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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Presidio, Inc.    

PRESIDIO, INC.

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PRESIDIO : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/06/2019 | 05:18pm EDT
Unless otherwise indicated or the context otherwise requires, as used in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the terms "we," "us," "the Company," "our," "Presidio," and similar
terms refer to Presidio, Inc. and its subsidiaries. You should read the
following discussion in conjunction with the historical consolidated financial
statements of Presidio, Inc. and its subsidiaries and the related notes included
elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form
10-K for the fiscal year ended June 30, 2019. This discussion contains
forward-looking statements and involves numerous risks and uncertainties,
including, but not limited to, those described in "Part I, Item 1A. Risk
Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30,
2019. Our actual results may differ materially from those contained in any
forward-looking statements.

Cautionary Statements Concerning Forward-Looking Statements
This quarterly report contains "forward-looking statements" that involve risks
and uncertainties. You can identify forward-looking statements because they
contain words such as "believes," "expects," "may," "will," "should," "would,"
"could," "seeks," "approximately," "intends," "plans," "estimates," or
"anticipates" or similar expressions that relate to our strategy, plans or
intentions. All statements we make relating to our estimated and projected
earnings, margins, costs, expenditures, cash flows, growth rates, and financial
results or to our expectations regarding future industry trends are
forward-looking statements. In addition, we, through our senior management, from
time to time make forward-looking public statements concerning our expected
future operations and performance and other developments. These forward-looking
statements are subject to risks and uncertainties that may change at any time
and, therefore, our actual results may differ materially from those that we
expected. We derive many of our forward-looking statements from our operating
budgets and forecasts, which are based upon many detailed assumptions. While we
believe that our assumptions are reasonable, we caution that it is very
difficult to predict the impact of known factors and it is impossible for us to
anticipate all factors that could affect our actual results. All forward-looking
statements are based upon information available to us on the date of this
quarterly report.
Important factors that could cause actual results to differ materially from our
expectations, which we refer to as "cautionary statements," are disclosed under
"Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal
year ended June 30, 2019 and elsewhere in this quarterly report. All
forward-looking information in this quarterly report and subsequent written and
oral forward-looking statements attributable to us, or to persons acting on our
behalf, are expressly qualified in their entirety by the cautionary statements.
Some of the factors that we believe could affect our results include:

• general economic conditions;

• a reduced demand for our information technology solutions;

• a decrease in spending on technology products by our federal and local

government clients;

• the availability of products from vendor partners and maintenance of

vendor relationships;

• the role of rapid innovation and the introduction of new products in

our industry;

• our ability to compete effectively in a competitive industry;

• the termination of our client contracts;


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

• our inability to adequately maintain the security of our information

technology systems and clients' confidential information;

• unsuccessful investments in new services and technologies;

• the costs of litigation and losses if we infringe on the intellectual

property rights of third parties;

• inaccurate estimates of pricing terms with our clients;

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


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

• any failures by third-party commercial delivery services;

• our inability to retain or hire skilled technology professionals and

key personnel;

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

• the risks associated with accounts receivables and inventory exposure;

• the failure to realize the entire investment in leased equipment;

• our inability to realize the full amount of our backlog;

• the failure to achieve the expectations we have for our acquisitions;

• fluctuations in our operating results;

• potential litigation and claims;

• changes in accounting rules, tax legislation and other legislation;

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• the potential impact on our suppliers of possible new taxes on imports

and new tariffs and trade restrictions and changes in tariff rates and

trade restrictions;

• increased costs of labor and benefits;

• our inability to focus our resources, maintain our business structure

and manage costs effectively;

• the failure to deliver technical support services of sufficient quality;

• the failure to meet our growth objectives and strategies;

• ineffectiveness of our internal controls;

• the risks pertaining to our substantial level of indebtedness;

• the ability to manage cybersecurity risks;

• failure to consummate the Merger;


•         a delay in consummation of the Merger, or a termination of the Merger
          Agreement; and


•         other risks and uncertainties described in Part I, Item 1A. "Risk
          Factors," in our Annual Report on Form 10-K for the fiscal year ended
          June 30, 2019 and, from time to time, in our other reports filed with
          the SEC.



We caution you that the foregoing list of important factors may not contain all
of the material factors that are important to you. In addition, in light of
these risks and uncertainties, the matters referred to in the forward-looking
statements contained in this quarterly report may not, in fact, occur. Moreover,
we operate in a rapidly changing and competitive environment. New risk factors
emerge from time to time, and it is not possible for management to predict all
such risk factors. Accordingly, investors should not place undue reliance on
those statements. We undertake no obligation to publicly update or revise any
forward-looking statement as a result of new information, future events or
otherwise, except as otherwise required by law.
Overview
Presidio, Inc. is a leading provider of information technology solutions in
North America. We deliver this technology expertise through a full life-cycle
model of professional, managed, and support services including strategy,
consulting, implementation and design. By taking the time to deeply understand
how our clients define success, we help them harness technology advances,
simplify IT complexity and optimize their environments today while enabling
future applications, user experiences, and revenue models.

Our mission is to enable our clients to capture economic value from the digital
transformation of their businesses by developing, implementing and managing
world class, cloud ready, secure and agile IT Infrastructure solutions. By
investing in the future of IT solutions we stay at the forefront of technology
trends and to ensure our clients have access to a wide range of technologies and
best-of-breed solutions, we partner with over 500 original equipment
manufacturers ("OEMs") including market leaders and emerging providers to bring
our clients integrated, multi technology solutions.

Our clients are increasingly dependent on Presidio to develop best of breed,
vendor-agnostic agile, secure multi-cloud digital solutions. We are well
positioned to benefit from the rapid growth in demand for our customers' digital
journey. Examples of such solutions include software defined networking,
Internet of Things ("IoT"), data analytics, unified communications, data center
modernization, hybrid and multi-cloud, cyber risk management and enterprise
mobility. These solutions are enabled by our expertise in foundational
technologies, built upon our investments in network, cloud, data center,
security, collaboration and mobility.

