Perspecta announces financial results for fourth quarter and fiscal year 2020
CHANTILLY, Va., May 21, 2020 /PRNewswire/ -- Perspecta Inc. (NYSE:PRSP), a leading U.S. government services provider, today announced financial results for the fourth quarter and fiscal year ended March 31, 2020.
"We finished our fiscal year by delivering yet another quarter of strong performance," said Mac Curtis, president and chief executive officer, Perspecta. "The health and safety of our dedicated employees is our top priority while remaining focused on supporting our customers' missions and driving value for our shareholders. I am incredibly impressed by the resiliency, creativity and compassion of our workforce. We rose to the COVID-19 challenge and continued to deliver in new, safe and innovative ways. This led to results that exceeded the high end of our revenue, earnings and free cash flow conversion expectations. Our strong business development efforts combined with this dedication ensure we are well positioned for fiscal year 2021 and beyond."
Summary operating results (unaudited)
Three Months Ended Fiscal Years Ended
(in millions, except
margin and per share
data) March 31, March 31, March 31, March 31,
2020 2019 2020 2019
---
Revenue $
1,099 $
1,094 $
4,504 $
4,030
(Loss) income before
taxes (884) (13) (730) 112
Operating Margin (80.4) (1.2) (16.2)
% % % 2.8
%
Net (loss) income (789) (19) (676) 72
Diluted (loss) earnings
per share (EPS) (4.89) (0.12) (4.17) 0.44
Pro Forma and Non-GAAP
Measures*:
Revenue $
1,099 $
1,094 $
4,504 $
4,274
Adjusted Net Income 89 89 352 329
Adjusted EBITDA 182 207 778 760
Adjusted EBITDA Margin 16.6 18.9
% 17.3
% % 17.8
%
Adjusted Diluted EPS 0.55 0.54 2.16 2.00
* Amounts presented under the heading "Pro Forma and Non-GAAP Measures" for the fiscal year ended March 31, 2019 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 Selected Financial Data and Reconciliation of Non-GAAP Financial Measures at the end of this press release for more information.
---
On May 31, 2018, Perspecta became an independent company through consummation of the spin-off by DXC Technology Company (DXC) of its U.S. Public Sector Business (USPS) and merger of USPS with Vencore Holding Corp. (Vencore HC) and KGS Holding Corp. (KGS HC). To aid investors and analysts with year-over-year comparisons, Perspecta presents pro forma financial information that reflects the USPS, Vencore HC and KGS HC 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 "Selected Financial Data and 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 fourth quarter of fiscal year 2020 was $1.1 billion, up slightly compared to the fourth quarter of fiscal year 2019, and down 2.4% compared to the third quarter of fiscal year 2020. The decline in revenue compared to the third quarter was primarily due to approximately $15 million in revenue recorded in the third quarter that had been anticipated to occur in the fourth quarter.
Loss before taxes for the fourth quarter of fiscal year 2020 was $884 million, compared to $13 million for the fourth quarter of fiscal year 2019. The increase in loss before taxes is primarily due to the $796 million non-cash, pre-tax impairment charge related to goodwill and intangible assets due to the U.S. Navy's decision not to award us the re-compete of the Next Generation Enterprise Network (NGEN) contract.
Operating margin for the fourth quarter of fiscal year 2020 decreased from (1.2)% to (80.4)% year-over-year. Net loss was $789 million, or $4.89 per diluted share.
Adjusted net income was $89 million for the fourth quarter of fiscal year 2020, which was flat year-over-year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $182 million for the fourth quarter of fiscal year 2020, down 12% compared to adjusted EBITDA for the fourth quarter of fiscal year 2019; adjusted EBITDA margin decreased from 18.9% to 16.6% over the same period. Adjusted diluted EPS for the fourth quarter of fiscal year 2020 was $0.55, up 2% compared to adjusted diluted EPS for the fourth quarter of fiscal year 2019.
Fiscal year summary results. Revenue for fiscal year 2020 was $4.5 billion, an increase of 12% compared to fiscal year 2019, and an increase of 5% compared to pro forma revenue of fiscal year 2019. The increase compared to prior year was driven by net growth on existing contracts and new business wins.
