Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported
operating results for the fourth quarter and fiscal year 2023,
ended June 30, 2023.
“In the fourth quarter, with the support of our
newly refreshed senior leadership and Board of Directors, our
management team took immediate action to assess and begin
addressing Mercury's operational challenges,” said Bill Ballhaus,
Mercury’s President and CEO. “We also reaffirmed that our strategy
remains sound, as Mercury maintains a unique position at the
intersection of technology and defense, with the potential to
leverage a powerful long-term business model and benefit from
strong secular growth in the market. As we deliver solutions and
technologies that make defense platforms better today, we are
confident in our ability to successfully realize the long-term
value of Mercury as a national asset by continuing to make a
difference in our customers' missions.”
He continued, “Our core business is performing well
and predictably with solid margins. However, despite strong demand,
a small number of our programs are facing short-term execution
challenges, which have obscured the underlying strength of our core
business. We believe these challenges are resolvable. We are
already making progress, with two of the identified programs moving
into production in the fourth quarter, and we believe the
profitability of the core business will begin to emerge in fiscal
2024.”
“Looking ahead, we are aggressively prioritizing
actions that will deliver the greatest impact, focusing our efforts
on enhanced execution of challenged programs, building a thriving
organic growth engine, addressing our cost structure, and
accelerating free cash flow conversion. We believe the levers of
value creation are in our control and we look forward to charting a
path back to predictable organic revenue growth and
profitability.”
Priorities and Focus Going
Forward
Mercury’s enhanced execution plan includes four
priority areas. By focusing on these priorities, management
believes predictable, above-industry average growth with low- to
mid- 20% adjusted EBITDA margins and strong cash flow is achievable
over time.
- Delivering
Predictable Results: A larger than normal mix of development
programs and outsized costs associated with a handful of challenged
programs have added variability and pressured fiscal 2023 results.
Execution challenges on approximately 20 programs drove
approximately $56 million of impact and forecasting volatility in
the fiscal year. Management is mitigating the effects from the
challenged programs by strengthening program oversight processes
and management systems and transitioning challenged programs to
higher margin, more predictable production annuities.
- Building a
Thriving Organic Growth Engine: Mercury is well-positioned in
attractive growth markets and benefiting from secular growth
tailwinds. After years of inorganic growth and a book-to-bill
averaging just over 1.0 for the past eight quarters, the Company is
focused on growing its pipeline and targeting increased bookings
aligned with Mercury's attractive and robust strategic positioning
to achieve industry-leading organic growth.
- Expanding Margins:
Efforts are underway to drive margin expansion through targeted
improvements in both operating expense and gross margin. Management
has taken initial actions to simplify the company’s organizational
structure, facilitate clearer accountability, and align to current
priorities. These first set of actions will generate approximately
$24 million in annual net run rate cost savings, including
approximately $20 million to $22 million net cost savings in fiscal
2024.
- Driving Improved
Free Cash Flow Conversion and Release: The Company is focused on
reducing net working capital primarily through the reduction of
unbilled receivables and inventory. Working capital has grown from
approximately 35% of revenue to approximately 65% of revenue in
fiscal 2023, representing a significant future cash release
opportunity over time as the Company returns to historical
levels.
Fourth Quarter
Fiscal 2023 Results
Total Company fourth quarter fiscal 2023 revenues
were $253.2 million, compared to $289.7 million in the fourth
quarter of fiscal 2022.
Total bookings for the fourth quarter of fiscal
2023 were $293.8 million, yielding a book-to-bill ratio of 1.16 for
the quarter.
Total Company GAAP net loss and loss per share for
the fourth quarter of fiscal 2023 was $8.2 million, and $0.15,
respectively, compared to GAAP net income and earnings per share of
$16.9 million, and $0.30, respectively, for the fourth quarter of
fiscal 2022. Adjusted earnings per share (“adjusted EPS”) was $0.11
per share for the fourth quarter of fiscal 2023, compared to $0.81
per share in the fourth quarter of fiscal 2022.
Fourth quarter fiscal 2023 adjusted EBITDA for the
total Company was $21.9 million, compared to $71.6 million for the
fourth quarter of fiscal 2022. Excluding approximately $28.9
million of impact from approximately 20 challenged programs in the
fourth quarter of fiscal 2023, adjusted EBITDA would have been
$50.8 million.