As a strategic partner and trusted advisor to our clients, we provide the
expertise to implement new solutions, as well as optimize and better leverage
existing IT resources. Our services-led, lifecycle model leads to ongoing client
engagement. We provide strategy, consulting, design, customized deployment,
integration and lifecycle management through our team of over 1,600 engineers as
of June 30, 2019, enabling us to architect and manage the ideal IT solutions for
our clients. We develop and maintain our long-term client relationships through
a localized direct sales force of approximately 500 employees based in over 60
offices across the United States as of June 30, 2019. Our local delivery model,
combining relationship managers and expert engineering teams, allows us to win,
retain and expand our client relationships.

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


                                       26
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As of June 30, 2019, we serve approximately 7,900 middle-market, large, and
government organizations across a diverse range of industries. In our fiscal
year ended June 30, 2019, only 20% of our revenue was attributable to our top 25
clients by revenue and no industry vertical accounted for more than 20% of our
revenue. Among the verticals that we serve, healthcare, government, financial
services, education, and professional services are our largest categories. We
believe that our diversified client profile is a key driver of our ability to
generate growth across different economic and technology cycles.
Factors Affecting Our Operating Performance
We believe that the financial performance of our business and our future success
are dependent upon many factors, including those highlighted in this section.
Our operating performance will depend upon many variables, including the success
of our growth strategies and the timing and size of investments and expenditures
that we choose to undertake, as well as market growth and other factors that are
not within our control.

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

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

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

Vendor relationships: We are focused on developing and strengthening our
relationships with OEMs. We partner with OEMs to deploy product offerings.
Pricing and incentive programs are subject to change, and the loss of, change in
business relationship with or change in the behavior, including the timing of
fulfillment, of any key vendor partners, or the diminished availability of their
products, may impact the timing of our sales or could reduce the supply and
increase the cost of the products we sell. While we maintain existing
relationships with large vendors, there is no guarantee that our vendor partners
will continue to develop or produce information technology products that are
popular with our clients. We maintain the ability to evolve our vendor
relationships as necessary to respond to market trends.

Seasonality: Our results may be affected by slight variances as a result of
seasonality we may experience across our business. This seasonality is typically
driven by budget cycles and spending patterns across our diverse client base.
For example, our local, state and federal government clients operate on an
annual budget cycle, most often on the basis of a fiscal year that begins
October 1. Our private sector clients operate on an annual budget cycle, most
often on the basis of a fiscal year that begins January 1. It is not uncommon to
experience a higher level of contract awards, funding actions and overall
government and private demand for services in the final months and weeks of the
government and private fiscal years, respectively. Consequently, our revenue in
the first and second quarters of our fiscal year may be greater than revenue
recognized in the third and fourth quarters of our fiscal year.
Components of Results of Operations
There are a number of factors that impact the revenue and margin profile of the
solutions we provide, including, but not limited to, solution and technology
complexity, technical expertise requiring the combination of products and
value-added services provided, as well as other elements that may be specific to
a particular engagement.
Revenue and cost of revenue: Revenue from the sale of our solutions is primarily
comprised of the sale of third-party products, software and third-party support
service contracts along with the sale of Company and third-party services. We
separately present product revenue and service revenue, along with the
associated cost of revenue, in our consolidated statements of operations.
Product revenue: Our product revenue includes:

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Revenue for hardware and general software: Revenue from the sale of hardware and
general software products is generally recognized on a gross basis with the
selling price to the client recorded as revenue and the acquisition cost of the
product recorded as cost of revenue, net of vendor rebates. Hardware and general
software items can be delivered to clients in a variety of ways including
drop-shipped by the vendor or supplier, or shipped through one of the Company's
staging warehouse or via electronic delivery for general software licenses.
Hardware revenue and pre-installed general software revenue is normally
recognized when the title and risk of loss are passed to the client while
revenue for general software delivered electronically is normally recognized
when the client has the information needed to download and install the software.

Revenue for software as a service ("SaaS"), enterprise license agreements
("ELA") or software sold with critical software assurance: In certain software
arrangements, we recognize the related revenue on a net basis, with product
revenue being equal to the gross margin on the transaction. Third-party software
products that are recognized on a net basis include: SaaS to customers whereby
the customer receives the right to access software directly from the vendor;
ELAs that provide customers with access to manage their software license needs;
and software that is accompanied by third-party delivered software assurance
that is deemed to be critical or essential to the core functionality of the
software license. As we are under no obligation to perform additional services,
such as post-customer support or upgrades, revenue is recognized at a point in
time as opposed to over the life of the software license. Revenue from these
software products is recognized on a net basis at the point in time when the
Company has satisfied its agency obligation which is generally when the Company
has arranged for the delivery of the software from the third-party to the
customer.

Revenue for third-party support service contracts: Revenue from the sale of
third-party support service contracts is recognized on a net basis, with product
revenue being equal to the gross margin on the transaction. As we are under no
obligation to perform additional services, revenue is recognized at a point in
time as opposed to over the life of the third-party support agreement. Revenue
is recognized at the point in time when the Company has satisfied its agency
obligation which is generally when the Company has arranged for the support
service contract on the customer's behalf with the third-party.
Revenue from leasing arrangements: Revenue recognition for products leased to
clients is based on the type of the lease. Each lease is classified as either a
direct financing lease, sales-type lease or operating lease. The majority of our
leases are sales-type leases. At the inception of a direct financing lease, the
difference between the cost of the equipment and the present value of the
non-cancelable rentals is recorded as unearned income, which is amortized to
product revenue over the lease term using an effective interest rate method. At
the inception of a sales-type lease, the present value of the non-cancelable
rentals is recorded as product revenue with equipment costs, less the present
value of the estimated residual values, are recorded in cost of product revenue.
At the inception of an operating lease, the equipment assigned to the lease is
recorded at cost as equipment under operating leases within other assets in our
consolidated balance sheets and is depreciated on a straight-line basis over its
useful life. Monthly payments are recorded as revenue within our consolidated
statements of operations, with the depreciation expense associated with the
equipment recorded in cost of product revenue.
Revenue from public cloud arrangements: Revenue from public cloud arrangements
is recognized on a gross basis over a period of time using a time-lapsed method
and recorded as product revenue with the associated cost recorded as product
cost of revenue. Any variable based usage incurred above contractually stated
minimums are recognized in the period in which the customer consumes and the
Company provides the additional platform capacity.