Loss before taxes for fiscal year 2020 was $730 million, compared to income before taxes of $112 million for fiscal year 2019. The decline is primarily due to the $796 million non-cash, pre-tax impairment charge related to goodwill and intangible assets due to the U.S. Navy's decision not to award us the re-compete of the NGEN contract.
Operating margin for fiscal year 2020 decreased from 2.8% to (16.2)% year-over-year. Net loss was $676 million, or $4.17 per diluted share.
Adjusted net income was $352 million for fiscal year 2020, which was up 7% compared to pro forma adjusted net income for fiscal year 2019. Adjusted EBITDA was $778 million for fiscal year 2020, up 2% compared to pro forma adjusted EBITDA for fiscal year 2019; adjusted EBITDA margin decreased from pro forma 17.8% to 17.3% over the same period. Adjusted diluted EPS for fiscal year 2020 was $2.16, up 8% compared to pro forma adjusted diluted EPS for fiscal year 2019.
Segment operating results (unaudited)
For the three months ended March 31, 2020, Defense and Intelligence segment revenue of $759 million increased 3% compared to revenue for the same period of the prior year, primarily due to new business wins and growth on existing programs. Civilian and Health Care segment revenue of $340 million decreased by 4% compared to revenue for the same period of the prior year due to the end of the NASA Agency Consolidated End-User Services (ACES) contract and other program wind downs.
Defense and Intelligence adjusted segment profit margin for the fourth quarter of fiscal year 2020 decreased to 13.7% from 14.9% in the fourth quarter of fiscal year 2019. Civilian and Health Care adjusted segment profit margin for the fourth quarter of fiscal year 2020 decreased to 12.1% from 13.8% in the fourth quarter of fiscal year 2019. Total adjusted segment profit for the fourth quarter of fiscal year 2020 decreased to $145 million from $159 million in the fourth quarter of fiscal year 2019, and depreciation and amortization excluding acquisition-related intangibles amortization decreased $11 million.
For the fiscal year ended March 31, 2020, Defense and Intelligence segment revenue of $3.1 billion increased 10% as compared to pro forma segment revenue from the prior year, primarily due to new business wins and growth on existing programs. Civilian and Health Care segment revenue of $1.4 billion decreased by 4% as compared to pro forma segment revenue from the prior year due to the end of the NASA ACES contract and other program wind downs.
Defense and Intelligence adjusted segment profit margin for fiscal year 2020 increased to 14.7% from pro forma 13.6% in fiscal year 2019. Civilian and Health Care adjusted segment profit margin for fiscal year 2020 decreased to 11.0% from pro forma 14.4% in fiscal year 2019. Total adjusted segment profit for fiscal year 2020 increased to $610 million from pro forma adjusted segment profit of $592 million in fiscal year 2019.
Cash management and capital deployment
Perspecta generated $186 million of net cash provided by operating activities in the fourth quarter of fiscal year 2020. Quarterly adjusted free cash flow was $179 million, or 201% of adjusted net income. During the quarter, Perspecta used $24 million to make required debt payments and returned $30 million to shareholders, including $10 million as part of its regular quarterly cash dividend program and $20 million in share repurchases.
For fiscal year 2020, Perspecta generated $626 million of net cash provided by operating activities and $542 million of adjusted free cash flow, or 154% of adjusted net income. During the year, Perspecta used $93 million to make required debt payments and returned $103 million to shareholders, including $38 million in dividends and $65 million in share repurchases.
As of March 31, 2020, Perspecta had $147 million in cash and cash equivalents, $700 million of undrawn capacity in its revolving credit facility, and $2.6 billion in total debt, including $247 million in finance lease obligations.
On May 21, 2020 the Perspecta Board of Directors declared that Perspecta will pay a cash dividend of $0.07 per common share payable on July 15, 2020 to common shareholders of record at the close of business on June 11, 2020. Payment of future quarterly dividends is subject to Board approval.
