Presidio, Inc. (PSDO) Q3 2019 Earnings Call Transcript

Presidio, Inc. (PSDO)
Q3 2019 Earnings Call
May. 08, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Presidio third-quarter fiscal 2019 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Elliot Brecher. Please go ahead, sir.

Elliot Brecher -- Senior Vice President, General Counsel, and Corporate Secretary

Good afternoon, and welcome to our fiscal 2019 third-quarter earnings call. Today's 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 seen our press release and the earnings presentation that were posted this afternoon.

If you have not, they are 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. 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 company does not undertake 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 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 sec.gov as well as on the Investor Relations section of Presidio's website at presidio.com. During the call, we will also discuss our non-GAAP financial measures.

These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles of 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, our chief executive officer; and Neil Johnston, our chief financial officer. Bob will begin with his perspective on the fiscal third-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 -- Chief Executive Officer

Thank you, Elliot, and good afternoon, everyone. Thank you for joining us for our third-quarter fiscal 2019 earnings call. We're extremely pleased with our performance in the third quarter where we delivered strong top line and earnings growth. Total revenue increased 7.9% to $705 million.

Pro forma adjusted net income increased 8.2% to $29 million, and pro forma diluted EPS increased 21.4% to $0.34. We believe our results in the third quarter as well as the year-to-date period reflect the increasing demand from our clients for Presidio to assist them in digitally transforming their IT infrastructure. Our services are focused on assisting them in the design, deployment and management of agile, secure multi-cloud infrastructure platforms. And this comprehensive approach drove growth across all of our integrated solution areas.

Cloud revenue increased 30% in the third quarter driven by strong demand for our public cloud offerings. Our hyperconverged offerings also showed strong growth as more and more clients look to move to a multi-cloud model, leveraging both on-premise private and public hyperscaler offerings. In the cloud solution area, we grew across all of our client categories led by the middle market overall and information technology and healthcare sectors. Security revenue increased 16% during the third quarter driven by growth in managed security services especially around security internet and event management along with security architecture and technology solutions.

This growth came from all of our client segments, again, led by the middle market overall and retail, professional services customers as well. Finally, Digital Infrastructure revenue increased 2%. We continue to see increased traction from next-generation software-defined infrastructure with automation and analytics leading to greater client demand for network upgrades. This hardware refresh cycle is in the early stages and continues to produce strong revenue increases over the prior year.

During the quarter, we saw 52% growth in our recurring revenue. This was driven by strong growth in both our public cloud and managed services offerings. To maintain and accelerate this growth, we're making investments in people and resources in cloud, managed services and security offerings. As Neil will discuss, while this will impact our EBITDA margins in the near term, we believe that this investment will drive even more profitable growth in the future and has already begun to pay dividends in terms of the revenue growth we've seen thus far this year.

As we've spoken about previously, the tremendous opportunities inherent in agile, secure and multi-cloud infrastructures are not easy for our clients to unlock. They require a provider who has deep knowledge across all three major technology segments: Cloud, Security and Digital Infrastructure, while also possessing mature, well-developed professional and managed services. These type of converged solutions represented close to 75% of our revenue in FY '18 and highlight why Presidio is the leading provider in helping clients turn complexity into agility, security and opportunity. A great example of this is a recent client of ours in the communications industry.

Our client provides critical communications services to the likes of large Tier 1 carriers, governments and many of the next-generation cloud providers. They were looking to rebuild their entire infrastructure to provide more secure and agile services to their clients. This included two new co-location centers, a rebuilt core network based on software-defined networking and software-defined wide area networking, professional services support, highly mobile security, modernized data centers with hyperconverged infrastructure and public cloud support and new wireless head-ends. Our solution had to be not only agile, secure and high performing but FedRAMP certified as well.

With the infrastructure build substantially complete, we are now in the process of evaluating the client's applications to complete their multi-cloud migration and we're providing managed desktop, managed network and voice, managed software-defined wide area networking, and managed security services to support them over the next five years. This is a complex, multi-technology, multi-vendor converged solution provided with our high-level professional and recurring services to deliver agility, security, performance and opportunity for our client. And this is typical of what many of our clients are seeking to achieve. Taking a look at our backlog.

We continue to see strong demand for our solutions. Our revenue backlog is up 33%, and our recurring revenue backlog more than doubled over the prior year and now represents 47% of our overall revenue backlog. Recurring revenue comprised 8.5% of our total revenue in the third quarter. I'm also pleased to use today's call as an opportunity to update you on a key strategic initiative we've launched inside of Presidio.

