Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported
operating results for the second quarter of fiscal year 2024, ended
December 29, 2023.
“In the second quarter of this transitional year, we focused on
the two dynamics in our business that we believe are
transitory—shifting our high mix of development programs to
production and converting our high level of working capital into
significant cash flow,” said Bill Ballhaus, Mercury’s Chairman and
CEO. “While our financial performance was diminished by a number of
factors, including what we believe is outsized program cost growth
as well as manufacturing adjustments and contract settlements, we
made solid headway in each of our four priority focus areas –
delivering predictable performance, building a thriving growth
engine, expanding margins, and driving improved free cash
flow.”
“In the quarter we received a near-record $325.4 million of
bookings, reflecting a 1.65 book-to-bill ratio. We delivered $45.5
million of operating cash and $37.5 million in positive free cash
flow. We made better-than-anticipated progress on our challenged
programs, completing an additional four programs. And we
consolidated our operations into a single, integrated operating
unit that will eliminate redundancy and deliver an incremental $20
million in annual run-rate savings.”
Second Quarter Fiscal
2024 Results
Total Company second quarter fiscal 2024 revenues were $197.5
million, compared to $229.6 million in the second quarter of fiscal
2023.
Total bookings for the second quarter of fiscal 2024 were $325.4
million, yielding a book-to-bill ratio of 1.65 for the quarter.
Total Company GAAP net loss and loss per share for the second
quarter of fiscal 2024 was ($45.6) million, and ($0.79),
respectively, compared to GAAP net loss and loss per share of
($10.9) million, and ($0.19), respectively, for the second quarter
of fiscal 2023. Adjusted (loss) earnings per share (“adjusted EPS”)
was ($0.42) per share for the second quarter of fiscal 2024,
compared to $0.26 per share in the second quarter of fiscal
2023.
Second quarter fiscal 2024 adjusted EBITDA for the total Company
was ($21.3) million, compared to $35.7 million for the second
quarter of fiscal 2023.
Cash flows provided by operating activities in the second
quarter of fiscal 2024 were $45.5 million, compared to $35.4
million in the second quarter of fiscal 2023. Free cash flow,
defined as cash flows from operating activities less capital
expenditures for property and equipment, was $37.5 million for the
second quarter of fiscal 2024 and $22.2 million for the second
quarter of fiscal 2023.
Backlog
Mercury’s total backlog at December 29, 2023 was $1.28 billion,
a $160.5 million increase from a year ago. Of the December 29, 2023
total backlog, $786.4 million represents orders expected to be
recognized as revenue within the next 12 months.
Business Outlook
This section presents our current expectations and estimates for
revenue, given current visibility, on our business outlook for
fiscal year 2024. It is possible that actual performance will
differ materially from the estimates given, either on the upside or
on the downside. Investors should consider all of the risks with
respect to these estimates, including those listed in the Safe
Harbor Statement below and in the Second Quarter Fiscal 2024
Earnings Presentation and in our periodic filings with the U.S.
Securities and Exchange Commission, and make themselves aware of
how these risks may impact our actual performance. All references
in this press release to the full fiscal 2024 are to the 52-week
period ending June 28, 2024.
For the full fiscal year 2024, revenues are forecasted to be in
the range of $800.0 million to $850.0 million based on our first
half revenue performance coupled with reduced volumes expected in
the second half. Our first half revenue performance, particularly
in the second quarter, included significant revenue reductions due
to program cost growth. In addition, we expect lower volumes in the
second half as we continue to apply our operational capacity to
advance challenged and late-stage development programs as well as
reduce working capital especially related to unbilled receivables.
Our demand remains strong and our outlook for bookings is
unchanged. We continue to expect bookings to exceed $1 billion for
the full fiscal year.
The reduction in full year revenue guidance naturally yields a
reduction to expected GAAP and Non-GAAP results as well. GAAP net
(loss) income and GAAP (loss) earnings per share as well as
adjusted EBITDA and adjusted (loss) earnings per share guidance
provided on November 7, 2023 is being withdrawn given uncertainty
of timing and range of additional potential actions to settle
contractual arrangements or continued adjustments to our cost
structure, where appropriate. Operating cash flow as well as free
cash flow are expected to be positive for the second half of the
year and full fiscal year. Covenant net leverage is expected to
stay well within the thresholds allowed in our credit agreement for
the remainder of the fiscal year.
Conference Call Information
Management will host a conference call and simultaneous webcast
at 5:00 p.m. ET on Tuesday, February 6, 2024, to discuss
Mercury's quarterly financial results, business highlights and
outlook. In addition, Company representatives may answer questions
concerning business and financial developments and trends, the
Company's view on earnings forecasts, and other business and
financial matters affecting the Company, the responses to which may
contain information that has not been previously disclosed.
