Toggle SGML Header (+)


Section 1: 8-K (FORM 8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 12, 2020
PERSPECTA INC.
(Exact name of registrant as specified in its charter)
Nevada
 
001-38395
 
82-3141520
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
15052 Conference Center Drive
 
 
Chantilly, Virginia
 
20151
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 571-313-6000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
PRSP
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Item 2.02 Results of Operations and Financial Condition.

On February 12, 2020, Perspecta Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended December 31, 2019. A copy of the press release is furnished as Exhibit 99.1.

The information contained in Item 2.02 of this Current Report on Form 8-K and the accompanying Exhibit 99.1 is being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and, therefore, shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

Item 7.01 Regulation FD Disclosure.

The Company has scheduled a conference call at 5 p.m. Eastern time on Wednesday, February 12, 2020, to discuss the Company’s financial results and outlook and answer questions. A slide presentation will also be available via the Internet by accessing the Company’s website at https://investors.perspecta.com. An audio replay of the webcast will also be available on the Company’s website.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 of this Current Report on Form 8-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
 
 
 
Exhibit No.
 
Description of Exhibit
 
 
99.1
 







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.  
 
 
 
 
 
 
 
 
 
 
 
 
 
PERSPECTA INC.
 
 
 
 
Dated: February 12, 2020
 
 
 
By:
 
/s/ John P. Kavanaugh
 
 
 
 
Name:
 
John P. Kavanaugh
 
 
 
 
Title:
 
Senior Vice President and Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EARNINGS PRESS RELEASE, DATED FEBRUARY 12, 2020)

Exhibit


Exhibit 99.1
Perspecta announces financial results for third quarter of fiscal year 2020
Revenue of $1.13 billion up 5% year-over-year
Diluted earnings per share up 43% year-over-year; adjusted diluted EPS up 17%
Bookings of $1.6 billion (book-to-bill ratio of 1.4x; trailing-twelve-month book-to-bill ratio of 1.4x)
Raising fiscal year 2020 guidance for revenue, adjusted diluted EPS, and adjusted free cash flow conversion

Chantilly, Va., February 12, 2020 - Perspecta Inc. (NYSE:PRSP), a leading U.S. government services provider, today announced financial results for the third quarter of fiscal year 2020, which ended December 31, 2019.
“Our third quarter results reflect another period of solid execution across the enterprise, delivering strong revenue, earnings and free cash flow conversion,” said Mac Curtis, president and chief executive officer, Perspecta. “I am pleased with our operational performance and business development efforts in the market as we succeeded in closing $1.6 billion in awards this quarter.”
“We continue to leverage our deep customer insight, discriminating offerings and focus on delivery excellence to drive long-term partnerships with our customers,” Curtis continued. “Our message is resonating and our ability to quickly and successfully deploy a broad set of capabilities directly supports our customers’ objectives to transform and modernize. Key new business wins have sustained positive momentum in both of our segments while securing new customers. Our strong execution, talented leadership team and laser focus on customer needs has us well positioned to generate value for all our stakeholders.”








Summary operating results (unaudited)
 
 
Three Months Ended
(in millions, except margin and per share amounts)
 
December 31, 2019
 
December 31, 2018
Revenue
 
$
1,126

 
$
1,075

Income before taxes
 
75

 
48

Operating margin
 
6.7
%
 
4.5
%
Net income
 
53

 
38

Diluted earnings per share (EPS)
 
0.33

 
0.23

 
 
 
 
 
Non-GAAP Measures*:
 
 
 
 
Adjusted Net Income
 
90

 
77

Adjusted EBITDA
 
195

 
182

Adjusted EBITDA Margin
 
17.3
%
 
16.9
%
Adjusted Diluted EPS
 
0.55

 
0.47

 
 
 
 