To further take advantage of our position as a key advice to our clients, we've initiated a sales transformation project called Vision 2020. This effort is focused on optimizing our sales campaigns and initiatives by empowering our sales resources with the culmination of timely and actionable data and dynamic sales enablement training. The project's objective is to focus our resources on our customers and prospects that have the greatest potential. This involves a detailed review of our sales motions and customer lead generation programs, a realignment of our sales organization to sync with our strategic business initiatives and common client characteristics and an optimization of our sales activities, account planning processes and advanced resources.

We are pleased with the results we're seeing thus far and expect the project to deepen our relationships with our clients allowing us to expand our offerings to existing clients and to refine our targeting of new prospects. This will ensure that we secure new clients who possess strong target addressable markets for Presidio solutions, and we will be able to optimize existing client wallet share. We believe this project will deliver accelerating revenue growth for the company. Our strong top line performance flowed through to the bottom line as well with third-quarter adjusted EBITDA growing 7.8% to $52.7 million and pro forma diluted EPS increased 21.4% to $0.34.

We are pleased with our strong results through the first nine months of the fiscal 2019 year. We believe these results highlight the effectiveness of our multi-cloud, multi-vendor strategy, which drives deep relationships with our clients. We have successfully leveraged these relationships into our new offerings including public cloud, managed security services and software-defined networking projects. In summary, we believe Presidio is well positioned to sustain the positive momentum across our business.

Based on our strong performance in the third quarter, we have raised our revenue outlook for fiscal 2019 again as we now expect total revenue growth of 6% to 8% for the full year. Now let me turn it over to Neil who will walk you through our financial performance in greater detail. Neil?

Neil Johnston -- Chief Financial Officer

Thanks, Bob, and good afternoon, everyone. As a reminder, our quarterly and year-to-date results found in our earnings release are summarized in the Q3 earnings presentation on our Investor Relations website. In August last year, we held an investor day and outlined five key financial priorities for 2019. I'm pleased to report that through the first nine months of the year, we are meeting and exceeding each of those goals.

With year-to-date revenue growth of 9%, we are once again raising our full-year revenue guidance. Our recurring revenue, a key focus this year, grew 52% in the quarter and is up 35% year-to-date. Our backlog continues to grow in two key strategic areas, managed services and public cloud, reflecting strong demand. Finally, we are focused on driving shareholder value with 18% year-over-year pro forma diluted EPS growth and a recurring $0.04 quarterly dividend.

Turning now to our third-quarter results. Total revenue was $705 million, up 7.9% driven by revenue growth across all of our client horizontals and across all of our solution areas. The growth was led by an 8.7% increase in product sales in the third quarter, which was driven by growth in data center and security technologies, public cloud offerings and software sales recognized on a net basis. Service revenue increased 4.8% to $131 million driven primarily by 11% growth in managed services offerings.

The growth in services was not as strong as the growth in product due to lower revenue recognition associated with lengthening of certain client engagements. We believe that this is not a long-term trend, and we continue to engage our clients in services projects driving our services revenue backlog, which is up 14% over the prior year. By customer horizontal, we saw strong growth in both our large enterprise and government horizontals with an increase of 23% and 16%, respectively, while our mid-market clients were up 3%. Within government, we saw strong traction in state and local clients.

We continue to experience accelerating growth in our backlog orders. At the end of the third quarter, our revenue backlog totaled $674 million, an increase of 33% over the prior year. The growth in backlog was driven by strong growth in both product and services, and we saw significant growth in recurring revenue backlog, which more than doubled as compared to the prior year. Our recurring revenue backlog is now 47% of our overall backlog, up from 38% at the end of the second quarter.

In the third quarter, total gross margin increased to 22.2% from 21.4% driven by an expansion of product margins primarily attributable to the strong revenue growth of software recognized on a net basis. Adjusted EBITDA increased 7.8% to $52.7 million in the third quarter, and our adjusted EBITDA margin was 7.5%, flat to the prior year as higher gross margin was offset by higher SG&A largely associated with the investments in cloud and security sales resources. On a GAAP basis, net income was $5 million and diluted EPS was $0.06 for the third quarter, which was significantly higher than the prior year primarily due to the loss on extinguishment of debt associated with the January 2018 refinancing transactions reflected in the prior year results. Our pro forma adjusted net income of $29 million was up 8.2% over the prior year, and our pro forma diluted EPS of $0.34 was an increase of 21.4% over the prior year including the accretion from the share repurchase completed in the first quarter of fiscal 2019.