To attend the conference call or webcast, participants should
register online at ir.mrcy.com/events-presentations. Participants
are requested to register a day in advance or at a minimum 15
minutes before the start of the call. A replay of the webcast will
be available two hours after the call and archived on the same web
page for six months.
Use of Non-GAAP Financial Measures In addition
to reporting financial results in accordance with generally
accepted accounting principles, or GAAP, the Company provides
adjusted EBITDA, adjusted income, adjusted earnings per share
(“adjusted EPS”), free cash flow, organic revenue and acquired
revenue, which are non-GAAP financial measures. Adjusted EBITDA,
adjusted income, and adjusted EPS exclude certain non-cash and
other specified charges. The Company believes these non-GAAP
financial measures are useful to help investors understand its past
financial performance and prospects for the future. However, these
non-GAAP measures should not be considered in isolation or as a
substitute for financial information provided in accordance with
GAAP. Management believes these non-GAAP measures assist in
providing a more complete understanding of the Company’s underlying
operational results and trends, and management uses these measures
along with the corresponding GAAP financial measures to manage the
Company’s business, to evaluate its performance compared to prior
periods and the marketplace, and to establish operational goals. A
reconciliation of GAAP to non-GAAP financial results discussed in
this press release is contained in the attached exhibits.
Mercury Systems – Innovation that
Matters®Mercury Systems is a technology company that
delivers mission-critical processing power to the edge, making
advanced technologies profoundly more accessible for today’s most
challenging aerospace and defense missions. The Mercury Processing
Platform allows customers to tap into innovative capabilities from
silicon to system scale, turning data into decisions on timelines
that matter. Mercury’s products and solutions are deployed in more
than 300 programs and across 35 countries, enabling a broad range
of applications in mission computing, sensor processing, command
and control, and communications. Mercury is headquartered in
Andover, Massachusetts, and has 24 locations worldwide. To learn
more, visit mrcy.com. (Nasdaq: MRCY)
Investors and others should note that we announce material
financial information using our website (www.mrcy.com), SEC
filings, press releases, public conference calls, webcasts, and
social media, including Twitter (twitter.com/mrcy) and LinkedIn
(www.linkedin.com/company/mercury-systems). Therefore, we encourage
investors and others interested in Mercury to review the
information we post on the social media and other communication
channels listed on our website.
Forward-Looking Safe Harbor StatementThis press
release contains certain forward-looking statements, as that term
is defined in the Private Securities Litigation Reform Act of 1995,
including those relating to the Company's focus on enhanced
execution of the Company's strategic plan under a refreshed Board
and leadership team. You can identify these statements by the words
“may,” “will,” “could,” “should,” “would,” “plans,” “expects,”
“anticipates,” “continue,” “estimate,” “project,” “intend,”
“likely,” “forecast,” “probable,” “potential,” and similar
expressions. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those projected or anticipated. Such risks and uncertainties
include, but are not limited to, continued funding of defense
programs, the timing and amounts of such funding, general economic
and business conditions, including unforeseen weakness in the
Company’s markets, effects of any U.S. federal government shutdown
or extended continuing resolution, effects of geopolitical unrest
and regional conflicts, competition, changes in technology and
methods of marketing, delays in or cost increases related to
completing development, engineering and manufacturing programs,
changes in customer order patterns, changes in product mix,
continued success in technological advances and delivering
technological innovations, changes in, or in the U.S. government’s
interpretation of, federal export control or procurement rules and
regulations, changes in, or in the interpretation or enforcement
of, environmental rules and regulations, market acceptance of the
Company's products, shortages in or delays in receiving components,
supply chain delays or volatility for critical components such as
semiconductors, production delays or unanticipated expenses
including due to quality issues or manufacturing execution issues,
capacity underutilization, increases in scrap or inventory
write-offs, failure to achieve or maintain manufacturing quality
certifications, such as AS9100, the impact of supply chain
disruption, inflation and labor shortages, among other things, on
program execution and the resulting effect on customer
satisfaction, inability to fully realize the expected benefits from
acquisitions, restructurings, and operational efficiency
initiatives or delays in realizing such benefits, challenges in
integrating acquired businesses and achieving anticipated
synergies, effects of shareholder activism, increases in interest
rates, changes to industrial security and cyber-security
regulations and requirements and impacts from any cyber or insider
threat events, changes in tax rates or tax regulations, such as the
deductibility of internal research and development, changes to
interest rate swaps or other cash flow hedging arrangements,
changes to generally accepted accounting principles, difficulties
in retaining key employees and customers, litigation, including the
dispute arising with the former CEO over his resignation,
unanticipated costs under fixed-price service and system
integration engagements, and various other factors beyond our
control. These risks and uncertainties also include such additional
risk factors as are discussed in the Company's filings with the
U.S. Securities and Exchange Commission, including its Annual
Report on Form 10-K for the fiscal year ended June 30, 2023 and
subsequent Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K. The Company cautions readers not to place undue reliance
upon any such forward-looking statements, which speak only as of
the date made. The Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which such statement is made.
