implemented a global anti-corruption policy that addresses U.S. laws and regulations governing Anti-Corruption and Anti-Bribery. However, our failure to implement guidance and procedures for specific situations as they arise, as well as inadequate training of our employees on these issues, could result in our inability to comply with international trade laws and regulations.

We also export hardware and software that are subject to certain trade-related U.S. laws and regulations, including the Export Administration Regulations administered by the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) and various economic sanctions programs administered by the U.S. Treasury’s Office of Foreign Assets Control. Exports and re-exports of such hardware and software to certain countries in which we conduct business may require regulatory licensing or other authorization. Our failure to implement compliance policies and procedures, including those relating to product classification, licensing, and screening, or to adequately train our personnel to understand and comply with applicable regulations, could result in export or sanctions violations, which could have an adverse impact on our business, financial condition or results of operations.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The referendum was advisory and the terms of any withdrawal are subject to a negotiation period that could last years after the government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse impact on our business, financial condition and results of operations.

Interruption of the flow of hardware products from suppliers could disrupt our supply chain.

We rely on hardware products that our vendor partners manufacture or purchase outside of the United States, primarily in Asia. Political, social or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture the products that we resell, could cause disruptions in trade, which would affect our supply chain. Other events that could disrupt our supply chain include:

 

    the imposition of additional trade law provisions or regulations;

 

    the imposition of additional duties, tariffs and other charges on imports and exports;

 

    foreign currency fluctuations;

 

    natural disasters affecting any of our suppliers’ facilities;

 

    restrictions on the transfer of funds;

 

    dependence on an international supply chain;

 

    the financial instability or bankruptcy of manufacturers; and

 

    significant labor disputes, such as strikes.

 

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We cannot predict whether the countries in which our products are purchased or manufactured, or may be purchased or manufactured in the future, will be subject to new or additional trade restrictions or sanctions imposed by the U.S. or other governments. Trade restrictions—including new or increased tariffs, quotas, embargoes, sanctions, safeguards and customs restrictions—against the products we sell, as well as foreign labor strikes, work stoppages or boycotts, could increase the cost or reduce the supply of the product available to us.

We could experience, and have experienced in the past, periodic product shortages from our vendor partners if they fail to adequately project demand for certain products. Because we do not maintain hardware inventory that is not supported by executed client orders, except for insignificant spares, we depend on our vendor partners’ continued supply so we can fulfill our clients’ orders on a timely basis. A substantial disruption to our supply chain could adversely impact our business, financial condition or results of operations.

We are exposed to accounts receivables and inventory risks.

We extend credit to our clients for a significant portion of our revenue, typically on 30-day payment terms. As a result, we are subject to the risk that our clients will not pay for the products they have purchased or that they will pay at a slower rate than we have historically experienced. This risk is particularly pronounced during periods of economic downturn or uncertainty or, in the case of our public sector clients, due to governmental budget constraints. Though we devote resources to collections operations and have a low write off rate, any failure or delay by our clients in paying for the products they have purchased could adversely impact our business, financial condition or results of operations.

Any of our clients may experience a downturn in its business that may weaken its results of business, financial condition or results of operations. As a result, a client may fail to make payments when due, become insolvent or declare bankruptcy. Any client bankruptcy or insolvency, or the failure of any client to make payments when due, could result in losses. A client bankruptcy would delay or preclude full collection of amounts owed to us.

In certain cases, we are able to return unused equipment to our vendors. We primarily acquire inventory once we have an agreement executed with a client and with the exception of an immaterial level of spare parts inventory, we do not generally maintain inventory that is not already designated for sale. However, we may be exposed to the risk that our inventory cannot be returned to the vendor in situations where a client cancels an executed order.

We seek to minimize our inventory exposure through a variety of inventory management procedures and policies, including buying limits and restrictions on inventory purchase authority. However, if we were unable to successfully maintain our inventory management procedures and policies, or if there are unforeseen product developments that result in the more rapid obsolescence of our inventory, our inventory risks could increase, which could adversely impact our business, financial condition or results of operations.

We may not be able to realize our entire investment in the equipment we lease.

We are a lessor of technology equipment and the realization of equipment values (residual values) during the life and predominantly at the end of the term of a lease is an important element in our leasing business. At the inception of each lease, we record a residual value for the leased equipment based on our estimate of the value of the equipment at the expected disposition date.

If the market value of leased equipment decreases at a faster rate than we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on the equipment, excessive use of the equipment or other factors, this would adversely affect the recoverability of the estimated residual values of such equipment. Further, certain equipment residual values are dependent on the vendor’s warranties, reputation and other factors, including market liquidity. We also may not realize the full market value of equipment if we are

 

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required to sell it to meet liquidity needs or for other reasons outside of the ordinary course of business. Consequently, there can be no assurance that we will realize our estimated residual values for equipment, which failure to realize such values could adversely impact our business, financial condition or results of operations.

We may not realize the full amount of our backlog, which could have a material adverse impact on our business, financial condition or results of operations.

As of September 30, 2016, our backlog of total executed but unfulfilled client orders was approximately $573 million. There can be no assurance that our backlog will result in actual revenue in any particular period, or at all, or that any contract included in our backlog will be profitable. This is because the actual realization and timing of any of this revenue is subject to various contingencies, many of which are beyond our control. The actual realization of revenue on engagements included in backlog may never occur or may change because an order could be reduced, modified or terminated early. Several of our orders involve the delivery of services that can be up to five years in duration and may be subject to delays in performance that are beyond our control. Our failure to realize the full amount of our backlog could adversely impact our business, financial condition or results of operations.

Our acquisitions may not achieve expectations, which could affect our profitability.

We have acquired and may acquire, companies and operations that extend or complement our existing business. These transactions involve numerous business risks, including finding suitable transaction partners, the diversion of management’s attention from other business concerns, extending our product or service offerings into areas in which we have limited experience, entering into new geographic markets, the potential loss of key employees or business relationships and the integration of acquired businesses, any of which could adversely impact our business, financial condition or results of operations.

Furthermore, failure to successfully integrate acquired operations may adversely affect our cost structure, reducing our gross margins and return on investment. In addition, we may acquire entities with unknown liabilities. Should an unknown liability emerge following an acquisition, it could adversely impact our business, financial condition or results of operations.

As with most acquisitions in our industry, we paid a premium to book value in our prior acquisitions and the portion of the purchase price paid in excess of the book value of the assets acquired has been recorded on our books as goodwill or intangible assets. We may be required to account for similar premiums paid on future acquisitions in the same manner. Under existing GAAP, goodwill is not amortized and is carried on our books at its original value, subject to annual review and evaluation for impairment, whereas finite-lived intangible assets are amortized over the life of the asset. If market and economic conditions (including business valuation levels and trends) deteriorate, we may have to record impairment charges to the extent the carrying value of our goodwill exceeds the fair value of our overall business. Additionally, if existing GAAP were modified to require amortization, such impairment charges or amortization expense could adversely affect our net earnings during the period in which the charge or expense is recorded. As of September 30, 2016, we had goodwill and other intangible assets related to our prior acquisitions of $1,588.6 million. Any failure to successfully integrate our acquisitions or a change to existing GAAP goodwill and intangible asset accounting policies could adversely impact our business, financial condition or results of operations.

Our operating results could fluctuate significantly in the future because of industry factors and other factors outside of our control.

Our operating results are dependent on a variety of industry factors, including the condition of the technology industry in general, shifts in demand and pricing for hardware, software and services and the introduction of new products or upgrades.

 

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Our operating results are also dependent on our level of gross profit as a percentage of revenue. Our gross profit percentage fluctuates due to numerous factors, some of which may be outside of our control. These include general macroeconomic conditions; pricing pressures; changes in product costs from our vendor partners; the availability of price protection, purchase discounts and incentive programs from our vendor partners; changes in product, order size and client mix; the risk that certain items in our inventory become obsolete; increases in delivery costs that we cannot pass on to clients; and general market and competitive conditions.

It is difficult to predict the extent and impact of seasonality on our business. Due to general economic conditions, we may not only experience difficulty in collecting our receivables on a timely basis but also may experience a loss due to a client’s inability to pay. In addition, certain economic factors may impact the valuation of certain investments we may make in other businesses. As a result of these and other factors, quarterly period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

In addition, our cost structure is based in part on anticipated sales and gross margins. Therefore, we may not be able to adjust our cost structure quickly enough to compensate for any unexpected sales or gross margin shortfall. Any such inability could adversely impact our business, financial condition or results of operations.

We are exposed to risks from legal proceedings and audits.

We are party to various legal proceedings that arise in the ordinary course of our business, which include commercial, employment, tort and other litigation.

We are also subject to intellectual property infringement claims in the ordinary course of our business, which come in the form of cease-and-desist letters, licensing inquiries, lawsuits and other demands. These claims may arise either from the products and services we sell or the business systems and products we use to sell the products and services. In our industry, such claims have become more frequent with the increasing complexity of technological products. In fact, many of these assertions are brought by Non-Practicing entities, whose principal business model is to secure patent licensing revenue.

Because of our significant sales to public sector clients, we are also subject to audits by federal, state and local authorities. From time to time, we receive subpoenas and other requests for information from various government authorities. We may also be subject to audits by various vendor partners and large clients, including government agencies, pursuant to certain purchase and sale agreements. Further, we may be required to indemnify our vendor partners and our clients from claims brought by third parties under certain agreements. See “Business—Governmental, Legal and Regulatory Matters.”

Current and future litigation, infringement claims, governmental proceedings, audits or indemnification claims may result in substantial costs and expenses and regardless of the outcome, significantly divert the attention of our management, which could adversely impact our business, financial condition or results of operations.

Changes in accounting rules could adversely affect our future financial results.

We prepare our financial statements in conformity with GAAP. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the SEC, the American Institute of Certified Public Accountants and various other bodies formed to interpret and create appropriate accounting policies. Products and services and the manner in which they are bundled, are technologically complex and the characterization of these products and services require judgment to apply revenue recognition policies. Any mischaracterization of these products and services could result in misapplication of revenue recognition policies. Future periodic assessments required by current or new accounting standards may result in noncash changes and/or changes in presentation or disclosure. In addition, any

 

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change in accounting standards may influence our clients’ decision to purchase from us or to finance transactions with us, which could adversely impact our business, financial condition or results of operations.

Increased costs of labor and employee health and welfare benefits may adversely impact our results of operations.

Given our large number of employees, labor-related costs represent a significant portion of our expenses. Salaries, wages, benefits, commissions and other labor compensation costs (not including bonus and payroll tax) for our full-time employees amounted to $380 million, which represented approximately 73% of our selling, general and administrative expenses and approximately 6% of our cost of sales for the fiscal year ended June 30, 2016. An increase in labor costs (for example, as a result of increased competition for skilled labor) or employee benefit costs (such as health care costs or otherwise) could adversely impact our business, financial condition or results of operations.

Our future results will depend on our ability to continue to focus our resources, maintain our business structure and manage costs effectively.

We are continually implementing productivity measures and focusing on measures intended to further improve cost efficiency. We may be unable to realize all expected cost savings in connection with these efforts within the expected time frame, or at all, and we may incur additional and/or unexpected costs to realize them. Further, we may not be able to sustain any achieved savings in the future. Future results will depend on the success of these efforts.

We believe that our corporate culture has been and will continue to be a key contributor to our success. From September 30, 2015 to September 30, 2016, we increased the size of our workforce by 476 employees (including acquisitions and dispositions during the period) and we expect to continue to hire as we expand. If we do not continue to maintain our corporate culture, we may be unable to foster growth. Our inability to maintain our current business structure will adversely impact our business, financial condition or results of operations.

Under our contracts, should we be unable to control costs, we may incur losses, which could decrease our operating margins and significantly reduce or eliminate our profits. As our industry becomes more price-sensitive, our future profitability will depend on our ability to manage costs or increase productivity. An inability to effectively manage costs will adversely impact our business, financial condition or results of operations.

Any failure in our delivery of high-quality technical support services may adversely affect our relationships with our clients and our financial results.

Our clients depend on our services desk to provide technical support. We may be unable to respond quickly enough to accommodate short-term increases in client demand for support services. Increased client demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In the same vein, any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely impact our reputation and our business, financial condition or results of operations.

We may not meet our growth objectives and strategies, which may impact our competitiveness.

On an ongoing basis, we seek to achieve profitable growth by providing superior solutions to our clients. As we continue to invest in growth opportunities, including our investments in new technologies and capabilities, we may experience unfavorable demand for these services and we may be unable to deploy these solutions successfully or profitably. In addition, we have historically been focused on reducing our costs and may not be able to achieve or maintain targeted cost reductions. Our inability to effectively invest in new growth

 

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opportunities or to reduce cost could impact our competitiveness and render it difficult for us to meet our growth objectives and strategies, which could adversely impact our business, financial condition or results of operations.

Ineffective internal controls could impact our business and operating results.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and results of operations could be harmed and we could fail to meet our financial reporting obligations, which could adversely impact our business, financial condition or results of operations.

Risks Related to an Investment in Our Common Stock and this Offering

Apollo and its affiliates will continue to have control over us after this Offering, including the ability to elect all of our directors and prevent any transaction that requires approval of our Board of Directors or our stockholders and may also pursue corporate opportunities independent of us that could present conflicts with our and our stockholders’ interests.

After the consummation of this Offering, the Apollo Funds will indirectly beneficially own approximately     % of our common stock (or         % assuming the underwriters exercise in full their option to purchase additional shares) after the completion of this Offering. As a result, the Apollo Funds will have the power to elect all of our directors after the completion of this Offering. Therefore, the Apollo Funds effectively will have the ability to prevent any transaction that requires the approval of our Board of Directors or our stockholders, including the approval of significant corporate transactions, such as mergers and the sale of substantially all of our assets after the completion of this Offering. Thus, the Apollo Funds will continue to be able to significantly influence or effectively control our decisions after the completion of this Offering.