 
* Adjusted Net Income, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS are non-GAAP financial measures. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. See Selected Financial Data and Reconciliation of Non-GAAP Financial Measures at the end of this press release for more information.
On May 31, 2018, Perspecta became an independent company through consummation of the spin-off by DXC Technology Company (DXC) of its U.S. Public Sector Business (USPS) and merger of USPS with Vencore Holding Corp. and KGS Holding Corp. Perspecta provides adjusted results that exclude costs directly associated with the spin-off, mergers and the ongoing integration process. The tables in Selected Financial Data and Reconciliation of Non-GAAP Financial Measures at the end of this press release provide all appropriate reconciliations from adjusted results to GAAP.
Revenue for the quarter was $1.13 billion, up 5% compared to the third quarter of fiscal year 2019, and down 4% compared to the second quarter of fiscal year 2020. The decline in revenue compared to the second quarter was primarily due to approximately $60 million from the sale of IT assets to conclude the National Aeronautics and Space Administration Agency Consolidated End-user Services (NASA ACES) contract recorded in the second quarter.
Income before taxes for the third quarter of fiscal year 2020 was $75 million, which was up 56% from the third quarter of fiscal year 2019. Operating margin increased from 4.5% to 6.7% year-over-year. Net income was $53 million, or $0.33 per diluted share. Net income was up 39% and diluted earnings per share (EPS) was up 43% from the third quarter of fiscal year 2019.
Adjusted net income was $90 million for the third quarter, which was up 17% year-over-year. Adjusted EBITDA was $195 million for the third quarter, up 7% compared to adjusted EBITDA for the third quarter of fiscal year 2019; adjusted EBITDA margin increased from 16.9% to 17.3% over the same period. The year-over-year increase in profitability primarily reflects strong program execution on fixed price programs. Adjusted diluted EPS for the third quarter was $0.55, up 17% compared to adjusted diluted EPS for the third quarter of fiscal year 2019.








Segment operating results (unaudited)
For the three months ended December 31, 2019, Defense and Intelligence segment revenue of $813 million increased by 15%, primarily due to new business wins and growth on existing programs. Civilian and Health Care segment revenue of $313 million decreased by 14% compared to revenue from the same period of the prior year due to NASA ACES and other program run offs.
Defense and Intelligence adjusted segment margin for the third quarter of fiscal year 2020 improved to 14.4% from 13.8% in the third quarter of fiscal year 2019. Civilian and Health Care adjusted segment margin for the third quarter of fiscal year 2020 improved to 12.8% from 12.0% in the third quarter of fiscal year 2019. Total adjusted segment profit for the third quarter of fiscal year 2020 increased to $157 million from $142 million in the third quarter of fiscal year 2019.
Cash management and capital deployment
Perspecta generated $120 million of net cash provided by operating activities in the third quarter of fiscal year 2020. Quarterly adjusted free cash flow was $98 million, or 109% of adjusted net income. During the third quarter of fiscal year 2020, Perspecta paid down $149 million of debt and returned $23 million to shareholders, including $10 million as part of its regular quarterly cash dividend program and $13 million in share repurchases (excluding $1 million of second quarter repurchases that settled during the quarter).
At quarter end, Perspecta had $69 million in cash and cash equivalents, $700 million of undrawn capacity in its revolving credit facility, and $2.7 billion in total debt, including $271 million in finance lease obligations. On February 11, 2020, the Perspecta Board of Directors declared that Perspecta will pay a cash dividend of $0.06 per share on April 15, 2020 to Perspecta stockholders of record at the close of business on March 3, 2020.
Contract awards
Contract awards (bookings) totaled $1.6 billion in the third quarter of fiscal year 2020, representing a book-to-bill ratio of 1.4x. Included in the quarterly bookings were several particularly important single-award prime contracts:
U.S. Department of State Consular Affairs Office Enterprise Infrastructure and Operations Support (CAEIO) contract: Perspecta will provide the U.S. Department of State’s Bureau of Consular Affairs with enterprise infrastructure support to plan, engineer, implement, enhance, maintain and operate the global Consular Affairs IT environment. Work will support the bureau’s headquarters office in Washington, D.C. and more than 350 Consular Affairs locations around the world. The program, which represents new work for the company, has a one-year base period of performance with six one-year option periods and a potential value of $810 million.
U.S. Department of Homeland Security (DHS) contract: Perspecta will provide DHS with security architecture, assessment support, vulnerability testing, incident response and security