Contact:David E. Farnsworth, CFOMercury Systems,
Inc.978-967-1991
Mercury Systems and Innovation That Matters are registered
trademarks of Mercury Systems, Inc. Other product and company names
mentioned may be trademarks and/or registered trademarks of their
respective holders.
|
|
MERCURY
SYSTEMS, INC. |
|
UNAUDITED
CONSOLIDATED BALANCE SHEETS |
|
(In thousands) |
|
|
|
|
|
|
December 29, |
|
June 30, |
|
|
2023 |
|
2023 |
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
168,646 |
|
$ |
71,563 |
Accounts receivable, net |
|
|
82,737 |
|
|
124,729 |
Unbilled receivables and costs in excess of billings, net |
|
|
351,003 |
|
|
382,558 |
Inventory |
|
|
354,212 |
|
|
337,216 |
Prepaid income taxes |
|
|
5,753 |
|
|
— |
Prepaid expenses and other current assets |
|
|
21,470 |
|
|
20,952 |
Total current assets |
|
|
983,821 |
|
|
937,018 |
|
|
|
|
|
Property and equipment, net |
|
|
114,361 |
|
|
119,554 |
Goodwill |
|
|
938,093 |
|
|
938,093 |
Intangible assets, net |
|
|
273,309 |
|
|
298,051 |
Operating lease right-of-use
assets, net |
|
|
65,657 |
|
|
63,015 |
Deferred tax asset |
|
|
55,426 |
|
|
27,099 |
Other non-current assets |
|
|
5,585 |
|
|
8,537 |
Total assets |
|
$ |
2,436,252 |
|
$ |
2,391,367 |
|
|
|
|
|
Liabilities and Shareholders’
Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
88,060 |
|
$ |
103,986 |
Accrued expenses |
|
|
31,484 |
|
|
28,423 |
Accrued compensation |
|
|
25,133 |
|
|
30,419 |
Income taxes payable |
|
|
— |
|
|
13,874 |
Deferred revenues and customer advances |
|
|
81,044 |
|
|
56,562 |
Total current liabilities |
|
|
225,721 |
|
|
233,264 |
|
|
|
|
|
Income taxes payable |
|
|
5,166 |
|
|
5,166 |
Long-term debt |
|
|
616,500 |
|
|
511,500 |
Operating lease
liabilities |
|
|
68,252 |
|
|
66,797 |
Other non-current
liabilities |
|
|
16,121 |
|
|
7,955 |
Total liabilities |
|
|
931,760 |
|
|
824,682 |
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Preferred stock |
|
|
— |
|
|
— |
Common stock |
|
|
576 |
|
|
570 |
Additional paid-in capital |
|
|
1,220,343 |
|
|
1,196,847 |
Retained earnings |
|
|
275,150 |
|
|
357,439 |
Accumulated other comprehensive income |
|
|
8,423 |
|
|
11,829 |
Total shareholders’ equity |
|
|
1,504,492 |
|
|
1,566,685 |
Total liabilities and shareholders’ equity |
|
$ |
2,436,252 |
|
$ |
2,391,367 |
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
|
|
|
|
|
|
|
|
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
|
(In thousands, except per
share data) |
|
|
|
|
|
|
|
|
|
|
Second Quarters Ended |
|
Six Months Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
|
December 29, 2023 |
|
December 30, 2022 |
Net revenues |
|
$ |
197,463 |
|
|
$ |
229,588 |
|
|
$ |
378,454 |
|
|
$ |
457,167 |
|
Cost of revenues(1) |
|
|
165,943 |
|
|
|
148,628 |
|
|
|
296,407 |
|
|
|
298,112 |
|
Gross margin |
|
|
31,520 |
|
|
|
80,960 |
|
|
|
82,047 |
|
|
|
159,055 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative(1) |
|
|
44,470 |
|
|
|
45,057 |
|
|
|
80,264 |
|
|
|
84,000 |
|
Research and development(1) |
|
|
28,476 |
|
|
|
26,906 |
|
|
|
60,348 |
|
|
|
54,672 |
|
Amortization of intangible assets |
|
|
12,270 |
|
|
|
13,536 |
|
|
|
24,817 |
|
|
|
28,110 |
|
Restructuring and other charges |
|
|
2 |
|
|
|
2,069 |
|
|
|
9,548 |
|
|
|
3,577 |
|
Acquisition costs and other related expenses |
|
|
231 |
|
|
|
939 |
|
|
|
1,200 |
|
|
|
3,437 |
|
Total operating expenses |
|
|
85,449 |
|
|
|
88,507 |
|
|
|
176,177 |
|
|
|
173,796 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(53,929 |
) |
|
|
(7,547 |
) |
|
|
(94,130 |
) |
|
|
(14,741 |
) |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
29 |
|
|
|
220 |
|
|
|
132 |
|
|
|
249 |
|
Interest expense |
|
|
(8,674 |
) |
|
|
(6,590 |
) |
|
|
(16,537 |
) |
|
|
(11,137 |
) |
Other (expense) income,
net |
|
|
(1,148 |
) |
|
|
846 |
|
|
|
(2,922 |
) |
|
|
(2,799 |
) |
|
|
|
|
|
|
|
|
|
Loss before income taxes
benefit |
|
|
(63,722 |
) |
|
|
(13,071 |
) |
|
|
(113,457 |
) |
|
|
(28,428 |
) |
Income tax benefit(2) |
|
|
(18,141 |
) |
|
|
(2,151 |
) |
|
|
(31,168 |
) |
|
|
(3,173 |
) |
Net loss |
|
$ |
(45,581 |
) |
|
$ |