In addition, the stockholders’ agreement with the Apollo Funds that we will enter into in connection with this Offering (the “Apollo Stockholders Agreement”) (as described under “Certain Relationships and Related Party Transactions”) will provide that, except as otherwise required by applicable law, if the Apollo Funds hold (a) at least 50% of our outstanding common stock, they will have the right to designate no fewer than that number of directors that would constitute a majority of our Board of Directors, (b) at least 30% but less than 50% of our outstanding common stock, they will have the right to designate up to             nominees to our Board of Directors, (c) at least 20% but less than 30% of our outstanding common stock, they will have the right to designate up to             nominees to our Board of Directors and (d) at least 10% but less than 20% of our outstanding common stock, they will have the right to designate nominees to our Board of Directors. The agreement will provide that if the size of our Board of Directors is increased or decreased at any time, the nomination rights of the Apollo Funds will be proportionately increased or decreased, respectively, rounded up to the nearest whole number.

The interests of the Apollo Funds could conflict with or differ from your interests as a holder of our common stock. For example, the concentration of ownership held by the Apollo Funds could delay, defer or prevent a change of control of the Company or impede a merger, takeover or other business combination that you as a stockholder may otherwise view favorably. In addition, a sale of a substantial number of shares of stock in the future by the Apollo Funds could cause our stock price to decline.

Additionally, the Apollo Group is in the business of making or advising on investments in companies and holds (and may from time to time in the future acquire) interests in or provides advice to businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. The Apollo Group may also pursue acquisitions that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

 

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Our amended and restated certificate of incorporation will provide that no officer or director of ours who is also an officer, director, employee, managing director or other affiliate of any member of the Apollo Group (including any portfolio company thereof) will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to any member of the Apollo Group (including any portfolio company thereof), instead of to us, or does not communicate information regarding a corporate opportunity to us that the officer, director, employee, managing director or other affiliate has directed to any member of the Apollo Funds (including any portfolio company thereof) .

So long as the Apollo Funds continue to beneficially own a significant amount of our equity, even if such amount is less than 50%, the Apollo Funds may continue to be able to strongly influence or effectively control our decisions.

The foregoing and other issues related to the Apollo Funds’ control of any of the foregoing may adversely impact prevailing market prices for our common stock.

There is no existing market for our common stock and we do not know if one will develop, which could impede your ability to sell your shares and depress the market price of our common stock.

Prior to this Offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in the Company will lead to the development of an active trading market on or otherwise, or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this Offering. See “Underwriting.” Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this Offering.

The price of our common stock may fluctuate significantly and you could lose all or part of your investment.

Volatility in the market price of our common stock may prevent you from being able to sell your shares of common stock at or above the price you paid for them. In addition to the risks described in this “Risk Factors” section, the market price for our common stock could fluctuate significantly for various reasons, including:

 

    our operating and financial performance and prospects;

 

    our quarterly or annual earnings or those of other companies in our industry;

 

    changes in earnings estimates or recommendations by securities analysts, if any, or termination of coverage of our common stock by securities analysts;

 

    our failure to meet estimates or forecasts made by securities analysts, if any;

 

    conditions that impact demand for our products and services;

 

    future announcements concerning our business or our competitors’ businesses;

 

    the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

    market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

 

    strategic actions by us or our competitors, such as acquisitions or restructurings;

 

    changes in government and environmental regulation;

 

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    changes in accounting standards, policies, guidance, interpretations or principles;

 

    arrival and departure of key personnel;

 

    the number of shares to be publicly traded after this Offering;

 

    sales of common stock by us, the Apollo Funds, members of our management team or any other party;

 

    adverse resolution of new or pending litigation against us;

 

    changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events; and

 

    material weakness in our internal controls over financial reporting.

In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with the Company and these fluctuations may adversely impact prevailing market prices for our common stock.

We expect to be a “controlled company” within the meaning of applicable stock exchange rules and, as a result, will qualify for and intend to rely on, exemptions from certain corporate governance requirements.

Upon the closing of this Offering, the Apollo Funds will continue to control a majority of our voting common stock. As a result, we expect to qualify as a “controlled company” within the meaning of the corporate governance standards of the stock exchange on which we intend to list our common stock. As a controlled company, we intend to rely on exemptions from certain stock exchange corporate governance standards, including the requirements that:

 

    that a majority of the Board of Directors consists of independent directors;

 

    that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    that we have a nominating and governance committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements of the applicable stock exchange.

The foregoing and other issues related to the Apollo Funds’ control of any of the foregoing may adversely impact prevailing market prices for our common stock.

We have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your common stock.

We have no plans to pay regular dividends on our common stock. Any declaration and payment of future dividends to holders of our common stock may be limited by restrictive covenants of our debt agreements, will be at the sole discretion of our Board of Directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. See “Dividend Policy.”

 

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The terms of our senior secured credit facilities and the indentures governing our notes may restrict our ability to pay cash dividends on our common stock. Our debt instruments contain covenants that restrict our ability to pay dividends on our common stock, as well as the ability of our subsidiaries to pay dividends to us. See “Description of Certain Indebtedness” and “Description of Capital Stock—Common Stock.” Furthermore, we will be permitted under the terms of our debt instrument to incur additional indebtedness, which may restrict or prevent us from paying dividends on our common stock. Agreements governing any future indebtedness, in addition to those governing our current indebtedness, may not permit us to pay dividends on our common stock. Any of the foregoing may adversely impact prevailing market prices for our common stock.

Future sales or the possibility of future sales of a substantial amount of our common stock may depress the price of shares of our common stock.

Future sales or the availability for sale of substantial amounts of our common stock in the public market could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital through future sales of equity securities.

Effective upon consummation of this Offering, we will amend and restate our certificate of incorporation to increase our authorized capital stock so that it consists of             million authorized shares, of which             million shares, par value $0.01, will be designated as common stock and             million             shares, par value $0.01, will be designated as preferred stock. Upon consummation of this Offering,             shares will be outstanding. This number includes shares that we are selling in this Offering, which will be freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), subject to the terms of the lock-up agreements. The remaining             shares of our common stock outstanding, including the shares of common stock owned by the Apollo Funds, our directors and our executive officers, will be subject to holding requirements under the federal securities laws described in “Shares Eligible for Future Sale” and subject to the lock-up agreements between such current stockholders and the underwriters. Pursuant to the lock-up agreements, we, each of our executive officers and directors and the Apollo Funds have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of the shares of common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date that is             days after the date of this prospectus. J.P. Morgan Securities LLC and Citigroup Global Markets Inc. may, in their sole discretion, release any of these shares from the restrictions at any time without notice. See “Underwriting.” Following the expiration of the applicable lock-up period, all of these shares of our common stock will be eligible for resale under Rule 144 or Rule 701 of the Securities Act, subject to volume limitations and applicable holding period requirements. See “Shares Eligible for Future Sale” for a discussion of the shares of our common stock that may be sold into the public market in the future.

Subject to the terms of the lock-up agreements, we also may issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those shares of our common stock or other securities in connection with any such acquisitions and investments.

Aegis LP, the Apollo Fund that is the beneficial owner of most of our common stock, and certain of our employees who invested in the Company in connection with the Apollo Acquisition (the “Initial Investors”) entered into a securityholders agreement in 2015 (the “Management Stockholders Agreement”). Under the Management Stockholders Agreement, following this Offering, Aegis LP and certain of its affiliates will have certain demand registration rights for shares of our common stock owned by the Apollo Funds. In addition, under the Management Stockholders Agreement, the Initial Investors have piggyback and other registration rights with respect to shares of our common stock held by them. Furthermore, under the Management Stockholders Agreement, the Company has agreed to indemnify (A) the Initial Investors and their respective officers, directors,

 

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employees, representatives and controllers, (B) Aegis LP and its officers, managers, employees, representatives and affiliates and (C) the portfolio companies of the Apollo Group against losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement or prospectus.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares of our common stock issued in connection with an acquisition) or the exercising of any registration rights, or the perception that such sales or such exercising of registration rights could occur, may adversely affect prevailing market prices for shares of our common stock. Any of the foregoing may adversely impact prevailing market prices for our common stock.

Delaware law and our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.

We are a Delaware corporation and the antitakeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, provisions of our amended and restated certificate of incorporation and bylaws that we expect to be effective upon consummation of this Offering may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our Board of Directors. Among other things, these provisions:

 

    classify our Board of Directors so that only some of our directors are elected each year;

 

    do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

 

    delegate the sole power of a majority of the Board of Directors to fix the number of directors;

 

    provide the power of our Board of Directors to fill any vacancy on our board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;

 

    authorize the issuance of “blank check” preferred stock without any need for action by stockholders;

 

    impose limitations on the ability of our stockholders to call special meetings and act by written consent; and

 

    establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholders’ meetings.

Additionally, Section 203 of the Delaware General Corporation Law (the “DGCL”) prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person, which together with any “interested” stockholder, or within the last three years has owned, 15% of our voting stock, for a period of which such person became an interested stockholder, unless the business combination is approved in a prescribed manner.

We have elected not to opt out of Section 203 of the DGCL. We expect, however, to include a provision in our amended and restated certificate of incorporation that will exempt us from the provisions of the DGCL with respect to combinations between any member of the Apollo Group, on the one hand, and us, on the other.

 

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The foregoing factors, as well as the significant common stock ownership by our equity sponsor, could impede a merger, takeover or other business combination or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, may adversely impact prevailing market prices for our common stock. See “Description of Capital Stock.”

Our amended and restated bylaws will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws, which will become effective upon consummation of this Offering, provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim for or based on a breach of a fiduciary duty owed by any of our current or former directors or officers or other employees of the Company to the Company or to the Company’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty; (c) any action asserting a claim against the Company or any of our current or former directors, officers or other employees arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our bylaws; (d) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine; or (e) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely impact our business, financial condition or results of operations.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Our amended and restated certificate of incorporation to be in effect upon consummation of this Offering will authorize us to issue one or more series of preferred stock. Our Board of Directors will have the authority to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price and may adversely impact prevailing market prices for our common stock and the voting and other rights of the holders of shares of our common stock.

You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase.

Prior investors have paid substantially less per share than the price per share in this Offering. The initial offering price is substantially higher than the net tangible book value per share of the outstanding common stock immediately after this Offering. Accordingly, based on our net tangible book value as of September 30, 2016, assuming an initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus), we expect that purchasers of common stock in this Offering will experience immediate and substantial dilution of approximately $         per share. See “Dilution.”

 

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We are a holding company and rely on dividends and other payments, advances and transfers of funds from our subsidiaries to meet our obligations and pay dividends.

We are a holding company and we conduct all of our operations through our subsidiaries. As a result, we rely on our subsidiaries for dividends and other payments to generate the funds necessary to meet our financial obligations and to pay any dividends with respect to our common stock. The ability of our subsidiaries to pay dividends or to make other payments or distributions to us depends substantially on their respective operating results and is subject to restrictions under, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends), agreements of those subsidiaries, the terms of our financing arrangements and the terms of any future financing arrangements of our subsidiaries. In addition, the earnings from, or other available assets of, our subsidiaries, may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock.

Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act, will be expensive and time-consuming and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

After the consummation of this Offering, we will be subject to reporting, accounting and corporate governance requirements of the stock exchange on which we intend to list our common stock, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act and Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control for financial reporting. Under Section 404 of the Sarbanes-Oxley Act and pursuant to the terms therein, our independent public accountants auditing our financial statements must attest to the effectiveness of our internal control over financial reporting. To continue to maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting following the consummation of this Offering, significant resources and management oversight will be required. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. In addition, we may identify control deficiencies which could result in a material weakness or significant deficiency. Furthermore, if we are unable to conclude that our disclosure controls and procedures and internal control over financial reporting are effective, or if our independent public accounting firm is unable to provide us with an unqualified report as to management’s assessment of the effectiveness of our internal control over financial reporting in future years, investors may lose confidence in our financial reports and our stock price may decline.

In addition, Dodd-Frank, which amended the Sarbanes-Oxley Act and other federal laws, has created uncertainty for public companies and we cannot predict with any certainty the requirements of the regulations that will ultimately be adopted under Dodd-Frank or how such regulations will affect the cost of compliance for a company with publicly traded common stock. There is likely to be continuing uncertainty regarding compliance matters because the application of these laws and regulations, which are subject to varying interpretations, may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with these evolving laws and regulations, which may result in increased general and administrative expenses and divert management’s time and attention from other business concerns. Furthermore, if our compliance efforts differ from the activities that regulatory and governing bodies expect or intend due to ambiguities related to interpretation or practice, we may face legal proceedings initiated by such regulatory or governing bodies and our business may be harmed. In addition, new rules and regulations may make it more difficult for us to attract and retain qualified directors and officers and may make it more expensive for us to obtain director and officer liability insurance.

 

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If securities analysts do not publish research or reports about our company, or if they publish unfavorable commentary about us or our industry or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will depend in part on the research and reports that third-party securities analysts publish about our company and our industry. One or more analysts could downgrade our common stock or issue other negative commentary about our company or our industry. In addition, we may be unable or slow to attract research coverage. Alternatively, if one or more of these analysts cease coverage of our company, we could lose visibility in the market. As a result of one or more of these factors, the trading price of our common stock could decline.

Risks Related to Our Indebtedness

Our substantial indebtedness could impair our financial flexibility, competitive position and financial condition.

We have a substantial amount of indebtedness and other obligations. As of September 30, 2016, on a pro forma basis, we would have had $        million in aggregate principal amount of total debt outstanding, which includes $        million of indebtedness under a series of 10.25% senior notes which will mature on February 15, 2023 and which were issued by Presidio Holdings Inc. (successor by merger to Aegis Merger Sub, Inc.), a direct wholly owned subsidiary of the Company (“Presidio Holdings” and such notes, the “Senior Notes”), $        million of indebtedness under a series of 10.25% senior subordinated notes which will mature on February 15, 2023 and which were issued by Presidio Holdings (the “Subordinated Notes” and, together with the Senior Notes, the “Notes”), $        million of indebtedness under the February 2015 Credit Agreement (without giving effect to undrawn letters of credit), and no obligations owed under our $250 million accounts receivable securitization facility (the “Receivables Securitization Facility”). See “Description of Certain Indebtedness.”

