Perspecta Announces Financial Results for Fourth Quarter and Fiscal Year 2019

CHANTILLY, Va., June 6, 2019 /PRNewswire/ -- Perspecta Inc. (NYSE: PRSP), a leading U.S. government services provider, today announced financial results for the fourth quarter and fiscal year 2019 ended March 31, 2019.

"As we complete our first year as Perspecta, I want to thank all of our employees who came together to make the year such a success," said Mac Curtis, president and chief executive officer, Perspecta. "By never losing sight of the missions we support, they ensured that every one of our financial results was ahead of the top end of the guidance we laid out last year. Each day, we are proving the primary thesis behind creating Perspecta--that the innovation, end-to-end capabilities, and scale that we can bring to our customers would drive enhanced performance. The 'Power of the Pyramid' is reflected in our accelerating financial results and robust bookings that provide a solid foundation for fiscal year 2020."

With the one-year anniversary of its initial listing on the NYSE, Perspecta plans to file a shelf registration on Form S-3 to register the 23,273,341 shares of Perspecta Inc. common stock owned by Veritas Capital Fund Management, L.L.C. and certain of its affiliates (Veritas Capital). The filing replaces the existing shelf registration on Form S-1, filed on November 14, 2018, and eliminates the requirement to file prospectus supplements to incorporate updated financial statements going forward. The registration of the shares of common stock does not require Veritas Capital to sell any of its shares, and no new shares of common stock will be issued by Perspecta as part of any offering off of the shelf registration statement.

Summary operating results (unaudited)


                                                                                                                                              Three Months Ended                                                                           Fiscal Years Ended



            (in millions, except margin and per                                                                           March 31,                                         March 31,                                      March 31,                                         March 31,
    share data)                                                                                                                 2019                                               2018                                            2019                                               2018

    ---


            Revenue                                                                                                                   $
            1,094                                                                                     $
            715                                   $
         4,030  $
     2,819



            Income (loss) before taxes                                                                                         (13)                                                               36                                                                                112            199



            Operating Margin                                                                                                  (1.2)
                                                                                                                                   %                                                      5.0
          %                                                                       2.8
          %      7.1
       %



            Net income (loss)                                                                                                  (19)                                                               32                                                                                 72            208



            Diluted earnings (loss) per share (EPS)                                                                          (0.12)                                                             0.22                                                                               0.44           1.46





            Pro Forma and Non-GAAP Measures*:



            Revenue                                                                                                                   $
            1,094                                                                                   $
            1,058                                   $
         4,274  $
     4,203



            Adjusted Net Income                                                                                                  89                                                                78                                                                                329            275



            Adjusted EBITDA                                                                                                     207                                                               188                                                                                760            654



            Adjusted EBITDA Margin                                                                                     18.9
          %                                                     17.8
          %                                                                      17.8
          %     15.6
       %



            Adjusted Diluted EPS                                                                                               0.54                                                              0.47                                                                               2.00           1.66




             * Amounts presented under the heading "Pro Forma and Non-GAAP Measures" for the three months ended March 31, 2018 and for the fiscal years ended March 31, 2019 and 2018 are presented on a pro forma basis as if Perspecta was formed on April 1, 2017. Adjusted Net Income,
              Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS are non-GAAP financial measures. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. See Reconciliation of Non-
              GAAP Financial Measures at the end of this press release for more information.

    ---

On May 31, 2018, Perspecta became an independent company through consummation of the spin-off by DXC Technology Company (DXC) of its U.S. Public Sector Business (USPS) and merger with Vencore Holding Corp. (Vencore) and KGS Holding Corp. (KeyPoint). Accordingly, results provided on an as-reported basis through May 31, 2018, reflect the standalone operations of USPS and thereafter reflect the combined operations of USPS, Vencore and KeyPoint. To aid investors and analysts with year-over-year comparisons, Perspecta also presents pro forma financial information that reflects the USPS, Vencore and KeyPoint financial information on a combined, pro forma basis as if the mergers had taken place on April 1, 2017. In addition, Perspecta provides adjusted, non-GAAP results that exclude costs directly associated with the spin-off and mergers and the ongoing integration process. The tables in Reconciliation of Non-GAAP Financial Measures at the end of this press release present pro forma adjustments and provide reconciliations from GAAP to non-GAAP results.

Fourth quarter summary results. Revenue for the quarter was $1.09 billion, up 53% compared to the fourth quarter of fiscal year 2018 on an as-reported basis, primarily as a result of the mergers. Revenue for the quarter was up 3% from pro forma revenue for the fourth quarter of fiscal year 2018. Defense and Intelligence segment revenue of $739 million increased 8%, and Civilian and Health Care segment revenue of $355 million decreased 5% compared to pro forma revenue from the same period of the prior year. In total, the continued growth in background investigations support and ramp ups of new Department of Defense and Intelligence Community programs more than offset the decrease in a few civilian agency contracts.

Defense and Intelligence adjusted segment operating margin for the fourth quarter of fiscal year 2019 improved to 14.9% from 13.6% (pro forma) in the fourth quarter of fiscal year 2018. Civilian and Health Care adjusted segment operating margin for the fourth quarter of fiscal year 2019 decreased to 13.8% from 15.8% (pro forma) in the fourth quarter of fiscal year 2018. Total adjusted segment operating profit for the fourth quarter of fiscal year 2019 increased to $159 million from $152 million (pro forma) in the fourth quarter of fiscal year 2018 even though depreciation and amortization excluding acquisition-related intangibles amortization increased $12 million.