Contract awards
Contract awards (bookings) totaled $1.2 billion in the fourth quarter of fiscal year 2020, representing a book-to-bill ratio of 1.1x. New business awards constituted approximately 56% of the total awards in the fourth quarter. Book-to-bill exceeded 1.0x for each of the last three quarters and totaled 1.4x for fiscal year 2020. Included in the quarterly bookings were the following single-award prime contracts:
-- United States Department of Labor Contract. Perspecta was awarded a
prime contract from the U.S. Department of Labor, Office of the
Assistant Secretary for Administration and Management, Office of the
Chief Information Officer for operations and maintenance support of the
enterprise general support system. The program, which represents new
work for the company, has a one-year base period with six one-year
option periods and a potential value of $277 million.
-- United States Department of Housing and Urban Development Contract.
Perspecta has been awarded the U.S. Department of Housing and Urban
Development Data Center Services program from the Office of the Chief
Information Officer's Infrastructure and Operations Office. The program,
which represents new work for the company, was awarded under the General
Services Administration IT-70 contract vehicle. It has a one-year base
period with four one-year option periods and a potential value of $134
million.
-- NGEN EUH Extension. Perspecta received a four-month, $62 million
extension to the current NGEN contract with the U.S. Department of the
Navy to continue providing end-user hardware services. With this
extension, Perspecta will deliver various end-user hardware services
through July 2020, providing additional time for the orderly transition
of those services to the NGEN-R End User Hardware (EUH) contract.
-- Centers for Medicaid and Medicare Services Contract. Perspecta received
a follow-on task order award to continue work on the Centers for
Medicare & Medicaid Services Virtual Data Center Prime contract to host
and improve efficiency of Medicare Part A and Part B Common Working File
claims processing. The task order has a one-year base period plus four
one-year option periods and a potential value of $36 million.
Perspecta's backlog of signed business orders at the end of the fourth quarter of fiscal year 2020 was $13.3 billion; funded backlog at the end of the fourth quarter was $2.0 billion.
Forward guidance
The table below introduces fiscal year 2021 guidance ranges for revenue, adjusted EBITDA margin, adjusted diluted EPS, and adjusted free cash flow conversion (as a percentage of adjusted net income). The table below provides information about the estimated financial impact of the network component of the existing NGEN contract (NGEN SMIT), for which we are under contract through December 31, 2020. 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
Fiscal Year 2021
NGEN SMIT Information
---
Guidance
Estimated NGEN SMIT
Perspecta excluding Estimated
Impact NGEN SMIT Impact
Revenue (millions)
$4,260 - $4,410
~ $600
~ $3,660 - $3,810
Adjusted EBITDA 15.0% - 16.0% ~ 0.5% ~ 15.5% - 16.5%
Margin
---
Adjusted Diluted EPS
$1.90 - $2.03
~ $0.30
~ $1.60 - $1.73
---
Adjusted Free Cash 100+% ~ 100%
~ 100%+
Flow Conversion
---
John Kavanaugh, Perspecta CFO, commented, "We are pleased to have exceeded all of our financial targets in fiscal year 2020. We continue to demonstrate a consistent track record of execution. Our fiscal year 2021 guidance reflects our expectations of continuing to deliver on our commitments."
Due to the mission-critical nature of the majority of our business, substantially all of the services we provide to our government customers have been considered essential services, which has allowed them to continue. Therefore, the overall impact of the COVID-19 pandemic on our results of operations and liquidity were immaterial in the fourth quarter of fiscal year 2020. However, we have experienced and expect to continue to experience certain disruptions in our operations and impact to our workforce and subcontractor workforce due to illness, quarantines, shelter-in-place orders, closures of our facilities, closures of our customers' facilities and other restrictions or government actions in connection with the COVID-19 pandemic. We continue to monitor the situation, to assess further possible implications to our operations, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. Our fiscal year 2021 guidance above accounts for a potential impact of the COVID-19 pandemic of approximately $75 million in revenue and $20 million in operating income.
Conference call
Perspecta executive management will hold a conference call on May 21, 2020, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and investors may participate on the conference call by dialing 888-348-3873 (domestic), 855-669-9657 (Canada), or 412-902-4234 (international). The conference call will be webcast simultaneously through a link on the Investor Relations section of the Perspecta website. A replay of the conference call will be available on the Investor Relations section of the Perspecta website approximately two hours after the conclusion of the call.
About Perspecta Inc.