Our substantial indebtedness could have important consequences. For example, it could:

 

    limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions;

 

    make it more difficult for us to satisfy our obligations under the terms of our financing arrangements;

 

    make it more difficult to comply with the obligations of our debt instruments, including restrictive covenants and borrowing conditions, the failure of which could result in an event of default under the agreements governing our other indebtedness;

 

    limit our ability to refinance our indebtedness on terms acceptable to us or at all;

 

    limit our flexibility to plan for and to adjust to changing business and market conditions in the industry in which we operate and increase our vulnerability to general adverse economic and industry conditions;

 

    require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities, acquisitions and other general corporate requirements;

 

    limit our ability to obtain additional financing for working capital and capital expenditures to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity, particularly if any ratings assigned to our debt securities by rating organizations were revised downward;

 

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    subject us to higher levels of indebtedness than our competitors, which may cause a competitive disadvantage and may reduce our flexibility in responding to increased competition; and

 

    expose us to the risk of increased interest rates, as certain of our borrowings, including borrowings under the February 2015 Credit Agreement and the Receivables Securitization Facility, are at variable rates of interest.

In addition, the terms of the agreements governing our indebtedness contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of our debts. The occurrence of any one of these events could adversely impact our business, financial condition or results of operations, as well as our prospects or ability to satisfy our debt obligations.

In addition to the restrictions contained in our indebtedness, the agreements governing our accounts payable facility with Castle Pines Capital LLC (the “CPC Facility”) also contain restrictive covenants that may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in the termination of the CPC Facility and the acceleration of our obligations thereunder.

Despite our substantial indebtedness level, we may still be able to incur substantial additional amounts of debt that could further exacerbate the risks associated with our indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the terms of the Receivables Securitization Facility, the indentures governing our Notes and the February 2015 Credit Agreement contain restrictions on our and our subsidiaries’ ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. For example, as of September 30, 2016, on a pro forma basis, we would have had approximately $        million available for additional borrowing under the revolving credit facility under our February 2015 Credit Agreement (without giving effect to letters of credit) and $ million available under the Receivables Securitization Facility. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. Following this Offering, we may opportunistically raise debt capital, subject to market and other conditions, to refinance our existing capital structure or for strategic alternatives and general corporate purposes as part of our growth strategy. There can be no assurance that such debt capital will be available to us on a timely basis, at reasonable rates or at all. If new debt is added to our existing debt levels, the related risks that we face would intensify and we may not be able to meet all of our debt obligations.

The agreements governing our debt contain, and future financing arrangements may contain, various covenants that limit our ability to take certain actions and require us to meet financial maintenance tests. Failure to comply with these terms could adversely impact our financial condition.

Our financing arrangements, including the indentures governing our Notes, the February 2015 Credit Agreement and the Receivables Securitization Facility, contain restrictions, covenants and events of default that, among other things, require us to satisfy certain financial tests and maintain certain financial ratios and restrict our ability to incur additional indebtedness and to refinance our existing indebtedness. Financing arrangements that we enter into in the future could contain similar restrictions and could additionally require us to comply with similar, new or additional financial tests or to maintain similar, new or additional financial ratios. The terms of our existing financing arrangements, financing arrangements that we enter into in the future and any future indebtedness may impose various restrictions and covenants on us that could limit our ability to pay dividends, respond to market conditions, provide for capital investment needs or take advantage of business opportunities because they limit the amount of additional borrowings we may incur. These restrictions include compliance with, or maintenance of, certain financial tests and ratios and may limit or prohibit our ability to, among other things:

 

    borrow money or guarantee debt;

 

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    create liens;

 

    pay dividends on or redeem or repurchase stock or other securities;

 

    make investments and acquisitions;

 

    enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us;

 

    enter into new lines of business;

 

    enter into transactions with affiliates; and

 

    sell assets or merge with other companies.

Various risks, uncertainties and events beyond our control could affect our ability to comply with these restrictions and covenants. Failure to comply with any of the restrictions and covenants in our existing or future financing arrangements could result in a default under those arrangements and under other arrangements containing cross-default provisions.

An event of default would permit lenders to accelerate the maturity of the debt under these arrangements and to foreclose upon any collateral securing the debt. Under such circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our debt obligations. In addition, the limitations imposed by our financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.

To service our indebtedness and other cash needs, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to satisfy our debt obligations and to fund any planned capital expenditures, dividends and other cash needs will depend in part upon the future financial and operating performance of our subsidiaries and upon our ability to renew or refinance borrowings. We cannot assure you that our business will generate cash flow from operations, or that we will be able to draw under our revolving credit facility or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on our indebtedness. Prevailing economic conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond our control, will affect our ability to make these payments.

If we are unable to make payments, refinance our debt or obtain new financing under these circumstances, we may consider other options, including:

 

    sales of assets;

 

    sales of equity;

 

    reduction or delay of capital expenditures, strategic acquisitions, investments and alliances; or

 

    negotiations with our lenders to restructure the applicable debt.

These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In

 

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addition, the terms of existing or future debt agreements, including the February 2015 Credit Agreement, the Receivables Securitization Facility and the indentures governing our Notes, may restrict us from adopting some of these alternatives. In the absence of sufficient cash flow from operating results and other resources, we could face substantial liquidity problems and could be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value, or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could adversely impact our business, financial condition or results of operation.

Any decline in the ratings of our corporate credit could adversely affect our ability to access capital.

Any decline in the ratings of our corporate credit or any indications from the rating agencies that their ratings on our corporate credit are under surveillance or review with possible negative implications could adversely impact our ability to access capital.

We are subject to fluctuations in interest rates.

Borrowings under the February 2015 Credit Agreement and the Receivables Securitization Facility are subject to variable rates of interest and expose us to interest rate risk. For example, assuming the revolving credit facility under the February 2015 Credit Agreement and the Receivables Securitization Facility are fully drawn along with the outstanding term loan balance as of September 30, 2016, on a pro forma basis, each 0.125% change in assumed blended interest rates would result in an approximately $        change in annual interest expense on indebtedness. At present, we do not have any existing interest rate swap agreements, which involve the exchange of floating for fixed rate interest payments to reduce interest rate volatility. However, we may decide to enter into such swaps in the future. If we do, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness and any swaps we enter into may not fully mitigate our interest rate risk, may prove disadvantageous or may create additional risks.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “would,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this prospectus.

Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under “Risk Factors” and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All forward-looking information in this prospectus and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include:

 

    general economic conditions;

 

    a reduced demand for our information technology solutions;

 

    a decrease in spending on technology products by our federal and local government clients;

 

    the availability of products from vendor partners and maintenance of vendor relationships;

 

    the role of rapid innovation and the introduction of new products in our industry;

 

    our ability to compete effectively in a competitive industry;

 

    the termination of our client contracts;

 

    the failure to effectively develop, maintain and operate our information technology systems;

 

    our inability to adequately maintain the security of our information technology systems and clients’ confidential information;

 

    investments in new services and technologies may not be successful;

 

    the costs of litigation and losses if we infringe on the intellectual property rights of third parties;

 

    inaccurate estimates of pricing terms with our clients;

 

    failure to comply with the terms of our public sector contracts;

 

    any failures by third-party contractors upon whom we rely to provide our services;

 

    any failures by third-party commercial delivery services;

 

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    our inability to retain or hire skilled technology professionals and key personnel;

 

    our sales outside of the United States that subject us to additional risks;

 

    the adverse impact of the United Kingdom’s decision to withdraw from the European Union;

 

    the disruption to our supply chain if suppliers fail to provide products;

 

    the risks associated with accounts receivables and inventory exposure;

 

    the failure to realize the entire investment in leased equipment;

 

    our inability to realize the full amount of our backlog;

 

    our acquisitions may not achieve expectations;

 

    fluctuations in our operating results;

 

    potential litigation and claims;

 

    changes in accounting rules, tax legislation and other legislation;

 

    increased costs of labor and benefits;

 

    our inability to focus our resources, maintain our business structure and manage costs effectively;

 

    the failure to deliver technical support services of sufficient quality;

 

    the failure to meet our growth objectives and strategies;

 

    the ineffectiveness of our internal controls;

 

    the risks related to this Offering;

 

    the risks pertaining to our substantial level of indebtedness; and

 

    the other factors discussed in the section of this prospectus entitled “Risk Factors.”

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this prospectus may not, in fact, occur. Accordingly, investors should not place undue reliance on those statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of our common stock in this Offering will be approximately $        , or approximately $        , if the underwriters elect to exercise in full their option to purchase additional shares of common stock from us, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this Offering to repay or redeem certain of our indebtedness, with any remaining net proceeds to be used for working capital or general corporate purposes.

Affiliates of Apollo hold an economic interest in 100% of our outstanding 10.25% Subordinated Notes, which will mature on February 15, 2023, pursuant to derivative arrangements entered into with a nonaffiliated third party who is the holder of 100% of the Subordinated Notes. As such, we presently anticipate that any portion of the proceeds of this Offering by the Company to redeem the Subordinated Notes, if any, would be paid, directly or indirectly, to such affiliates of Apollo.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this Offering by approximately $        , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

Each increase (decrease) of 1.0 million shares in the number of shares sold in this Offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this Offering by approximately $        , assuming the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this Offering determined at pricing. Any increase or decrease in the net proceeds would not change our intended use of proceeds.

The expected use of proceeds from this Offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors and any unforeseen cash needs. As a result, management will retain broad discretion over the allocation of the net proceeds from this Offering.

 

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DIVIDEND POLICY

We currently expect to retain all available funds and any future earnings for use in the operation and expansion of our business. We do not currently anticipate paying dividends on our common stock following this Offering. Any declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries. The terms of our indebtedness may restrict us from paying dividends, or may restrict our subsidiaries from paying dividends to us. Under Delaware law, dividends may be payable only out of surplus, which is our net assets minus our liabilities and our capital, or, if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. See “Description of Certain Indebtedness” and “Description of Capital Stock—Common Stock.”

 

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CAPITALIZATION

The following table sets forth cash and cash equivalents and capitalization as of September 30, 2016:

 

    on a historical basis; and

 

    on a pro forma basis to reflect (a) the sale of         shares of our common stock in this Offering at the initial public offering price of $         per share, the midpoint of the offering price range set forth on the cover page of this prospectus, providing net proceeds to us from this Offering (after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us) of approximately $         million and (b) the use of the estimated net proceeds from this Offering as described under “Use of Proceeds.”

This table should be read together with “Risk Factors,” “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and our historical consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of
September 30, 2016
 
(in millions, except share and per share data)    Historical     Pro Forma  

Cash and cash equivalents

   $ 47.7      $                
  

 

 

   

 

 

 

Long-term debt, including current portion:

    

Term loan facility, due February 2022

     730.5     

Revolving credit facility

         

Receivables Securitization Facility

         

10.25% Senior Notes due February 2023

     222.5     

10.25% Subordinated Notes due February 2023

     111.8     
  

 

 

   

 

 

 

Total debt

     1,064.8     

Stockholders’ equity:

    

Preferred stock, $0.01 par value; 100 shares authorized, zero shares issued and outstanding (historical); shares authorized,         shares issued and outstanding (pro forma)

         

Common stock, $0.01 par value; 100,000,000 shares authorized, 35,966,889 shares issued and outstanding (historical);         shares authorized, shares issued and outstanding (pro forma)

     0.4     

Additional paid-in capital

     374.8     

Accumulated deficit

     (22.1  
  

 

 

   

 

 

 

Total stockholders’ equity

     353.1      $     
  

 

 

   

 

 

 

Total capitalization

   $ 1,417.9      $     
  

 

 

   

 

 

 

The table set forth above is based on the number of shares of our common stock outstanding as of September 30, 2016. The table does not reflect:

 

                shares of our common stock issuable upon the exercise of options outstanding as of September 30, 2016 at a weighted average exercise price of $         per share; and

 

            shares of common stock reserved for issuance under our share-based compensation plans.

 

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Unless otherwise indicated, the table set forth above assumes:

 

    no exercise of the underwriters’ option to purchase             additional shares;

 

    an initial public offering price of $        , which is the midpoint of the price range set forth on the cover page of this prospectus;

 

    the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this Offering; and

 

    the completion of a         -for-         split of our common stock, which was effectuated by the filing of the certificate of amendment to our certificate of incorporation on                 , 2017.

Each $1.00 increase (decrease) in the assumed public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus would increase (decrease) each of pro forma additional paid-in capital, total stockholders’ equity and total capitalization by approximately $         million, $         million and $         million, respectively, assuming that the number of shares offered by us, as set forth on the front cover of this prospectus, remains the same. After deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase of 1.0 million shares in the number of shares offered by us at an assumed public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase each of our pro forma additional paid-in capital, total stockholders’ equity and total capitalization by approximately $         million, $         million and $         million, respectively. Similarly, each decrease of 1.0 million shares in the number of shares offered by us, at an assumed offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease each of our as adjusted additional paid-in capital, total stockholders’ equity and total capitalization by approximately $         million, $         million and $         million, respectively. The pro forma information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this Offering determined at pricing.

 

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock upon completion of this Offering. Dilution results from the fact that the per share offering price of our common stock is substantially in excess of the book value per share attributable to our existing shareholders.

Our net tangible book deficit as of September 30, 2016 was $1,235.5 million, or $34.35 per share of common stock. Net tangible book value per share represents total tangible assets less total liabilities divided by the number of shares of common stock outstanding.

After giving effect to (i) the sale by us of             shares of common stock in this Offering at the initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the use of proceeds therefrom as set forth under the heading “Use of Proceeds,” as if each had occurred on September 30, 2016, our as adjusted net tangible book value (deficit) as of              would have been $         million, or $         per share. This amount represents an immediate dilution of $         per share to new investors, or approximately         % of the assumed public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our as adjusted net tangible book value (deficit) after this Offering by approximately $         per share and increase (decrease) the dilution per share of common stock to new investors by $         per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share of common stock

      $                

Net tangible book deficit per share of common stock as of September 30, 2016

   $                   

Increase in net tangible book value per share attributable to this Offering

     
  

 

 

    

As adjusted net tangible book value (deficit) per share after this Offering

     
     

 

 

 

Dilution per share to new investors

      $     
     

 

 

 

The following table sets forth, as of September 30, 2016, the total number of shares of common stock owned by existing stockholders and to be owned by new investors, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this Offering. The calculation below is based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before

 

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deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this Offering:

 

     Shares Purchased     Total Consideration     Average Price
per Share
 
     Number      Percent     Amount      Percent    
     ($ in millions)  

Existing stockholders

               $                             $            

New investors in this Offering

               $                             $            
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100.0   $                       100.0   $            
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

A $1.00 increase (decrease) in the assumed initial offering price would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $         million, $         million and $         per share, respectively. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $         million, $         million and $         per share, respectively.