(10,920 |
) |
|
$ |
(82,289 |
) |
|
$ |
(25,255 |
) |
|
|
|
|
|
|
|
|
|
Basic net loss per share |
|
$ |
(0.79 |
) |
|
$ |
(0.19 |
) |
|
$ |
(1.44 |
) |
|
$ |
(0.45 |
) |
|
|
|
|
|
|
|
|
|
Diluted net loss earnings per
share |
|
$ |
(0.79 |
) |
|
$ |
(0.19 |
) |
|
$ |
(1.44 |
) |
|
$ |
(0.45 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
57,424 |
|
|
|
56,252 |
|
|
|
57,314 |
|
|
|
56,126 |
|
Diluted |
|
|
57,424 |
|
|
|
56,252 |
|
|
|
57,314 |
|
|
|
56,126 |
|
|
|
|
|
|
|
|
|
|
(1) Includes
stock-based compensation expense, allocated as follows: |
Cost of revenues |
|
$ |
4 |
|
|
$ |
237 |
|
|
$ |
820 |
|
|
$ |
1,036 |
|
Selling, general and administrative |
|
$ |
5,742 |
|
|
$ |
8,277 |
|
|
$ |
7,503 |
|
|
$ |
13,155 |
|
Research and development |
|
$ |
1,640 |
|
|
$ |
1,744 |
|
|
$ |
3,180 |
|
|
$ |
3,316 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
|
|
|
|
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Second Quarters Ended |
|
Six Months Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
|
December 29, 2023 |
|
December 30, 2022 |
Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(45,581 |
) |
|
$ |
(10,920 |
) |
|
$ |
(82,289 |
) |
|
$ |
(25,255 |
) |
Depreciation and amortization |
|
|
22,193 |
|
|
|
27,233 |
|
|
|
44,885 |
|
|
|
50,934 |
|
Other non-cash items, net |
|
|
1,640 |
|
|
|
(8,205 |
) |
|
|
(2,011 |
) |
|
|
609 |
|
Cash settlement for termination of interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
7,403 |
|
|
|
5,995 |
|
Changes in operating assets and liabilities |
|
|
67,242 |
|
|
|
27,284 |
|
|
|
38,438 |
|
|
|
(62,930 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
45,494 |
|
|
|
35,392 |
|
|
|
6,426 |
|
|
|
(30,647 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(7,990 |
) |
|
|
(13,176 |
) |
|
|
(16,005 |
) |
|
|
(20,504 |
) |
Other investing activities |
|
|
— |
|
|
|
52 |
|
|
|
— |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,990 |
) |
|
|
(13,124 |
) |
|
|
(16,005 |
) |
|
|
(20,402 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Proceeds from employee stock plans |
|
|
3,163 |
|
|
|
2,393 |
|
|
|
3,163 |
|
|
|
2,393 |
|
Borrowings under credit facilities |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
105,000 |
|
|
|
100,000 |
|
Payments under credit facilities |
|
|
— |
|
|
|
(40,000 |
) |
|
|
— |
|
|
|
(40,000 |
) |
Payments of deferred financing and offering costs |
|
|
(1,931 |
) |
|
|
— |
|
|
|
(1,931 |
) |
|
|
— |
|
Payments for retirement of common stock |
|
|
(15 |
) |
|
|
— |
|
|
|
(15 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
41,217 |
|
|
|
2,393 |
|
|
|
106,217 |
|
|
|
62,330 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
|
556 |
|
|
|
302 |
|
|
|
445 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents |
|
|
79,277 |
|
|
|
24,963 |
|
|
|
97,083 |
|
|
|
11,290 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
beginning of period |
|
|
89,369 |
|
|
|
51,981 |
|
|
|
71,563 |
|
|
|
65,654 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
168,646 |
|
|
$ |
76,944 |
|
|
$ |
168,646 |
|
|
$ |
76,944 |
|
UNAUDITED
SUPPLEMENTAL INFORMATION RECONCILIATION OF GAAP TO NON-GAAP
MEASURES |
(In thousands) |
|
|
|
|
|
|
Adjusted EBITDA, a non-GAAP measure for reporting financial
performance, excludes the impact of certain items and, therefore,
has not been calculated in accordance with GAAP. Management
believes that exclusion of these items assists in providing a more
complete understanding of the Company’s underlying results and
trends, and management uses these measures along with the
corresponding GAAP financial measures to manage the Company’s
business, to evaluate its performance compared to prior periods and
the marketplace, and to establish operational goals. The
adjustments to calculate this non-GAAP financial measure, and the
basis for such adjustments, are outlined below:
Other non-operating adjustments. The Company records other
non-operating adjustments such as gains or losses on foreign
currency remeasurement, investments and fixed asset sales or
disposals among other adjustments. These adjustments may vary from