Cash flows provided by operating activities in the
fourth quarter of fiscal 2023 were $12.6 million, compared to cash
flows used in operating activities of $19.4 million in the fourth
quarter of fiscal 2022. Free cash flow, defined as cash flows from
operating activities less capital expenditures for property and
equipment, was $3.8 million for the fourth quarter of fiscal 2023
and $(27.6) million for the fourth quarter of fiscal 2022.
Full Year Fiscal
2023 Results
Full year fiscal 2023 revenues were $973.9 million,
compared to $988.2 million for full year fiscal 2022.
Total bookings for fiscal 2023 were $1.08 billion,
yielding a book-to-bill ratio of 1.10 for the year.
Total Company GAAP net loss and loss per share for
fiscal 2023 was $28.3 million and $0.50, respectively, compared to
GAAP net income and earnings per share of $11.3 million and $0.20,
respectively, for fiscal 2022. Adjusted earnings per share
(“adjusted EPS”) was $1.00 per share for fiscal 2023, compared to
$2.19 per share in fiscal 2022.
Fiscal 2023 adjusted EBITDA for the total Company
was $132.3 million, compared to $200.5 million for fiscal 2022.
Excluding approximately $56.3 million of impact from approximately
20 challenged programs in fiscal 2023, adjusted EBITDA would have
been $188.6 million.
Cash flows used in operating activities in fiscal
2023 were $(21.3) million, compared to $(18.9) million in fiscal
2022. Free cash flow, defined as cash flows from operating
activities less capital expenditures for property and equipment,
was $(60.1) million for fiscal 2023 and $(46.5) million for fiscal
2022.
All per share information is presented on a fully
diluted basis.
Backlog
Mercury’s total backlog at June 30, 2023 was $1.14
billion, a $102.1 million increase from a year ago. Of the June 30,
2023 total backlog, $716.4 million represents orders expected to be
recognized as revenue within the next 12 months.
Leadership
In a separate press release, Mercury today
announced that Mr. Ballhaus has been appointed President and Chief
Executive Officer. He had been serving in these roles on an interim
basis since June 24, 2023.
Business Outlook
This section presents our current expectations and
estimates, 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 Fourth Quarter and Fiscal 2023
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 $950.0 million to $1.00 billion,
and GAAP net loss of $13.7 million to $5.9 million, or $0.24 to
$0.10 loss per share, and approximately 58.0 million weighted
average diluted shares outstanding. Adjusted EBITDA for the full
fiscal year is expected to be approximately $160.0 million to
$185.0 million, and adjusted EPS for the full fiscal year is
expected to be approximately $1.14 to $1.48 per share.
Conference Call Information
Management will host a conference call and
simultaneous webcast at 5:00 p.m. ET on Tuesday, August 15,
2023, 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®
by and for People Who Matter
Mercury Systems is a technology company that pushes
processing power to the tactical edge, making the latest commercial
technologies profoundly more accessible for today’s most
challenging aerospace and defense missions. From silicon to system
scale, Mercury enables customers to accelerate innovation and turn
data into decision superiority. 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
twitter.com/mrcy_CEO) 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
Statement
This 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,
failure to achieve or maintain manufacturing quality
certifications, such as AS9100, the impact of the COVID pandemic
and 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 execution