The tables and calculations above assume no exercise of outstanding options. As of September 30, 2016, there were         shares of our common stock issuable upon the exercise of options outstanding at a weighted average exercise price of $         per share. To the extent that the             outstanding options are exercised or additional options are granted, there will be further dilution to new investors purchasing common stock in this Offering. See “Description of Capital Stock.”

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table presents our selected historical consolidated financial data for all the periods presented. The selected historical consolidated statements of operations and cash flow data for the three months ended September 30, 2016 and 2015 and the selected historical consolidated balance sheet information as of September 30, 2016 have been derived from our unaudited interim consolidated financial statements, included elsewhere in this prospectus. The selected historical consolidated statements of operations and cash flow data for the fiscal year ended June 30, 2016, for the period from November 20, 2014 to June 30, 2015 (Successor), for the period from July 1, 2014 to February 1, 2015 (Predecessor) and for the fiscal year ended June 30, 2014 and the selected historical consolidated balance sheet information as of June 30, 2016 and 2015 have been derived from our audited historical consolidated financial statements, included elsewhere in this prospectus. The selected historical consolidated statements of operations and cash flow data for the years ended June 30, 2013 and 2012 and the selected historical consolidated balance sheet information as of June 30, 2014, 2013 and 2012 have been derived from our historical audited consolidated financial information, not included in this prospectus.

The unaudited interim selected historical consolidated financial data have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, consist only of normal and recurring adjustments necessary for a fair presentation of the information set forth herein.

On February 2, 2015, the Apollo Funds completed the Presidio Acquisition. Under the terms of the Presidio Acquisition, Presidio Holdings Inc. (the Predecessor) became a wholly owned subsidiary of Presidio, Inc. (the Successor). As a result of the Presidio Acquisition, the financial information for all periods ending on or after February 2, 2015 represent the financial information of the Successor. Periods ending prior to February 2, 2015 represent the financial information of the Predecessor. From November 20, 2014 (its date of inception) to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition.

You should read the following information together with “Risk Factors,” “Use of Proceeds,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future, and interim financial results are not necessarily indicative of results that may be expected for the full fiscal year.

 

    Predecessor     Successor  
(in millions, except share
and per share data)
 

 

Fiscal year ended June 30,

    July 1, 2014 to
February 1,

2015
    November 20,
2014 to

June 30,
2015
    Fiscal year
ended
June 30,

2016
    Three months
ended
September 30,

2015
    Three months
ended
September 30,

2016
 
  2012     2013     2014            

Statement of operations data:

                 

Revenue

  $       1,763.8      $     2,192.4      $     2,266.0      $ 1,392.8      $ 985.5      $ 2,714.9      $ 692.0      $ 737.7   

Cost of revenue

    1,399.7        1,778.8        1,812.0        1,103.5        788.5        2,174.3        555.1        589.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    364.1        413.6        454.0        289.3        197.0        540.6        136.9        148.6   

Operating expenses

    308.0        334.3        362.5        262.5        186.4        441.7        100.2        118.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    56.1        79.3        91.5        26.8        10.6        98.9        36.7        30.3   

Interest expense

    32.4        33.1        34.3        21.4        46.7        81.9        20.2        20.7   

Loss on disposal of business

                                       6.8                 

Loss on extinguishment of debt

           2.9        2.7        7.5        0.7        9.7        0.1          

Other (income) expense, net

    2.2        (1.9     (2.4     (0.2     0.1        0.1        (0.1       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and other (income) expense

    34.6        34.1        34.6        28.7        47.5        98.5        20.2        20.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    21.5        45.2        56.9        (1.9     (36.9     0.4        16.5        9.6   

Income tax expense (benefit)

    10.7        18.4        24.4        3.2        (12.6     3.8        6.8        4.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 10.8      $ 26.8      $ 32.5      $ (5.1   $ (24.3   $ (3.4   $ 9.7      $ 5.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Predecessor     Successor  
(in millions, except share
and per share data)
 

 

Fiscal year ended June 30,

    July 1, 2014 to
February 1,

2015
    November 20,
2014 to

June 30,
2015
    Fiscal year
ended
June 30,

2016
    Three months
ended
September 30,

2015
    Three months
ended
September 30,

2016
 
  2012     2013     2014            

Earnings (loss) per share:

                 

Basic

    $ 0.05      $ 0.06      $ (0.01   $ (0.69   $ (0.10   $ 0.28      $ 0.16   

Diluted

    $ 0.05      $ 0.06      $ (0.01   $ (0.69   $ (0.10   $ 0.27      $ 0.15   

Weighted average shares used to compute net earnings (loss) per share:

                 

Basic

      560,416,333        561,829,775        561,886,602        35,005,269        35,558,981        35,245,974        35,966,235   

Diluted

      570,097,325        572,656,299        561,886,602        35,005,269        35,558,981        35,906,253        36,940,763   
 

Statement of cash flows data:

                 

Net cash provided by (used in) operating activities

  $ 29.0      $ 46.2      $ 53.3      $ 74.5      $ (1.8   $ 85.6      $ 10.3      $ 20.8   

Net cash used in investing activities

    (186.1     (65.8     (74.4     (71.3     (678.9     (322.0     (19.2     (34.0

Net borrowings (repayments) on floor plan facility

    (0.5     24.6        20.5        (29.0     50.8        20.9        10.4        4.9   

Other financing activities

    139.4        (6.2     0.5        24.3        718.2        160.2        (22.2     23.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    138.9        18.4        21.0        (4.7     769.0        181.1        (11.8     27.9   

Net increase (decrease) in cash and cash equivalents

  $ (18.2   $ (1.2   $ (0.1   $ (1.5   $ 88.3      $ (55.3   $ (20.7   $ 14.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Other financial data:

                 

Adjusted Revenue (1)

  $ 1,648.1      $ 2,082.6      $ 2,149.9      $ 1,323.4      $ 940.8      $ 2,683.7      $ 665.5      $ 738.0   

Adjusted EBITDA (2)

  $ 126.9      $ 148.9      $ 167.0      $ 116.2      $ 68.6      $ 211.1      $ 59.3      $ 58.2   

Adjusted EBITDA margin (2)(3)

    7.7     7.1     7.8     8.8 %        7.3     7.9     8.9     7.9

Adjusted Net Income (4)

  $ 55.4      $ 73.6      $ 81.7      $ 58.6      $ 13.4      $ 81.2      $ 24.1      $ 24.5   

Adjusted Net Income per share:

                 

Basic

    $ 0.13      $ 0.15      $ 0.10      $ 0.38      $ 2.28      $ 0.68      $ 0.68   

Diluted

    $ 0.13      $ 0.14      $ 0.10      $ 0.38      $ 2.23      $ 0.67      $ 0.66   

Weighted average shares used to compute Adjusted Net Income per share:

                 

Basic

      560,416,333        561,829,775        561,886,602        35,005,269        35,558,981        35,245,974        35,966,235   

Diluted

      570,097,325        572,656,299        593,353,683        35,655,707        36,415,101        35,906,253        36,940,763   

 

     Predecessor           Successor  
     As of
June 30,
          As of
    June 30,    
     As of
September 30,
 
(in millions, except per share data)          2012                  2013                2014                     2015                  2016            2016  

Balance sheet data:

                    

Cash and cash equivalents

   $ 9.8       $ 8.6       $ 8.5          $ 88.3       $ 33.0       $ 47.7   

Total assets

     1,506.6         1,505.5         1,545.0            2,444.4         2,623.1         2,678.6   

Total long-term debt

     446.4         413.3         618.7            933.7         1,038.0         1,032.6   

Total liabilities

     1,214.8         1,188.7         1,448.5            2,108.6         2,276.2         2,325.5   

Total stockholders’ equity

     291.8         316.8         96.5            335.8         346.9         353.1   

Cash dividends declared per common share

   $       $       $ 0.46          $       $       $   

 

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(1) We define Adjusted Revenue as revenue adjusted to exclude (i) revenue generated by disposed businesses and (ii) noncash purchase accounting adjustments to revenue as a result of our acquisitions. The following table presents a reconciliation of Adjusted Revenue from Revenue.

 

    Predecessor     Successor  

(in millions)

 

 

Fiscal year ended June 30,

    July 1,
2014 to
February 1,
2015
    November 20,
2014 to
June 30,
2015
    Fiscal year
ended

June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 
  2012     2013     2014            

Revenue

  $ 1,763.8      $ 2,192.4      $ 2,266.0      $ 1,392.8      $ 985.5      $ 2,714.9      $ 692.0      $ 737.7   

Adjustments:

                 

Revenue from disposed business (a)

    (115.7     (109.8     (116.1     (69.4     (46.0     (32.8     (27.1       

Purchase accounting adjustments (b)

                                1.3        1.6        0.6        0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    (115.7     (109.8     (116.1     (69.4     (44.7     (31.2     (26.5     0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Revenue

  $ 1,648.1      $ 2,082.6      $ 2,149.9      $   1,323.4      $   940.8      $   2,683.7      $   665.5      $   738.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) “Revenue from disposed business” represents the removal of the historical revenue of Atlantix prior to the sale of the business.
  (b) “Purchase accounting adjustments” include the noncash reduction to revenue associated with deferred revenue step down fair value adjustments in connection with purchase accounting.

 

(2) We define Adjusted EBITDA as net income (loss) plus (i) total depreciation and amortization, (ii) interest and other (income) expense and (iii) income tax expense (benefit), as further adjusted to eliminate noncash share-based compensation expense, purchase accounting adjustments, transaction costs, other costs and earnings from disposed business. The following table presents a reconciliation of Adjusted EBITDA from Net income (loss).

 

    Predecessor     Successor  

(in millions)

 

 

Fiscal year ended June 30,

    July 1,
2014 to
February 1,
2015
    November 20,
2014 to
June 30,
2015
    Fiscal year
ended

June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 
  2012     2013     2014            

Adjusted EBITDA Reconciliation:

                 

Net income (loss)

  $ 10.8      $ 26.8      $ 32.5      $ (5.1   $ (24.3   $ (3.4   $ 9.7      $ 5.6   

Total depreciation and amortization (a)

    53.5        56.8        50.6        24.9        32.1        81.7        19.4        21.8   

Interest and other (income) expense

    34.6        34.1        34.6        28.7        47.5        98.5        20.2        20.7   

Income tax expense (benefit)

    10.7        18.4        24.4        3.2        (12.6     3.8        6.8        4.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    109.6        136.1        142.1        51.7        42.7        180.6        56.1        52.1   

Adjustments:

                 

Share-based compensation expense

    5.1        2.8        5.5        20.1        1.0        2.2        0.6        0.5   

Purchase accounting adjustments (b)

                                4.9        3.9        1.3        0.4   

Transaction costs (c)

    12.8        6.8        14.8        42.6        21.3        20.6        2.3        3.4   

Other costs (d)

    3.4        9.6        13.0        4.5        1.9        5.6        1.0        1.8   

Earnings from disposed business (e)

    (4.0     (6.4     (8.4     (2.7     (3.2     (1.8     (2.0       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    17.3        12.8        24.9        64.5        25.9        30.5        3.2        6.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 126.9      $ 148.9      $   167.0      $   116.2      $   68.6      $   211.1      $   59.3      $   58.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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  (a) “Total depreciation and amortization” equals the sum of (i) depreciation and amortization within total operating expenses and (ii) depreciation and amortization recorded as part of cost of revenue within our consolidated financial statements.

 

  (b) “Purchase accounting adjustments” include charges associated with noncash adjustments to acquired assets and liabilities in connection with purchase accounting, such as recognition of increased cost of revenue in connection with an inventory step up fair value adjustment, recognition of reduced revenue in connection with a deferred revenue step down fair value adjustment and recognition of increased office rent expense associated with a fair value adjustment to the liabilities associated with deferred rent.

 

  (c) “Transaction costs” (1) of $12.8 million for the fiscal year ended June 30, 2012 includes acquisition-related expenses of $3.4 million related to stay and retention bonuses, $1.6 million related to severance charges, and $7.8 million related to transaction-related legal, accounting and tax fees; (2) of $6.8 million for the fiscal year ended June 30, 2013 includes acquisition-related expenses of $1.9 million related to stay and retention bonuses, $0.2 million related to severance charges, $2.4 million related to transaction-related legal, accounting and tax fees and $2.3 million related to professional fees and expenses associated with debt refinancings; (3) of $14.8 million for the fiscal year ended June 30, 2014 includes acquisition-related expenses of $0.8 million related to stay and retention bonuses, $0.3 million related to severance charges, $0.7 million related to transaction-related legal, accounting and tax fees and $13.0 million related to professional fees and expenses associated with debt refinancings; (4) of $42.6 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes acquisition-related expenses of $0.3 million related to stay and retention bonuses, $0.2 million related to severance charges, $31.2 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $10.9 million related to professional fees and expenses associated with debt refinancings; (5) of $21.3 million for the Successor period from November 20, 2014 to June 30, 2015 includes acquisition-related expenses of $0.6 million related to stay and retention bonuses, $0.6 million related to severance charges, $18.5 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $1.6 million related to professional fees and expenses associated with debt refinancings; (6) of $20.6 million for the fiscal year ended June 30, 2016 includes acquisition-related expenses of $3.0 million related to stay and retention bonuses, $1.1 million related to severance charges, $8.7 million related to transaction-related advisory and diligence fees, $6.0 million related to transaction-related legal, accounting and tax fees and $1.8 million related to professional fees and expenses associated with debt refinancings; (7) of $2.3 million for the three months ended September 30, 2015 includes acquisition-related expenses of $0.4 million related to stay and retention bonuses, $0.5 million related to severance charges, $0.3 million related to transaction-related advisory and diligence fees and $1.1 million related to transaction-related legal, accounting and tax fees; and (8) of $3.4 million for the three months ended September 30, 2016 includes acquisition-related expenses of $1.5 million related to stay and retention bonuses, $1.7 million related to transaction-related advisory and diligence fees and $0.2 million related to transaction-related legal, accounting and tax fees.