Income before taxes for the fourth quarter of fiscal year 2019 was a loss of $13 million, which was down from income of $36 million (5.0% operating margin) in the fourth quarter of fiscal year 2018 on an as-reported basis. The year-over-year decrease in income was due primarily to the $28 million in unrecoverable separation, integration and restructuring expenses and $35 million mark-to-market pension adjustment. Net income was a loss of $19 million, or $0.12 per diluted share.

Adjusted net income was $89 million for the fourth quarter, up 14% compared to pro forma adjusted net income for the fourth quarter of fiscal year 2018. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $207 million for the fourth quarter, up 10% compared to pro forma adjusted EBITDA for the fourth quarter of fiscal year 2018; adjusted EBITDA margin improved from 17.8% (pro forma) to 18.9% over the same period. The year-over-year increase in profitability primarily reflects strong program execution on fixed price programs, cost synergies associated with the mergers, and an $8 million gain from a subcontractor negotiation. Adjusted diluted earnings per share (EPS) for the fourth quarter was $0.54, up 15% compared to pro forma adjusted diluted EPS for the fourth quarter of fiscal year 2018.

Fiscal year summary results. Revenue for the fiscal year was $4.03 billion, up 43% compared to fiscal year 2018, primarily as a result of the mergers. Pro forma revenue was $4.27 billion, up 2% from pro forma revenue for fiscal year 2018, despite the $108 million headwind from the completion of a large engineering support contract for the Kennedy Space Center in December 2017 and the $37 million headwind from the divestiture of a contract in the first quarter of fiscal year 2019.

Income before taxes for fiscal year 2019 was $112 million (2.8% operating margin), down from $199 million (7.1% operating margin) in fiscal year 2018. The year-over-year decrease in operating margin is due primarily to the $109 million increase in interest expense associated with the debt service from the spin-off and mergers. Net income was $72 million, or $0.44 per diluted share.

Pro forma adjusted net income was $329 million for the year, up 20% compared to pro forma adjusted net income for fiscal year 2018. Pro forma adjusted EBITDA was $760 million, up 16% compared to pro forma adjusted EBITDA for fiscal year 2018; pro forma adjusted EBITDA margin improved from 15.6% to 17.8% over the same period. Pro forma adjusted diluted EPS was $2.00, up 20% compared to pro forma adjusted diluted EPS for fiscal year 2018.

Cash management and capital deployment

Perspecta generated $168 million of net cash provided by operating activities in the fourth quarter of fiscal year 2019. Quarterly adjusted free cash flow was $136 million, or 153% of adjusted net income. During the quarter, Perspecta used $88 million to pay down debt and returned $24 million to shareholders, including $8 million as part of its regular quarterly cash dividend program and $16 million in share repurchases.

For fiscal year 2019, Perspecta generated $462 million of net cash provided by operating activities and $420 million of pro forma adjusted free cash flow, or 128% of pro forma adjusted net income. During the year, Perspecta used $220 million to pay down debt and returned $84 million to shareholders, including $25 million in dividends and $59 million in share repurchases.

As of March 31, 2019, Perspecta had $88 million in cash and cash equivalents, $600 million of undrawn capacity in its revolving credit facility, and $2.7 billion in total debt, including $305 million in capital lease obligations.

In May, Perspecta announced that its board of directors approved an increase in the company's dividend policy for fiscal year 2020, declaring a dividend of $0.06 per share for the quarter ended March 31, 2019, a 20% increase over the previous quarterly dividend of $0.05 per share. The dividend is payable July 16, 2019, to shareholders of record at the close of business on June 5, 2019. Payment of future quarterly dividends is subject to Board approval.

Contract awards

Contract awards (bookings) totaled $1.4 billion in the fourth quarter of fiscal year 2019, representing a book-to-bill ratio of 1.2x. New business awards constituted approximately 93 percent of the total awards in the fourth quarter. Book-to-bill exceeded 1x for each of the last four quarters and totaled 1.6x for the fiscal year. Included in the quarterly bookings were several particularly important single-award prime contracts:

    --  United States Army Cyber Command (ARCYBER) Support. Perspecta won a
        potential five-year $905 million task order to provide cyberspace
        operations support to the ARCYBER, the Army headquarters under United
        States Cyber Command (USCYBERCOM) responsible for the operation and
        defense of Army networks and for delivering cyberspace effects against
        adversaries to defend the nation. The award is new work for Perspecta
        and augments existing cyberspace operations support for USCYBERCOM and
        cyber research and development for the Defense Advanced Research
        Projects Agency.
    --  Department of Defense (DoD) Operational Support. A DoD agency issued
        Perspecta a contract to support its critical national security and
        foreign relations challenges and evolving mission needs. The award is
        new work for Perspecta with a potential value of $129 million over 66
        months.

In addition, Perspecta won prime positions on large multiple-award indefinite delivery, indefinite quantity contracts that are not part of the bookings for the quarter but support future growth, including:

Army Program Executive Office - Intelligence, Electronic Warfare and Sensors (PEO IEW&S) R4. Under a potential 10-year, $982 million contract, Perspecta will compete to develop and deploy a comprehensive suite of non-kinetic cyber electronic warfare capabilities in support of the Army's cyber-electromagnetic activities mission. Additionally, the company will integrate deep signals intelligence, wireless, and big data expertise into the services and solutions it plans to deliver to the Army.

Perspecta's backlog of signed business orders at the end of fourth quarter of fiscal year 2019 was $10.7 billion, which was up 2% compared to the third quarter of fiscal year 2019. Funded backlog at the end of the fourth quarter was $2.2 billion, which was unchanged from the third quarter of fiscal year 2019.