Turning now to the first nine months of fiscal 2019. We saw strong revenue growth of 9.3% driven by an 11% increase in product revenue and a 1.6% increase in service revenue. Year-to-date, we have experienced strong growth in all of our solution areas with Digital Infrastructure up 10%, Security up 9% and Cloud up 7%. The success of our public cloud initiative as well as growth in managed services drove our recurring revenue up 35% over the prior year, and recurring revenue represents 6.8% of our total revenue for the year-to-date period.

We saw growth in all of our customer horizontals with government up 30%, large enterprise up 23% and mid-market up 2%. Within government, we saw significant growth with state and local clients. Total gross margin decreased by 10 basis points to 21.2% driven by strong growth in software sales recognized on a net basis offset by investments in public cloud offerings, which drove lower margins and lower revenue recognition associated with the longer delivery time of projects. Adjusted EBITDA increased 4.2% to $173 million with adjusted EBITDA margin at 7.8%.

As Bob mentioned, we are seeing a tremendous opportunity to enhance our relationships with our clients by managing all aspects of their multi-cloud environments. The demand for these offerings continues to accelerate, and we believe we've only realized a fraction of the immense growth opportunity we have seen this year. To capture this potential, we are investing in sales and engineering talent in cloud and security solution offerings. The investments we have made in our public cloud offerings are equal to approximately 20 basis points of EBITDA margin.

We expect this trend to continue into the fourth quarter as we invest in these key strategic initiatives. On a GAAP basis, net income was $25.4 million and $0.28, which declined from the prior year primarily due to the impact of U.S. tax reform. As a reminder, the positive impact of U.S.

tax reform was recorded in the prior year period and included a favorable $92 million noncash revaluation of deferred taxes. Our pro forma adjusted net income of $98.8 million was up 5.8% over the prior year. And our pro forma diluted EPS of $1.14 was an increase of 17.5% driven by strong revenue growth and the accretion from the share repurchase completed in the first quarter of fiscal 2019. Turning now to our liquidity and cash flow metrics.

We continue to produce strong free cash flow. During the third quarter, we generated $27 million of free cash flow after $9 million of cash outflows for public cloud resale and managed services investments. That takes our year-to-date free cash flow to $73 million after $27 million of year-to-date cash outflows for public cloud resale and managed services. Our free cash flow was used to make additional voluntary prepayment of $25 million on our term loans and pay a $0.04 dividend in the quarter.

Year-to-date, we have made $75 million of voluntary prepayments on our term loans, and we've declared a $0.04 dividend in each quarter of this fiscal year. We finished the quarter with total net debt of $743 million and net total leverage of 3.2x. Turning now to our outlook for the full-year fiscal 2019. Based on the strength of our results through the first nine months of the fiscal year, we've raised our full-year total revenue expectations to a range of $2.940 billion to $2.980 billion from $2.910 billion to $2.950 billion, which implies 6% to 8% year-over-year growth as compared to our previous expectation of 5% to 7% year-over-year growth.

As previously discussed, we expect our adjusted EBITDA margin for the full year to be approximately 8% before the impact of the public cloud investments of approximately 20 basis points or 7.8% after the impact of public cloud investments. We expect our pro forma diluted EPS growth for fiscal 2019 to be in the mid- to high teens including the impact of the repurchase. We expect free cash flow after the impact of investments in public cloud and managed services investments to average $25 million per quarter, a 25% increase over our prior guidance. We maintain our expectation of $10 million per quarter in cash outflows for public cloud and managed services investments.

Finally, we continue to expect that our leverage will be in the low three times range at the end of fiscal 2019 before the impact of any potential strategic acquisitions. Thank you again for joining the call today and for your continued interest in Presidio. With that, I'll turn the call over to the operator so that we can take your questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question today is coming from Ken Talanian from Evercore ISI. Your line is now live.

Ken Talanian -- Evercore ISI -- Analyst

Thanks for taking the question. You mentioned that the services revenue benefited from lengthening client engagements. Are you seeing longer engagements in specific verticals? Or is that broad-based?

Bob Cagnazzi -- Chief Executive Officer

No. It is broad-based, Ken. And what you're seeing is larger projects with multiple technologies across multiple stacks. So we talked about, at the end of last year, that 75% of our revenue was driven by clients that were consuming Digital Infrastructure, Cloud and Security.