Service revenue: Our service revenue includes consulting and integration
services, project management, managed services and support services and
includes:
Revenue for professional services: Revenue from professional services is
recognized over the period of time that the services are performed and recorded
as service revenue with the associated cost recorded as service cost of revenue.
For time and material contracts, where the Company has the right to invoice for
work performed as completed, the Company recognizes revenue as the services are
delivered. For time and material contracts and fixed priced contracts linked to
the achievement of milestones, the Company uses a percentage of completion
method based on labor hours completed compared to the total estimated hours for
the scope of work with revenue accrued or deferred as appropriate.
Revenue for managed services: Revenue from managed services are recognized over
a period of time using a time-lapsed method and recorded as service revenue with
the associated cost recorded as service cost of revenue. The Company's managed
services are performed on a repetitive or recurring basis. Accordingly, the
Company believes that using a time-based method for recognition is the most
appropriate as the services are satisfied evenly over the stated period of
performance.
Gross margin: Our product gross margin is impacted by the types of technology
sold in our solutions, as well as the mix of third-party support service
contracts and software recognized on a net basis. As described previously, our
third-party support

                                       28
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service contracts, SaaS, ELAs and software sold with critical assurance are
recognized on a net basis, resulting in the gross margin being recognized as
revenue. Accordingly, higher attach rates of third-party support service
contracts to the sale of hardware, an increase in software sales recognized on a
net basis and more successful renewals of expiring contracts have a significant
favorable impact to our gross margin percentage.
Our service gross margin is primarily impacted by our ability to deliver on
fixed price professional services engagements within scope, the ability to keep
our delivery engineers utilized, the hourly bill rate charged to clients and the
mix of internal versus third-party provided services. The complexity of the
solutions sold to our clients may require specialized engineering capabilities
that can favorably impact the bill rate we charge. Generally, a higher mix of
professional services delivered by our delivery engineers has a favorable impact
on service gross margin. In addition, our managed services gross margins are
favorably impacted by our ability to negotiate longer contracts with our
clients, as well as renewing contracts at a high rate, which improves our
operating efficiency. Generally, a higher percentage of our overall revenue
relates to services sold to our clients when the technology complexity of our
solutions increases. Accordingly, our gross margins are favorably impacted by
our ability to deliver more complex solutions, which include professional and
managed services.
Operating expenses: Our operating expenses include selling expenses, general and
administrative expenses, transaction costs and depreciation and amortization.
Selling expenses are comprised of compensation (including share-based
compensation), variable incentive pay and benefits related to our sales
personnel along with travel expenses and other employee related costs. Variable
incentive pay is largely driven by our gross margin performance. We expect
selling expenses to increase as a result of higher gross margin, as well as
continued investment in our direct and indirect sales resources. Additionally,
we expect selling expenses as a percentage of revenue to increase as more
revenue is recognized on a net basis.
General and administrative expenses are comprised of compensation (including
share-based compensation) and benefits of administrative and operational support
personnel, including variable incentive pay and other administrative costs such
as facilities expenses, professional fees and bad debt expense. We expect
general and administrative expenses to increase due to our growth, however, we
expect general and administrative expenses to decline as a percentage of our
total revenue as we realize the benefits of scale.

Transaction costs include acquisition-related expenses (such as stay, retention
and earnout bonuses), certain severance charges, transaction-related advisory
and diligence fees, transaction-related legal, accounting and tax fees, as well
as professional fees and related out-of-pocket expenses associated with
refinancing of debt and credit agreements and equity offerings.
Depreciation and amortization primarily includes the amortization of acquired
intangible assets associated with our acquisitions and depreciation associated
with our property and equipment.
Total interest and other (income) expense: Total interest and other (income)
expense primarily includes interest expense associated with our outstanding
debt. In addition, we include losses on extinguishment of debt and other noncash
gains or losses within total interest and other (income) expense.

Key Business Metrics
Our management regularly monitors certain financial measures to track the
progress of our business against internal goals and targets. In addition to
financial information presented in accordance with GAAP, our management uses
Adjusted EBITDA and Adjusted Net Income (each of which are non-GAAP measures
defined below) in its evaluation of past performance and prospects for the
future. Our non-GAAP measures should be considered in addition to, not as a
substitute for, or superior to, financial measures calculated in accordance with
GAAP. They are not measurements of our financial performance under GAAP and
should not be considered as alternatives to net income or revenue, as
applicable, or any other performance measures derived in accordance with GAAP
and may not be comparable to other similarly titled measures of other
businesses. These non-GAAP measures have limitations as analytical tools and you
should not consider them in isolation or as a substitute for analysis of our
operating results as reported under GAAP and they include adjustments for items
that may occur in future periods. However, we believe these adjustments are
appropriate because the amounts recognized can vary significantly from period to
period, do not directly relate to the ongoing operations of our business and
complicate comparisons of our internal operating results and operating results
of other peer companies over time.

                                       29
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We believe that the most important GAAP and non-GAAP measures include (in millions, except percentages):

                           Three months ended September 30,
                              2019                   2018
Total revenue          $         772.0         $         749.9
Gross margin                     175.3                   159.0
Net income                        24.0                    14.7
Adjusted EBITDA                   74.9                    62.6
Adjusted EBITDA margin             9.7 %                   8.3 %
Adjusted Net Income    $          46.1         $          37.9


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

The reconciliation of Adjusted EBITDA from Net income for each of the periods presented is as follows (in millions):

                                                      Three months ended 

September 30,

                                                           2019             

2018

Adjusted EBITDA reconciliation:
Net income                                          $           24.0     $  

14.7

Total depreciation and amortization(1)                          22.8        

22.7

Interest and other (income) expense                             11.6               11.6
Income tax expense                                               8.9                5.2
EBITDA                                                          67.3               54.2
Adjustments:
Share-based compensation expense                                 1.6        

2.1

Purchase accounting adjustments(2)                               0.2                0.1
Transaction costs(3)                                             3.5                5.5
Other costs(4)                                                   2.3                0.7
Total adjustments                                                7.6                8.4
Adjusted EBITDA                                     $           74.9     $         62.6


(1) "Total depreciation and amortization" equals the sum of (i) depreciation

and amortization included within total operating expenses and

(ii) depreciation and amortization recorded as part of cost of revenue

        within our consolidated financial statements.