Forward guidance

The table below introduces fiscal year 2020 guidance ranges for revenue, adjusted EBITDA margin, adjusted diluted EPS, and adjusted free cash flow conversion (as a percentage of adjusted net income). All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets; stock-based compensation expenses; restructuring, separation, transaction, and integration-related costs; mark-to-market changes associated with pension and other post-retirement benefit plans; and other non-recurring items. Perspecta is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the excluded items. Material changes to any one of these items could have a significant effect on future GAAP results.


        
             
                Measure        
     
         FY20 Guidance

                     ---

         
             Revenue (millions)            
       $4,350 - $4,450

                     ---

       
             Adjusted EBITDA Margin                17.0% - 18.0%

                     ---

        
             Adjusted Diluted EPS             
       $2.05 - $2.16

                     ---

     
         Adjusted Free Cash Flow Conversion        
              95%+

                     ---

John Kavanaugh, Perspecta CFO, commented, "We are pleased to have exceeded all of our financial targets in our inaugural year. We aim to build a consistent track record of execution. Our fiscal year 2020 guidance reflects our expectations for continued revenue acceleration and strong profitability and cash generation."

Conference call

Perspecta executive management will hold a conference call on June 6, 2019, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and investors may participate on the conference call by dialing 888-348-3873 (domestic), 855-669-9657 (Canada), or 412-902-4234 (international). The conference call will be webcast simultaneously through a link on the Investor Relations section of the Perspecta website. A replay of the conference call will be available on the Investor Relations section of the Perspecta website approximately two hours after the conclusion of the call.

About Perspecta Inc.

At Perspecta (NYSE: PRSP), we question, we seek and we solve. Perspecta brings a diverse set of capabilities to our U.S. government customers in defense, intelligence, civilian, health care and state and local markets. Our 260+ issued, licensed and pending patents are more than just pieces of paper, they tell the story of our innovation. With offerings in mission services, digital transformation and enterprise operations, our team of more than 14,000 engineers, analysts, investigators and architects work tirelessly to not only execute the mission, but build and support the backbone that enables it. Perspecta was formed to take on big challenges. We are an engine for growth and success and we enable our customers to build a better nation. For more information about Perspecta, visit perspecta.com.

Forward-looking statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking statements." Forward-looking statements are often identified by the use of words such as "anticipates," "believes," "estimates," "expects," "may," "could," "should," "forecast," "goal," "intends," "objective," "plans," "projects," "strategy," "target" and "will" and similar words and terms or variations of such. These statements represent current intentions, expectations, beliefs or projections, and no assurance can be given that the results described in such statements will be achieved. Forward-looking statements include, among other things, statements with respect to our financial condition, results of operations, cash flows, business strategies, prospects, guidance, contract value, revenue acceleration, profitability and revenue generation. These statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, including, but not limited to, (i) any issue that compromises our relationships with the U.S. federal government, or any state or local governments, or damages our professional reputation; (ii) changes in the U.S. federal government, state and local governments' spending and mission priorities that shift expenditures away from agencies or programs that we support; (iii) any delay in completion of the U.S. federal government's budget process; (iv) failure to comply with numerous laws, regulations and rules, including regarding procurement, anti-bribery and organizational conflicts of interest; (v) failure by us or our employees to obtain and maintain necessary security clearances or certifications; (vi) our ability to compete effectively in the competitive bidding process and delays, contract terminations or cancellations caused by competitors' protests of major contract awards received by us; (vii) failure of third parties to deliver on commitments under contracts with us; (viii) misconduct or other improper activities from our employees or subcontractors; (ix) delays, terminations, or cancellations of our major contract awards, including as a result of our competitors protesting such awards; (x) failure of our internal control over financial reporting to detect fraud or other issues; (xi) failure or disruptions to our systems, due to cyber-attack, service interruptions or other security threats; (xii) failure to be awarded task orders under our indefinite delivery/indefinite quantity contracts; and (xiii) changes in government procurement, contract or other practices or the adoption by the government of new laws, rules and regulations in a manner adverse to us; as well as the matters described in the "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" sections of Perspecta's Annual Report on Form 10-K for the year ended March 31, 2018, as may be updated or supplemented in our Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission, which discuss these and other factors that could adversely affect our results. Readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events except as required by law.



              
                Condensed Consolidated Combined Statements of Operations
    (preliminary and unaudited)




                                                                                                         Three Months Ended                                        Fiscal Years Ended



              (in millions, except per share amounts)                               March 31, 2019                         March 31, 2018     March 31, 2019                         March 31, 2018

    ---


              Revenue                                                                               $
         1,094                                               $
              715                        $
       4,030  $
      2,819






              Costs of services                                                                817                                        523                                                   3,043       2,155



              Selling, general, and administrative                                              74                                         50                                                     300         182



              Depreciation and amortization                                                    116                                         51                                                     330         167



              Restructuring costs                                                                7                                          4                                                      10          14



              Separation and integration-related costs                                          22                                         46                                                     106          90



              Interest expense, net                                                             37                                          5                                                     121          12



              Other expense, net                                                                34                                                                                                 8




              Total costs and expenses                                                       1,107                                        679                                                   3,918       2,620






              Income (loss) before taxes                                                      (13)                                        36                                                     112         199



              Income tax expense (benefit)                                                       6                                          4                                                      40         (9)




              Net income (loss)                                                                      $
         (19)                                               $
              32                           $
       72    $
      208






              Earnings (loss) per common share (a):



                Basic                                                                              $
         (0.12)                                             $
              0.22                         $
       0.44   $
      1.46



                Diluted                                                                            $
         (0.12)                                             $
              0.22                         $
       0.44   $
      1.46


     (a) Earnings per share information
          for the three months and fiscal
          year ended March 31, 2018, is
          computed using the 142.43
          million shares of Perspecta
          common stock resulting from the
          distribution by DXC, as
          Perspecta did not operate as a
          stand-alone entity during the
          period and therefore, no
          Perspecta common stock, options
          or other equity awards were
          outstanding and no dividends
          were declared or paid by
          Perspecta.