 

  (d)

“Other costs” (1) of $3.4 million for the fiscal year ended June 30, 2012 includes expenses of $2.4 million related to payments to our former sponsor for advisory and consulting services and $1.0 million related to certain acquisition-related integration and related costs; (2) of $9.6 million for the fiscal year ended June 30, 2013 includes expenses of $0.8 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $0.4 million related to unusual office start-up development costs, certain unusual legal expenses of $1.6 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $4.7 million related to certain acquisition-related integration and related costs; (3) of $13.0 million for the fiscal year ended June 30,

 

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  2014 includes expenses of $3.7 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $1.1 million related to unusual office start-up development costs, an unusual and non-recurring loss of $1.7 million related to an Atlantix customer receivable, certain unusual legal expenses of $2.2 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $2.2 million related to certain acquisition-related integration and related costs; (4) of $4.5 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes expenses of $2.2 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $0.4 million related to unusual office start-up development costs, $1.6 million related to payments to our former sponsor for advisory and consulting services and $0.3 million related to other non-recurring items; (5) of $1.9 million for the Successor period from November 20, 2014 to June 30, 2015 includes expenses of $1.0 million associated with the integration of previously acquired managed services platforms into one system, $0.7 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.2 million; (6) of $5.6 million for the fiscal year ended June 30, 2016 includes expenses of $0.5 million associated with the integration of previously acquired managed services platforms into one system, $3.4 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.5 million related to unusual office start-up development costs and certain unusual legal expenses of $1.2 million; (7) of $1.0 million for the three months ended September 30, 2015 includes expenses of $0.3 million associated with the integration of previously acquired managed services platforms into one system, $0.4 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.3 million; and (8) of $1.8 million for the three months ended September 30, 2016 represents costs incurred in the development of our new cloud service offerings.

 

  (e) “Earnings from disposed business” represents the removal of the historical earnings contribution of Atlantix prior to the sale of the business.

 

(3) Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to Adjusted Revenue.

 

(4) We define Adjusted Net Income as net income (loss) adjusted to exclude (i) amortization of intangible assets, (ii) amortization of debt issuance costs, (iii) losses recognized on the disposal of business, (iv) losses on extinguishment of debt, (v) noncash share-based compensation expense, (vi) purchase accounting adjustments, (vii) transaction costs, (viii) other costs, (ix) earnings from disposed business and (x) the income tax impact associated with the foregoing items. The following table presents a reconciliation of Adjusted Net Income from Net income (loss).

 

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Table of Contents
    Predecessor     Successor  

(in millions)

 

 

Fiscal year ended June 30,

    July 1,
2014 to
February 1,
2015
    November 20,
2014 to
June 30,
2015
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 
  2012     2013     2014            

Adjusted Net Income reconciliation:

                 

Net income (loss)

  $ 10.8      $ 26.8      $ 32.5      $ (5.1   $ (24.3   $ (3.4   $ 9.7      $ 5.6   

Adjustments:

                 

Amortization of intangible assets

    43.4        45.3        38.3        18.3        26.4        67.2        15.9        18.4   

Amortization of debt issuance costs

    4.6        4.7        4.4        2.4        2.7        7.6        1.7        1.7   

Loss on disposal of business

                                       6.8                 

Loss on extinguishment of debt

           2.9        2.7        7.5        0.7        9.7        0.1          

Share-based compensation expense

    5.1        2.8        5.5        20.1        1.0        2.2        0.6        0.5   

Purchase accounting adjustments (a)

                                4.9        3.9        1.3        0.4   

Transaction costs (b)

    12.8        6.8        14.8        42.6        21.3        20.6        2.3        3.4   

Other costs (c)

    3.4        9.6        13.0        4.5        1.9        5.6        1.0        1.8   

Earnings from disposed business (d)

    (4.0     (6.4     (8.4     (2.7     (3.2     (1.8     (2.0       

Income tax impact of adjustments (e)

    (20.7     (18.9     (21.1     (29.0     (18.0     (37.2     (6.5     (7.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    44.6        46.8        49.2        63.7        37.7        84.6        14.4        18.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

  $ 55.4      $ 73.6      $ 81.7      $ 58.6      $ 13.4      $ 81.2      $   24.1      $   24.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) “Purchase accounting adjustments” include charges associated with noncash adjustments to acquired assets and liabilities in connection with purchase accounting, such as recognition of increased cost of revenue in connection with an inventory step up fair value adjustment, recognition of reduced revenue in connection with a deferred revenue step down fair value adjustment and recognition of increased office rent expense associated with a fair value adjustment to the liabilities associated with deferred rent.

 

  (b)

“Transaction costs” (1) of $12.8 million for the fiscal year ended June 30, 2012 includes acquisition-related expenses of $3.4 million related to stay and retention bonuses, $1.6 million related to severance charges, and $7.8 million related to transaction-related legal, accounting and tax fees; (2) of $6.8 million for the fiscal year ended June 30, 2013 includes acquisition-related expenses of $1.9 million related to stay and retention bonuses, $0.2 million related to severance charges, $2.4 million related to transaction-related legal, accounting and tax fees and $2.3 million related to professional fees and expenses associated with debt refinancings; (3) of $14.8 million for the fiscal year ended June 30, 2014 includes acquisition-related expenses of $0.8 million related to stay and retention bonuses, $0.3 million related to severance charges, $0.7 million related to transaction-related legal, accounting and tax fees and $13.0 million related to professional fees and expenses associated with debt refinancings; (4) of $42.6 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes acquisition-related expenses of $0.3 million related to stay and retention bonuses, $0.2 million related to acquisition-related severance charges, $31.2 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $10.9 million related to professional fees and expenses associated with debt refinancings; (5) of $21.3 million for the Successor period from November 20, 2014 to June 30, 2015 includes acquisition-related expenses of $0.6 million related to stay and retention bonuses, $0.6 million related to severance charges, $18.5 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $1.6 million related to professional fees and expenses associated with debt refinancings; (6) of $20.6 million for the fiscal year ended June 30, 2016 includes acquisition-related expenses of $3.0 million related to stay and retention bonuses, $1.1 million related to severance charges, $8.7 million related to transaction-related advisory and diligence fees, $6.0 million related to transaction-related legal, accounting and tax

 

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  fees and $1.8 million related to professional fees and expenses associated with debt refinancings; (7) of $2.3 million for the three months ended September 30, 2015 includes acquisition-related expenses of $0.4 million related to stay and retention bonuses, $0.5 million related to severance charges, $0.3 million related to transaction-related advisory and diligence fees and $1.1 million related to transaction-related legal, accounting and tax fees; and (8) of $3.4 million for the three months ended September 30, 2016 includes acquisition-related expenses of $1.5 million related to stay and retention bonuses, $1.7 million related to transaction-related advisory and diligence fees and $0.2 million related to transaction-related legal, accounting and tax fees.

 

  (c) “Other costs” (1) of $3.4 million for the fiscal year ended June 30, 2012 includes expenses of $2.4 million related to payments to our former sponsor for advisory and consulting services and $1.0 million related to certain acquisition-related integration and related costs; (2) of $9.6 million for the fiscal year ended June 30, 2013 includes expenses of $0.8 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $0.4 million related to unusual office start-up development costs, certain unusual legal expenses of $1.6 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $4.7 million related to certain acquisition-related integration and related costs; (3) of $13.0 million for the fiscal year ended June 30, 2014 includes expenses of $3.7 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $1.1 million related to unusual office start-up development costs, an unusual and non-recurring loss of $1.7 million related to an Atlantix customer receivable, certain unusual legal expenses of $2.2 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $2.2 million related to certain acquisition-related integration and related costs; (4) of $4.5 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes expenses of $2.2 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $0.4 million related to unusual office start-up development costs, $1.6 million related to payments to our former sponsor for advisory and consulting services and $0.3 million related to other non-recurring items; (5) of $1.9 million for the Successor period from November 20, 2014 to June 30, 2015 includes expenses of $1.0 million associated with the integration of previously acquired managed services platforms into one system, $0.7 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.2 million; (6) of $5.6 million for the fiscal year ended June 30, 2016 includes expenses of $0.5 million associated with the integration of previously acquired managed services platforms into one system, $3.4 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.5 million related to unusual office start-up development costs and certain unusual legal expenses of $1.2 million; (7) of $1.0 million for the three months ended September 30, 2015 includes expenses of $0.3 million associated with the integration of previously acquired managed services platforms into one system, $0.4 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.3 million; and (8) of $1.8 million for the three months ended September 30, 2016 represents costs incurred in the development of our new cloud service offerings.

 

  (d) “Earnings from disposed business” represents the removal of the historical earnings contribution of Atlantix prior to the sale of the business.

 

  (e) “Income tax impact of adjustments” includes an estimated tax impact of the adjustments to net income at the Company’s average statutory rate of 39.0%, except for (i) the adjustment of certain transaction costs that are permanently nondeductible for taxes purposes and (ii) the impact of tax-deductible goodwill and intangible assets resulting from certain historical acquisitions, and further adjusted for discrete tax items, such as the remeasurement of deferred tax liabilities, due to state rate changes and write off of deferred tax assets resulting from reorganizations.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information and explanatory notes give effect to the completion of this Offering (assuming the issuance and sale by the Company of         shares of common stock at an offering price of $         per share, which represents the midpoint of the price range set forth on the cover page of this prospectus, generating estimated net proceeds of $         million after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us), further adjusted for the use of the proceeds from this Offering as described in the section entitled “Use of Proceeds.” The following unaudited pro forma condensed consolidated financial information and explanatory notes do not give effect to (i) the incurrence of the February 2016 Incremental Term Loan or the May 2016 Incremental Term Loan, (ii) the incurrence and subsequent refinancing of the February 2016 Credit Agreement, (iii) the capitalization of, amortization of or write off of any unamortized deferred financing fees associated therewith or (iv) for the full-year effect of the Netech Acquisition. See “Description of Certain Indebtedness.”

The historical consolidated financial information of the Company as of and for the three months ended September 30, 2016 has been derived from our unaudited interim financial statements included elsewhere in this prospectus. The historical consolidated financial information of the Company for the fiscal year ended June 30, 2016 has been derived from our audited consolidated financial statements included elsewhere in this prospectus.

The unaudited pro forma condensed consolidated balance sheet gives effect to transactions as if they had occurred on September 30, 2016 to the extent they have not been fully reflected in the historical consolidated financial statements. The unaudited pro forma condensed consolidated statement of operations for the three months ended September 30, 2016 gives effect to the transactions described above as if they had occurred on July 1, 2015. The unaudited pro forma condensed consolidated statement of operations for the fiscal year ended June 30, 2016 gives effect to the transactions described above as if they had occurred on July 1, 2015. The unaudited pro forma financial information set forth below is based upon available information and assumptions that we believe are reasonable. The historical financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the above transactions occurred on the dates indicated. The unaudited pro forma condensed consolidated financial information also should not be considered representative of our future financial condition or results of operations. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the information included under the headings “Selected Historical Consolidated Financial Data,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Use of Proceeds,” “Description of Capital Stock” and the consolidated financial statements and related notes of the Company included elsewhere in this prospectus. All pro forma adjustments and their underlying assumptions are described more fully in the notes to our unaudited pro forma condensed consolidated financial information.

 

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Presidio, Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet As of September 30, 2016

(in millions, except for share and per share data)

 

Assets

   Historical     Offering (1)          Pro Forma  

Current Assets

         

Cash and cash equivalents

   $ 47.7        1(a)    $     

Accounts receivable, net

     476.7          

Unbilled accounts receivable

     155.5          

Financing receivables, current portion

     85.6          

Prepaid expenses and other current assets

     133.3          

Inventory

     37.1          
  

 

 

   

 

 

      

 

 

 

Total current assets

     935.9          

Property and equipment, net

     33.2          

Equipment under operating leases, net

     2.6          

Financing receivables, less current portion

     111.4          

Goodwill

     781.5          

Identifiable intangible assets, net

     807.1          

Other assets

     6.9          
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 2,678.6           $     
  

 

 

   

 

 

      

 

 

 

Liabilities and Stockholders’ Equity

                       

Current Liabilities

         

Current maturities of long-term debt

   $ 7.4           $     

Accounts payable – trade

     439.1          

Accounts payable – floor plan

     228.2          

Accrued expenses and other current liabilities

     155.0        1(b)   

Discounted financing receivables, current portion

     78.0          
  

 

 

   

 

 

      

 

 

 

Total current liabilities

     907.7          

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

     1,025.2        1(c)   

Discounted financing receivables, less current portion

     94.5          

Deferred income tax liabilities

     283.4          

Other liabilities

     14.7          
  

 

 

   

 

 

      

 

 

 

Total liabilities

     2,325.5          

Stockholders’ Equity

         

Preferred stock; $0.01 par value; 100 shares authorized, zero shares issued and outstanding (historical);         shares authorized,         shares issued and outstanding (pro forma)

         

Common stock; $0.01 par value; 100,000,000 shares authorized, 35,966,889 shares issued and outstanding (historical);         shares authorized,         shares issued and outstanding (pro forma)

     0.4        1(d)   

Additional paid-in capital

     374.8        1(d)   

Accumulated deficit

     (22.1     1(e)   
  

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     353.1          
  

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 2,678.6           $                
  

 

 

   

 

 

      

 

 

 

The accompanying notes are an integral part of this Unaudited Pro Forma Condensed Consolidated balance sheet.