(2) "Purchase accounting adjustments" include charges associated with noncash

adjustments to acquired assets and liabilities in connection with

purchase accounting, such as recognition of increased cost of revenue in

connection with an inventory step up fair value adjustment, recognition

        of reduced revenue in connection with a deferred revenue step down fair
        value adjustment and recognition of increased office rent expense
        associated with a fair value adjustment to the liability associated with
        deferred rent.



(3)     "Transaction costs" (i) of $3.5 million for the three months ended
        September 30, 2019 includes merger-related costs of $3.4 million and

acquisition-related expenses of $0.1 million related to stay, retention

and earnout bonuses; and (ii) of $5.5 million for the three months ended

September 30, 2018 includes acquisition-related expenses of $4.3 million

        related to stay and retention bonuses and $1.2 million related to
        transaction-related legal, accounting and tax fees.


(4) "Other costs" (i) of $2.3 million for the three months ended September

30, 2019 related to non-recurring consulting and business optimization

expenses; and (ii) $0.7 million for the three months ended September 30,

        2018 related to one-time cost optimization expenses.



                                       30
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Adjusted Net Income - Adjusted Net Income is a non-GAAP measure, which
management uses to provide additional information regarding our operating
performance while considering the interest expense associated with our
outstanding debt, as well as the impact of depreciation on our fixed assets and
income taxes. We define Adjusted Net Income as net income adjusted to exclude
(i) amortization of intangible assets, (ii) amortization of debt issuance costs,
(iii) losses on extinguishment of debt, (iv) noncash share-based compensation
expense, (v) purchase accounting adjustments, (vi) transaction costs,
(vii) other costs and (viii) the income tax impact associated with the foregoing
items to arrive at an appropriate effective tax rate on Adjusted Net Income and
adjusted for (1) the impact of permanently nondeductible expenses and (2) the
impact of tax-deductible goodwill and intangible assets resulting from certain
historical acquisitions and further adjusted for discrete tax items.
The reconciliation of Adjusted Net Income from Net Income for each of the
periods presented is as follows (in millions):
                                         Three months ended September 30,
                                             2019                  2018
Adjusted Net Income reconciliation:
Net income                            $         24.0         $         14.7

Adjustments:

Amortization of intangible assets               18.8                   18.9
Amortization of debt issuance costs              0.8                    0.9
Loss on extinguishment of debt                   0.2                    0.5
Share-based compensation expense                 1.6                    2.1
Purchase accounting adjustments                  0.2                    0.1
Transaction costs                                3.5                    5.5
Other costs                                      2.3                    0.7
Income tax impact of adjustments(1)             (5.3 )                 (5.5 )
Total adjustments                               22.1                   23.2
Adjusted Net Income                   $         46.1         $         37.9



(1)     "Income tax impact of adjustments" includes an estimated tax impact of

the adjustments to net income at our average statutory rate to arrive at

an appropriate effective tax rate on Adjusted Net Income, except for

(i) the adjustment of certain transaction costs that are permanently

nondeductible for tax purposes and (ii) the impact of tax-deductible

        goodwill and intangible assets resulting from certain historical
        acquisitions and further adjusted for discrete tax items such as the
        remeasurement of deferred tax liabilities due to state rate changes or

the excess tax benefit related to share-based compensation activity.





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Results of Operations - Three Months Ended September 30, 2019 compared to the Three Months Ended September 30, 2018

                                   Three months ended September 30,                   Change
(in millions)                         2019                    2018             $              %
Revenue
Product                       $          642.5         $          619.6     $     22.9           3.7  %
Service                                  129.5                    130.3           (0.8 )        (0.6 )%
Total revenue                            772.0                    749.9           22.1           2.9  %
Cost of revenue
Product                                  496.2                    485.7           10.5           2.2  %
Service                                  100.5                    105.2           (4.7 )        (4.5 )%
Total cost of revenue                    596.7                    590.9            5.8           1.0  %
Gross margin                             175.3                    159.0           16.3          10.3  %
Product gross margin                     146.3                    133.9           12.4           9.3  %
Service gross margin                      29.0                     25.1            3.9          15.5  %
Product gross margin %                    22.8 %                   21.6 %                        1.2  %
Service gross margin %                    22.4 %                   19.3 %                        3.1  %
Total gross margin %                      22.7 %                   21.2 %                        1.5  %
Operating expenses
Selling expenses                          74.8                     70.8            4.0           5.6  %
General and administrative
expenses                                  30.7                     29.7            1.0           3.4  %
Transaction costs                          3.5                      5.5           (2.0 )       (36.4 )%
Depreciation and
amortization                              21.8                     21.5            0.3           1.4  %
Total operating expenses                 130.8                    127.5            3.3           2.6  %
Selling, general and
administrative
 expenses % of total
revenue                                   13.7 %                   13.4 %                        0.3  %
Operating income                          44.5                     31.5           13.0          41.3  %
Interest and other (income)
expense
 Interest expense                         11.6                     11.2            0.4           3.6  %
 Loss on extinguishment of
debt                                       0.2                      0.5     

(0.3 ) (60.0 )%

 Other (income) expense,
net                                       (0.2 )                   (0.1 )         (0.1 )       100.0  %
Total interest and other
(income)
 expense                                  11.6                     11.6              -             -  %
Income before income taxes                32.9                     19.9           13.0          65.3  %
Income tax expense                         8.9                      5.2            3.7          71.2  %
Net income                    $           24.0         $           14.7     $      9.3          63.3  %
Adjusted EBITDA               $           74.9         $           62.6     $     12.3          19.6  %
Adjusted Net Income           $           46.1         $           37.9     $      8.2          21.6  %