              
                Selected Condensed Consolidated Combined Balance Sheet Data
    (preliminary and unaudited)





              (in millions)                                                            March 31, 2019             March 31, 2018

    ---


              Assets



              Cash and cash equivalents                                                                  $
        88                      
     $



              Receivables, net                                                                    484                              354



              Other receivables                                                                    92



              Prepaid expenses                                                                    141                               74



              Deferred contract costs                                                              35                               21



              Other current assets                                                                 38



              Total current assets                                                                878                              449



              Property and equipment, net                                                         368                              290



              Goodwill                                                                          3,179                            2,022



              Intangible assets, net                                                            1,466                              897



              Other assets                                                                        192                               21




              Total assets                                                                            $
        6,083                          $
     3,679






              Liabilities



              Current maturities of long-term debt                                                       $
        80                      
     $



              Current capital lease obligations                                                   137                              160



              Accounts payable                                                                    246                              195



              Accrued payroll and related costs                                                    91                               17



              Accrued expenses                                                                    396                              137



              Deferred revenue and advance contract payments                                       33                               53



              Other current liabilities                                                            31                               43




              Total current liabilities                                                         1,014                              605



              Long-term debt, net of current maturities                                         2,297



              Non-current capital lease obligations                                               168                              144



              Deferred tax liabilities                                                            171                              176



              Other long-term liabilities                                                         271                               25




              Total liabilities                                                                 3,921                              950



              Commitments and contingencies



              Total stockholders' equity                                                        2,162                            2,729



              Total liabilities and stockholders' equity                                              $
        6,083                          $
     3,679



              
                Selected Condensed Consolidated Combined Statements of Cash Flows
    (preliminary and unaudited)




                                                                                                             Three Months Ended                                    Fiscal Years Ended



              (in millions)                                                                  March 31,                         March 31,           March 31,                         March 31,
                                                                                                   2019                               2018                 2019                               2018

    ---


              Cash flows from operating activities:



              Net income (loss)                                                                        $
          (19)                                            $
             32                      $
         72       $
     208



              Adjustments to reconcile net income to net cash provided by
         operating activities:



              Depreciation and amortization                                                        116                                        51                                             330          167



              Net periodic benefit cost                                                             32                                                                                       26



              Stock-based compensation                                                               4                                         2                                              11            6



              Deferred income taxes                                                                 25                                        43                                               8         (28)



              Restructuring charges                                                                  7                                        14                                              10           14



              Gain on sale of assets                                                                                                                                                      (25)



              Other non-cash charges, net                                                           11                                      (10)                                              1



              Changes in assets and liabilities, net of effects of acquisitions:



              Receivables, net                                                                      24                                        12                                             102           49



              Prepaid expenses and other current assets                                            (3)                                       40                                            (25)          20



              Accounts payable, accrued expenses and other current liabilities                       5                                        14                                            (18)         113



              Deferred revenue and advanced contract payments                                        2                                      (11)                                           (11)        (11)



              Income taxes payable                                                                (42)                                                                                    (22)



              Accrued restructuring                                                                (2)                                     (11)                                            (4)         (8)



              Other assets and liabilities, net                                                      8                                         7                                               7




              Net cash provided by operating activities                                            168                                       183                                             462          530




              Cash flows from investing activities:



              Payments for acquisitions, net of cash acquired                                                                                                                            (312)



              Extinguishment of Vencore debt and related costs                                                                                                                           (994)



              Proceeds from sale of assets                                                                                                                                                  25



              Purchases of property, equipment and software                                       (14)                                     (10)                                           (26)        (18)



              Payments for outsourcing contract costs                                              (4)                                      (7)                                           (11)        (16)



              Net cash used in investing activities                                               (18)                                     (17)                                        (1,318)        (34)




              Cash flows from financing activities:



              Principal payments on long-term debt                                                (88)                                                                                   (170)



              Proceeds from debt issuance                                                                                                                                                2,500



              Payment of debt issuance costs                                                                                                                                              (46)



              Proceeds from revolving credit facility                                                                                                                                       50



              Payments on revolving credit facility                                                                                                                                       (50)



              Payments on capital lease obligations                                               (48)                                     (40)                                          (172)       (157)



              Repurchases of common stock                                                         (16)                                                                                    (59)



              Repurchases of common stock to satisfy tax withholding obligations                                                                                                           (1)



              Dividend to DXC                                                                                                                                                            (984)



              Dividends paid to Perspecta stockholders                                             (8)                                                                                    (25)



              Net transfers to Parent                                                                                                     (126)                                           (88)       (339)



              Net cash provided by (used in) financing activities                                (160)                                    (166)                                            955        (496)




              Net change in cash and cash equivalents, including restricted                       (10)                                                                                      99



              Cash and cash equivalents, including restricted, at beginning of                     109
         period




              Cash and cash equivalents, including restricted, at end of period                     99                                                                                       99



              Less restricted cash and cash equivalents included in other current                   11                                                                                       11
         assets




              Cash and cash equivalents at end of period                                                 $
          88                              
              $                                     $
         88   
     $

Reconciliation of Non-GAAP Financial Measures

To aid investors and analysts with year-over-year comparability for the combined businesses of USPS, Vencore and KeyPoint, Perspecta is including certain pro forma financial information that combines the stand-alone USPS and Vencore and KeyPoint financial information as if the acquisition had taken place on April 1, 2017. These pro forma results include a full period of Vencore and KeyPoint results and assess the impact of interest, depreciation and amortization, recurring elements of pension income, and other costs as if the spin-off and mergers had occurred at the beginning of the period. Perspecta is also including adjusted, non-GAAP results that exclude costs directly associated with the spin-off and mergers and the ongoing integration process.