So we're seeing more and more of those projects that are multivendor. So they're taking a longer period of time to implement and roll out, so just extended the cycle of revenue recognition on services. I think there are also some slight accounting changes with the accounting regulations. And it impacted as well or no?

Neil Johnston -- Chief Financial Officer

Not really. The effect of the longer contract just means that it does have an impact on margin, a slight decline in margin but as the projects get bigger and grow. But from an accounting impact, it's more of a timing of revenue recognition.

Bob Cagnazzi -- Chief Executive Officer

Right. So at the end of the day, the margin is what we project it to be. Just early on, there's an impact of cost. It's a little bit ahead of revenue recognition.

Neil Johnston -- Chief Financial Officer

Exactly right.

Bob Cagnazzi -- Chief Executive Officer

OK.

Ken Talanian -- Evercore ISI -- Analyst

Thank you. Got it. And on your sales reorg, what drove the decision to do that reorg now? And should we think about this as mostly being processed related or potentially also around personnel and/or internal technology?

Bob Cagnazzi -- Chief Executive Officer

So it's definitely going to be process related as a portion of it. Internal technology, we are looking at our CRM systems and their integration into our ERP systems. We get greater efficiencies and greater data into the business, into the hands of the sellers. The net of it is we did a real analysis.

We did a couple of analyses with the customers. We did a broad-based survey of our customers and prospects that fit our customer profile to find out and understand truly what they're looking for in a partner. And we had the Aberdeen Group conduct that survey for us. And the very positive aspect of it is when they're looking to make investments around technology, they're looking exactly for a partner like Presidio that's deep in technological skills, deep across multiple technology sets, has a full life cycle suite of services to support them and on and on and on.

So we confirmed what the type of values that they were looking for was exactly what Presidio had built but at the same time that we did further data analysis within our customer base to find out what were the profile of the most profitable customers for us and how can we better target new customers that better fit that profile that will have greater target addressable market within the client, greater margins, larger deal sizes, etc. So it is very much process related and tools related as well.

Ken Talanian -- Evercore ISI -- Analyst

Great. Thanks very much.

Operator

Our next question is coming from Paul Coster rom JP Morgan. Your line is now live.

Paul Coster -- J.P. Morgan -- Analyst

Yes. Thanks for taking my questions. A couple of quick ones. First up, the investment that you're making in public cloud.

Should we just simply add back 20 basis points of margin and $10 million in -- per quarter in cash flow for the next year for fiscal year '20? Is that the implication of it being an investment?

Neil Johnston -- Chief Financial Officer

That's exactly right. So you see that our margins, we expect our margins to stay at that 7.8%, which does include the impact of the investment we're making in the Cloud, and that will extend for the next 12 months.

Paul Coster -- J.P. Morgan -- Analyst

Got it. Great. And then this backlog that you have building, is there anything you can tell us about the margin profile of the backlog and the time line under which it gets recognized in general?

Bob Cagnazzi -- Chief Executive Officer

Yes. So we can tell you a little bit about the time line. I mean the margins are -- the general profile is what you've seen in the business consistently. So the gross margins really have not changed.

And then in terms of the revenue recognition portion of it, the backlog that is related to recurring revenue, those are contracts that are typically one to three years. The average is probably a little more than two years. So those will burn off over that time period. And then the portion that is not recurring revenue, that typically burns off in, say, six to nine -- six to 10 weeks.

Paul Coster -- J.P. Morgan -- Analyst

Got it. All right. That's helpful. And then finally, are there any product cycles coming up much like the Cisco Catalyst 9000 that might be tailwinds for you? Thinking in particular of some of the edge technologies that are coming out.

You've referred to a software-defined network, so on. Is there anything that you think might help you in the next 12 months?

Bob Cagnazzi -- Chief Executive Officer

Well, I mean I think you're still going to see the switching upgrade and with that, software-defined network and whether it's NSX or Cisco's ACI, so you will see that because clients are upgrading the hardware so they can build those scalable software-defined infrastructures that will support a multi-cloud environment. So you will see that hyperconverged infrastructure, security, end point security and data center-based security, you will see that. And we still expect to see solid growth in our public cloud and our managed services recurring revenue business. There's no -- I can't look at it and say, hey, there's a specific refresh cycle that's as compelling as the 9000 is at this point in time.

What you have is you just have a bunch of new products and a bunch of new initiatives that clients are running down that -- or cumulatively become very material to drive continued growth in our business.

