Presidio's (PSDO) CEO Bob Cagnazzi on Q1 2019 Results - Earnings Call Transcript

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About: Presidio (PSDO)
by: SA Transcripts

Presidio, Inc. (NASDAQ:PSDO) Q1 2019 Earnings Conference Call November 7, 2018 5:00 PM ET

Executives

Elliot Brecher – General Counsel

Bob Cagnazzi – Chief Executive Officer

Neil Johnston – Chief Financial Officer

Analysts

Ashwin Venkat – Goldman Sachs

Irvin Liu – RBC Capital Markets

Jim Suva – Citi

Ken Talanian – Evercore ISI

Operator

Greetings, and welcome to Presidio First Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I would now like to turn the conference at your host, Elliot Brecher, Presidio’s General Counsel. Thank you, sir, please may begin.

Elliot Brecher

Good afternoon, everyone, and welcome to our first quarter fiscal 2019 earnings call. Today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available on our website following the call. By now, you should have received a copy of our press release that was issued this afternoon. If you have not, it is available on the Investor Relations section of our website. Before we get started, I’d like to note that certain comments made on this call will contain forward-looking statements regarding future events or the future financial performance of the company.

Any such statements, including statements regarding our outlook for fiscal 2019, or any other future periods, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance nor should they be relied upon as representing management’s views as of any subsequent date. The copy does not take any duty to update any forward-looking statements.

Forward-looking statements involve significant risks and uncertainties and events or results could differ materially from those presented due to a number of risks and uncertainties. Additional detailed information concerning these risks regarding our business and the factors that could cause actual results to differ materially from the forward-looking statements, and the other information we’ll be giving today, can be found in our Form 10-Q and our Form 8-K filed today with our press release, which are available at www.sec.gov as well as on the Investor Relations section of Presidio’s website at presidio.com. During the call, we will also be discussing our non-GAAP financial measures.

These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles in the United States. A reconciliation of the GAAP and non-GAAP results is provided in today’s press release. Our presenters today are Bob Cagnazzi, Chief Executive Officer; and Neil Johnston, our Chief Financial Officer. Bob will begin with his perspective on fiscal first quarter performance and provide a discussion on our ongoing strategic initiatives. Neil will then review our financial results and future outlook in more detail before we open up the call for your questions. Bob?

Bob Cagnazzi

Thanks you, Elliott. Good afternoon, everyone. Thank you all for joining us our first quarter fiscal 2019 earnings call. For the first quarter of fiscal year 2019, we delivered revenue of $750 million, an increase of 2.6% over the prior year driven by strong growth in Digital Infrastructure and Security solutions. Adjusted net income increased to 8.6% and we delivered pro forma diluted EPS of $0.42. Our results this quarter were in line with our expectations and give us confidence in our ability to achieve our full year fiscal 2019 guidance.

During the first quarter, we saw continued positive momentum in Digital Infrastructure revenue, which increased 7.1% as we continued to see increased traction for next-generation software-defined infrastructure upgrades. The increases was led by infrastructure investments from our large financial services and manufacturing and transportation clients. In the government sector, state and local government clients drove the increase. One of the highlights for the quarter was a digital infrastructure and security project we competed for one of the largest public school districts in the United States.

The school had an aging digital infrastructure which severely limited their ability to improve security in the classroom and around the campus. And unfortunate fact of life in our school systems is that they must be able to bidirectionally communicate immediately and seamlessly between the main office and classrooms as a group and individually, should there be any breach of security endangering the student body.

Given the nature of the infrastructure, our client was unable to enhance teacher communication and student security to the level that they deemed appropriate. Presidio designed and implemented a solution that upgraded the digital infrastructure throughout more than 50 high schools and middle schools.

We installed communications in every classroom, enabling not only traditional voice calling, but emergency response capabilities that can pinpoint specific classrooms; multicast paging; and voice recording to capture threatening or concerning conversations. This project is expected to be rolled out in an additional 100 elementary schools in the very near future. Security revenue increased 4.1% during the first quarter, which is on top of the very strong growth of 53% we had in the prior year quarter. The increase was driven by strong demand for security solutions from middle market and government clients.