The following tables reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Perspecta management believes that these non-GAAP financial measures provide useful additional information to investors regarding Perspecta's results of operations as they provide another measure of Perspecta's profitability and ability to service its debt and are considered important to financial analysts covering Perspecta's industry.

These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for income from operations, net income or any other measure of financial performance reported in accordance with GAAP. Perspecta's non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing Perspecta's performance, it is important to evaluate each adjustment in the reconciliation tables and use adjusted measures in addition to, and not as an alternative to, GAAP measures.

Pro Forma Revenue (Unaudited)


                                                             Three Months Ended                                        Fiscal Years Ended



       (in millions)                      March 31, 2019                       March 31, 2018     March 31, 2019                         March 31, 2018

    ---


       Revenue (a)                                       $
       1,094                                                $
              715                       $
     4,030 $
     2,819



       Historical Vencore revenue (b) (c)                                                     343                                                    244    1,384




       Pro forma revenue                                 $
       1,094                                              $
              1,058                       $
     4,274 $
     4,203



     
       Notes:


      (a)      For the three months and fiscal year ended
                March 31, 2018, GAAP results reflect the
                operations of USPS.


      (b)      Revenue prior to the May 31, 2018 Mergers is
                from the most closely corresponding reporting
                periods, which is January 1, 2018 to March 31,
                2018, for the three months ended March 31,
                2018, and April 1, 2017 to March 31, 2018 for
                the fiscal year ended March 31, 2018.


      (c)      In this and all subsequent tables, financial
                data for "Vencore" includes the combined
                results of Vencore and KeyPoint.

Adjusted EBITDA, Net Income, and Diluted EPS (Unaudited)

Adjusted EBITDA excludes the following items: mark-to-market adjustments to the pension and other post-employment benefit (OPEB) programs, stock-based compensation, and the fiscal year 2018 start-up costs associated with the National Background Investigations Bureau (NBIB) program. Adjusted net income and adjusted diluted EPS also exclude acquired intangible amortization.


                                                                          Three Months Ended March 31, 2019



       (in millions)                               Perspecta                                     Effect of Spin-
                                                                                                         Off              Adjusted
                                                                                        and Mergers

    ---


       
                Net loss                                 $
      
      (19)                                             
     
            $                        $
     
     (19)



       Income tax expense                                  6                                                                                       6



       Interest expense, net                              37                                                                                      37



       Depreciation and amortization                     116                                                                                     116




       
                EBITDA                               140                                                                                     140



       Restructuring costs                                 7                                                     (4)                               3



       Separation and integration costs                   22                                                                                      22



       Pension actuarial and settlement losses            35                                                                                      35



       Stock-based compensation                            4                                                                                       4



       Separation related cost                             3                                                                                       3




       
                Adjusted EBITDA                           $
      
      211                                                            $
       
       (4)     207




       Depreciation and amortization                                                                                        (116)



       Amortization of acquired intangibles                                                                                    68



       Interest expense, net                                                                                                 (37)




       
                Adjusted earnings before taxes                                                                            122



       Income tax expense (a)                                                                                                  33




       
                Adjusted net income                                                                                             $
       
       89




       
                Adjusted diluted EPS (b)                                                                                      $
       
       0.54



              
                Notes:


               (a)                               Represents
                                                  income tax
                                                  expense
                                                  utilizing an
                                                  adjusted
                                                  effective tax
                                                  rate of
                                                  approximately
                                                  27% that
                                                  adjusts for
                                                  non-GAAP
                                                  measures
                                                  including:
                                                  transaction
                                                  costs,
                                                  integration
                                                  costs, and
                                                  tax add backs
                                                  for non-
                                                  deductible
                                                  prior-merger
                                                  goodwill
                                                  amortization.


               (b)                               Represents
                                                  adjusted net
                                                  income
                                                  divided by
                                                  the weighted-
                                                  average
                                                  common shares
                                                  on a diluted
                                                  basis of
                                                  163.78
                                                  million.

Pro Forma Adjusted EBITDA, Net Income, and Diluted EPS (Unaudited)

Previously, in its Current Report on Form 8-K filed on July 19, 2018, Perspecta provided reconciliations of pro forma adjusted EBITDA, pro forma adjusted net income, and pro forma adjusted diluted EPS to net income. The pro forma presentations of these measures contained in this press release differ from the 8-K for three reasons:

    --  In the Current Report on Form 8-K filed on July 19, 2018, Perspecta
        provided separate reconciliations of (1) pro forma adjusted EBITDA and
        (2) pro forma adjusted net income and pro forma adjusted diluted EPS. In
        the current press release, Perspecta has updated this presentation to
        combine the separate reconciliations and to apply a pro forma effective
        tax rate of 34 percent in the reconciliations for pro forma adjusted net
        income and pro forma adjusted diluted EPS for fiscal year 2018. This
        change adjusts for the effects of implementing the Tax Cuts and Jobs Act
        of 2017 for purposes of comparison to the financial results for fiscal
        year 2019.
    --  As required by the SEC, the pro forma presentations in the Current
        Report on Form 8-K filed on July 19, 2018, were prepared in accordance
        with Article 11 of Regulation S-X. Conversely, the pro forma
        presentations in this press release are prepared in accordance with ASC
        805, which requires a different treatment of "non-recurring" costs.
    --  The pro forma presentations in the Current Report on Form 8-K filed on
        July 19, 2018, were based on a preliminary valuation of intangibles
        reflected in Amendment 3 to the Form 10 filed on April 30, 2018.
        Perspecta has finalized the valuation report, with updated fair values
        of net tangible assets purchased, including intangibles, and has
        reflected this update in this press release.