Paul Coster -- J.P. Morgan -- Analyst

Thank you.

Operator

[Operator instructions] Our next question is coming from Ed Caso from Wells Fargo Security. Your line is now live.

Ed Caso -- Wells Fargo Securities -- Analyst

Hi. Good evening. I want to talk a little bit about the investment, particularly on the people side. Now are these just hiring expenses? Or are you having to pay up more because of very tight market for these scarce skill sets?

Bob Cagnazzi -- Chief Executive Officer

So the investments around public cloud and managed services are a combination of personnel and workload assets that are part of the contracts for public cloud and for managed services. So the market has tightened for personnel, so we're probably paying a little bit more for those people that we may have a year ago. But we are adding personnel on the architecture and in delivery and in business development sales side around both of those solution sets.

Ed Caso -- Wells Fargo Securities -- Analyst

Can you update us on Red Sky, how that's going? And maybe some thoughts on how active you may be and in what areas for additional deals.

Bob Cagnazzi -- Chief Executive Officer

Yes. Sure, Ed. So Red Sky has performed ahead of expectations. I believe, Neil, you've given the contribution of the inorganic percentage to growth, right?

Neil Johnston -- Chief Financial Officer

That's correct, Ed. It's added about 2% of growth, and that ends at the end of this quarter. So it will not impact us in fourth quarter.

Bob Cagnazzi -- Chief Executive Officer

Right. And you've only got one month of that overlap into this quarter.

Neil Johnston -- Chief Financial Officer

It's not even one month. It's basically...

Bob Cagnazzi -- Chief Executive Officer

A couple of days.

Neil Johnston -- Chief Financial Officer

Just a couple of days.

Bob Cagnazzi -- Chief Executive Officer

So it ended in Q3, not this quarter.

Neil Johnston -- Chief Financial Officer

Correct.

Bob Cagnazzi -- Chief Executive Officer

OK. So Red Sky has been performing ahead of expectations. That impact is over now. And in terms of other acquisitions, we are actively and we continue to look at the market.

We look at the opportunities all the time. As I've said many times, we are very selective about the businesses that we bring in at Presidio. Every one that we've talked about that we brought onboard, going back in time in here, have all performed better than expected at the acquisition. So we will look for the right cultural fit, the right technology fit coming with the right skills, having strong sales and engineering.

And when we find those hallmarks, we will look indeed to acquire. Outside of that, we are very selective.

Ed Caso -- Wells Fargo Securities -- Analyst

Last question is a math question for Neil. You indicated 20 basis points from your investments this quarter and next, but the full year, we've already gotten through two of those quarters -- three of those quarters, is also down by 20 basis points. So I would have thought that it would have been -- the year would have been down 10. Where am I doing my math wrong?

Neil Johnston -- Chief Financial Officer

No. We continue to invest as we move through the year. That 20 basis points will basically impact the full year. So the margin impact -- I'm giving you an annual figure, which is both for each of the quarters and the full year.

Ed Caso -- Wells Fargo Securities -- Analyst

I guess what I'm trying to figure out is what was the guidance before and what is the guidance now. So what changed? And I sort of interpreted that as the full-year guide went down 20 basis points.

Neil Johnston -- Chief Financial Officer

That's right. We guided to 8% -- basically, a margin of right around 8%.

Bob Cagnazzi -- Chief Executive Officer

We guided to approximately 8%, and we're at 7.8%, which is approximately 8%.

Neil Johnston -- Chief Financial Officer

Exactly. It's approximately 8% before the investment. Exactly. So our guidance is right in line with what we guided to.

We're giving you greater clarity around the investment we're making in private cloud and managed services.

Ed Caso -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Our next question is coming from Rod Hall from Goldman Sachs. Your line is now live.

Ashwin Kesireddy -- Goldman Sachs -- Analyst

Thanks for taking my question. This is Ashwin on behalf of Rod. Going back to the sales reorganization effort. What kind of impact is it having on your performance in the June quarter? And if you could quantify how much of the revenue shortfall do you think is contributing to in the June quarter. And sort of related to that, I was wondering if you could juxtapose a sequential performance or expected performance in the June quarter this year versus organic performance in the last quarter -- in last year fiscal Q4 and give us a sense of what are the puts and takes for the June quarter implied guidance.