 

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Presidio, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations Three Months Ended September 30, 2016

(in millions, except for share and per share data)

 

     Historical      Offering (1)          Pro Forma      

Revenue

            

Product

   $ 626.4            $                

Service

     111.3             
  

 

 

    

 

 

      

 

 

   

Total revenue

     737.7             

Cost of revenue

            

Product

     499.5             

Service

     89.6             
  

 

 

    

 

 

      

 

 

   

Total cost of revenue

     589.1             
  

 

 

    

 

 

      

 

 

   

Gross margin

     148.6             

Operating expenses

            

Selling expenses

     67.5             

General and administrative expenses

     27.0             

Transaction costs

     3.4         1(f)     

Depreciation and amortization

     20.4             
  

 

 

    

 

 

      

 

 

   

Total operating expenses

     118.3             
  

 

 

    

 

 

      

 

 

   

Operating income

     30.3             

Interest and other (income) expense

            

Interest expense

     20.7         1(g)     

Other (income) expense, net

                 
  

 

 

    

 

 

      

 

 

   

Total interest and other (income) expense

     20.7             
  

 

 

    

 

 

      

 

 

   

Income before income taxes

     9.6             

Income tax expense

     4.0         1(h)     
  

 

 

    

 

 

      

 

 

   

Net income

   $ 5.6            $       
  

 

 

    

 

 

      

 

 

   

Earnings per share

            

Basic

   $ 0.16              1(i)
  

 

 

    

 

 

      

 

 

   

Diluted

   $ 0.15              1(i)
  

 

 

    

 

 

      

 

 

   

Weighted average shares

            

Basic

     35,966,235              1(i)
  

 

 

    

 

 

      

 

 

   

Diluted

     36,940,763              1(i)
  

 

 

    

 

 

      

 

 

   

The accompanying notes are an integral part of this Unaudited Pro Forma Condensed Consolidated statement of operations.

 

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Presidio, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations Fiscal Year Ended June 30, 2016 (in millions, except for share and per share data)

 

     Historical     Offering (1)          Pro Forma        

Revenue

           

Product

   $ 2,319.8           $                

Service

     395.1            
  

 

 

   

 

 

      

 

 

   

Total revenue

     2,714.9            

Cost of revenue

           

Product

     1,866.5            

Service

     307.8            
  

 

 

   

 

 

      

 

 

   

Total cost of revenue

     2,174.3            
  

 

 

   

 

 

      

 

 

   

Gross margin

     540.6            

Operating expenses

           

Selling expenses

     248.2            

General and administrative expenses

     96.9            

Transaction costs

     20.6        1(j)     

Depreciation and amortization

     76.0            
  

 

 

   

 

 

      

 

 

   

Total operating expenses

     441.7            
  

 

 

   

 

 

      

 

 

   

Operating income

     98.9            

Interest and other (income) expense

           

Interest expense

     81.9        1(k)     

Loss on disposal of business

     6.8            

Loss on extinguishment of debt

     9.7            

Other (income) expense, net

     0.1            
  

 

 

   

 

 

      

 

 

   

Total interest and other (income) expense

     98.5            
  

 

 

   

 

 

      

 

 

   

Income before income taxes

     0.4            

Income tax expense

     3.8        1(l)     
  

 

 

   

 

 

      

 

 

   

Net loss

   $ (3.4        $       
  

 

 

   

 

 

      

 

 

   

Loss per share

           

Basic

   $ (0.10            1(m)   
  

 

 

   

 

 

      

 

 

   

Diluted

   $ (0.10            1(m)   
  

 

 

   

 

 

      

 

 

   

Weighted average shares

           

Basic

     35,558,981               1(m)   
  

 

 

   

 

 

      

 

 

   

Diluted

     35,558,981               1(m)   
  

 

 

        

 

 

   

The accompanying notes are an integral part of this Unaudited Pro Forma Condensed Consolidated statement of operations.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

1. Offering

Unaudited Pro Forma Condensed Consolidated Balance Sheet

 

a) Reflects the pro forma net adjustment of a $         million increase to cash and cash equivalents to reflect estimated net proceeds of approximately $         million from this Offering and the pro forma net adjustment of a $         million decrease to cash and cash equivalents to reflect the repayment or redemption of principal and accrued interest on $         million of indebtedness. Net proceeds are net of fees and expenses.

 

b) Reflects the pro forma net adjustment of $         million to accrued expenses and other liabilities to (i) reflect the payment of accrued interest under indebtedness repaid or redeemed, if any, upon consummation of this Offering and (ii) the payment of accrued initial public offering costs upon the consummation of this Offering.

 

c) (i) Reflects the pro forma net adjustment of $         million to long-term debt, net of debt issuance costs and current maturities to reflect the write off of unamortized debt issuance costs associated with the repayment of indebtedness as described in note 1(a) above and (ii) reflects the pro forma net adjustment of $          million to long-term debt, net of debt issuance costs and current maturities to reflect the repayment or redemption of $             million in aggregate principal amount of our indebtedness.

 

d) Reflects the pro forma net adjustment of $         million and $         million to common stock and additional paid-in capital, respectively, to reflect (i) the issuance of             shares of common stock in this Offering and the application of $         million in net proceeds to us from the sale of such shares to repay certain indebtedness as described in note 1(a) above, (ii) the         -for-         split of our common stock, which was effectuated by the filing of the certificate of amendment to our certificate of incorporation on                 , 2017 and (iii) the recognition of share-based compensation for Tranches B and C, associated with the stock options discussed in Note 15 of the historical consolidated financial statements as of and for the fiscal year ended June 30, 2016.

 

e) Reflects the pro forma adjustments to accumulated deficit for the following items:

 

     Three Months
Ended
September 30, 2016
 

Performance-based stock option expense (1)

  

Transaction costs (2)

  

Interest expense (3)

  

Loss on extinguishment of debt (4)

  

Income tax expense (benefit) (5)

  
  

 

 

 

Total pro forma adjustment to accumulated deficit

  
  

 

 

 

 

  (1) Reflects the pro forma adjustment to increase accumulated deficit related to the share-based compensation expense for Tranches B and C, associated with the stock options discussed in Note 15 of the historical consolidated financial statements as of and for the fiscal year ended June 30, 2016, which has been recognized in connection with this Offering due to the performance condition being deemed probable.

 

  (2) Reflects the pro forma adjustment to increase accumulated deficit for transaction costs directly attributable to this Offering that are not reflected in the historical statement of operations.

 

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  (3) Reflects the pro forma adjustment to decrease accumulated deficit for the reduction to interest expense associated with outstanding indebtedness repaid with the net proceeds from this Offering.

 

  (4) Reflects the pro forma adjustment to increase accumulated deficit associated with the loss on extinguishment of debt resulting from (i) the write off of debt issuance costs described in 1(c) above and (ii) the recognition of the premium paid on indebtedness to be repaid or redeemed, if any, with the net proceeds of this Offering.

 

  (5) Reflects the pro forma adjustment to income tax expense (benefit) attributable to pro forma adjustments assuming the Company’s blended federal and state income tax rate in effect during the fiscal year ended June 30, 2016 of 39.0% was in effect for the entire period. We expect our effective tax rate to vary from these estimated statutory tax rates in future years.

Any decrease in net proceeds from the amount set forth in 1(a) above would decrease the amount of cash and cash equivalents on our balance sheet. An increase in net proceeds from the amount set forth in 1(a) above would increase the amount of cash and cash equivalents on our balance sheet.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

As described in 1(e) above, we expect to recognize certain expenses in connection with the Offering. These expenses include certain non-recurring charges that have not been adjusted in the unaudited pro forma condensed consolidated statements of operations including (i) $         million of share-based compensation expense for Tranches B and C, associated with the stock options discussed in Note 15 of the historical consolidated financial statements as of and for the fiscal year ended June 30, 2016 and (ii) $         million of loss on extinguishment of debt resulting from (i) the write off of $         million of debt issuance costs described in 1(c) above and (ii) the recognition of the $         million premium paid on the indebtedness to be repaid or redeemed, if any, with the net proceeds of this Offering.

 

f) Reflects the pro forma adjustment to eliminate transaction costs directly attributable to this Offering for the three months ended September 30, 2016.

 

g) Reflects the pro forma adjustment to eliminate interest expense associated with outstanding indebtedness repaid with proceeds from this Offering for the three months ended September 30, 2016.

 

h) The amount of income tax expense (benefit) attributable to the pro forma adjustments is computed by applying the Company’s blended U.S. statutory federal and state income tax rates to income (loss) before income taxes. The blended U.S. statutory federal and state income tax rate assumed to be in effect during the three months ended September 30, 2016 was 39.0%.

 

i) The weighted average shares outstanding used to compute basic and diluted earnings per share have been adjusted to give effect to the issuance of shares of common stock in this Offering, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, as well as the         -for-         split of our common stock, which was effectuated by the filing of the certificate of amendment to our certificate of incorporation on                 , 2017.

 

j) Reflects the pro forma adjustment to eliminate transaction costs directly attributable to this Offering for the fiscal year ended June 30, 2016.

 

k) Reflects the pro forma adjustment to eliminate interest expense associated with outstanding indebtedness repaid with proceeds from this Offering for the fiscal year ended June 30, 2016.

 

l) The amount of income tax expense (benefit) attributable to the pro forma adjustments is computed by applying the Company’s blended U.S. federal and state statutory income tax rates to income (loss) before income taxes. The blended U.S. federal and state statutory income tax rate assumed to be in effect during the fiscal year ended June 30, 2016 was 39.0%.

 

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m) The weighted average shares outstanding used to compute basic and diluted loss per share have been adjusted to give effect to the issuance of shares of common stock in this Offering, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, as well as the         -for-         split of our common stock, which was effectuated by the filing of the certificate of amendment to our certificate of incorporation on                 , 2017.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the historical consolidated financial statements of Presidio, Inc. and its subsidiaries and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section. Our actual results may differ materially from those contained in any forward-looking statements.

Overview

Presidio is a leading provider of IT solutions to the middle market in North America. We enable business transformation through our expertise in IT solutions, with a specific focus on Digital Infrastructure, Cloud and Security solutions. Our solutions are delivered through a broad suite of professional services including strategy, consulting, design and implementation. We complement our professional services with project management, technology acquisition, managed services, maintenance and support to offer a full lifecycle model. Our services-led lifecycle model leads to ongoing client engagement. As of June 30, 2016, we served approximately 7,000 middle-market, large and government organizations across a diverse range of industries.

We develop and maintain our long-term client relationships through a localized direct sales force of over 500 employees based in over 60 offices across the United States as of June 30, 2016. As a strategic partner and trusted advisor to our clients, we provide the expertise necessary to implement new solutions, as well as optimize and better leverage existing IT resources. We provide strategy, consulting, design, customized deployment, integration and lifecycle management through our team of approximately 1,600 engineers as of June 30, 2016, enabling us to architect and manage the ideal IT solutions for our clients. Our local delivery model, combining relationship managers and expert engineering teams, allows us to win and expand our client relationships.

We have three solution areas: (i) Digital Infrastructure, (ii) Cloud and (iii) Security. Within these areas, we offer customers enterprise-class solutions that are critical to driving digital transformation and expanding business capabilities. Examples of our solutions include advanced networking, IoT, data analytics, data center modernization, hybrid and multi-cloud, cyber risk management and enterprise mobility. These solutions are enabled by our expertise in foundational technologies, built upon our investments in network, data center, security, collaboration and mobility.

Digital Infrastructure Solutions: Our enterprise-class Digital Infrastructure solutions enable clients to deploy IT infrastructure that is cloud-flexible, mobile-ready, secure and insight-driven. We also make clients’ existing IT infrastructure more efficient and flexible for emerging technologies. Within Digital Infrastructure, we are focused on networking, collaboration, enterprise mobility, IoT and data analytics. Given the millions of potential configurations across technologies, our clients rely on our expertise to simplify the highly complex IT landscape.

Cloud Solutions: Companies are increasingly turning to us for help with their cloud strategy and adoption. We combine our highly specialized cloud professional services with our deep experience in cloud-managed services, converged infrastructure, server, storage, support and capacity-on-demand economic models to provide a complete lifecycle of cloud infrastructure solutions for our clients. Our proprietary tools, technical expertise and vendor-agnostic approach help our customers accelerate and simplify cloud adoption across the entire IT lifecycle.

Security Solutions: We use a risk-based security consulting methodology to assess, design, implement, manage and maintain information security solutions that protect our customers’ critical business data and protects against loss of client loyalty, corporate reputation and disruptions in ongoing operations. We offer cyber risk management, infrastructure security and managed security solutions to our clients. Through our NGRM, we

 

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provide comprehensive risk assessments, detailed reporting, ongoing reviews, process and program development, and training services. NGRM ensures that identified vulnerabilities are mitigated and business risk has been properly addressed. Because our customers’ infrastructures are constantly changing, our NGRM offering is structured as a recurring service with regular periodic assessments of the current security posture combined with ongoing monitoring and surveillance through our 7x24 Security Operations Centers. Our experience spans all major verticals including retail, education, healthcare, government, banking, pharmaceutical and others. We have expertise with HIPAA, PCI DSS, FISMA, the Sarbanes-Oxley Act and others. We help our clients design and implement information security programs consistent with industry best practices and comply with the regulatory mandates of their specific vertical that are flexible enough to help ensure information security in an ever-changing risk environment. Findings, recommendations and real time security posture status, including our proprietary Risk Management Score, are provided through a 7x24 portal that is accessible by our clients and is updated with the up to date vulnerabilities identified by several industry sources.

We help our clients establish both technical and non-technical security controls and practices to prevent, detect, correct and minimize the risk of loss or damage to information resources, disruption of access to information resources, and unauthorized disclosure of information. In addition to our NGRM program, we offer options for security strategy program development, security awareness training, technology exposure assessments and incident response.

Factors Affecting Our Operating Performance

We believe that the financial performance of our business and our future success are dependent upon many factors, including those highlighted in this section. Our operating performance will depend upon many variables, including the success of our growth strategies and the timing and size of investments and expenditures that we choose to undertake, as well as market growth and other factors that are not within our control.

Macroeconomic environment: Weak economic conditions generally, U.S. federal or other government spending cuts, a rising interest rate environment, uncertain tax and regulatory policies, weakening business confidence or a tightening of credit markets could cause our clients and potential clients to postpone or reduce spending on technology solutions, products or services. Our clients are diverse, including both public and private sector parties, but any long-term, severe or sustained economic downturn may adversely affect all of our clients.

Competitive markets: We believe that we are uniquely positioned to take advantage of the markets in which we operate because of our expertise and specialization. We focus on the middle-market segment of the IT Services market. Since most large-scale IT Service providers focus on larger enterprises and because smaller regional competitors are typically unable to provide end-to-end solutions, we believe the middle market is underpenetrated and underserved. Strategic and investment decisions by our competitors may affect our operating performance.