In the middle market, growth was driven by healthcare and financial services clients. In the government sector, nonprofit financial services drove the demand, offset by declines in federal sales. Cloud revenue declined 16.2% in the first quarter. We had a tough comparison as we lapped the very strong first quarter of fiscal 2018 where we achieved 29% growth driven by a number of large nonrecurring data center modernization projects. In addition, as we had indicated over the past few quarters, we continue to see increasing number of clients use Presidio to implement and manage their public cloud instances as part of a multi-cloud solution. As we have discussed, this migration creates a headwind to Cloud revenue growth as the revenue is recognized over the contract period instead of at a point-of-sale.

While this creates a near-term headwind, ultimately, this dynamic should result in a more predictable recurring revenue stream over the life of the contract. We continue to see strong client demand for public cloud which is reflected in our public cloud backlog of approximately $83 million, which will be recognized over the next three years.

A good example of this trend is one of our clients in the Southwest. Our client has been a leading pioneer of genetic testing for nearly 40 years. They are a joint venture with another client of ours and previously relied on the infrastructure of their JV partner for genomic sequencing and data analytics. As the joint venture matured, they decided they needed their own agile secure infrastructure platform to support the organizations workloads.

Due to the variable nature of the many workflows for genomic data analysis, a hyper to multi-cloud model was the best fit. Along with the client’s lead architect and CIO, Presidio designed a hybrid cloud solution that combined public cloud stacks with on-premise data storage and data protection. This combination gave the client the performance, security, agility and economics they were seeking.

We deployed two 12-node high-performance public stacks, one for internal data analysis and the other for external customer facing data. A 3-tiered Isilon solution is connected to the internal stack for file storage and the data is protected with a disaster recovery and deduplication solution. This is an increasingly common scenario where on-premise solution s like we have traditionally seen, are combined with more recurring public cloud services to create an agile, secure, multi-cloud platform for the client and a stickier and more predictable relationship for Presidio.

We’ve spoken at length on our previous earnings call and during our Investor Day recently about the changing nature of infrastructure technology and how its deployed and consumed. No longer are we delivering stand-alone digital infrastructure cloud and security solutions. About 75% of our revenues in FY2018 came from clients consuming all three of our solution sets.

This is a great signal that Presidio’s technical model is aligned with the market. Software is becoming a bigger part of our solutions as well and, in some cases, replacing what, in the past, would’ve been an appliance or a hardware sale. The agility and programmability inherent in these technologies allows us to better tune our solutions to our client’s specific use cases and offers us greater professional and managed services opportunities. Net revenue from the sale of software-as-a-service, enterprise license agreements and security software increased 66% in the quarter year-over-year.

Lastly, clients are becoming more interested in having an IT service provider manage and operate their core infrastructure cloud and security platforms so that they can focus on strategic initiatives, which is why we’ve seen our Managed Services business grow 9% in the quarter, and we’ve seen recurring revenues grow 24% overall for the quarter and 84% in our backlog, signifying the critical long-term value our clients see in Presidio. A project we completed the last quarter is indicative of this trend. One of the largest insurance providers in the U.S. recently spun out a division that was acquired by a group of investors.

Rather than implement an entire infrastructure design, build and support capability, internally, the client wanted a partner that would not only provide end-user help desk, security auditing, monitoring and managed care for all four infrastructure elements, they also wanted to an organization that would be a good cultural fit and aligned to the strategic objective. Through an intensive vetting process, Presidio was able to demonstrate, not only its IT IQ, but its cultural fit with the client. We’ve developed and deployed an as-a-service framework for their infrastructure, incorporating a full life cycle approach of design, build and operate functions.

And we’ve tailored flexible consumption models. We’ve deployed our next generation risk management offerings, cloud solutions, our managed security and infrastructure services and are currently evaluating backup- and virtual-desktop-as-a-service solutions. Our client can now operate their business and seek strategic enhancements on the business end while Presidio manages and operates their agile secure infrastructure.

In summary, we’re off to a solid start for the year. Our first quarter results were in line with our expectations, and we continue to see strong demand for our solution in orders from client, which is reflected in the strong increase in our backlog of 9% sequentially and 20% year-over-year. Our performance to date and the positive momentum that we continue to see from our business, provides us with the confidence to reaffirm our outlook for fiscal 2019. Now, let me turn it over to Neil, who will walk you through our financial performance in greater detail.