At Perspecta, we question, we seek and we solve. Perspecta brings a diverse set of capabilities to our U.S. government customers in defense, intelligence, civilian, health care and state and local markets. Our 270+ issued, licensed and pending patents are more than just pieces of paper, they tell the story of our innovation. With offerings in mission services, digital transformation and enterprise operations, our team of nearly 14,000 engineers, analysts, investigators and architects work tirelessly to not only execute the mission, but build and support the backbone that enables it. Perspecta was formed to take on big challenges. We are an engine for growth and success and we enable our customers to build a better nation. For more information about Perspecta, visit perspecta.com.
Forward-looking statements
All statements and assumptions in this press release that do not directly and exclusively relate to historical facts could be deemed "forward-looking statements." Forward-looking statements are often identified by the use of words such as "anticipates," "believes," "estimates," "expects," "may," "could," "should," "forecast," "goal," "intends," "objective," "plans," "projects," "strategy," "target" and "will" and similar words and terms or variations of such. These statements represent current intentions, expectations, beliefs or projections, and no assurance can be given that the results described in such statements will be achieved. Forward-looking statements include, among other things, statements with respect to our financial condition, results of operations, cash flows, business strategies, prospects, guidance, share repurchases, dividend payments, contract value, revenue acceleration, profitability and revenue generation. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to, (i) various risks related to health epidemics, pandemics and similar outbreaks, such as the COVID-19 pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows; (ii) any issue that compromises our relationships with the U.S. federal government, or any state or local governments, or damages our professional reputation; (iii) changes in the U.S. federal, state and local governments' spending and mission priorities that shift expenditures away from agencies or programs that we support; (iv) any delay in completion of the U.S. federal government's budget process; (v) failure to comply with numerous laws, regulations and rules, including regarding procurement, anti-bribery and organizational conflicts of interest; (vi) failure by us or our employees to obtain and maintain necessary security clearances or certifications; (vii) 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; (viii) our ability to accurately estimate or otherwise recover expenses, time and resources for our contracts; (ix) problems or delays in the development, delivery and transition of new products and services or the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; (x) failure of third parties to deliver on commitments under contracts with us; (xi) misconduct or other improper activities from our employees or subcontractors; (xii) delays, terminations, or cancellations of our major contract awards, including as a result of our competitors protesting such awards and the impact of the U.S. Navy's decision not to award the NGEN SMIT contract to us; (xiii) failure of our internal control over financial reporting to detect fraud or other issues; (xiv) failure or disruptions to our systems, due to cyber-attack, service interruptions or other security threats; (xv) failure to be awarded task orders under our indefinite delivery/indefinite quantity contracts; (xvi) changes in government procurement, contract or other practices or the adoption by the government of new laws, rules and regulations in a manner adverse to us; and (xvii) uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; as well as the matters described in the "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" sections of Perspecta's Annual Report on Form 10-K for the year ended March 31, 2020, 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, 2020 March 31, 2019 March 31, 2020 March 31, 2019
---
Revenue $
1,099 $
1,094 $
4,504 $
4,030
Costs of services 853 817 3,460 3,043
Selling, general and
administrative 73 74 303 300
Depreciation and
amortization 91 116 374 330
Impairment charges 796 796
Restructuring costs 13 7 17 10
Separation, transaction and
integration-related costs 26 22 85 106
Interest expense, net 32 37 137 121
Other expense, net 99 34 62 8
Total costs and expenses 1,983 1,107 5,234 3,918
(Loss) income before taxes (884) (13) (730) 112
Income tax expense
(benefit) (95) 6 (54) 40
Net (loss) income $