Revenue
                        Three months ended September 30,                 Change
(in millions)                   2019                      2018       $         %
Revenue
Product         $           642.5                       $ 619.6$ 22.9      3.7  %
Service                     129.5                         130.3      (0.8 )   (0.6 )%
Total revenue   $           772.0                       $ 749.9$ 22.1      2.9  %


Total revenue increased $22.1 million, or 2.9%, to $772.0 million for the three
months ended September 30, 2019, compared to total revenue of $749.9 million for
the three months ended September 30, 2018. Revenue growth was driven by growth
in Digital Infrastructure solutions, offset by a mix shift towards software
sales recognized on a net basis which impacted both Security and Cloud revenue
growth. Revenue growth was negatively impacted by the accelerating growth in our
backlog orders believed to be firm which totaled $762 million as of September
30, 2019, an increase of 19% compared to the prior year

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period. Included in the overall growth in backlog, we noted increasing demand
for our public cloud solutions, managed services offerings and other recurring
revenue projects. We saw our backlog of contracted recurring revenue grow 52%
over the prior year period, highlighting the transition of a growing component
of our revenue that will be recognized over time.
Revenue from sales of product increased $22.9 million, or 3.7%, to $642.5
million for the three months ended September 30, 2019, compared to product
revenue of $619.6 million for the three months ended September 30, 2018. The
increase in product revenue was driven by growth in public cloud offerings, data
center and security technologies, and software recognized on a net basis.
Revenue from sales of services decreased $0.8 million, or 0.6%, to $129.5
million for the three months ended September 30, 2019, compared to service
revenue of $130.3 million for the three months ended September 30, 2018. The
decrease in service revenue was driven by a decline in OEM delivered services;
however, we did see strong activity with clients as services revenue backlog
grew 20% compared to the prior year.

                                 Three months ended September 30,                Change
(in millions)                        2019                 2018            $               %
Revenue by solution area
Cloud                         $           111.3     $        110.5$      0.8           0.7  %
Security                                   91.8               94.6           (2.8 )        (3.0 )%
Digital Infrastructure                    568.9              544.8           24.1           4.4  %
Total revenue                 $           772.0     $        749.9$     22.1           2.9  %



Cloud revenue increased $0.8 million, or 0.7%, to $111.3 million in the three
months ended September 30, 2019, compared to $110.5 million for the three months
ended September 30, 2018, impacted by shifting of revenue recognition from a
point in time to a period over the life of the contract with the customer as our
revenue base continues to migrate to multi-year, recurring revenue contracts vs.
point in time sales. Growth with government clients in the federal sector were
offset by declines in large customers in the financial services market.
Security revenue decreased $2.8 million, or 3.0%, to $91.8 million in the three
months ended September 30, 2019, compared to $94.6 million in the three months
ended September 30, 2018. Security solution decline was driven by the conversion
of traditional product sales to software sold on a net basis. The increase in
software security and ELAs recognized on a net basis drove top-line declines in
the middle-market, somewhat offset by increasing government demand at the state
and local level.

Digital Infrastructure revenue increased $24.1 million, or 4.4%, to $568.9
million in the three months ended September 30, 2019 compared to $544.8 million
in the three months ended September 30, 2018. Software defined infrastructure
solutions led the growth in this sector as customers look to upgrade their
network with SDN and SDWAN Solutions. We also saw increasing demand from
customers looking to upgrade their mobility platforms to next generation Wifi6
solutions. Middle-market clients led the demand for software-defined
infrastructure solutions, particularly in manufacturing and transportation, and
financial services markets. In the government sector, non-profits and federal
customers drove the demand.

                          Three months ended September 30,                 Change
(in millions)                     2019                      2018       $         %
Recurring revenue $            69.2                       $  42.7$ 26.5     62.1  %
All other revenue             702.8                         707.2      (4.4 )   (0.6 )%
Total revenue     $           772.0                       $ 749.9$ 22.1      2.9  %



Recurring revenue increased $26.5 million, or 62.1%, to $69.2 million in the
three months ended September 30, 2019, compared to $42.7 million in the three
months ended September 30, 2018. Recurring revenue comprised 9.0% of our total
revenue in the three months ended September 30, 2019, up from 5.7% in the three
months ended September 30, 2018, as we continue to see strong client demand for
our public cloud and managed services offerings. The backlog from our recurring
revenue solutions now comprises 43% of our total revenue backlog.


                                       33
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Gross Margin
                             Three months ended September 30,             Change
(in millions)                   2019                   2018           $         %
Gross margin
Product gross margin     $         146.3         $         133.9     $ 12.4     9.3 %
Service gross margin                29.0                    25.1        3.9    15.5 %
Gross margin             $         175.3         $         159.0     $ 16.3    10.3 %
Product gross margin %              22.8 %                  21.6 %              1.2 %
Service gross margin %              22.4 %                  19.3 %              3.1 %
Total gross margin %                22.7 %                  21.2 %              1.5 %