administration services. The award, which represents new work for the company, has a five-year period of performance and maximum ceiling value of $147 million.
Received several awards on both classified and non-classified programs in our Defense and Intelligence segment: Perspecta will provide support to various U.S. government customers. The total potential contract value of these awards is $515 million with a period of performance of up to 10 years.
U.S. Air Force Material Command (AFMC) Small Business Enterprise Applications Solutions (SBEAS): Invictus JV, LLC, a joint venture between Oasys International Corporation and a Perspecta subsidiary, was awarded a position on the AFMC SBEAS program. Invictus will compete for task orders to provide systems engineering, system architecture and design, cloud migration and advisory services, cybersecurity and risk management and agile software development services. SBEAS has a total value of $13 billion, which includes a five-year base period of performance plus five one-year option periods.
Perspecta’s backlog of signed business orders at the end of the third quarter of fiscal year 2020 was $13.2 billion; funded backlog at the end of the third quarter was $1.8 billion.
The U.S. Navy announced on February 5, 2020 that Perspecta was not awarded the Service Management, Integration, and Transport (SMIT) contract, the re-compete of the Next Generation Enterprise Network (NGEN) contract currently held by Perspecta. The NGEN contract currently expires on September 30, 2020, with three one-month options that may be exercised by the U.S. Navy. Perspecta will receive a post-award debriefing from the agency providing the basis for the selection decision and contract award on February 24, 2020. The company will assess next steps with respect to the award decision at that time.
In connection with the April 1, 2017 merger of Computer Sciences Corporation with the Enterprise Services business of Hewlett Packard Enterprise Company to form DXC, the reporting unit with the NGEN contract was allocated $623 million of goodwill and $299 million of intangible assets ($236 million of net book value as of December 31, 2019). Perspecta is evaluating the impact this contract loss has on the existing carrying value of the reporting unit, and in connection with filing its quarterly report on Form 10-Q for the quarter ending December 31, 2019 management determined that an impairment charge will be required as a result of the U.S. Navy’s decision. Based on current estimates, the company expects to incur a non-cash, pre-tax impairment charge of approximately $860 million primarily related to goodwill and intangible assets in the fourth quarter of fiscal year 2020.








Forward guidance
Perspecta is raising the low end of its previously announced fiscal year 2020 revenue, adjusted diluted EPS and adjusted free cash flow conversion percent guidance to reflect strong third quarter results. The table below provides the current and previous guidance ranges for revenue, adjusted EBITDA margin, adjusted diluted EPS, and adjusted free cash flow conversion (as a percentage of adjusted net income). All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets; stock-based compensation expenses; restructuring, separation, transaction and integration-related costs; mark-to-market changes associated with pension and other post-retirement benefit plans; and other non-recurring items. Perspecta is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the excluded items. Material changes to any one of these items could have a significant effect on future GAAP results.
Measure
Current FY20 Guidance
Prior FY20 Guidance
Revenue (millions)
$4,450 - $4,500
$4,425 - $4,500
Adjusted EBITDA Margin
17.0% - 18.0%
17.0% - 18.0%
Adjusted Diluted EPS
$2.12 - $2.18
$2.10 - $2.18
Adjusted Free Cash Flow Conversion
110%+
105%+
John Kavanaugh, senior vice president and chief financial officer of Perspecta, commented, “We continue to deliver strong financial and business development results. We believe that our execution and balanced capital allocation model continues to generate value for our shareholders.”
Conference call
Perspecta executive management will hold a conference call on February 12, 2020, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and investors may participate on the conference call by dialing 888-348-3873 (domestic), 855-669-9657 (Canada), or 412-902-4234 (international). The conference call will be webcast simultaneously through a link on the investor relations section of the Perspecta website. A replay of the conference call will be available on the investor relations section of the Perspecta website approximately two hours after the conclusion of the call.