period to period without any direct correlation to underlying
operating performance.
Interest income and expense. The Company receives interest
income on investments and incurs interest expense on loans,
financing leases and other financing arrangements. These amounts
may vary from period to period due to changes in cash and debt
balances and interest rates driven by general market conditions or
other circumstances outside of the normal course of the Company’s
operations.
Income taxes. The Company’s GAAP tax expense can fluctuate
materially from period to period due to tax adjustments that are
not directly related to underlying operating performance or to the
current period of operations.
Depreciation. The Company incurs depreciation expense related to
capital assets purchased to support the ongoing operations of the
business. These assets are recorded at cost or fair value and are
depreciated using the straight-line method over the useful life of
the asset. Purchases of such assets may vary significantly from
period to period and without any direct correlation to underlying
operating performance.
Amortization of intangible assets. The Company incurs
amortization of intangible assets primarily as a result of acquired
intangible assets such as backlog, customer relationships and
completed technologies but also due to licenses, patents and other
arrangements. These intangible assets are valued at the time of
acquisition or upon receipt of right to use the asset, amortized
over the requisite life and generally cannot be changed or
influenced by management after acquisition.
Restructuring and other charges. The Company incurs
restructuring and other charges in connection with management’s
decisions to undertake certain actions to realign operating
expenses through workforce reductions and the closure of certain
Company facilities, businesses and product lines. The Company’s
adjustments reflected in restructuring and other charges are
typically related to acquisitions and organizational redesign
programs initiated as part of discrete post-acquisition integration
activities. Management believes these items are non-routine and may
not be indicative of ongoing operating results.
Impairment of long-lived assets. The Company incurs impairment
charges of long-lived assets based on events that may or may not be
within the control of management. Management believes these items
are outside the normal operations of the Company’s business and are
not indicative of ongoing operating results.
Acquisition, financing and other third party costs. The Company
incurs transaction costs related to acquisition and potential
acquisition opportunities, such as legal, accounting, and other
third party advisory fees. The Company may also incur third party
costs, such as legal, banking, communications, proxy solicitation,
and other third party advisory fees in connection with engagements
by activist investors or unsolicited acquisition offers. Although
the Company may incur such third party costs and other related
charges and adjustments, it is not indicative that any transaction
will be consummated. Additionally, the Company incurs unused
revolver and bank fees associated with maintaining its credit
facility as well as non-cash financing expenses associated with
obtaining its credit facility. Management believes these items are
outside the normal operations of the Company’s business and are not
indicative of ongoing operating results.
Fair value adjustments from purchase accounting. As a result of
applying purchase accounting rules to acquired assets and
liabilities, certain fair value adjustments are recorded in the
opening balance sheet of acquired companies. These adjustments
are then reflected in the Company’s income statements in periods
subsequent to the acquisition. In addition, the impact of any
changes to originally recorded contingent consideration amounts are
reflected in the income statements in the period of the change.
Management believes these items are outside the normal operations
of the Company and are not indicative of ongoing operating
results.