Total gross margin increased $16.3 million, or 10.3%, to $175.3 million for the
three months ended September 30, 2019, as compared to $159.0 million for the
three months ended September 30, 2018, due to the 2.9% increase in total
revenue, and strong increases in both product and service margins. As a
percentage of total revenue, total gross margin increased 150 basis points to
22.7% for the three months ended September 30, 2019, up from 21.2% of revenue
for the three months ended September 30, 2018.
Product gross margin increased $12.4 million, or 9.3%, to $146.3 million for the
three months ended September 30, 2019, as compared to $133.9 million for the
three months ended September 30, 2018. Product gross margin as a percentage of
product revenue was 22.8% for the three months ended September 30, 2019, an
increase of 120 basis points compared to the prior year period. Gross margin
percent expansion was driven by software recognized on a net basis and
increasing margin profiles of our public cloud sales as that business scales.
Service gross margin increased $3.9 million, or 15.5%, to $29.0 million for the
three months ended September 30, 2019, as compared to $25.1 million for the
three months ended September 30, 2018. Services gross margin as a percentage of
revenue was 22.4% for the three months ended September 30, 2019, an increase of
310 basis points from 19.3% for the three months ended September 30, 2018.
Presidio led services drove the increase in total service margin expansion.
Operating Expenses
                                   Three months ended September 30,                   Change
(in millions)                         2019                    2018              $              %
Operating expenses
Selling expenses              $           74.8         $           70.8     $      4.0           5.6  %
General and administrative
expenses                                  30.7                     29.7            1.0           3.4  %
Selling, general and
administrative
 expenses                                105.5                    100.5            5.0           5.0  %
Transaction costs                          3.5                      5.5           (2.0 )       (36.4 )%
Depreciation and
amortization                              21.8                     21.5            0.3           1.4  %
Total operating expenses      $          130.8         $          127.5     $      3.3           2.6  %
Selling, general and
administrative
 expenses % of total
revenue                                   13.7 %                   13.4 %                        0.3  %



We define selling, general and administrative expenses ("SG&A") as the sum of
selling expenses and general and administrative expenses. SG&A increased $5.0
million, or 5.0%, to $105.5 million during the three months ended September 30,
2019, as compared to $100.5 million for the three months ended September 30,
2018. The overall increase in SG&A was primarily related to an investment in
sales resources focused on high growth areas of the business and $2.3 million of
non-recurring sales and business optimization expenses. Due to the impact of
these items and the growth in net software sales, SG&A as a percentage of
revenue increased 30 basis points from 13.4% of revenue for the three months
ended September 30, 2018 to 13.7% for three months ended September 30, 2019.

Transaction costs decreased $2.0 million to $3.5 million in the three months
ended September 30, 2019 due to lower expenses related to certain stay,
retention and earnout bonuses associated with our acquisitions completed during
the fiscal year

                                       34
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ended June 30, 2018, and lower transaction-related advisory and diligence fees when compared to the three months ended September 30, 2018. Interest and Other (Income) Expense

                                   Three months ended September 30,                   Change
(in millions)                         2019                    2018              $              %
Interest and other (income)
expense
Interest expense              $           11.6         $           11.2     $      0.4           3.6  %
Loss on extinguishment of
debt                                       0.2                      0.5           (0.3 )       (60.0 )%
Other (income) expense, net               (0.2 )                   (0.1 )         (0.1 )       100.0  %
Total interest and other
(income)
 expense                      $           11.6         $           11.6     $        -             -  %


Interest and other (income) expense was flat year over year. The $0.4 million
increase in interest expense for the three months ended September 30, 2019
primarily resulted from higher outstanding balances of term debt associated with
additional borrowings of $160 million in September 2018 used to repurchase
10,750,000 of shares outstanding.
Income Tax Expense
                                Three months ended September 30,                Change
(in millions)                        2019                2018             $             %
Income before income taxes    $           32.9     $         19.9     $     13.0          65.3 %
Income tax expense                         8.9                5.2            3.7          71.2 %
Net income                    $           24.0     $         14.7     $      9.3          63.3 %


The income tax expense was $8.9 million in the three months ended September 30,
2019, compared to $5.2 million in the three months ended September 30, 2018. The
effective tax rate was 27.1% in the three months ended September 30, 2019,
compared to 26.1% in the three months ended September 30, 2018.
Adjusted EBITDA
Adjusted EBITDA increased $12.3 million, or 19.6%, to $74.9 million for the
three months ended September 30, 2019, from $62.6 million for the three months
ended September 30, 2018, driven primarily by 10.3% growth in gross margin and
efficiencies realized in SG&A expense on an adjusted basis. Adjusted EBITDA
margin was 9.7% for the three months ended September 30, 2019 compared to 8.3%
for the three months ended September 30, 2018.
Adjusted Net Income
Adjusted Net Income increased $8.2 million, or 21.6%, to $46.1 million for the
three months ended September 30, 2019, from $37.9 million in the three months
ended September 30, 2018. The results were favorably impacted by flat total
interest and other expense in the three months ended September 30, 2019 compared
to the prior year.


                                       35
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Liquidity and Capital Resources


We fund our operations and capital expenditures through a combination of
internally generated cash from operations and from borrowings under our various
debt facilities. We believe that our current sources of funds will be sufficient
to fund our cash operating requirements for at least the next fiscal year. In
addition, we believe that, despite the uncertainty of future macroeconomic
conditions, we have adequate sources of liquidity and funding available to meet
our long-term needs. These long-term needs primarily include meeting debt
service requirements, working capital requirements and capital expenditures. We
may also pursue strategic acquisition opportunities that may impact our future
cash requirements.

There are a number of factors that may negatively impact our available sources
of funds in the future including the ability to generate cash from operations
and borrow on debt facilities. The amount of cash generated from operations is
dependent upon factors such as the successful execution of our business
strategies and general economic conditions. The amount of cash available for
borrowings under our various debt facilities is largely dependent on our ability
to maintain sufficient collateral and general financial conditions in the
marketplace.
Historical Sources and Uses of Cash
The following table summarizes our sources and uses of cash over the periods
indicated (in millions):
                                                  Three months ended September 30,
                                                      2019                   2018
Net cash provided by (used in)
Operating activities                          $          (32.3 )       $    

2.7

Investing activities                                     (34.0 )                (35.9 )
Net change in accounts payable - floor plan               44.0                   15.0
Other financing activities                                19.6                   11.4
Financing activities                                      63.6                   26.4
Net decrease in cash and cash equivalents     $           (2.7 )       $    

(6.8 )