About Perspecta Inc.
At Perspecta (NYSE:PRSP), we question, we seek and we solve. Perspecta brings a diverse set of capabilities to our U.S. government customers in defense, intelligence, civilian, health care and state and local markets. Our 270+ issued, licensed and pending patents are more than just pieces of paper, they tell the story of our innovation. With offerings in mission services, digital transformation and enterprise operations, our team of more than 14,000 engineers, analysts, investigators and architects work tirelessly to not only execute the mission, but build and support the backbone that enables it. Perspecta was formed to take on big challenges. We are an engine for growth and success and we enable our customers to build a better nation. For more information about Perspecta, visit perspecta.com.
Forward-looking statements
All statements and assumptions in this press release that do not directly and exclusively relate to historical facts could be deemed “forward-looking statements.” Forward-looking statements are often identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “may,” “could,” “should,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target” and “will” and similar words and terms or variations of such. These statements represent current intentions, expectations, beliefs or projections, and no assurance can be given that the results described in such statements will be achieved. Forward-looking statements include, among other things, statements with respect to our financial condition, results of operations, cash flows, business strategies, prospects, guidance, contract value, revenue acceleration, profitability and revenue generation. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to, (i) any issue that compromises our relationships with the U.S. federal government, or any state or local governments, or damages our professional reputation; (ii) changes in the U.S. federal, state and local governments’ spending and mission priorities that shift expenditures away from agencies or programs that we support; (iii) any delay in completion of the U.S. federal government’s budget process; (iv) failure to comply with numerous laws, regulations and rules, including regarding procurement, anti-bribery and organizational conflicts of interest; (v) failure by us or our employees to obtain and maintain necessary security clearances or certifications; (vi) our ability to compete effectively in the competitive bidding process and delays, contract terminations or cancellations caused by competitors’ protests of major contract awards received by us; (vii) our ability to accurately estimate or otherwise recover expenses, time and resources for our contracts; (viii) problems or delays in the development, delivery and transition of new products and services or the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; (ix) failure of third parties to deliver on commitments under contracts with us; (x) misconduct or other improper activities from our employees or subcontractors; (xi) delays, terminations, or cancellations of our major








contract awards, including as a result of our competitors protesting such awards; (xii) failure of our internal control over financial reporting to detect fraud or other issues; (xiii) failure or disruptions to our systems, due to cyber-attack, service interruptions or other security threats; (xiv) failure to be awarded task orders under our indefinite delivery/indefinite quantity contracts; (xv) changes in government procurement, contract or other practices or the adoption by the government of new laws, rules and regulations in a manner adverse to us; and (xvi) uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; as well as the matters described in the “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” sections of Perspecta’s Annual Report on Form 10-K for the year ended March 31, 2019, as may be updated or supplemented in our Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission, which discuss these and other factors that could adversely affect our results. Readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events except as required by law.

CONTACTS
Investors:
Michael Pici
Vice President, Investor Relations
571-612-7065
[email protected]

Media:
Lorraine M. Corcoran
Vice President, Corporate Communications
571-313-6054
[email protected]








Condensed Consolidated Statements of Operations
(preliminary and unaudited)
 
 
Three Months Ended
(in millions, except per share amounts)
 
December 31, 2019
 
December 31, 2018
Revenue
 
$
1,126

 
$
1,075

 
 
 
 
 
Costs of services
 
863

 
816

Selling, general and administrative
 
77

 
76

Depreciation and amortization
 
92

 
76

Restructuring costs
 

 
1

Separation, transaction and integration-related costs
 
20

 
19

Interest expense, net
 
34

 
37

Other (income) expense, net
 
(35
)
 