                                                                         
     
                Fiscal Year Ended March 31, 2019



       (in millions)                               Perspecta                          Historical                                  Effect of Spin-
                                                                                                                                          Off               Pro Forma
                                                                           Vencore (a)                                    and Mergers

    ---


       
                Net income (loss)                         $
      
      72                                                 $
              
                (57)                            $
       
       13       $
     
     28



       Income tax expense (benefit)                       40                                                1                                            5                                  46



       Interest expense, net                             121                                               39                                         (16)                                144



       Depreciation and amortization                     330                                                5                                            7                                 342




       
                EBITDA                               563                                             (12)                                           9                                 560



       Restructuring costs                                10                                                                                          (6)                                  4



       Separation and integration costs                  106                                               41                                                                             147



       Pension actuarial and settlement losses            35                                                                                                                              35



       Stock-based compensation                           11                                                                                                                              11



       Separation related cost                             3                                                                                                                               3




       
                Adjusted EBITDA                          $
      
      728                                                   $
              
                29                              $
       
       3  760




       Depreciation and amortization                                                                                                                           (342)



       Amortization of acquired intangibles                                                                                                                      174



       Interest expense, net                                                                                                                                   (141)




       
                Adjusted earnings before taxes                                                                                                               451



       Income tax expense (b)                                                                                                                                    122




       
                Adjusted net income                                                                                                                               $
      
      329




       
                Adjusted diluted EPS (c)                                                                                                                         $
      
      2.00



              
                Notes:


               (a)                               Represents pro
                                                  forma results
                                                  associated
                                                  with Vencore
                                                  and KeyPoint
                                                  for the
                                                  period from
                                                  April 1, 2018
                                                  to May 31,
                                                  2018.


               (b)                               Represents
                                                  income tax
                                                  expense
                                                  utilizing an
                                                  adjusted
                                                  effective tax
                                                  rate of
                                                  approximately
                                                  27% that
                                                  adjusts for
                                                  non-GAAP
                                                  measures
                                                  including:
                                                  transaction
                                                  costs,
                                                  integration
                                                  costs, and
                                                  tax add backs
                                                  for non-
                                                  deductible
                                                  prior-merger
                                                  goodwill
                                                  amortization.


               (c)                               Represents
                                                  adjusted net
                                                  income
                                                  divided by
                                                  the weighted-
                                                  average
                                                  common shares
                                                  on a diluted
                                                  basis of
                                                  164.82
                                                  million.


                                                                             
       
         Three Months Ended March 31, 2018



       (in millions)                                    Historical USPS                                   Historical                   Effect of Spin-
                                                                                                                                              Off              Pro Forma
                                                                                                 Vencore                      and Mergers

    ---


       
                Net income (loss)                                    $
       
        32                                        $
              
                11                              $
        
        (19)      $
     
     24



       Income tax expense (benefit)                                   4                                                    3                             (13)                                     (6)



       Interest expense, net                                          5                                                   20                                9                                       34



       Depreciation and amortization                                 51                                                    7                               25                                       83




       
                EBITDA                                           92                                                   41                                2                                      135



       Restructuring costs                                            4                                                                                    1                                        5



       Separation and integration costs                              46                                                                                                                           46



       Pension and OPEB actuarial and settlement losses                                                                 (2)                                                                     (2)



       Stock-based compensation                                       2                                                                                    2                                        4



       
                Adjusted EBITDA                                     $
       
        144                                        $
              
                39                                 $
       
         5  188




       Depreciation and amortization                                                                                                                               (83)



       Amortization of acquired intangibles                                                                                                                          47



       Interest expense, net (a)                                                                                                                                   (34)




       
                Adjusted earnings before taxes                                                                                                                  118



       Income tax expense (b)                                                                                                                                        40




       
                Adjusted net income                                                                                                                                   $
       
       78




       
                Adjusted diluted EPS (c)                                                                                                                            $
       
       0.47



              
                Notes:


               (a)                               Pro Forma
                                                  interest
                                                  expense is
                                                  derived based
                                                  on the
                                                  average of
                                                  the
                                                  applicable
                                                  one-month
                                                  LIBOR rates
                                                  for the three
                                                  month period
                                                  ended June
                                                  30, 2018 to
                                                  enhance
                                                  comparability
                                                  to the period
                                                  during which
                                                  the debt was
                                                  established.


               (b)                               Represents the
                                                  income tax
                                                  impact of the
                                                  adjustments
                                                  to net income
                                                  using an
                                                  estimated
                                                  effective tax
                                                  rate of
                                                  approximately
                                                  34%.


               (c)                               Represents
                                                  adjusted net
                                                  income
                                                  divided by
                                                  the weighted-
                                                  average
                                                  common shares
                                                  on a diluted
                                                  basis of
                                                  165.70
                                                  million.