excellence 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,
which difficulties may be impacted by the termination of the
Company’s announced strategic review initiative, unanticipated
challenges with the transition of the Company’s Chief Executive
Officer and Chief Financial Officer roles, including any 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) |
|
|
June 30, |
|
July 1, |
|
|
2023 |
|
2022 |
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
71,563 |
|
|
$ |
65,654 |
|
Accounts receivable, net |
|
|
124,729 |
|
|
|
144,494 |
|
Unbilled receivables and costs in excess of billings |
|
|
382,558 |
|
|
|
303,356 |
|
Inventory |
|
|
337,216 |
|
|
|
270,339 |
|
Prepaid income taxes |
|
|
— |
|
|
|
7,503 |
|
Prepaid expenses and other current assets |
|
|
20,952 |
|
|
|
23,906 |
|
Total current assets |
|
|
937,018 |
|
|
|
815,252 |
|
|
|
|
|
|
Property and equipment, net |
|
|
119,554 |
|
|
|
127,191 |
|
Goodwill |
|
|
938,093 |
|
|
|
937,880 |
|
Intangible assets, net |
|
|
298,051 |
|
|
|
351,538 |
|
Operating lease right-of-use assets, net |
|
|
63,015 |
|
|
|
66,366 |
|
Deferred tax asset |
|
|
27,099 |
|
|
|
— |
|
Other non-current assets |
|
|
8,537 |
|
|
|
6,188 |
|
Total assets |
|
$ |
2,391,367 |
|
|
$ |
2,304,415 |
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
103,986 |
|
|
$ |
98,673 |
|
Accrued expenses |
|
|
28,423 |
|
|
|
34,954 |
|
Accrued compensation |
|
|
30,419 |
|
|
|
44,813 |
|
Income taxes payable |
|
|
13,874 |
|
|
|
— |
|
Deferred revenues and customer advances |
|
|
56,562 |
|
|
|
15,487 |
|
Total current liabilities |
|
|
233,264 |
|
|
|
193,927 |
|
|
|
|
|
|
Deferred income taxes |
|
|
— |
|
|
|
32,398 |
|
Income taxes payable |
|
|
5,166 |
|
|
|
9,112 |
|
Long-term debt |
|
|
511,500 |
|
|
|
451,500 |
|
Operating lease liabilities |
|
|
66,797 |
|
|
|
69,888 |
|
Other non-current liabilities |
|
|
7,955 |
|
|
|
10,405 |
|
Total liabilities |
|
|
824,682 |
|
|
|
767,230 |
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Preferred stock |
|
|
— |
|
|
|
— |
|
Common stock |
|
|
570 |
|
|
|
557 |
|
Additional paid-in capital |
|
|
1,196,847 |
|
|
|
1,145,323 |
|
Retained earnings |
|
|
357,439 |
|
|
|
385,774 |
|
Accumulated other comprehensive income |
|
|
11,829 |
|
|
|
5,531 |
|
Total shareholders’ equity |
|
|
1,566,685 |
|
|
|
1,537,185 |
|
Total liabilities and shareholders’ equity |
|
$ |
2,391,367 |
|
|
$ |
2,304,415 |
|
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(In thousands, except per share data) |
|
|
Fourth Quarters Ended |
|
Twelve Months Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
|
June 30, 2023 |
|
July 1, 2022 |
Net revenues |
|
$ |
253,236 |
|
|
$ |
289,729 |
|
|
$ |
973,882 |
|
|
$ |
988,197 |
|
Cost of revenues(1) |
|
|
185,852 |
|
|
|
170,158 |
|
|
|
657,154 |
|
|
|
593,241 |
|
Gross margin |
|
|
67,384 |
|
|
|
119,571 |
|
|
|
316,728 |
|
|
|
394,956 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative(1) |
|
|
32,011 |
|
|
|
44,017 |
|
|
|
160,637 |
|
|
|
157,044 |
|
Research and development(1) |
|
|
27,611 |
|
|
|
24,565 |
|
|
|
108,799 |
|
|
|
107,169 |
|
Amortization of intangible assets |
|
|
12,633 |
|
|
|
14,454 |
|
|
|
53,552 |
|
|
|
60,267 |
|
Restructuring and other charges |
|
|
626 |
|
|
|
5,021 |
|
|
|
6,981 |
|
|
|
27,445 |
|
Acquisition costs and other related expenses |
|
|
3,401 |
|
|
|
3,897 |
|
|
|
8,444 |
|
|
|
11,421 |
|
Total operating expenses |
|
|
76,282 |
|
|
|
91,954 |
|
|
|
338,413 |
|
|
|
363,346 |
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(8,898 |
) |
|
|
27,617 |
|
|
|
(21,685 |
) |
|
|
31,610 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