2

Total costs and expenses
 
1,051

 
1,027

 
 
 
 
 
Income before taxes
 
75


48

Income tax expense
 
22

 
10

Net income
 
$
53


$
38

 
 
 
 
 
Earnings per common share:
 
 
 
 
  Basic
 
$
0.33

 
$
0.23

  Diluted
 
$
0.33

 
$
0.23









Selected Condensed Consolidated Balance Sheet Data
(preliminary and unaudited)
(in millions)
 
December 31, 2019
 
March 31, 2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
69

 
$
88

Receivables, net of allowance for doubtful accounts of $1 and $0
 
526

 
484

Other receivables
 
45

 
92

Prepaid expenses
 
115

 
141

Other current assets
 
89

 
73

Total current assets
 
844

 
878

Property and equipment, net of accumulated depreciation of $182 and $148
 
326

 
368

Goodwill
 
3,294

 
3,179

Intangible assets, net of accumulated amortization of $460 and $299
 
1,422

 
1,466

Other assets
 
303

 
192

Total assets
 
$
6,189

 
$
6,083

 
 
 
 
 
LIABILITIES and STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current maturities of long-term debt
 
$
88

 
$
80

Current finance lease obligations
 
116

 
137

Current operating lease obligations
 
41

 

Accounts payable
 
206

 
246

Accrued payroll and related costs
 
146

 
91

Accrued expenses
 
372

 
396

Other current liabilities
 
58

 
64

Total current liabilities
 
1,027

 
1,014

Long-term debt, net of current maturities
 
2,294

 
2,297

Non-current finance lease obligations
 
155

 
168

Deferred tax liabilities
 
171

 
171

Other long-term liabilities
 
336

 
271

Total liabilities
 
3,983

 
3,921

Commitments and contingencies
 
 
 
 
Total stockholders' equity
 
2,206

 
2,162

Total liabilities and stockholders’ equity
 
$
6,189

 
$
6,083









Condensed Consolidated Combined Statements of Cash Flows
(preliminary and unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Cash flows from operating activities:
 
 
 
 
 
 
 
 
Net income
 
$
53

 
$
38

 
$
113

 
$
91

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
92

 
76

 
283

 
214

Stock-based compensation
 
6

 
4

 
21

 
7

Deferred income taxes
 
24

 
(6
)
 
4

 
(17
)
Gain on sale or disposal of assets, net
 
(33
)
 

 
(23
)
 
(25
)
Other non-cash charges, net
 
(1
)
 
1

 
3

 
(13
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
 
Receivables, net
 
(1
)
 
82

 
49

 
78

Prepaid expenses and other current assets
 
(8
)
 
(4
)
 
38

 
(22
)
Accounts payable, accrued expenses and other current liabilities
 
(4
)
 
(115
)
 
(20
)
 
(23
)
Deferred revenue and advanced contract payments
 
(8
)
 
(26
)
 
(24
)
 
(13
)
Income taxes payable and liability
 
(4
)
 
14

 
(6
)
 
20

Other assets and liabilities, net
 
4

 
(7
)
 
2

 
(3
)
Net cash provided by operating activities
 
120

 
57

 
440

 
294

Cash flows from investing activities:
 
 
 
 
 
 
 
 
Payments for acquisitions, net of cash acquired
 

 

 
(265
)
 
(312
)
Extinguishment of acquired debt and related costs
 

 

 

 
(994
)
Proceeds from sale of assets
 
77

 
1

 
77

 
25

Purchases of property, equipment and software
 
(7
)
 
(1
)
 
(11
)
 
(12
)
Payments for outsourcing contract costs
 
(1
)
 
(1
)
 
(4
)
 
(7
)
Net cash provided by (used in) investing activities
 
69

 
(1
)
 
(203
)
 
(1,300
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Principal payments on long-term debt
 