Delivery of complex technology solutions: Our vendor agnostic approach to the market allows us to develop optimal IT solutions for our clients based on what we view as the best mix of technologies. We deliver our end-to-end solutions through a full lifecycle model, which combines consulting, engineering, managed services, and technology to give us a significant competitive advantage compared to other IT providers. Our ability to effectively manage project engagements, including logistics, product availability, client requirements, engineering resources, and service levels, will affect our financial performance.

Vendor relationships: We are focused on developing and strengthening our relationships with OEMs. We partner with OEMs to deploy product offerings. Pricing and incentive programs are subject to change. While we maintain existing relationships with large vendors, there is no guarantee that our vendor partners will continue to develop or produce information technology products that are popular with our clients. We maintain the ability to evolve our vendor relationships as necessary to respond to market trends.

 

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Seasonality: Our results may be affected by slight variances as a result of seasonality we may experience across our business. This pattern is typically driven by varying budget cycles across our diverse client base.

Components of Results of Operations

There are a number of factors that impact the revenue and margin profile of the solutions we provide, including, but not limited to, solution and technology complexity, technical expertise requiring the combination of products and value-added services provided as well as other elements that may be specific to a particular engagement.

Revenue and cost of revenue: Revenue from the sale of our solutions is primarily comprised of the sale of third-party products, software and maintenance along with the sale of Company and third-party services. We separately present product revenue and service revenue, along with the associated cost of revenue, in our consolidated statements of operations.

Product revenue: Our product revenue includes:

Revenue for hardware and software: Revenue from the sale of hardware and software products is generally recognized on a gross basis with the selling price to the client recorded as revenue and the acquisition cost of the product recorded as cost of revenue, net of vendor rebates. Revenue is generally recognized when the title and risk of loss are passed to the client. Hardware and software items can be delivered to clients in a variety of ways including as physical products shipped from our warehouse, via drop-shipment by the vendor or supplier, or via electronic delivery for software licenses.

Revenue for maintenance contracts: Revenue from the sale of third-party maintenance contracts is recognized net of the related cost of revenue. In a third-party maintenance contract, all services are provided by our third-party providers and as a result, we are acting as an agent and recognize revenue on a net basis at the date of sale, with revenue being equal to the gross margin on the transaction. As we are under no obligation to perform additional services, revenue is recognized at the time of sale as opposed to over the life of the maintenance agreement.

Revenue from leasing arrangements: Revenue recognition for information technology hardware and software products leased to clients is based on the type of the lease. Each lease is classified as either a direct financing lease, sales-type lease or operating lease. The majority of our leases are sales-type leases. At the inception of a sales-type lease, the present value of the non-cancelable rentals is recorded as revenue and equipment costs, less the present value of the estimated residual values, are recorded in cost of revenue. At the inception of an operating lease, the equipment assigned to the lease is recorded at cost as equipment under operating leases in our consolidated balance sheets and is depreciated on a straight-line basis over its useful life. Monthly payments are recorded as revenue within our consolidated statements of operations, with the depreciation expense associated with the equipment recorded in cost of product revenue.

Service revenue: Our service revenue includes consulting and integration services, project management, managed services and support services.

Revenue for professional services: Revenue for professional services is generally recognized as the services are performed. For time and material service contracts, revenue is recognized at the contractual hourly rates for the hours performed during the period. For fixed price service contracts, revenue is recognized on a proportional performance method based on the labor hours completed compared to the total estimated hours for the scope of work with contract and revenue accrued or deferred as appropriate. Cost of revenue associated with professional services includes the compensation, benefits and other costs associated with our delivery and project management engineering team, as well as costs charged by subcontractors.

 

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Revenue for managed services: Revenue for managed services is generally recognized on a straight-line basis over the term of the arrangement. We may incur upfront costs associated with professional and managed services including, but not limited to, purchasing maintenance arrangements and software licenses. These costs are initially deferred as prepaid expenses or other assets and expensed over the period that services are being provided as cost of revenue. In addition, cost of revenue includes the compensation, benefits and other costs associated with our managed services engineering team, costs charged by subcontractors and depreciation of the software used to deliver our managed services.

Gross margin: Our product gross margin is impacted by the complexity of hardware and software sold in our solutions, as well as the mix of third-party maintenance contracts. As described previously, our third-party maintenance sales are recognized on a net basis, resulting in the gross margin being recognized as revenue. Accordingly, higher attach rates of maintenance contracts to the sale of hardware and more successful renewals of expiring contracts have a significant favorable impact to our gross margin percentage.

Our service gross margin is primarily impacted by our ability to deliver on fixed price professional services engagements within scope, the ability to keep our delivery engineers utilized and the hourly bill rate charged to clients. The complexity of the solutions sold to our clients may require specialized engineering capabilities that can favorably impact the bill rate we charge. Our service revenue also includes third-party services. Generally, a higher mix of professional services delivered by our delivery engineers has a favorable impact on service gross margin. In addition, our managed services gross margins are favorably impacted by our ability to negotiate longer contracts with our clients, as well as renewing contracts that expire at a high rate. Generally, a higher percentage of our overall revenue relates to services sold to our clients when the technology complexity of our solutions increases. Accordingly, our gross margins are favorably impacted by our ability to deliver more complex solutions, which include professional and managed services.

Operating expenses: Our operating expenses include selling expenses, general and administrative expenses, transaction costs, and depreciation and amortization.

Selling expenses are comprised of compensation (including share-based compensation), variable incentive pay and benefits related to our sales personnel along with travel expenses and other employee related costs. Variable incentive pay is largely driven by our gross margin performance. We expect selling expenses to increase as a result of higher gross margin, as well as continued investment in our direct and indirect sales resources.

General and administrative expenses are comprised of compensation (including share-based compensation) and benefits of administrative personnel, including variable incentive pay and other administrative costs such as facilities expenses, professional fees and bad debt expense. We expect general and administrative expenses to increase due to our growth and the incremental costs associated with being a public company. However, on a forward-looking basis, we generally expect general and administrative expenses to decline as a percentage of our total revenue as we realize the benefits of scale.

Transaction costs include acquisition-related expenses (such as stay and retention bonuses), severance charges, advisory and diligence fees, transaction-related legal, accounting, and tax fees, as well as professional fees and related out-of-pocket expenses associated with refinancing of debt and credit agreements. As a result of the transactions described in this prospectus, we expect transaction costs to be higher in the fiscal year ended June 30, 2017.

Depreciation and amortization primarily includes the amortization of acquired intangible assets associated with our acquisitions.

 

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Total interest and other (income) expense: Total interest and other (income) expense primarily includes interest expense associated with our outstanding debt. In addition, we include losses on extinguishment of debt and other noncash gains or losses within total interest and other (income) expense.

History

Known originally as Integrated Solutions, Presidio was capitalized by an investor group in 2003 to address the need for an elite professional services firm that was focused on providing advanced technology solutions to middle-market businesses. Our early focus was to expand our regional presence and skill set expertise through both organic and acquisitive growth. By 2010, we had completed six acquisitions that complemented our core competencies, helping expand Presidio’s presence to 33 offices in 18 states.

On February 2, 2015, the Apollo Funds acquired Presidio Holdings Inc., at which time Presidio Holdings Inc. became a direct wholly owned subsidiary of the Company. We applied the acquisition method of accounting that created a new basis of accounting for the Company as of that date. Our financial results with periods ending prior to February 2, 2015, have been termed those of “Predecessor,” while the financial results with periods ending subsequent to February 2, 2015, have been termed those of “Successor.”10 See Note 1 to the historical consolidated financial statements included elsewhere in this prospectus for additional disclosures.

On November 23, 2015, we acquired certain assets and assumed certain liabilities of Sequoia. The acquisition of Sequoia, a firm with cloud consulting and integration domain expertise, allowed us to provide hybrid cloud strategies and service delivery models for our clients.

On February 1, 2016, we acquired certain assets and assumed certain liabilities of Netech (the “Netech Acquisition”). The acquisition of Netech enables us to further broaden our portfolio of services and solutions and significantly expand our capabilities within the Midwestern United States.

The Netech acquisition was funded through a combination of a new $150.0 million senior credit facility with a three-year maturity (the “February 2016 Credit Agreement”), an incremental $25.0 million term loan borrowing under our existing senior credit facility, a borrowing under the Receivables Securitization Facility and cash on hand.

On September 22, 2015, we entered into an agreement with a third party for the sale of our Atlantix Global Systems, LLC (“Atlantix”) subsidiary. Pursuant to that agreement, on October 22, 2015, we completed the sale of the Atlantix business to a third party (the “Atlantix Disposition”).

Key Business Metrics

Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that the most important of these measures include Total Revenue, Adjusted Revenue, Gross Margin, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net Income.

 

    Predecessor           Successor  
(in millions)   Fiscal year
ended
June 30,

2014
    July 1,
2014 to
February 1,

2015
          November 20,
2014 to
June 30,

2015
    Fiscal year
ended
June 30,

2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 

Total Revenue

  $ 2,266.0      $ 1,392.8          $ 985.5      $ 2,714.9      $ 692.0      $ 737.7   

Adjusted Revenue

  $ 2,149.9      $ 1,323.4          $ 940.8      $ 2,683.7      $ 665.5      $ 738.0   

Gross Margin

  $ 454.0      $ 289.3          $ 197.0      $ 540.6      $ 136.9      $ 148.6   

Adjusted EBITDA

  $ 167.0      $ 116.2          $ 68.6      $ 211.1      $ 59.3      $ 58.2   

Adjusted EBITDA margin

    7.8     8.8         7.3     7.9     8.9     7.9

Adjusted Net Income

  $ 81.7      $ 58.6          $ 13.4      $ 81.2      $ 24.1      $ 24.5   

 

10  From November 20, 2014 to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition. See “Basis of Presentation.”

 

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Adjusted Revenue – Adjusted Revenue is a non-GAAP financial measure. We believe that Adjusted Revenue provides supplemental information with respect to our revenue activity associated with our ongoing operations. We define Adjusted Revenue as Total Revenue adjusted to exclude (i) revenue generated by disposed businesses and (ii) noncash purchase accounting adjustments to revenue as a result of our acquisitions.

The reconciliation of Adjusted Revenue from Revenue for each of the periods presented are as follows:

 

    Predecessor           Successor  
(in millions)   Fiscal year
ended
June 30,

2014
    July 1,
2014 to
February 1,
2015
          November 20,
2014 to
June 30,

2015
    Fiscal year
ended
June 30,
2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 

Revenue

  $ 2,266.0      $ 1,392.8          $ 985.5      $ 2,714.9      $ 692.0      $ 737.7   

Adjustments:

               

Revenue from disposed business

    (116.1     (69.4         (46.0     (32.8     (27.1       

Purchase accounting adjustments

                      1.3        1.6        0.6        0.3   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    (116.1     (69.4         (44.7     (31.2     (26.5     0.3   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Revenue

  $ 2,149.9      $ 1,323.4          $ 940.8      $ 2,683.7      $ 665.5      $ 738.0   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA – Adjusted EBITDA is a non-GAAP financial measure. We believe Adjusted EBITDA provides helpful information with respect to our operating performance as viewed by management, including a view of our business that is not dependent on (1) the impact of our capitalization structure and (2) items that are not part of our day-to-day operations. We define Adjusted EBITDA as net income (loss) plus (i) total depreciation and amortization, (ii) interest and other (income) expense, and (iii) income tax expense (benefit), as further adjusted to eliminate noncash share-based compensation expense, purchase accounting adjustments, transaction costs, other costs and earnings from disposed business. We define Adjusted EBITDA margin as the ratio of Adjusted EBITDA to Adjusted Revenue.

The reconciliation of Adjusted EBITDA from Net income (loss) for each of the periods presented are as follows:

 

    Predecessor           Successor  
(in millions)   Fiscal year
ended
June 30,

2014
    July 1,
2014 to
February 1,
2015
          November 20,
2014 to
June 30,

2015
    Fiscal year
ended
June 30,

2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 

Adjusted EBITDA Reconciliation:

               

Net income (loss)

  $ 32.5      $ (5.1       $ (24.3   $ (3.4   $ 9.7      $ 5.6   

Total depreciation and amortization (1)

    50.6        24.9            32.1        81.7        19.4        21.8   

Interest and other (income) expense

    34.6        28.7            47.5        98.5        20.2        20.7   

Income tax expense (benefit)

    24.4        3.2            (12.6     3.8        6.8        4.0   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    142.1        51.7            42.7        180.6        56.1        52.1   

 

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    Predecessor           Successor  
(in millions)   Fiscal year
ended
June 30,

2014
    July 1,
2014 to
February 1,
2015
          November 20,
2014 to
June 30,

2015
    Fiscal year
ended
June 30,

2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 

Adjustments:

               

Share-based compensation expense

    5.5        20.1            1.0        2.2        0.6        0.5   

Purchase accounting adjustments (2)

                      4.9        3.9        1.3        0.4   

Transaction costs (3)

    14.8        42.6            21.3        20.6        2.3        3.4   

Other costs (4)

    13.0        4.5            1.9        5.6        1.0        1.8   

Earnings from disposed business (5)

    (8.4     (2.7         (3.2     (1.8     (2.0       
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    24.9        64.5            25.9        30.5        3.2        6.1   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 167.0      $ 116.2          $ 68.6      $ 211.1      $ 59.3      $ 58.2   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) “Total depreciation and amortization” equals the sum of (i) depreciation and amortization included within total operating expenses and (ii) depreciation and amortization recorded as part of cost of revenue within our consolidated financial statements.

 

(2) “Purchase accounting adjustments” include charges associated with noncash adjustments to acquired assets and liabilities in connection with purchase accounting, such as recognition of increased cost of revenue in connection with an inventory step up fair value adjustment, recognition of reduced revenue in connection with a deferred revenue step down fair value adjustment and recognition of increased office rent expense associated with a fair value adjustment to the liability associated with deferred rent.