Litigation and settlement income and expense. The Company
periodically receives income and incurs expenses related to pending
claims and litigation and associated legal fees and potential case
settlements and/or judgments. Although the Company may incur such
costs and other related charges and adjustments, it is not
indicative of any particular outcome until the matter is fully
resolved. Management believes these items are outside the normal
operations of the Company’s business and are not indicative of
ongoing operating results. The Company periodically receives
warranty claims from customers and makes warranty claims towards
its vendors and supply chain. Management believes the expenses and
gains associated with these recurring warranty items are within the
normal operations and operating cycle of the Company’s business.
Therefore, management deems no adjustments are necessary unless
under extraordinary circumstances.
COVID related expenses. The Company incurred costs associated
with the COVID pandemic. These costs relate primarily to enhanced
compensation and benefits for employees as well as incremental
supplies and services to support social distancing and mitigate the
spread of COVID. These costs include expanded sick pay related to
COVID, overtime, the Mercury Employee COVID Relief Fund, meals and
other compensation-related expenses as well as ongoing testing for
onsite employees. Management believes these items are outside the
normal operations of the Company and are not indicative of ongoing
operating results.
Stock-based and other non-cash compensation expense. The Company
incurs expense related to stock-based compensation included in its
GAAP presentation of cost of revenues, selling, general and
administrative expense and research and development expense. The
Company also incurs non-cash based compensation in the form of
pension related expenses and matching contributions to its defined
contribution plan. Although stock-based and other non-cash
compensation is an expense of the Company and viewed as a form of
compensation, these expenses vary in amount from period to period,
and are affected by market forces that are difficult to predict and
are not within the control of management, such as the market price
and volatility of the Company’s shares, risk-free interest rates
and the expected term and forfeiture rates of the awards, as well
as pension actuarial assumptions. Management believes that
exclusion of these expenses allows comparisons of operating results
to those of other companies, both public, private or foreign, that
disclose non-GAAP financial measures that exclude stock-based
compensation and other non-cash compensation.
Mercury uses adjusted EBITDA as an important indicator of the
operating performance of its business. Management excludes the
above-described items from its internal forecasts and models when
establishing internal operating budgets, supplementing the
financial results and forecasts reported to the Company’s board of
directors, determining a portion of bonus compensation for
executive officers and other key employees based on operating
performance, evaluating short-term and long-term operating trends
in the Company’s operations, and allocating resources to various
initiatives and operational requirements. The Company believes that
adjusted EBITDA permits a comparative assessment of its operating
performance, relative to its performance based on its GAAP results,
while isolating the effects of charges that may vary from period to
period without any correlation to underlying operating performance.
The Company believes that these non-GAAP financial adjustments are
useful to investors because they allow investors to evaluate the
effectiveness of the methodology and information used by management
in its financial and operational decision-making. The Company
believes that trends in its adjusted EBITDA are valuable indicators
of its operating performance.
Adjusted EBITDA is a non-GAAP financial measure and should not
be considered in isolation or as a substitute for financial
information provided in accordance with GAAP. This non-GAAP
financial measure may not be computed in the same manner as
similarly titled measures used by other companies. The Company
expects to continue to incur expenses similar to the adjusted
EBITDA financial adjustments described above, and investors should
not infer from the Company’s presentation of this non-GAAP
financial measure that these costs are unusual, infrequent or
non-recurring.
The following table reconciles the most directly comparable GAAP
financial measure to the non-GAAP financial measure.
|
|
Second Quarters Ended |
|
Six Months Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
|
December 29, 2023 |
|
December 30, 2022 |
Net loss |
|
$ |
(45,581 |
) |
|
$ |
(10,920 |
) |
|
$ |
(82,289 |
) |
|
$ |
(25,255 |
) |
Other non-operating adjustments, net |
|
|
(1,042 |
) |
|
|
(1,463 |
) |
|
|
(311 |
) |
|
|
334 |
|
Interest expense, net |
|
|
8,645 |
|
|
|
6,370 |
|
|
|
16,405 |
|
|
|
10,888 |
|
Income tax benefit |
|
|
(18,141 |
) |
|
|
(2,151 |
) |
|
|
(31,168 |
) |
|
|
(3,173 |
) |
Depreciation |
|
|
9,923 |
|
|
|
13,697 |
|
|
|
20,068 |
|
|
|
22,824 |
|
Amortization of intangible assets |
|
|
12,270 |
|
|
|
13,536 |
|
|
|
24,817 |
|
|
|
28,110 |
|
Restructuring and other charges |
|
|
2 |
|
|
|
2,069 |
|
|
|
9,548 |
|
|
|
3,577 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisition, financing and other third party costs |
|
|
860 |
|
|
|
1,309 |
|
|
|
2,192 |
|
|
|
4,173 |
|
Fair value adjustments from purchase accounting |
|
|
178 |
|
|
|
177 |
|
|
|
355 |
|
|
|
1 |
|
Litigation and settlement expense, net |
|
|
1,383 |
|
|
|
70 |
|
|
|
1,886 |
|
|
|
1,375 |
|
COVID related expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
61 |
|
Stock-based and other non-cash compensation expense |
|
|
10,195 |
|
|
|
13,003 |
|
|
|
19,146 |
|
|
|
23,943 |
|
Adjusted EBITDA |
|
$ |
(21,308 |
) |
|
$ |
35,697 |
|
|
$ |
(19,351 |
) |
|
$ |
66,858 |
|
Free cash flow, a non-GAAP measure for reporting cash flow, is
defined as cash provided by operating activities less capital
expenditures for property and equipment, which includes capitalized
software development costs, and, therefore, has not been calculated
in accordance with GAAP. Management believes free cash flow
provides investors with an important perspective on cash available
for investment and acquisitions after making capital investments
required to support ongoing business operations and long-term value
creation. The Company believes that trends in its free cash flow
are valuable indicators of its operating performance and
liquidity.
