Presidio's IPO Bombshell: Annual Sales Up 14 Percent With $3.4M Loss

Solution provider powerhouse Presidio filed for an initial public offering today with the U.S. Securities and Exchange Commission, reporting annual sales growth of 14 percent to $2.71 billion on a net loss of $3.4 million for its fiscal year 2016.

New York-based Presidio, ranked No. 22 on CRN's 2016 Solution Provider 500 list, said the number of shares and the price range for the offering have not yet been determined.

Presidio's adjusted net income, which excludes accounting and financing charges, for fiscal year 2016 was $81.2 million compared with $72 million in the year ago period. The company's fiscal year 2016 EBITDA (earnings before interest taxes, depreciation and amortization), which is often used to value companies, for the same period was $211.1 million compared with $184.8 million in the year ago period.

Presidio's IPO is expected to take place next year and be valued as much as $3 billion, according to The Wall Street Journal. Renaissance Capital, an IPO research and investment management company, estimates that Presidio's IPO could raise $400 million.

[Related: Presidio CEO Talks Cisco Acquisitions, Cloud Strategy And Not Hiring 'Jerks']

Digital infrastructure has been the primary revenue driver for Presidio, generating $2.07 billion in annual sales for FY16, which ended June 30. The company's annual cloud sales, which were up 34 percent to $391 million in FY16, make up 14 percent of annual sales. Security revenues, which were up 60 percent to $250 million for the fiscal year, represent 9 percent of Presidio's annual sales.

One of the risk factors in the SEC filing is the potential loss of product revenue as cloud services becoming a bigger factor in the IT market. "Cloud offerings may influence our customers to move workloads to cloud providers, which may reduce the procurement of products and solutions from us," according to the filing.

Presidio declined to comment on the IPO filing.

The company's annual product revenues for the most recent fiscal year were $2.32 billion, up 13 percent compared to fiscal year 2015, while annual service sales increased 20 percent to $395 million.

Presidio's $3.4 million loss on $2.71 billion in sales for the last fiscal year, compares with a loss of $29.4 million on sales of $2.38 billion for the fiscal year 2015.

The solution provider is one of Cisco's most strategic channel partners, with more than 2,200 Cisco technical certifications including 150 Cisco Certified Internetwork Experts (CCIE) on staff.

For FY16, Cisco provided products that made up 67 percent of Presidio's purchases from all manufacturers, while EMC provided products that constituted 10 percent, according to the SEC filing. The company's other significant vendor partners are VMware and VCE, which provided hardware products that generated 2 percent and 1 percent, respectively, of their purchases in FY16.

Presidio's portfolio "has been heavily concentrated in Cisco products," according to the SEC filing.

In an interview with CRN in August, Presidio's CEO Bob Cagnazzi, named on CRN's Top 25 Innovators Of 2016, explained that the company was restructuring how its sales and engineering teams work in the digital age.

Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top channel investment advisory deal-makers, said the IPO is a testimony to the leadership of Cagnazzi.

"Cagnazzi is the IT equivalent of Karl Malone – the great basketball Hall of Famer known as the Mail Man- because he simply delivers," said Wolf. "Presidio's annual sales growth last year makes them greater than most of the companies in the SP500. What's more, Presidio's sales growth is greater than its publically traded peers."

Wolf said the Presidio IPO is a sign that scale matters in the intensely competitive solution provider marketplace. "What this means if you are not of a sufficient size you need to figure out a way to matter to customers and vendors," he said.

Presidio was not the only solution provider to recently seek an IPO, as Denver-based Optiv Security filed its S-1 form with the SEC on Nov. 18.

Wolf said many solution providers are looking at "strategic alternatives" in the current cloud services dominated market. "Most companies whose primary competitive advantage is they are a regional player would be better combining with someone that is larger," he said.

"You would rather have equity in a larger, more diversified company than a regional one," he said. "This goes back to what Warren Buffet says- 'At the end of the day how big is the moat? And the moat in this case without your own intellectual property is not as large as you would like it to be."

Since being acquired by Apollo Global Management nearly two years ago, the New York-based company has been buying smaller solution providers including Cisco networking specialist Netech and cloud consulting, engineering and integration firm Sequoia Worldwide.

The New York-based solution provider also sold its refurbished hardware reselling subsidiary Atlantix Global Systems, with an estimated $130 million in annual sales, in October 2015.

This is not the first time Presidio has explored the option of going public. In 2014, just a few months before being acquired by Apollo, Presidio reportedly hired Barclays and Credit Suisse Group AG to explore the company’s sale or IPO options.

J.P. Morgan and Citigroup are the lead underwriters of the new offering.