Neil Johnston

Thanks, Bob, and good afternoon, everyone. I’ll start with a summary of our financial results for the quarter and then finish with our outlook for 2019. Just as a reminder, we adopted the new revenue recognition standard ASC 606 on July 1, 2018, and elected the full retrospective method. Accordingly, all of our historical results have been adjusted. Please refer to the ASC 606 materials located on our Investor Relations website for additional details.

For the first quarter, total revenue was $750 million, up 2.6% over prior year revenue of $731 million, driven by strong growth in our Digital Infrastructure and Security solutions, partially offset by weakness in sales to our federal clients, which were down $12 million compared to the prior year’s Q1. Overall, service revenue grew 3% led by strong growth in managed services revenue, up 9% and revenue from vendor partner services also up 9% and comprising 23% of our total services revenue in the quarter.

Our vendor partner engagements are at a lower margin and this was the primary driver of the decrease in our total gross margin percent from 21.4%, to 21.2%. Our adjusted EBITDA margin was 8.3%, down 90 basis points due to lower gross margins along with an increase in our SG&A. Our higher SG&A in the period was driven by expenses related to the acquisitions completed in fiscal 2018, investments in sales personnel and higher professional fees in the period.

From a bottom line GAAP perspective, net income was $14.7 million for the quarter and diluted EPS was $0.15. Our pro forma adjusted net income was $36.7 million up 1% over the prior year, and our pro forma diluted EPS was $0.42, up 11%. Note that we have included the effect of the share repurchase as if it occurred on July 1, 2018, in both our pro forma adjusted net income and pro forma diluted EPS results. We’ve adjusted the share count as well as the higher interest expense that would have been incurred on the incremental term loan borrowing.

Taking a closer look at revenue, we continue to focus on growing our recurring revenue, which was up 24% for the quarter, representing 5.7% of our total revenue. While this shift is a positive trend for our business in the long run that helps make our revenues more predictable, it does present a short-term revenue headwind as the revenue is recognized over time rather than at point-of-sale.

As Bob mentioned, by solution area, we saw Digital Infrastructure up 7%, Security up 4% and Cloud down 16% for the quarter. By customer horizontal, we saw strong growth in both our large enterprise and government horizontals with an increase of 32% and 17%, respectively, while our mid-market clients declined 6%. The growth in government overall is notable as we saw strong traction with state and local clients more than offsetting the decline in federal revenue.

At the end of the quarter, our revenue backlog increased to $639 million, 20% ahead of prior year and 9% over Q4. The growth in backlog was driven by strong growth in both product and services and we saw significant growth in recurring revenue backlog of 84% over prior year. Other recurring revenue backlog is now 34% of our overall backlog, up from 24% at the end of Q4.

Turning now to our liquidity and cash flow metrics. We continue to produce strong free cash flow. During the first quarter, we generated $18 million of free cash flow, which included $7.8 million of cash outflows for public Cloud resale and managed services investments. We expect public Cloud and managed services investments to accelerate in the second quarter and now expect to use approximately $40 million of our cash flow to invest in related projects during the full year fiscal 2019. Due to the strong free cash flow characteristics of our business, we believe that we will still be able to achieve our leverage guidance of low-3 times for full FY2019, even though we are ramping up investments in these high growth areas.

Moving to the balance sheet. We continue to enhance our financial flexibility and capital structure and find opportunities to create value for shareholders. Following the incremental term loan borrowing used to fund the share repurchase from Apollo, we made a voluntary prepayment of $25 million on our term loan in the first quarter. We finished the quarter with total net debt of $791 million and net total leverage of 3.6 times.

For the full fiscal year 2019, we reaffirm our expectation for revenue in the range of $2,850 million to $2,900 million compared to $2,765 million for fiscal 2018. As a reminder, this represents 3% to 5% year-over-year growth. We anticipate that our adjusted EBITDA margin for the year will be approximately 8% and our pro forma diluted EPS growth for fiscal 2019 we’ll be mid-to high teens including the impact of the repurchase. Free cash flow is expected to average $30 million per quarter before the impact of public Cloud investments.

Thank you again for joining the call today and for your continued interest and Presidio. I’ll now turn the call over to the operator so that we can take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. At this time. We will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Jim Suva with Citigroup. Jim Suva, your line is muted. Okay, we’ll go on to the next question then. That would be Rod Hall from Goldman Sachs. Please proceed with your question.