Free cash flow is a non-GAAP financial measure and should not be
considered in isolation or as a substitute for financial
information provided in accordance with GAAP. This non-GAAP
financial measure may not be computed in the same manner as
similarly titled measures used by other companies. The Company
expects to continue to incur expenditures similar to the free cash
flow financial adjustment described above, and investors should not
infer from the Company’s presentation of this non-GAAP financial
measure that these expenditures reflect all of the Company's
obligations which require cash.
The following table reconciles the most directly comparable GAAP
financial measure to the non-GAAP financial measure.
|
|
Second Quarters Ended |
|
Six Months Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
|
December 29, 2023 |
|
December 30, 2022 |
Net cash provided by (used in) operating activities |
|
$ |
45,494 |
|
|
$ |
35,392 |
|
|
$ |
6,426 |
|
|
$ |
(30,647 |
) |
Purchases of property and equipment |
|
|
(7,990 |
) |
|
|
(13,176 |
) |
|
|
(16,005 |
) |
|
|
(20,504 |
) |
Free cash flow |
|
$ |
37,504 |
|
|
$ |
22,216 |
|
|
$ |
(9,579 |
) |
|
$ |
(51,151 |
) |
UNAUDITED
SUPPLEMENTAL INFORMATION RECONCILIATION OF GAAP TO NON-GAAP
MEASURES |
(In thousands, except per
share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income and adjusted earnings per share (“adjusted EPS”)
are non-GAAP measures for reporting financial performance, exclude
the impact of certain items and, therefore, have not been
calculated in accordance with GAAP. Management believes that
exclusion of these items assists in providing a more complete
understanding of the Company’s underlying results and trends and
allows for comparability with its peer company index and industry.
These non-GAAP financial measures may not be computed in the same
manner as similarly titled measures used by other companies. The
Company uses these measures along with the corresponding GAAP
financial measures to manage the Company’s business and to evaluate
its performance compared to prior periods and the marketplace. The
Company defines adjusted income as income before other
non-operating adjustments, amortization of intangible assets,
restructuring and other charges, impairment of long-lived assets,
acquisition, financing and other third party costs, fair value
adjustments from purchase accounting, litigation and settlement
income and expense, COVID related expenses, and stock-based and
other non-cash compensation expense. The impact to income taxes
includes the impact to the effective tax rate, current tax
provision and deferred tax provision(1). Adjusted EPS expresses
adjusted income on a per share basis using weighted average diluted
shares outstanding.
The following tables reconcile the most directly comparable GAAP
financial measures to the non-GAAP financial measures.
|
|
Second Quarters Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
Net loss and loss per share |
|
$ |
(45,581 |
) |
|
$ |
(0.79 |
) |
|
$ |
(10,920 |
) |
|
$ |
(0.19 |
) |
Other non-operating adjustments, net |
|
|
(1,042 |
) |
|
|
|
|
(1,463 |
) |
|
|
Amortization of intangible assets |
|
|
12,270 |
|
|
|
|
|
13,536 |
|
|
|
Restructuring and other charges |
|
|
2 |
|
|
|
|
|
2,069 |
|
|
|
Impairment of long-lived assets |
|
|
— |
|
|
|
|
|
— |
|
|
|
Acquisition, financing and other third party costs |
|
|
860 |
|
|
|
|
|
1,309 |
|
|
|
Fair value adjustments from purchase accounting |
|
|
178 |
|
|
|
|
|
177 |
|
|
|
Litigation and settlement expense, net |
|
|
1,383 |
|
|
|
|
|
70 |
|
|
|
COVID related expenses |
|
|
— |
|
|
|
|
|
— |
|
|
|
Stock-based and other non-cash compensation expense |
|
|
10,195 |
|
|
|
|
|
13,003 |
|
|
|
Impact to income taxes(1) |
|
|
(2,446 |
) |
|
|
|
|
(3,039 |
) |
|
|
Adjusted (loss) income and
adjusted (loss) earnings per share(2) |
|
$ |
(24,181 |
) |
|
$ |
(0.42 |
) |
|
$ |
14,742 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average
shares outstanding |
|
|
|
|
57,424 |
|
|
|
|
|
56,477 |
|
|
|
|
(1) Impact to income taxes is calculated by recasting income
before income taxes to include the items involved in determining
adjusted income and recalculating the income tax provision using
this adjusted income from operations before income taxes. The
recalculation also adjusts for any discrete tax expense or benefit
related to the items.