(24
)
 
(32
)
 
(69
)
 
(82
)
Proceeds from debt issuance
 

 

 

 
2,500

Payments of debt issuance costs
 

 
(3
)
 
(3
)
 
(46
)
Proceeds from revolving credit facility
 

 

 
175

 
50

Payments on revolving credit facility
 
(125
)
 

 
(125
)
 
(50
)
Payments on finance lease obligations
 
(33
)
 
(42
)
 
(110
)
 
(124
)
Repurchases of common stock
 
(14
)
 
(22
)
 
(46
)
 
(43
)
Repurchases of common stock to satisfy tax withholding obligations
 
(2
)
 
(1
)
 
(2
)
 
(1
)
Dividend to DXC
 

 

 

 
(984
)
Dividends paid to Perspecta stockholders
 
(10
)
 
(8
)
 
(28
)
 
(17
)
Net transfers to Parent
 

 

 

 
(88
)
Net cash (used in) provided by financing activities
 
(208
)
 
(108
)
 
(208
)
 
1,115

Net change in cash and cash equivalents, including restricted
 
(19
)
 
(52
)
 
29

 
109

Cash and cash equivalents, including restricted, at beginning of period
 
147

 
161

 
99

 

Cash and cash equivalents, including restricted, at end of period
 
128

 
109

 
128

 
109

Less restricted cash and cash equivalents included in other current assets
 
59

 
9

 
59

 
9

Cash and cash equivalents at end of period
 
$
69

 
$
100

 
$
69

 
$
100










Selected Financial Data and Reconciliation of Non-GAAP Financial Measures
The following tables present selected financial data, including the reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Perspecta management believes that these non-GAAP financial measures provide useful additional information to investors regarding Perspecta’s results of operations as they provide another measure of Perspecta’s profitability and ability to service its debt and are considered important to financial analysts covering Perspecta’s industry.
These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for income from operations, net income, diluted EPS or any other measure of financial performance reported in accordance with GAAP. Perspecta’s non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing Perspecta’s performance, it is important to evaluate each adjustment in the reconciliation tables and use adjusted measures in addition to, and not as an alternative to, GAAP measures.

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

Adjusted EBITDA excludes the following items: interest, income taxes, depreciation and amortization, restructuring, separation, transaction and integration-related cost, mark-to-market adjustments to the pension and other post-employment benefit programs, stock-based compensation, and other non-recurring items. There were no mark-to-market changes in either the current or year-ago quarterly periods. Adjusted net income and adjusted diluted EPS also exclude acquisition-related intangible amortization.









 
 
 
Three Months Ended
(in millions)
 
December 31, 2019
 
December 31, 2018
Net income
 
$
53

 
$
38

Income tax expense
 
22

 
10

Interest expense, net
 
34

 
37

Depreciation and amortization
 
92

 
76

EBITDA
 
201

 
161

Restructuring costs
 

 
1

Separation, transaction and integration-related costs
 
20

 
19

Stock-based compensation
 
6

 
4

Gain on sale of assets
 
(33
)
 

Separation related cost
 
1

 
(3
)
Adjusted EBITDA
 
195

 
182

Adjusted EBITDA margin (a)
 
17.3
%
 
16.9
%
Depreciation and amortization
 
(92
)
 
(76
)
Amortization of acquired intangibles
 
54

 
37

Interest expense, net
 
(34
)
 
(37
)
Adjusted earnings before taxes
 
123

 
106

Income tax expense (b)
 
33

 
29

Adjusted net income
 
$
90

 
$
77

Adjusted diluted EPS (c)
 
$
0.55

 
$
0.47

Notes:
(a)
Adjusted EBITDA margin is calculated as the ratio of adjusted EBITDA to revenue for both quarters ended December 31, 2019 and 2018.
(b)
Represents income tax expense utilizing an adjusted effective tax rate that adjusts for non-GAAP measures including: transaction costs, integration costs, and tax add backs for non-deductible prior-merger goodwill amortization. Adjusted effective tax rates are 27% for both quarters ended December 31, 2019 and 2018.
(c)
Represents adjusted net income divided by the weighted average common shares on a diluted basis of 162.47 million and 164.54 million for the quarters ended December 31, 2019 and 2018, respectively.