724 |
|
|
|
19 |
|
|
|
1,053 |
|
|
|
143 |
|
Interest expense |
|
|
(7,311 |
) |
|
|
(2,453 |
) |
|
|
(25,159 |
) |
|
|
(5,806 |
) |
Other income (expense), net |
|
|
661 |
|
|
|
(2,654 |
) |
|
|
(2,751 |
) |
|
|
(7,552 |
) |
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(14,824 |
) |
|
|
22,529 |
|
|
|
(48,542 |
) |
|
|
18,395 |
|
Income tax (benefit) provision |
|
|
(6,588 |
) |
|
|
5,614 |
|
|
|
(20,207 |
) |
|
|
7,120 |
|
Net (loss) income |
|
$ |
(8,236 |
) |
|
$ |
16,915 |
|
|
$ |
(28,335 |
) |
|
$ |
11,275 |
|
|
|
|
|
|
|
|
|
|
Basic net (loss) earnings per share |
|
$ |
(0.15 |
) |
|
$ |
0.30 |
|
|
$ |
(0.50 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) earnings per share |
|
$ |
(0.15 |
) |
|
$ |
0.30 |
|
|
$ |
(0.50 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
56,798 |
|
|
|
55,607 |
|
|
|
56,554 |
|
|
|
55,527 |
|
Diluted |
|
|
56,798 |
|
|
|
56,261 |
|
|
|
56,554 |
|
|
|
55,901 |
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense, allocated as
follows: |
Cost of revenues |
|
$ |
1,260 |
|
|
$ |
813 |
|
|
$ |
2,926 |
|
|
$ |
2,161 |
|
Selling, general and administrative |
|
$ |
(2,397 |
) |
|
$ |
9,678 |
|
|
$ |
18,335 |
|
|
$ |
30,116 |
|
Research and development |
|
$ |
1,444 |
|
|
$ |
1,540 |
|
|
$ |
6,492 |
|
|
$ |
6,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In thousands) |
|
|
Fourth Quarters Ended |
|
Twelve Months Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
|
June 30, 2023 |
|
July 1, 2022 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(8,236 |
) |
|
$ |
16,915 |
|
|
$ |
(28,335 |
) |
|
$ |
11,275 |
|
Depreciation and amortization |
|
|
22,502 |
|
|
|
23,396 |
|
|
|
97,329 |
|
|
|
93,417 |
|
Other non-cash items, net |
|
|
(20,213 |
) |
|
|
15,448 |
|
|
|
(16,975 |
) |
|
|
35,377 |
|
Cash settlement for termination of interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
5,995 |
|
|
|
— |
|
Changes in operating assets and liabilities |
|
|
18,557 |
|
|
|
(75,194 |
) |
|
|
(79,268 |
) |
|
|
(158,938 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
12,610 |
|
|
|
(19,435 |
) |
|
|
(21,254 |
) |
|
|
(18,869 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
|
— |
|
|
|
(209 |
) |
|
|
— |
|
|
|
(243,464 |
) |
Purchases of property and equipment |
|
|
(8,846 |
) |
|
|
(8,180 |
) |
|
|
(38,796 |
) |
|
|
(27,656 |
) |
Other investing activities |
|
|
85 |
|
|
|
14 |
|
|
|
235 |
|
|
|
(3,200 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,761 |
) |
|
|
(8,375 |
) |
|
|
(38,561 |
) |
|
|
(274,320 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from employee stock plans |
|
|
3,099 |
|
|
|
2,855 |
|
|
|
5,492 |
|
|
|
5,371 |
|
Borrowings under credit facilities |
|
|
40,000 |
|
|
|
— |
|
|
|
140,000 |
|
|
|
251,500 |
|
Payments under credit facilities |
|
|
(40,000 |
) |
|
|
— |
|
|
|
(80,000 |
) |
|
|
— |
|
Payments of deferred financing and offering costs |
|
|
— |
|
|
|
(249 |
) |
|
|
— |
|
|
|
(2,911 |
) |
Payments for retirement of common stock |
|
|
— |
|
|
|
(490 |
) |
|
|
(63 |
) |
|
|
(8,206 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
3,099 |
|
|
|
2,116 |
|
|
|
65,429 |
|
|
|
245,754 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
174 |
|
|
|
(346 |
) |
|
|
295 |
|
|
|
(750 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
7,122 |
|
|
|
(26,040 |
) |
|
|
5,909 |
|
|
|
(48,185 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
64,441 |
|
|
|
91,694 |
|
|
|
65,654 |
|
|
|
113,839 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
71,563 |
|
|
$ |
65,654 |
|
|
$ |
71,563 |
|
|
$ |
65,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
Fourth Quarters Ended |
|