(789) $
(19) $
(676) $
72
(Loss) earnings per common
share:
Basic $
(4.89) $
(0.12) $
(4.17) $
0.44
Diluted $
(4.89) $
(0.12) $
(4.17) $
0.44
Selected Condensed Consolidated Combined Balance Sheet Data
(preliminary and unaudited)
(in millions) March 31, 2020 March 31,
2019
---
ASSETS
Cash and cash equivalents $
147 $
88
Receivables, net 513 484
Other receivables 45 92
Prepaid expenses 81 141
Other current assets 101 73
Total current assets 887 878
Property and equipment, net 307 368
Goodwill 2,671 3,179
Intangible assets, net 1,193 1,466
Other assets 347 192
Total assets $
5,405 $
6,083
LIABILITIES and SHAREHOLDERS' EQUITY
Current maturities of long-term debt $
89 $
80
Current finance lease obligations 111 137
Current operating lease obligations 39
Accounts payable 218 246
Accrued payroll and related costs 142 91
Accrued expenses 385 396
Other current liabilities 73 64
Total current liabilities 1,057 1,014
Long-term debt, net of current
maturities 2,283 2,297
Non-current finance lease
obligations 136 168
Deferred tax liabilities 114 171
Other long-term liabilities 458 271
Total liabilities 4,048 3,921
Commitments and contingencies
Total shareholders' equity 1,357 2,162
Total liabilities and shareholders'
equity $
5,405 $
6,083
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,
2020 2019 2020 2019
---
Cash flows from operating
activities:
Net (loss) income $
(789) $
(19) $
(676) $
72
Adjustments to reconcile net
(loss) income to net cash
provided by operating activities:
Depreciation and amortization 91 116 374 330
Impairment charges 796 796
Net periodic benefit cost 70 26 62 26
Share-based compensation 2 4 23 11
Deferred income taxes (59) 25 (55) 8
Gain on sale or disposal of
assets, net 5 (18) (25)
Restructuring charges 13 7 17 10
Other non-cash charges, net 5 17 12 1
Changes in assets and liabilities,
net of effects of acquisitions:
Receivables, net 48 24 97 102
Prepaid expenses and other current
assets 25 (3) 63 (25)
Accounts payable, accrued expenses
and other current liabilities 34 5 14 (18)
Deferred revenue and advanced
contract payments (11) 2 (35) (11)
Income taxes payable and liability (40) (42) (46) (22)
Accrued restructuring (2) (1) (4)
Other assets and liabilities, net (4) 8 (1) 7
Net cash provided by operating
activities 186 168 626 462
Cash flows from investing
activities:
Payments for acquisitions, net of
cash acquired (265) (312)
Extinguishment of Vencore debt and
related costs (994)
Proceeds from sale of assets 77 25
Purchases of property, equipment
and software (6) (14) (17) (26)
Payments for outsourcing contract
costs (1) (4) (5) (11)
Net cash used in investing
activities (7) (18) (210) (1,318)
Cash flows from financing
activities:
Principal payments on long-term
debt (24) (88) (93) (170)
Proceeds from debt issuance 2,500
Payments of debt issuance costs (1) (4) (46)
Proceeds from revolving credit
facility 25 200 50
Payments on revolving credit
facility (25) (150) (50)
Payments on finance lease
obligations (31) (48) (141) (172)
Repurchases of common stock (20) (16) (66) (59)
Repurchases of common stock to
satisfy tax withholding
obligations (2) (1)
Dividend to DXC (984)
Dividends paid to Perspecta
shareholders (10) (8) (38) (25)
Transfers to Parent, net (88)
Net cash (used in) provided by
financing activities (86) (160) (294) 955
Net change in cash and cash
equivalents, including restricted 93 (10) 122 99
Cash and cash equivalents,
including restricted, at
beginning of period 128 109 99
Cash and cash equivalents,
including restricted, at end of
period 221 99 221 99
Less restricted cash and cash
equivalents included in other
current assets 74 11 74 11
Cash and cash equivalents at end
of period $
147 $
88 $
147 $
88
Selected Financial Data and Reconciliation of Non-GAAP Financial Measures
To aid investors and analysts with year-over-year comparability for the combined businesses of USPS, Vencore HC and KGS HC, Perspecta is including certain pro forma financial information that combines the stand-alone USPS and Vencore HC and KGS HC financial information as if the acquisition had taken place on April 1, 2017. These pro forma results include Vencore HC and KGS HC results for the period from April 1, 2018 to May 31, 2018 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 present selected financial data, including the reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Perspecta management believes that these non-GAAP financial measures provide useful additional information to investors regarding Perspecta's results of operations as they provide another measure of Perspecta's profitability and ability to service its debt and are considered important to financial analysts covering Perspecta's industry.