Adjusted Free Cash Flow (Unaudited)
Perspecta defines adjusted free cash flow as net cash provided by operating activities less purchases of property, equipment and software, and adjusted for certain items, such as (i) payments on finance lease obligations, (ii) business acquisitions, dispositions, and investments, (iii) restructuring payments, (iv) payments on separation, transaction and integration-related costs, (v) the impact arising from the initial sale of accounts receivables under the Master Accounts Receivable Purchase Agreement, and (vi) other non-recurring payments.
 
 
 
Three Months Ended
(in millions)
 
December 31, 2019
 
December 31, 2018
Net cash provided by operating activities
 
$
120

 
$
57

Purchases of property, equipment and software
 
(7
)
 
(1
)
Payments on finance lease obligations
 
(33
)
 
(42
)
Payments on restructuring, separation, transaction and integration-related costs
 
35

 
19

Initial sale of qualifying receivables
 
(17
)
 

Adjusted free cash flow
 
$
98

 
$
33










Segment Revenue and Profit (Unaudited)
Perspecta delivers IT, mission, and operations-related services across the U.S. federal government through two reportable segments—Defense and Intelligence, which provides services to the U.S. Department of Defense (DoD), intelligence community, branches of the U.S. Armed Forces, and other DoD agencies; and Civilian and Health Care, which provides services to the Departments of Homeland Security, Justice, and Health and Human Services, as well as other federal civilian and state and local government agencies. The following tables summarize reportable segment profit and reconciliation of reportable segment profit to income before taxes:
Selected Segment Measures and Reconciliation of Reportable Segment Profit to Income Before Taxes (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
December 31, 2019
 
December 31, 2018
(in millions)
 
Defense and Intelligence
 
Civilian and Health Care
 
Total
 
Defense and Intelligence
 
Civilian and Health Care
 
Total
Revenue
 
$
813

 
$
313

 
$
1,126

 
$
709

 
$
366

 
$
1,075

 
 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
 
$
115

 
$
39

 
$
154

 
$
102

 
$
46

 
$
148

Non-GAAP adjustments (a)
 
2

 
1

 
3

 
(4
)
 
(2
)
 
(6
)
Adjusted segment profit
 
$
117

 
$
40

 
$
157

 
$
98

 
$
44

 
$
142

Segment profit margin
 
14.1
%
 
12.5
%
 
13.7
%
 
14.4
%
 
12.6
%
 
13.8
%
Adjusted segment profit margin
 
14.4
%
 
12.8
%
 
13.9
%
 
13.8
%
 
12.0
%
 
13.2
%
 
Total segment profit
 
 
 
 
 
$
154

 
 
 
 
 
$
148

Not allocated to segments:
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
 
 
 
(6
)
 
 
 
 
 
(4
)
Amortization of acquired intangible assets
 
 
 
 
 
(54
)
 
 
 
 
 
(37
)
Restructuring costs
 
 
 
 
 

 
 
 
 
 
(1
)
Separation, transaction and integration-related costs
 
 
 
 
 
(20
)
 
 
 
 
 
(19
)
Interest expense, net
 
 
 
 
 
(34
)
 
 
 
 
 
(37
)
Other unallocated, net
 
 
 
 
 
35

 
 
 
 
 
(2
)
Income before taxes
 
 
 
 
 
$
75

 
 
 
 
 
$
48

Notes:
(a)
Non-GAAP adjustments include non-operating net periodic pension benefit, and certain separation-related and other costs.
 
 
 
 
 
 
 
 
 
 
 


(Back To Top)