Operating Activities
Net cash provided by operating activities consist of net income adjusted for
noncash items, such as depreciation and amortization of property and equipment
and intangible assets, deferred income taxes, share-based compensation, losses
on extinguishment of debt or disposals of businesses and for changes in net
working capital assets and liabilities. The cash impact of changes in deferred
income taxes primarily relates to temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Generally, the most significant factor
relates to nondeductible book amortization expense associated with intangible
assets. The timing between the conversion of our billed and unbilled receivables
into cash from our customers and disbursements to our vendors is the primarily
driver of changes in our working capital.
Three months ended September 30, 2019: Net cash used in operating activities for
the three months ended September 30, 2019 was $32.3 million. This was primarily
attributable to a $77.9 million increase in our working capital components,
partially offset by net income of $24.0 million, $18.8 million of intangible
amortization expense, $4.0 million of total property and equipment depreciation
expense, $1.6 million of share-based compensation expense, $0.8 million of
amortization of debt issuance costs and $0.2 million of losses on extinguishment
of debt. The net increase in our working capital components was primarily driven
by an increase in cash disbursements for accounts payable - trade, public cloud
resale and managed services investments, and an increase in a partner incentive
program receivable that is paid to us on a semi-annual basis in our second and
fourth fiscal quarters.
Three months ended September 30, 2018: Net cash provided by operating activities
for the three months ended September 30, 2018 was $2.7 million. This was
primarily attributable to net income of $14.7 million adjusted for: $18.9
million of intangible amortization expense, $3.8 million of total property and
equipment depreciation expense, $2.1 million of share-based compensation
expense, $0.9 million of amortization of debt issuance costs and $0.5 million of
losses on extinguishment of debt, mostly offset by a $33.1 million increase in
our working capital components. The net increase in our working capital
components was primarily driven by an increase in cash disbursements for
accounts payable - trade, public cloud resale and managed services investments,
and an increase in a partner incentive program receivable that is paid to us on
a semi-annual basis in our second and fourth fiscal quarters.

                                       36
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Our net cash provided by operating activities for our historical periods includes the impact of tax-deductible goodwill and intangible assets resulting from certain historical acquisitions. The reductions in current tax expense associated with the tax-deductible goodwill and intangible assets were (in millions):

                                                      Three months ended September 30,
                                                         2019

2018

Impact of tax deductible goodwill and
intangible assets                                $               2.2     $            2.2


Investing Activities
Net cash flows from investing activities consist of the cash flows associated
with acquisitions and/or dispositions, leasing activities and capital
expenditures. During the periods presented all purchases of property and
equipment were of a normal recurring nature. With respect to our leasing
activities, we reduce our financial exposure and increase liquidity by
partnering with various third-party lenders and discounting the customer lease
financing receivables. This results in us carrying both a lease asset and an
offsetting financial liability to the lenders on our balance sheet. Accordingly,
the investment in leased assets appears in our investing activities and the
funding we receive from third-party lenders is recognized in our financing
activities, discussed below.
Three months ended September 30, 2019: Net cash used in investing activities for
the three months ended September 30, 2019 was $34.0 million, primarily related
to investments in equipment under sales-type leases with customers of $32.9
million, and the purchase of property and equipment of $2.2 million.
Three months ended September 30, 2018: Net cash used in investing activities for
the three months ended September 30, 2018 was $35.9 million. primarily related
to investments in equipment under sales-type leases with customers of $33.3
million, and the purchase of property and equipment of $3.8 million.
Financing Activities
Net cash flows from financing activities is primarily associated with cash
activity associated with our capitalization, including debt and equity activity,
cash flow associated with discounting client leases and activity on our accounts
payable floor plan facility.
Three months ended September 30, 2019: Net cash provided by financing activities
for the three months ended September 30, 2019 was $63.6 million, comprised of
the $44.0 million increase in accounts payable - floor plan and $19.6 million of
other financing activities. The $19.6 million of cash inflows in other financing
activities was primarily the result of $29.2 million in proceeds from
discounting financing receivables and $4.1 million of proceeds from issuance of
common stock under share-based compensation plans, partially offset by $10.0
million in repayments on term loans and $3.3 million of dividends paid.
Three months ended September 30, 2018: Net cash provided by financing activities
for the three months ended September 30, 2018 was $26.4 million, comprised of
the $15.0 million increase in accounts payable - floor plan and $11.4 million of
other financing activities. The $11.4 million of cash inflows in other financing
activities was primarily the result of $41.1 million in proceeds from
discounting financing receivables and $1.0 million of proceeds from issuance of
common stock under share-based compensation plans, mostly offset by $25.0
million in repayments on term loans and $4.9 million of retirements of
discounted financing receivables.
Liquidity
We generally fund our short- and long-term liquidity needs through the use of
cash flows from operations, utilization of the extended payment terms on our
accounts payable-floor plan facility and the available credit on our revolving
credit facility, accounts receivable securitization facility and long-term debt.

                                       37
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Our management regularly monitors certain liquidity measures to monitor performance. We believe that the most important of those measures include net debt, net working capital ratio, available liquidity, and free cash flow.


(in millions, except ratio data)           September 30, 2019      June 30, 

2019

Net debt                                  $           708.6       $       

715.9

Net working capital ratio (as adjusted)                1.04 x              1.02 x
Available liquidity                       $           326.6       $       321.9



                         Three months ended September 30,
(in millions)                     2019                     2018
Free cash flow   $           23.6                         $ 18.0


Net debt - We have a substantial amount of indebtedness, largely related to the
capitalization of the Company in connection with our acquisition by funds
associated with Apollo in February 2015. We believe net debt provides
information about the utilization of our cash flows to de-lever our company. We
define net debt as the total principal of debt outstanding, excluding discounts
and issuance costs less cash and cash equivalents. The following table presents
our calculation of net debt as of September 30, 2019 and June 30, 2019 (in
millions):

                             September 30, 2019      June 30, 2019
Total long-term debt        $           736.6       $       746.6
Cash and cash equivalents   $           (28.0 )     $       (30.7 )
Net debt                    $           708.6       $       715.9


Net working capital ratio - We experience periodic changes in our net working
capital, defined as current assets from our consolidated balance sheet minus
current liabilities from our consolidated balance sheet excluding cash and cash
equivalents and current maturities of long-term debt. We define our net working
capital ratio as our current assets excluding cash and cash equivalents divided
by current liabilities excluding current maturities of long-term debt. Our net
working capital ratio was 1.04x and 1.02x as of September 30, 2019 and June 30,
2019, respectively, and was consistent with our expectations.
Available liquidity - As previously discussed, we fund our short-term cash flow
requirements through a combination of cash on hand, cash flows generated from
operations and revolving credit facilities. We calculate our available liquidity
as a sum of cash and cash equivalents from our consolidated balance sheet plus
the amount available and unutilized on our revolving and accounts receivable
securitization facilities.