Ashwin Venkat

Hi, thanks for taking my question. This is Ashwin on behalf of Rod. I was wondering if you could comment on the IT spending environment at least among the customers you are currently engaged with? And related to that, did you see any change in linearity of demand during the quarter?

Bob Cagnazzi

We did not – we didn’t see a change in demand during the quarter. I think the environment has remained, what I would consider, good. How clients are consuming and buying technology has changed. You’ve seen the shift in that tremendous growth of the backlog around recurring revenue based upon our public cloud practice. So you’ve seen a shift from some traditional on-prem revenue that likely would’ve been realized in the quarter moved to the longer-term stickier type of revenue burn. So no real changes in what we may have seen a quarter ago, and we don’t anticipate or foresee any changes going forward. Again, that would be absent of any additional tariffs that may impact client demand, but to date they have not in a meaningful way.

Ashwin Venkat

Got it. Related to Cloud, when do you expect Cloud revenues to stabilize? I understand there are moving parts because of the contracts and stuff, but how are you thinking about stabilization in Cloud revenue?

Bob Cagnazzi

Yes. So if you take a look at the Cloud revenue, and we grew 50-plus percent last year this quarter. And in this year, in this quarter, we accumulated about $85 million in contracts for public cloud, which is all recurring revenue. And as I mentioned, earlier, in the past, when that would’ve been an on-prime solution, you probably would’ve seen 70% of that appear in the quarter. So it’s just a different dynamic. And I think as we continue to build up that recurring revenue streams, you’ll start to see that stabilize and then it will be stable and very predictable in a greater fashion going forward, because we’ll have that recurring subscription revenue as a meaningful part of the traditional project or on-prime revenue that we have. So that will begin to smooth out some of those are anomalies a little bit better.

Ashwin Venkat

Okay. Finally, on the inventories. Looks like inventory ticked up a little bit during the quarter, can you tell us what’s driving that?

Neil Johnston

There really isn’t very much of the – of an inventory. It really is just a timing as we have some purchases that were made at the end of the quarter, which have gone into inventory and which will get deployed at the end of the quarter. So nothing notable there.

Bob Cagnazzi

Yes, and just to remind everybody, we don’t stock noncommitted inventory. Inventory we have is for an existing customer contract. So it’s really work in progress , if you will, that just gets caught up at the end of a period and it hasn’t shipped out yet.

Ashwin Venkat

Got it. Thanks a lot.

Bob Cagnazzi

Yes. Thanks, Ashwin.

Operator

Our next question is from Amit Daryanani with RBC Capital Markets. Please proceed.

Irvin Liu

This is Irvin Liu dialing in for Amit. I had a question about the $7.8 million in public cloud and managed services investments. To clarify, did you say you expect this number to total $40 million for fiscal 2019?

Neil Johnston

That is correct, yes. So what we are doing is basically investing in Cloud, making purchases related to existing client contracts. And so that becomes a prepayment, which then moves out over the life of the contract being three years, and so you’re seeing that as a prepayment.

Irvin Liu

Got it, got it. And then, where should we see – expect returns from these investments to show going forward?

Neil Johnston

Well, what’ll happen is, you’ll see both the – so that prepayment is really almost the – a part of the cost of sale. What’s going to happen as the contract moves out over three years is you’ll see the revenue come through and you will see that prepayment turning to cost of sales and then the return will come through EBITDA.

Bob Cagnazzi

And that revenue burn begins almost immediately.

Neil Johnston

Immediately, yes. And so we are seeing tremendous demand. We see a lot of opportunity here. And so that is why we sort of updated the guidance around that $40 million, $10 million a quarter.

Irvin Liu

Understood. And I also wanted to ask about your growth in OEM services. This is clearly outpacing the rest of your services business. Can you talk about what’s driving some of the shift? And can you update us on some – the type of traction you’re seeing in some of your own branded and proprietary solutions, such as cloud Concierge, NRG management – NGR management, I’m Sorry.

Bob Cagnazzi

Yes, Next-Generation Risk Management, you’re right, NGRM. So I mean, if you saw – within the numbers and probably within the press release or the Q, within our mid-market, we’ve got our clients horizontally segmented between, what we would call traditional mid-market and then what we call the upper end of mid-market which we call large. And you’ll see that, that large segment accelerated and has been accelerating a little bit – at a greater rate than the smaller end of the mid-market. So within that, there is a greater likelihood that we would partner with OEM who wants to deliver some of their services and we’ll be delivering some of our services at the same time. So that’s really why you saw an uptick in that.