These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for income from operations, net income, diluted EPS or any other measure of financial performance reported in accordance with GAAP. Perspecta's non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing Perspecta's performance, it is important to evaluate each adjustment in the reconciliation tables and use adjusted measures in addition to, and not as an alternative to, GAAP measures.
Pro Forma Revenue (Unaudited)
Fiscal Year Ended
(in millions) March 31, 2019
---
Revenue $
4,030
Historical Vencore
revenue (a) (b) 244
Pro forma revenue $
4,274
Notes:
(a) Revenue prior
to the May
31, 2018
mergers is
from the most
closely
corresponding
reporting
periods,
which is
April 1, 2018
to May 31,
2018 for the
fiscal year
ended March
31, 2019.
(b) In this and
all
subsequent
tables,
financial
data for
"Vencore"
includes the
combined
results of
Vencore HC
and KGS HC.
Pro Forma and Adjusted EBITDA, Net Income, and Diluted EPS (Unaudited)
Adjusted EBITDA excludes the following items: interest, taxes, depreciation and amortization, restructuring, separation, transaction and integration-related costs, mark-to-market adjustments to the pension and other post-employment benefit programs, stock-based compensation, and other non-recurring items. Adjusted net income and adjusted diluted EPS also exclude acquisition-related intangible amortization.
Three Months Ended Fiscal Years Ended
(in millions) March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
---
Net income (loss) $
(789) $
(19) $
(676) $
72
Income tax expense
(benefit) (95) 6 (54) 40
Interest expense,
net 32 37 137 121
Depreciation and
amortization 91 116 374 330
EBITDA (761) 140 (219) 563
Historical Vencore
(a) 29
Effects of Spin-Off
and Mergers (4) 3
Impairment charges 796 796
Restructuring costs 13 7 17 10
Separation,
transaction and
integration-
related costs 26 22 85 106
Pension actuarial
and settlement
losses 72 35 72 35
Share-based
compensation 2 4 23 11
Gain on sale of
assets (33)
Separation related
cost 34 3 37 3
Adjusted EBITDA 182 207 778 760
Adjusted EBITDA 16.6 18.9 17.3 17.8
margin (b)
% % % %
Depreciation and
amortization (c) (91) (116) (374) (342)
Amortization of
acquired
intangibles (c) 54 68 206 174
Interest expense,
net (32) (37) (137) (141)
Adjusted earnings
before taxes 113 122 473 451
Income tax expense
(d) 24 33 121 122
Adjusted net income $
89 $
89 $
352 $
329
Adjusted diluted EPS
(e) $
0.55 $
0.54 $
2.16 $
2.00
Notes:
(a) Represents pro forma
results associated with
Vencore HC and KGS HC
for the period from
April 1, 2018 to May
31, 2018.
(b) Adjusted EBITDA margin
is calculated as the
ratio of adjusted
EBITDA to revenue for
both quarters ended
March 31, 2020 and
2019, and fiscal year
ended March 31, 2020.
Pro forma adjusted
EBITDA margin is
calculated as the ratio
of pro forma adjusted
EBITDA to pro forma
revenue for the fiscal
year ended March 31,
2019.
(c) Represents pro forma
depreciation and
amortization and pro
forma amortization of
acquired intangibles
during the fiscal year
ended March 31, 2019,
updated for the final
valuation of
intangibles.
(d) Represents income tax
expense utilizing an
adjusted effective tax
rate that adjusts for
non-GAAP measures
including: transaction
costs, integration
costs, and tax add
backs for non-
deductible prior-
merger goodwill
amortization. Adjusted
effective tax rates are
approximately 21% and
27% for the quarters
ended March 31, 2020
and 2019, and
approximately 26% and
27% for fiscal years
ended March 31, 2020
and 2019.
(e) Represents adjusted net
income divided by the
weighted-average
common shares on a
diluted basis of 162.29
and 164.82 million for
the quarters ended
March 31, 2020 and
2019, respectively, and
adjusted net income
divided by the
weighted-average
common shares on a
diluted basis of 162.72
and 164.82 million for
the fiscal years ended
March 31, 2020 and
2019, respectively.