(2) Loss per share and adjusted loss per share is calculated
using basic shares whereas earnings per share and adjusted earnings
per share is calculated using diluted shares. There was no impact
to the calculation of adjusted earnings per share as a result of
this for the second quarter ended December 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
Net loss and loss per share |
|
$ |
(82,289 |
) |
|
$ |
(1.44 |
) |
|
$ |
(25,255 |
) |
|
$ |
(0.45 |
) |
Other non-operating adjustments, net |
|
|
(311 |
) |
|
|
|
|
334 |
|
|
|
Amortization of intangible assets |
|
|
24,817 |
|
|
|
|
|
28,110 |
|
|
|
Restructuring and other charges |
|
|
9,548 |
|
|
|
|
|
3,577 |
|
|
|
Impairment of long-lived assets |
|
|
— |
|
|
|
|
|
— |
|
|
|
Acquisition, financing and other third party costs |
|
|
2,192 |
|
|
|
|
|
4,173 |
|
|
|
Fair value adjustments from purchase accounting |
|
|
355 |
|
|
|
|
|
1 |
|
|
|
Litigation and settlement expense, net |
|
|
1,886 |
|
|
|
|
|
1,375 |
|
|
|
COVID related expenses |
|
|
— |
|
|
|
|
|
61 |
|
|
|
Stock-based and other non-cash compensation expense |
|
|
19,146 |
|
|
|
|
|
23,943 |
|
|
|
Impact to income taxes(1) |
|
|
(13,204 |
) |
|
|
|
|
(8,230 |
) |
|
|
Adjusted (loss) income and
adjusted (loss) earnings per share(2) |
|
$ |
(37,860 |
) |
|
$ |
(0.66 |
) |
|
$ |
28,089 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average
shares outstanding |
|
|
|
|
57,314 |
|
|
|
|
|
56,445 |
|
|
|
(1) Impact to income taxes is calculated by recasting income
before income taxes to include the items involved in determining
adjusted income and recalculating the income tax provision using
this adjusted income from operations before income taxes. The
recalculation also adjusts for any discrete tax expense or benefit
related to the items.
(2) Loss per share and adjusted loss per share is calculated
using basic shares whereas earnings per share and adjusted earnings
per share is calculated using diluted shares. There was no impact
to the calculation of adjusted earnings per share as a result of
this for the six months ended December 30, 2022.
|
UNAUDITED
SUPPLEMENTAL INFORMATION RECONCILIATION OF GAAP TO NON-GAAP
MEASURES |
(In thousands) |
|
|
|
|
|
|
Organic revenue and acquired revenue are non-GAAP measures for
reporting financial performance of the Company’s business.
Management believes this information provides investors with
insight as to the Company’s ongoing business performance. Organic
revenue represents total company revenue excluding net revenue from
acquired companies for the first four full quarters since the
entities’ acquisition date (which excludes intercompany
transactions). Acquired revenue represents revenue from acquired
companies for the first four full quarters since the entities’
acquisition date (which excludes intercompany transactions). After
the completion of four full fiscal quarters, acquired revenue is
treated as organic for current and comparable historical
periods.
The following table reconciles the most directly comparable GAAP
financial measure to the non-GAAP financial measure.
|
|
Second Quarters Ended |
|
Six Months Ended |
|
|
December 29, 2023 |
|
December 30, 2022 |
|
December 29, 2023 |
|
December 30, 2022 |
Organic revenue |
|
$ |
197,463 |
|
$ |
229,588 |
|
$ |
378,454 |
|
$ |
457,167 |
Acquired revenue |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Net revenues |
|
$ |
197,463 |
|
$ |
229,588 |
|
$ |
378,454 |
|
$ |
457,167 |
Mercury Systems (NASDAQ:MRCY)
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De May 2024 a Jun 2024
Mercury Systems (NASDAQ:MRCY)
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De Jun 2023 a Jun 2024