                                                                            
     
         Fiscal Year Ended March 31, 2018



       (in millions)                                    Historical USPS                               Historical                    Effect of Spin-
                                                                                                                                            Off                Pro Forma
                                                                                             Vencore                        and Mergers

    ---


       
                Net income (loss)                                   $
     
       208                                         $
              
                33                              $
        
        (113)      $
     
     128



       Income tax benefit                                           (9)                                             (10)                               (54)                                   (73)



       Interest expense, net                                         12                                                82                                  39                                     133



       Depreciation and amortization                                167                                                30                                  97                                     294




       
                EBITDA                                          378                                               135                                (31)                                    482



       Restructuring costs                                           14                                                                                    5                                      19



       Debt extinguishment costs                                                                                       4                                                                          4



       Separation and integration costs                              90                                                                                                                          90



       Pension and OPEB actuarial and settlement losses                                                              (9)                                 35                                      26



       Stock-based compensation                                       6                                                 4                                 (2)                                      8



       NBIB adjustment                                                                                                25                                                                         25




       
                Adjusted EBITDA                                     $
     
       488                                        $
              
                159                                 $
       
          7  654




       Depreciation and amortization                                                                                                                              (294)



       Amortization of acquired intangibles                                                                                                                         186



       Interest expense, net (a)                                                                                                                                  (130)




       
                Adjusted earnings before taxes                                                                                                                  416



       Income tax expense (b)                                                                                                                                       141




       
                Adjusted net income                                                                                                                                  $
      
      275




       
                Adjusted diluted EPS (c)                                                                                                                            $
      
      1.66



              
                Notes:


               (a)                               Pro Forma
                                                  interest
                                                  expense is
                                                  derived based
                                                  on the
                                                  average of
                                                  the
                                                  applicable
                                                  one-month
                                                  LIBOR rates
                                                  for the three
                                                  month period
                                                  ended June
                                                  30, 2018 to
                                                  enhance
                                                  comparability
                                                  to the period
                                                  during which
                                                  the debt was
                                                  established.


               (b)                               Represents the
                                                  income tax
                                                  impact of the
                                                  adjustments
                                                  to net income
                                                  using an
                                                  estimated
                                                  effective tax
                                                  rate of
                                                  approximately
                                                  34%.


               (c)                               Represents
                                                  adjusted net
                                                  income
                                                  divided by
                                                  the weighted-
                                                  average
                                                  common shares
                                                  on a diluted
                                                  basis of
                                                  165.70
                                                  million.

Adjusted EBITDA Margin and Pro Forma Adjusted EBITDA Margin (Unaudited)

Adjusted EBITDA margin is calculated as the ratio of adjusted EBITDA to revenue, and pro forma adjusted EBITDA margin is calculated as the ratio of pro forma adjusted EBITDA to pro forma revenue.


                                                                 Three Months Ended                                                       Fiscal Years Ended



       (in millions, except for margin) March 31, 2019                             March 31, 2018 (a)      March 31, 2019 (a)                         March 31, 2018 (a)

    ---


       Adjusted EBITDA                                   $
       207                                                               $
       188                                     $
       760    $
       654



       Revenue                                         $
       1,094                                                             $
       1,058                                   $
       4,274  $
       4,203



       Adjusted EBITDA margin                     18.9                                                17.8                                                            17.8        15.6
                                                      %                                                  %                                                              %          %


                            Notes:



              (a)                               Amounts for
                                                  the three
                                                  months
                                                  ended March
                                                  31, 2018
                                                  and fiscal
                                                  years ended
                                                  March 31,
                                                  2019 and
                                                  2018 are
                                                  pro forma.

Adjusted Free Cash Flow (Unaudited)

Perspecta defines adjusted free cash flow as the sum of net cash provided by operating activities and net cash used in investing activities adjusted for certain items, such as (i) payments on capital lease obligations, (ii) business acquisitions, dispositions, and investments, (iii) restructuring payments, (iv) payments on transactions, separation and integration-related costs, (v) the impact arising from the initial sale of accounts receivables under the Master Accounts Receivable Purchase Agreement, and (vi) other non-recurring payments.


                                                                                       Three Months Ended                         Fiscal Year Ended March 31, 2019 (a)
                                                                             March 31, 2019




       (in millions)                                                                       Perspecta            Perspecta                      Historical                 Pro Forma
                                                                                                                                      Vencore

    ---


       Net cash provided by operating activities                                                         $
     168                                              $
           462             $
          16  $
     478



       Purchases of property, equipment and software                                                (14)                   (26)                                                 (3)       (29)



       Payments on capital lease obligations                                                        (48)                  (172)                                                          (172)



       Payments on restructuring, transaction and integration-related costs                           30                     142                                                    1         143




       Adjusted free cash flow                                                                           $
     136                                              $
           406             $
          14  $
     420



              
                Notes:


               (a)                               Results for
                                                  the fiscal
                                                  year ended
                                                  March 31,
                                                  2019 are
                                                  pro forma,
                                                  represent
                                                  results
                                                  associated
                                                  with
                                                  Vencore
                                                  and
                                                  KeyPoint
                                                  for the
                                                  period
                                                  from April
                                                  1, 2018 to
                                                  May 31,
                                                  2018.