In terms of things like NGRM, we have provided NGRM professional services to close to 50 clients, that’s really – the uptick on that has been great. Along that with the NGM – NGRM portal clients, we added about 30% more clients in the last quarter than we’ve had previously and those run the gamut from healthcare and financial services and professional services, pharmaceuticals and the like. And then in terms of cloud Concierge, just let me get the data for you here, hold on, one moment. You know, I’m just having trouble finding it right now.

Irvin Liu

That’s okay, we can take this conversation offline.

Bob Cagnazzi

Yes, let’s do that. We’ll follow-up with you on that one.

Irvin Liu

Okay, sounds good. Thanks. Thanks for the color.

Bob Cagnazzi

Thank you.

Operator

[Operator Instructions] Our next question is from Jim Suva with Citi. Please proceed with your question.

Jim Suva

Thanks. It’s Jim Suva from Citi can you hear me?

Bob Cagnazzi

Yes, we can Jim.

Jim Suva

I think we need some Presidio communications here on our side because I was talking and it wasn’t being heard. So could you talk a little bit about – and sorry if you – had to redial in, if you mentioned this. But with the new tariffs, any thoughts about entities pre-purchasing and pre-ordering ahead of the tariffs coming in to save some money and work around the increase tariffs cost?

Bob Cagnazzi

Yes, that’s a – and that’s great question, Jim. We have not seen anything material in that environment yet. We did address it very briefly, but it was really kind of the end of the conversation was, we don’t see any real change to the environment or optimism of the client at this point in time, absent any tariffs that may come in February. But we haven’t seen folks kind of – we haven’t seen folks rush in to get in under the wire on that as yet. It’s certainly a question that is of concern to them. I think the current round of tariffs, the manufacturers, although they’ve been passing them on, have also done a lot of price deviations to kind of mitigate that impact. However, I think if there’s another round of tariffs it would be a little bit harder for the manufacturer to kind of cover that cost without passing more of it on to the client. So nothing yet either plus or minus, Jim, I think that’s the best way to put it.

Jim Suva

And when the OEMs put in price increases, which many of them have talked about, are you taking 100% of that price and passing it on to your customer? Or are customers pushing back and you’re having to absorb some of it or how should we think about that? Because that is being changed as we speak.

Bob Cagnazzi

Yes, so that’s passed along. It’s – most of the manufacturers are showing it as – well, not most, let’s say half and half. Half of them are showing it as a separate line item, so it can be identified, and that is passed along completely. And then others are showing it as an increase in list price and it’s the same thing, whatever the discount had been, the client picks up that extra cost for the tariff. So there’s no impacts to our margins.

Jim Suva

Okay. And then, on your statement of cash flows. Can you talk about cash flows provided by operating activities like what it was – it looks like it was just about – close to about $3 million compared to $84 million a year ago? So why the deviation of difference in cash flow from operations this three months versus a year ago?

Neil Johnston

Yes, Jim what you really need to do is you need to look at the cash flow reconciliation that is in the earnings release. Because basically, we – all of the floor-planning financing receivables basically run through the financing section of the cash flow statement versus running through the operating cash flow statement. So really what you have got to do is add those pieces together to look at the actual – what the actual cash flow is and that’s where you’re seeing the difference of the $29 million to the $18 million.

That AP floor plan is really part of the trade but you would’ve basically trade payables– change in trade payables plus the change in AP floor plan and that’s your change in payables overall. It’s just a presentation on the GAAP financial statement. And the difference between the $29 million and $18 million is essentially that Cloud investment of about $8 million and then, it’s about $4 million of timing related to a particular client where the money has come in, in the second quarter, we expected in the first quarter and now it will just correct itself . As the working capital changes it will correct itself. So I feel very good about our cash flows right now.

Jim Suva

Okay, yes, that makes a lot of sense. And my last question is, with the new political elections now that they’re done, did anything come out as a surprise that is a little more concerning or more optimistic? Do you expect budgets to come through faster or slower? How should we think about the outcome now that we know the elections?

Bob Cagnazzi

Are you talking about the overall environment or to or you talking about the spending environment within the public sector?

Jim Suva

Kind of both of it really? I mean, if you just want to take it one at a time or together, however you best want to address it?