Neil Johnston -- Chief Financial Officer

So Ashwin, we are not seeing a revenue decline in fourth quarter. As we look at our guidance, we've raised our full-year guidance. As in the past, we are being conservative in our outlook as we look at the fourth quarter. But as we mentioned, our backlog is up.

We're seeing good signs as we move into that fourth quarter. In terms of the Vision 2020, though that impact is not being felt yet, that project is one quarter in. We will see that impact as we move through and into next year.

Bob Cagnazzi -- Chief Executive Officer

Yes. So let me just put a finer point on it for you in terms of any thoughts there's going to be a negative impact. There's not going to be a negative impact from this. We've been piloting this throughout the year.

We ran these programs in one of our offices, and that office is up double digits since we've rolled out. So it is about really analysis, targeting those accounts that you have already and have the most potential and applying more resources to capture that wallet share. And it is targeting new clients that have the greatest potential to grow with us. That's what we're talking about.

So it's been pure upside in every pilot that we've run so far. So I wouldn't come out of this thinking that there's going to be a drag on revenue. And to characterize it as sales reorganization is not correct, right? It is a sales enhancement and investments around tools and processes and people.

Ashwin Kesireddy -- Goldman Sachs -- Analyst

Thank you.

Operator

[Operator instructions] Our next question today is coming from Tim Yang from Citi. Your line is now live.

Tim Yang -- Citi -- Analyst

On your Slide 6, there are two pie charts, revenue by solution and the revenue by customer horizon. It appears that Cloud revenue is mainly with large customers. Can you talk about, number one, am I reading those pie charts correctly? And number two, with the investment in Cloud, how should we think about the customer price and mix for mid-market and large customer and government going -- in the next three years? Thank you.

Neil Johnston -- Chief Financial Officer

Yes. So Tim, as you look at those pie charts, they are unrelated to one another. So the one is -- think about it like two dimensions. One of them is breaking it up by solution area, so you've got DI, Cloud and Security.

And the other is breaking it up by mid-market, large or government. We have seen very strong growth in both Cloud and Security. We have also seen very strong growth in our large clients. Yes.

Bob Cagnazzi -- Chief Executive Officer

Yes. So Tim, just to expand that further. We've talked in the past about how these technologies are converging, and every project that we do -- virtually, every project that we do has elements of Digital Infrastructure, Cloud and Security in them. It is becoming increasingly difficult to segment, say, a $25 million project between a bucket for Security, a bucket for Cloud and a bucket for Digital Infrastructure.

So what you will see next year is we will be going away from those segmentations and sticking just with the client segmentation. So that's a cleaner presentation and a lot more understandable for people. We may be able to pull out specific SKUs and talk about public cloud growth or routing growth or storage growth. But to do the project-based solution growth has become very difficult, and these solution sets have merged into singular projects.

Tim Yang -- Citi -- Analyst

And then with the investment in cloud, what's the implication for your customer price and mix for -- in the next three years for mid-market, large customer and government?

Bob Cagnazzi -- Chief Executive Officer

Yes. It shouldn't have much impact on the mix to be quite honest with you. The clients that we have in the program now are really across all client segments.

Tim Yang -- Citi -- Analyst

Thank you.

Operator

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Bob for any further closing comments.

Bob Cagnazzi -- Chief Executive Officer

All right. Thank you. So just to summarize, again, the growth we're seeing in the business is in the areas that we've talked about consistently even before investor day this year, the move to agile, secure infrastructures to support multi-cloud environment. So you're seeing that growth across the technology broad swath.

You're seeing backlog building that continues to support future growth and more predictable growth as that recurring revenue backlog builds. You're seeing us refine our systems and processes to get laser like and pinpoint in order to get a greater wallet share out of existing clients and get new clients in that have the most potential for Presidio to continue to succeed. And we've seen those pilots that have continued -- that have proven out that theory. So we're growing in all the technological areas that we believe clients are interested in.

We are continuing to pay down debt, continuing to have great working capital and cash flow, and we are raising guidance yet again. So we're very, very pleased with where we are. We're very pleased with where we're positioned. Thank you.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Elliot Brecher -- Senior Vice President, General Counsel, and Corporate Secretary

Bob Cagnazzi -- Chief Executive Officer

Neil Johnston -- Chief Financial Officer

Ken Talanian -- Evercore ISI -- Analyst

Paul Coster -- J.P. Morgan -- Analyst

Ed Caso -- Wells Fargo Securities -- Analyst

Ashwin Kesireddy -- Goldman Sachs -- Analyst

Tim Yang -- Citi -- Analyst

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