                                                                           Three Months Ended March 31, 2018                                 Fiscal Year Ended March 31, 2018



              (in millions)                              Perspecta                          Historical          Pro Forma        Perspecta                      Historical              Pro Forma
                                                                                   Vencore                                                             Vencore

    ---


              Net cash provided by operating activities            $
     183                                                 $
     (1)                                             $
        182                   $
     530          $
     67 $
     597



              Purchases of property, equipment and            (10)                                          (3)                       (13)                                       (18)             (10)           (28)
    software



              Payments on capital lease obligations           (40)                                                                    (40)                                      (157)              (1)          (158)



              Payments on restructuring, transaction and         1                                                                        1                                           7                4              11
    integration-related costs



              Initial sale of qualifying receivables (a)                                                                                                                        (121)                           (121)




              Adjusted free cash flow                              $
     134                                                 $
     (4)                                             $
        130                   $
     241          $
     60 $
     301


                            Notes:



              (a)                               Represents the
                                                  impact arising
                                                  from the initial
                                                  sale of accounts
                                                  receivables under
                                                  the Master
                                                  Accounts
                                                  Receivable
                                                  Purchase Agreement
                                                  during the quarter
                                                  ended September
                                                  30, 2017.

Segment Operating Results (Unaudited)

Perspecta delivers IT, mission, and operations-related services across the U.S. federal government through two reportable segments--Defense and Intelligence, which provides services to the Department of Defense (DoD), intelligence community, branches of the U.S. Armed Forces, and other DoD agencies; and Civilian and Health Care, which provides services to the Departments of Homeland Security, Justice, and Health and Human Services, as well as other federal civilian and state and local government agencies.

The following tables summarize revenue and segment operating profit by reportable segment:


                                                      
              
          RECONCILIATION OF REPORTABLE SEGMENT PROFIT TO INCOME BEFORE TAXES (Unaudited)




                                                                       Three Months Ended                                                                                Fiscal Years Ended



       (in millions)                              March 31, 2019                                        March 31, 2018                                March 31, 2019                       March 31, 2018

    ---


       Total profit for reportable segments                        $
         155                                                                                        $
             110                        $
        527  $
      390



       Less:



       Stock-based compensation                              (4)                                                               (2)                                                                   (11)      (6)



       Amortization of acquired intangible assets           (68)                                                              (17)                                                                  (165)     (69)



       Restructuring costs                                   (3)                                                               (4)                                                                    (4)     (14)



       Separation and integration-related costs             (22)                                                              (46)                                                                  (106)     (90)



       Interest expense, net                                (37)                                                               (5)                                                                  (121)     (12)



       Other unallocated, net                               (34)                                                                                                                                      (8)




       Income (loss) before taxes                                 $
         (13)                                                                                        $
             36                        $
        112  $
      199


                                                                                                    
           
     REVENUE AND ADJUSTED SEGMENT OPERATING PROFIT (Unaudited)




                                                                                         Three Months Ended                                                                                Fiscal Years Ended



       (in millions)                                            March 31, 2019                                     March 31, 2018                                     March 31, 2019                          March 31, 2018

    ---


       Revenue



       Defense and Intelligence                                                        $
              739                                                                                        $
              365                        $
       2,587        $
       1,416



       Add: Historical Vencore and adjustments                                                                                          319                                                                               230             1,195




       Adjusted revenue (a)                                                            $
              739                                                                                        $
              684                        $
       2,817        $
       2,611






       Civilian and Health Care                                                        $
              355                                                                                        $
              350                        $
       1,443        $
       1,403



       Add: Historical Vencore and adjustments                                                                                           24                                                                                14               189




       Adjusted revenue (a)                                                            $
              355                                                                                        $
              374                        $
       1,457        $
       1,592






       
                Total revenue                                              $
       
                1,094                                                                                 $
        
                715                  $
       
         4,030  $
       
         2,819



       
                Total adjusted revenue (a)                                 $
       
                1,094                                                                               $
        
                1,058                  $
       
         4,274  $
       
         4,203





       Segment operating profit



       Defense and Intelligence                                                        $
              107                                                                                         $
              60                          $
       331          $
       168



       Add: Historical Vencore and adjustments (b)                           3                                                            33                                                                                51               132




       Adjusted segment operating profit (a)                                           $
              110                                                                                         $
              93                          $
       382          $
       300






       Civilian and Health Care                                                         $
              48                                                                                         $
              50                          $
       196          $
       222



       Add: Historical Vencore and adjustments (b)                           1                                                             9                                                                                14                24




       Adjusted segment operating profit (a)                                            $
              49                                                                                         $
              59                          $
       210          $
       246






       
                Total segment operating profit                               $
       
                155                                                                                 $
        
                110                    $
       
         527    $
       
         390



       
                Total adjusted segment operating profit (a)                  $
       
                159                                                                                 $
        
                152                    $
       
         592    $
       
         546


                            Notes:



              (a)                               Adjusted
                                                  results
                                                  represent
                                                  non-GAAP
                                                  financial
                                                  measures,
                                                  and it
                                                  should be
                                                  considered
                                                  in addition
                                                  to, but not
                                                  as
                                                  substitute
                                                  for, the
                                                  information
                                                  provided in
                                                  accordance
                                                  with GAAP.
                                                  Note that
                                                  amounts for
                                                  the three
                                                  months
                                                  ended March
                                                  31, 2018
                                                  and fiscal
                                                  years ended
                                                  March 31,
                                                  2019 and
                                                  2018 are
                                                  pro forma
                                                  and that
                                                  results for
                                                  the three
                                                  months
                                                  ended March
                                                  31, 2019 is
                                                  a GAAP
                                                  measure.



              (b)                               Includes
                                                  adjustments
                                                  for certain
                                                  separation
                                                  related and
                                                  other
                                                  costs,
                                                  which are
                                                  included in
                                                  the segment
                                                  results of
                                                  operations.

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SOURCE Perspecta Inc.