Adjusted Free Cash Flow (Unaudited)
Perspecta defines adjusted free cash flow as net cash provided by operating activities less purchases of property, equipment and software, and adjusted for certain items, such as (i) payments on finance lease obligations, (ii) business acquisitions, dispositions, and investments, (iii) restructuring payments, (iv) payments on separation, transaction and integration-related costs, (v) the impact arising from the initial sale of accounts receivables under the Master Accounts Receivable Purchase Agreement, and (vi) other non-recurring payments.
Three Months Ended Fiscal Years Ended
(in millions) March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
---
Net cash provided
by operating
activities $
186 $
168 $
626 $
462
Historical Vencore
(a) 14
Purchases of
property,
equipment and
software (6) (14) (17) (26)
Payments on
finance lease
obligations (31) (48) (141) (172)
Payments on
restructuring,
transaction and
integration-
related costs 30 30 91 142
Initial sale of
qualifying
receivables (17)
Adjusted free cash
flow $
179 $
136 $
542 $
420
Notes:
(a) Results for
the fiscal
year ended
March 31,
2019 are pro
forma,
representing
results
associated
with Vencore
HC and KGS
HC for the
period from
April 1,
2018 to May
31, 2018.
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 U.S. Department of Defense (DoD), intelligence community, branches of the U.S. Armed Forces, and other DoD agencies; and Civilian and Health Care, which provides services to the Departments of Homeland Security, Justice, and Health and Human Services, as well as other federal civilian and state and local government agencies. The following tables summarize reportable segment profit and reconciliation of reportable segment profit to income before taxes:
Selected Segment Measures (Unaudited)
Three Months Ended
March 31, 2020
March 31, 2019
(in millions) Defense and Civilian and Total Defense and Civilian and Total
Intelligence Health Care Intelligence Health Care
---
Revenue $
759 $
340 $
1,099 $
739 $
355 $
1,094
Segment profit $
98 $
40 $
138 $
107 $
48 $
155
Non-GAAP adjustments (a) 6 1 7 3 1 4
Adjusted segment profit $
104 $
41 $
145 $
110 $
49 $
159
Segment profit margin 12.9 11.8 12.6 14.5 13.5 14.2
% % % % % %
Adjusted segment profit 13.7 12.1 13.2 14.9 13.8 14.5
margin
% % % % % %
Fiscal Years Ended
March 31, 2020
March 31, 2019
(in millions) Defense and Civilian and Total Defense and Civilian and Total
Intelligence Health Care Intelligence Health Care
---
Revenue $
3,101 $
1,403 $
4,504 $
2,587 $
1,443 $
4,030
Add: Historical Vencore 230 14 244
Adjusted revenue (b) $
3,101 $
1,403 $
4,504 $
2,817 $
1,457 $
4,274
Segment profit $
444 $
152 $
596 $
331 $
196 $
527
Non-GAAP adjustments (a) 11 3 14 51 14 65
Adjusted segment profit $
455 $
155 $
610 $
382 $
210 $
592
Segment profit margin 14.3 10.8 13.2 12.8 13.6 13.1
% % % % % %
Adjusted segment profit 14.7 11.0 13.5 13.6 14.4 13.9
margin
% % % % % %
Notes:
(a) Non-GAAP
adjustments
include
non-
operating
net
periodic
pension
benefit,
and certain
separation-
related and
other
costs.
(b) 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 fiscal
year ended
March 31,
2019 are
pro forma
and that
results for
the fiscal
year ended
March 31,
2020 are
GAAP
measures.
Reconciliation of Reportable Segment Profit to Income Before Taxes (Unaudited)
Three Months Ended Fiscal Years Ended
(in millions) March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
---
Total profit for
reportable segments $
138 $
155 $
596 $
527
Not allocated to
segments:
Share-based
compensation (2) (4) (23) (11)
Amortization of
acquired intangible
assets (54) (68) (206) (165)
Impairment charges (796) (796)
Restructuring costs (13) (3) (17) (4)
Separation,
transaction and
integration-related
costs (26) (22) (85) (106)
Interest expense, net (32) (37) (137) (121)
Other unallocated, net (99) (34) (62) (8)
(Loss) income before
taxes $
(884) $
(13) $
(730) $
112
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SOURCE Perspecta Inc.