The following table presents our calculation of available liquidity as of September 30, 2019 and June 30, 2019 (in millions):


                                                  September 30, 2019        June 30, 2019
Cash and cash equivalents                        $              28.0     $             30.7
Availability under the revolving credit
facility                                                        48.6                   48.6
Availability under the receivables
securitization facility                                        250.0                  242.6
Available liquidity                              $             326.6     $            321.9


Available liquidity increased from $321.9 million at June 30, 2019 to $326.6 million at September 30, 2019 primarily as a result of an increase in availability under the receivables securitization facility.

                                       38
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The following table presents amounts outstanding under our primary sources of liquidity as of September 30, 2019 and June 30, 2019 (in millions):

                                         September 30, 2019June 30, 

2019

Cash and cash equivalents               $              28.0    $          

30.7

Accounts payable-floor plan facility    $             256.7    $         

212.7

Long-term debt:
Revolving credit facility               $                 -    $            

-

Receivables securitization facility                       -                 

-

Term loan facility, due February 2024                 736.6              746.6
Total long-term debt                    $             736.6    $         746.6



Free cash flow - We define free cash flow as our net cash provided by operating
activities adjusted to: (i) include the net change in accounts payable - floor
plan, (ii) include the aggregate net cash impact of our leasing business, (iii)
include purchases of property and equipment, and (iv) exclude cash payments for
acquisition-related earnout bonuses.

The following table presents the aggregate net cash impact of our leasing
business for the three months ended September 30, 2019 and 2018 (in millions):
                                                        Three months ended September 30,
                                                          2019                      2018
Additions of equipment under sales-type and
direct financing leases                          $            (32.9 )       $            (33.3 )
Proceeds from collection of financing
receivables                                                     0.9                        1.2
Additions to equipment under operating leases                  (0.2 )                        -
Proceeds from disposition of equipment under
operating leases                                                0.4                          -
Proceeds from the discounting of financing
receivables                                                    29.2                       41.1
Retirements of discounted financing
receivables                                                    (0.4 )                     (4.9 )
Aggregate net cash impact of leasing business    $             (3.0 )       $              4.1



The following table presents reconciliation of free cash flow from net cash
provided by operating activities for the three months ended September 30, 2019
and 2018 (in millions):
                                                             Three months ended September 30,
                                                               2019                      2018
Net cash provided by (used in) operating activities   $            (32.3 )       $              2.7
Adjustments to reconcile to free cash flow:
Net change in accounts payable - floor plan                         44.0                       15.0
Aggregate net cash impact of leasing business                       (3.0 )                      4.1
Purchases of property and equipment                                 (2.2 )                     (3.8 )
Payment of acquisition-related earnout bonus                        17.1                          -
Total adjustments                                                   55.9                       15.3
Free cash flow                                        $             23.6         $             18.0


Commitments and Contingencies
See the information set forth in Note 10 (Commitments and Contingencies) to the
accompanying consolidated financial statements included in Part I, Item 1 of
this Quarterly Report on Form 10-Q.

                                       39
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Off-Balance Sheet Arrangements
We had $1.4 million of outstanding letters of credit on our revolving credit
facility as of both September 30, 2019 and June 30, 2019. We have no other
off-balance sheet arrangements that have or are reasonably likely to have a
material current or future effect on our financial condition, changes in
financial condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources.

Dividends

Beginning in September 2018, our Board of Directors has declared a quarterly dividend of $0.04 per share of common stock.


The following is a summary of the dividends declared by the Company to holders
of common stock:
Declaration Date       Record Date        Payment Date      Amount Per Share
September 6, 2018   September 26, 2018   October 5, 2018   $             

0.04

November 7, 2018    December 26, 2018    January 7, 2019   $             0.04
February 6, 2019      March 27, 2019      April 5, 2019    $             0.04
   May 8, 2019        June 26, 2019       July 5, 2019     $             0.04
 August 28, 2019    September 25, 2019   October 4, 2019   $             

0.04

November 6, 2019    December 26, 2019    January 6, 2020   $             

0.04




We intend to declare quarterly dividends to holders of common stock. However,
any future declaration and payment of future dividends to holders of common
stock will be at the discretion of the Board of Directors and will depend on
many factors, including our financial condition, earnings, capital requirements,
level of indebtedness, statutory and contractual restrictions applying to the
payment of dividends, and other considerations that the Board of Directors deems
relevant. Presidio, Inc., as a holding company, has no direct operations and our
ability to pay dividends is limited to our available cash on hand and any funds
received from subsidiaries. The terms of the indebtedness may restrict Presidio,
Inc.'s ability to pay dividends, or may restrict the subsidiaries from paying
dividends to Presidio, Inc. under Delaware law, dividends may be payable only
out of surplus, which is net assets minus liabilities and capital, or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
Critical Accounting Policies and Estimates
Except as described under Note 1 (Recent Accounting Pronouncements Adopted
During the Fiscal Year) to the accompanying consolidated financial statements
included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our accounting
policies have not changed from those reported in our Management's Discussion and
Analysis of Financial Condition and Results of Operations section of the
June 30, 2019 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See the information set forth in Note 1 (Recent Accounting Pronouncements Not
Yet Adopted) to the accompanying consolidated financial statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk
Our market risks relate primarily to changes in interest rates. The interest
rates on the term loans and other borrowings, if any, under our Credit Agreement
are floating and, therefore, are subject to fluctuations. To manage this risk,
we may enter into interest rate swaps to add stability to interest expense and
to manage our exposure to interest rate fluctuations.

                                       40

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