 

(3) “Transaction costs” (1) of $14.8 million for the fiscal year ended June 30, 2014 includes acquisition-related expenses of $0.8 million related to stay and retention bonuses, $0.3 million related to severance charges, $0.7 million related to transaction-related legal, accounting and tax fees and $13.0 million related to professional fees and expenses associated with debt refinancings; (2) of $42.6 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes acquisition-related expenses of $0.3 million related to stay and retention bonuses, $0.2 million related to acquisition-related severance charges, $31.2 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $10.9 million related to professional fees and expenses associated with debt refinancings; (3) of $21.3 million for the Successor period from November 20, 2014 to June 30, 2015 includes acquisition-related expenses of $0.6 million related to stay and retention bonuses, $0.6 million related to severance charges, $18.5 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $1.6 million related to professional fees and expenses associated with debt refinancings; (4) of $20.6 million for the fiscal year ended June 30, 2016 includes acquisition-related expenses of $3.0 million related to stay and retention bonuses, $1.1 million related to severance charges, $8.7 million related to transaction-related advisory and diligence fees, $6.0 million related to transaction-related legal, accounting and tax fees and $1.8 million related to professional fees and expenses associated with debt refinancings; (5) of $2.3 million for the three months ended September 30, 2015 includes acquisition-related expenses of $0.4 million related to stay and retention bonuses, $0.5 million related to severance charges, $0.3 million related to transaction-related advisory and diligence fees and $1.1 million related to transaction-related legal, accounting and tax fees; and (6) of $3.4 million for the three months ended September 30, 2016 includes acquisition-related expenses of $1.5 million related to stay and retention bonuses, $1.7 million related to transaction-related advisory and diligence fees and $0.2 million related to transaction-related legal, accounting and tax fees.

 

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(4) “Other costs” (1) of $13.0 million for the fiscal year ended June 30, 2014 includes expenses of $3.7 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $1.1 million related to unusual office start-up development costs, an unusual and non-recurring loss of $1.7 million related to an Atlantix customer receivable, certain unusual legal expenses of $2.2 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $2.2 million related to certain acquisition-related integration and related costs; (2) of $4.5 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes expenses of $2.2 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $0.4 million related to unusual office start-up development costs, $1.6 million related to payments to our former sponsor for advisory and consulting services and $0.3 million related to other non-recurring items; (3) of $1.9 million for the Successor period from November 20, 2014 to June 30, 2015 includes expenses of $1.0 million associated with the integration of previously acquired managed services platforms into one system, $0.7 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.2 million; (4) of $5.6 million for the fiscal year ended June 30, 2016 includes expenses of $0.5 million associated with the integration of previously acquired managed services platforms into one system, $3.4 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.5 million related to unusual office start-up development costs and certain unusual legal expenses of $1.2 million; (5) of $1.0 million for the three months ended September 30, 2015 includes expenses of $0.3 million associated with the integration of previously acquired managed services platforms into one system, $0.4 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.3 million; and (6) of $1.8 million for the three months ended September 30, 2016 represents costs incurred in the development of our new cloud service offerings.

 

(5) “Earnings from disposed business” represents the removal of the historical earnings contribution of Atlantix prior to the sale of the business.

Adjusted Net Income – Adjusted Net Income is a non-GAAP measure, which management uses in this prospectus in its evaluation of past performance and prospects for the future. We believe that Adjusted Net Income provides additional information regarding our operating performance while considering the interest expense associated with our outstanding debt, as well as the impact of depreciation on our fixed assets and income taxes. We define Adjusted Net Income as net income (loss) adjusted to exclude (i) amortization of intangible assets, (ii) amortization of debt issuance costs, (iii) losses recognized on the disposal of business, (iv) losses on extinguishment of debt, (v) noncash share-based compensation expense, (vi) purchase accounting adjustments, (vii) transaction costs, (viii) other costs, (ix) earnings from disposed business and (x) the income tax impact associated with the foregoing items.

 

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The reconciliation of Adjusted Net Income from Net income (loss) for each of the periods presented are as follows:

 

    Predecessor           Successor  
(in millions)   Fiscal year
ended
June 30,

2014
    July 1,
2014 to
February 1,
2015
          November 20,
2014 to
June 30,

2015
    Fiscal year
ended
June 30,

2016
    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
 

Adjusted Net Income reconciliation:

               

Net income (loss)

  $ 32.5      $ (5.1       $ (24.3   $ (3.4   $ 9.7      $ 5.6   

Adjustments:

               

Amortization of intangible assets

    38.3        18.3            26.4        67.2        15.9        18.4   

Amortization of debt issuance costs

    4.4        2.4            2.7        7.6        1.7        1.7   

Loss on disposal of business

                             6.8                 

Loss on extinguishment of debt

    2.7        7.5            0.7        9.7        0.1          

Share-based compensation expense

    5.5        20.1            1.0        2.2        0.6        0.5   

Purchase accounting adjustments (1)

                      4.9        3.9        1.3        0.4   

Transaction costs (2)

    14.8        42.6            21.3        20.6        2.3        3.4   

Other costs (3)

    13.0        4.5            1.9        5.6        1.0        1.8   

Earnings from disposed business (4)

    (8.4     (2.7         (3.2     (1.8     (2.0       

Income tax impact of adjustments (5)

    (21.1     (29.0         (18.0     (37.2     (6.5     (7.3
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    49.2        63.7            37.7        84.6        14.4        18.9   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

  $ 81.7      $ 58.6          $ 13.4      $ 81.2      $ 24.1      $ 24.5   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) “Purchase accounting adjustments” include charges associated with noncash adjustments to acquired assets and liabilities in connection with purchase accounting, such as recognition of increased cost of revenue in connection with an inventory step up fair value adjustment, recognition of reduced revenue in connection with a deferred revenue step down fair value adjustment and recognition of increased office rent expense associated with a fair value adjustment to the liability associated with deferred rent.

 

(2)

“Transaction costs” (1) of $14.8 million for the fiscal year ended June 30, 2014 includes acquisition-related expenses of $0.8 million related to stay and retention bonuses, $0.3 million related to severance charges, $0.7 million related to transaction-related legal, accounting and tax fees and $13.0 million related to professional fees and expenses associated with debt refinancings; (2) of $42.6 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes acquisition-related expenses of $0.3 million related to stay and retention bonuses, $0.2 million related to severance charges, $31.2 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $10.9 million related to professional fees and expenses associated with debt refinancings; (3) of $21.3 million for the Successor period from November 20, 2014 to June 30, 2015 includes acquisition-related expenses of $0.6 million related to stay and retention bonuses, $0.6 million related to severance charges, $18.5 million related to transaction-related legal, accounting and tax fees in connection with the Presidio Acquisition and $1.6 million related to professional fees and expenses associated with debt refinancings; (4) of $20.6 million for the fiscal year ended June 30, 2016 includes acquisition-related expenses of $3.0 million related to stay and retention bonuses, $1.1 million related to severance charges, $8.7 million related to transaction-related advisory and diligence fees, $6.0 million related to transaction-related legal, accounting and tax fees and $1.8 million related to professional fees

 

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  and expenses associated with debt refinancings; (5) of $2.3 million for the three months ended September 30, 2015 includes acquisition-related expenses of $0.4 million related to stay and retention bonuses, $0.5 million related to severance charges, $0.3 million related to transaction-related advisory and diligence fees and $1.1 million related to transaction-related legal, accounting and tax fees; and (6) of $3.4 million for the three months ended September 30, 2016 includes acquisition-related expenses of $1.5 million related to stay and retention bonuses, $1.7 million related to transaction-related advisory and diligence fees and $0.2 million related to transaction-related legal, accounting and tax fees.

 

(3) “Other costs” (1) of $13.0 million for the fiscal year ended June 30, 2014 includes expenses of $3.7 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $1.1 million related to unusual office start-up development costs, an unusual and non-recurring loss of $1.7 million related to an Atlantix customer receivable, certain unusual legal expenses of $2.2 million, $2.1 million related to payments to our former sponsor for advisory and consulting services and $2.2 million related to certain acquisition-related integration and related costs; (2) of $4.5 million for the Predecessor period from July 1, 2014 to February 1, 2015 includes expenses of $2.2 million associated with the integration of previously acquired managed services platforms into one system, certain expenses of $0.4 million related to unusual office start-up development costs, $1.6 million related to payments to our former sponsor for advisory and consulting services and $0.3 million related to other non-recurring items; (3) of $1.9 million for the Successor period from November 20, 2014 to June 30, 2015 includes expenses of $1.0 million associated with the integration of previously acquired managed services platforms into one system, $0.7 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.2 million; (4) of $5.6 million for the fiscal year ended June 30, 2016 includes expenses of $0.5 million associated with the integration of previously acquired managed services platforms into one system, $3.4 million related to certain costs incurred in the development of our new cloud service offerings, certain expenses of $0.5 million related to unusual office start-up development costs and certain unusual legal expenses of $1.2 million; (5) of $1.0 million for the three months ended September 30, 2015 includes expenses of $0.3 million associated with the integration of previously acquired managed services platforms into one system, $0.4 million related to certain costs incurred in the development of our new cloud service offerings and certain unusual legal expenses of $0.3 million; and (6) of $1.8 million for the three months ended September 30, 2016 represents costs incurred in the development of our new cloud service offerings.

 

(4) “Earnings from disposed business” represents the removal of the historical earnings contribution of Atlantix prior to the sale of the business.

 

(5) “Income tax impact of adjustments” includes an estimated tax impact of the adjustments to net income at our average statutory rate of 39.0%, except for (i) the adjustment of certain transaction costs that are permanently nondeductible for taxes purposes and (ii) the impact of tax-deductible goodwill and intangible assets resulting from certain historical acquisitions, and further adjusted for discrete tax items such as the remeasurement of deferred tax liabilities due to state rate changes and write off of deferred tax assets resulting from reorganizations.

 

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Basis of Presentation and Results of Operations

In conjunction with the Presidio Acquisition on February 2, 2015 by the Apollo Funds, we have applied the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which creates a new basis of accounting as of that date. The consolidated statements of operations and cash flows with periods ending prior to February 2, 2015 are those of the Predecessor, while the consolidated statements of operations and cash flows with periods ending on or subsequent to June 30, 2015 are those of the Successor.11

Prior to the Presidio Acquisition, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition. The consummation of the Presidio Acquisition effectuated a corresponding step-up in basis of accounting as Presidio Holdings Inc. was deemed significant to us. Consequently, the financial statements for all the Successor’s periods are not comparable to those of the Predecessor’s periods presented.

As the historical periods are not comparable due to the new basis of accounting created on February 2, 2015, we have presented the results of operations as single periods. However, to provide additional information we have also included supplemental disclosures by combining the Predecessor period ending February 1, 2015 with the Successor period ending June 30, 2015 to present our fiscal year ended June 30, 2015, such information is labeled as “Combined.” We have determined that presenting the discussion and analysis of the results of operations in this manner promotes the overall usefulness of information presented in a manner consistent with how management reviews our performance. This approach may yield results that are not strictly comparable on a period to period basis and may not reflect the actual results we would have achieved if the Presidio Acquisition had occurred at the beginning of the Combined period. Our historical results are not necessarily indicative of results that may be expected for any future period, and interim financial results are not necessarily indicative of results that may be expected for the full fiscal year. The information contained below should therefore be read in conjunction with our historical consolidated financial statements and the related notes included elsewhere in this prospectus.

Historical Periods—Results of Operations

 

    Three months ended September 30, 2016 compared to three months ended September 30, 2015;

 

    Successor fiscal year ended June 30, 2016;

 

    Successor period from November 20, 2014 to June 30, 2015;12

 

    Predecessor period from July 1, 2014 to February 1, 2015; and

 

    Predecessor fiscal year ended June 30, 2014.

Supplemental Periods—Results of Operations

 

    Fiscal year ended June 30, 2016, compared to Combined fiscal year ended June 30, 2015; and

 

    Combined fiscal year ended June 30, 2015, compared to fiscal year ended June 30, 2014.

 

11  From November 20, 2014 to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition. See “Basis of Presentation.”

 

12  From November 20, 2014 to February 1, 2015, the Successor had no operations or activities other than the incurrence of transaction costs related to the Presidio Acquisition. See “Basis of Presentation.”

 

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Three Months Ended September 30, 2016 Compared to the Three Months Ended September 30, 2015

 

    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2016
    

 

Change

 
                 $                      %          

Revenue

         

Product

  $ 604.3      $ 626.4       $ 22.1         3.7

Service

    87.7        111.3         23.6         26.9
 

 

 

   

 

 

    

 

 

    

 

 

 

Total revenue

    692.0        737.7         45.7         6.6

Cost of revenue

         

Product

    484.5        499.5         15.0         3.1

Service

    70.6        89.6         19.0         26.9
 

 

 

   

 

 

    

 

 

    

 

 

 

Total cost of revenue

    555.1        589.1         34.0         6.1
 

 

 

   

 

 

    

 

 

    

 

 

 

Gross margin

    136.9        148.6         11.7         8.5

Product gross margin

    119.8        126.9         7.1         5.9

Service gross margin

    17.1        21.7         4.6         26.9

Product gross margin %

    19.8     20.3         0.5

Service gross margin %

    19.5     19.5         0.0

Total gross margin %

    19.8     20.1         0.3

Operating expenses

         

Selling expenses

    56.5        67.5         11.0         19.5

General and administrative

    23.4        27.0         3.6         15.4

Transaction costs

    2.3        3.4         1.1         47.8

Depreciation and amortization

    18.0        20.4         2.4         13.3
 

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

    100.2        118.3         18.1         18.1
 

 

 

   

 

 

    

 

 

    

 

 

 

Selling, general and administrative expenses
% of total revenue

    11.5 %      12.8 %          1.3 % 

Operating income

    36.7        30.3         (6.4      (17.4 %) 

Interest and other (income) expense

         

Interest expense

    20.2        20.7         0.5         2.5

Loss on extinguishment of debt

    0.1                (0.1      (100.0 %) 

Other (income) expense, net

    (0.1             0.1         (100.0 %) 
 

 

 

   

 

 

    

 

 

    

 

 

 

Total interest and other (income) expense

    20.2        20.7         0.5         2.5
 

 

 

   

 

 

    

 

 

    

 

 

 

Income before income taxes

    16.5        9.6         (6.9      (41.8 %) 

Income tax expense

    6.8        4.0         (2.8      (41.2 %)