Bob Cagnazzi

Yes, well Jim, I think it’s probably a similar answer for both. And that – we don’t anticipate any major change, decline in budgets at this point in time. Certainly, you would hope that we might be able to see budgets in the federal space be allocated and approved in a quicker fashion but at this point-in-time, we haven’t seen anything that tells us that there is a material change either way.

Jim Suva

Great. Thank you so much for the details and the clarification. Appreciate it.

Bob Cagnazzi

Thank you, Jim.

Operator

Our next question is from Ken Talanian with Evercore ISI. Please proceed.

Ken Talanian

Hi, thanks for taking the question. I wanted to follow-up on the Cisco 9000 refresh. Could you describe where we are there? And how your outlook has changed? If at all?

Bob Cagnazzi

Yes, so just going to give you a snapshot for the quarter. The backlog for the Cisco 9000 was about 25% for the quarter. So it’s still tracking really well and healthy. I still think we are early. I’ve said 8 to 12 quarters, it’s probably still in that range. We talked about it in the past, you have got a really, really large installed base that hasn’t been refreshed in 7 to 10 years that are going through a refresh. And as we and the market prove out use cases in different industries you’ll start to see the pick-up in different areas around the Cisco 9000. So I think it’s been very healthy. I things like NSX has been really healthy as well, which again is VMware’s take on software-defined networking, but the growth there has been healthy as well. We’ve got clients who are using NSX with Cisco 9000. So it’s not a – it’s even a – it’s not a zero-sum game there. But I do think the entire transition to software-defined networking and software-defined data center is still very early on.

Ken Talanian

Great. And I was wondering if you can give some more color on the Security segment? Is that an area where you expect some reacceleration in growth? Or how you’re thinking about that?

Bob Cagnazzi

Yes, we do, we do. We’ve – last year in that Security segment we grew rather healthily as well. We were up 53%. When I look at our cybersecurity services team, I think, and we don’t break that out separately as part of the security number, but I look at the cybersecurity services team, their utilization has been in the high 80s, low ‘90s. The revenue that they drove through the first quarter was solid and up and that’s a leading indicator to the progress they have pulled through.

So that’s the high-end consulting that we’re paid for upfront in addition to, obviously, something on the back-end as well. But a lot of it is upfront assessments, strategy design, development and security platform development that you then see roll out in product and professional and managed services thereafter. So the leading indicators remain good.

Ken Talanian

Got it. Thanks very much.

Bob Cagnazzi

Thank you.

Operator

[Operator Instructions] Our next question is Edward Caso with Wells Fargo. Please proceed with your question.

Bob Cagnazzi

I see Ed’s no longer in the queue?

Operator

I see he just disconnected. Do you want to give him one moment to see if he queues back in?

Bob Cagnazzi

Yes.

Elliot Brecher

Yes. We’ll wait.

Operator

Okay. [Operator Instructions] We have reached the end of the question-and-answer session. I would like to turn the call back over to Bob Cagnazzi for closing comments.

A - Bob Cagnazzi

Thank you, and thank you again for your time. I think what we saw during the first quarter is real discipline and real performance to guidance and to plan as we talked about in the Investor Day and previously, Neil Johnston and the team have been working hard to get a more predictable model and a better forecasted model in place so that we can communicate to you guys on a regular more predictable basis. And I think we saw that continue into Q1. We saw strong growth in the backlog, up 9% sequentially and 20% year-over-year.

We’ve seen that backlog grow throughout the year and I think the real comforting thing is that it is growing in the areas that are going to lead to much greater growth and predictability going forward right recurring revenue streams that continue to grow at a very good clip. We’re capturing revenues markets that are growing, managed services, public cloud services, security and certainly, in that refresh cycle around software-defined networking. We still have work to do, we certainly understand we’ve got work to do, we want to see greater acceleration in the traditional on-prem cloud and data center space.

And we believe we’ll start seeing that. But at the same time, we’re capturing that public cloud aspect of it to. So I think we’re very confident about our guidance and outlook for FY2019. We came in where we expected to be for 4Q on, and as we related to everybody at Investor Day. And so we’re very confident with the performance that we’re going to continue to see that through the rest of the FY2019. Thank you for your time.

Operator

Thank you. This concludes today’s conference. You may disconnect your lines at this time, and thank you for your participation.