Twelve Months Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
|
June 30, 2023 |
|
July 1, 2022 |
Net (loss) income |
|
$ |
(8,236 |
) |
|
$ |
16,915 |
|
|
$ |
(28,335 |
) |
|
$ |
11,275 |
|
Other non-operating adjustments, net |
|
|
(1,586 |
) |
|
|
1,351 |
|
|
|
(1,589 |
) |
|
|
2,932 |
|
Interest expense, net |
|
|
6,587 |
|
|
|
2,434 |
|
|
|
24,106 |
|
|
|
5,663 |
|
Income tax (benefit) provision |
|
|
(6,588 |
) |
|
|
5,614 |
|
|
|
(20,207 |
) |
|
|
7,120 |
|
Depreciation |
|
|
9,869 |
|
|
|
8,942 |
|
|
|
43,777 |
|
|
|
33,150 |
|
Amortization of intangible assets |
|
|
12,633 |
|
|
|
14,454 |
|
|
|
53,552 |
|
|
|
60,267 |
|
Restructuring and other charges |
|
|
626 |
|
|
|
5,021 |
|
|
|
6,981 |
|
|
|
27,445 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisition, financing and other third party costs |
|
|
3,834 |
|
|
|
4,363 |
|
|
|
10,019 |
|
|
|
13,608 |
|
Fair value adjustments from purchase accounting |
|
|
177 |
|
|
|
(294 |
) |
|
|
356 |
|
|
|
(2,009 |
) |
Litigation and settlement (income) expense, net |
|
|
(1,246 |
) |
|
|
706 |
|
|
|
495 |
|
|
|
1,908 |
|
COVID related expenses |
|
|
5 |
|
|
|
50 |
|
|
|
67 |
|
|
|
689 |
|
Stock-based and other non-cash compensation expense |
|
|
5,859 |
|
|
|
12,059 |
|
|
|
43,031 |
|
|
|
38,459 |
|
Adjusted EBITDA |
|
$ |
21,934 |
|
|
$ |
71,615 |
|
|
$ |
132,253 |
|
|
$ |
200,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
Fourth Quarters Ended |
|
Twelve Months Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
|
June 30, 2023 |
|
July 1, 2022 |
Net cash provided by (used in) operating activities |
|
$ |
12,610 |
|
|
$ |
(19,435 |
) |
|
$ |
(21,254 |
) |
|
$ |
(18,869 |
) |
Purchases of property and equipment |
|
|
(8,846 |
) |
|
|
(8,180 |
) |
|
|
(38,796 |
) |
|
|
(27,656 |
) |
Free cash flow |
|
$ |
3,764 |
|
|
$ |
(27,615 |
) |
|
$ |
(60,050 |
) |
|
$ |
(46,525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
Fourth Quarters Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
Net (loss) income and (loss) earnings per share |
|
$ |
(8,236 |
) |
|
$ |
(0.15 |
) |
|
$ |
16,915 |
|
|
$ |
0.30 |
|
Other non-operating adjustments, net |
|
|
(1,586 |
) |
|
|
|
|
1,351 |
|
|
|
Amortization of intangible assets |
|
|
12,633 |
|
|
|
|
|
14,454 |
|
|
|
Restructuring and other charges |
|
|
626 |
|
|
|
|
|
5,021 |
|
|
|
Impairment of long-lived assets |
|
|
— |
|
|
|
|
|
— |
|
|
|
Acquisition, financing and other third party costs |
|
|
3,834 |
|
|
|
|
|
4,363 |
|
|
|
Fair value adjustments from purchase accounting |
|
|
177 |
|
|
|
|
|
(294 |
) |
|
|
Litigation and settlement (income) expense, net |
|
|
(1,246 |
) |
|
|
|
|
706 |
|
|
|
COVID related expenses |
|
|
5 |
|
|
|
|
|
50 |
|
|
|
Stock-based and other non-cash compensation expense |
|
|
5,859 |
|
|
|
|
|
12,059 |
|
|
|
Impact to income taxes(1) |
|
|
(5,909 |
) |
|
|
|
|
(9,088 |
) |
|
|
Adjusted income and adjusted earnings per share(2) |
|
$ |
6,157 |
|
|
$ |
0.11 |
|
|
$ |
45,537 |
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding |
|
|
|
|
57,059 |
|
|
|
|
|
56,261 |
|
|
|
|
|
|
|
|
|
|
(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) Adjusted
earnings per share is calculated using diluted shares whereas Net
loss is calculated using basic shares. There was a $0.01 impact to
the calculation of adjusted earnings per share as a result of this
for the fourth quarter ended June 30, 2023. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
Net (loss) income and (loss) earnings per share |
|
$ |
(28,335 |
) |
|
$ |
(0.50 |
) |
|
$ |
11,275 |
|
|
$ |
0.20 |
|
Other non-operating adjustments, net |
|
|
(1,589 |
) |
|
|
|
|
2,932 |
|
|
|
Amortization of intangible assets |
|
|
53,552 |
|
|
|
|
|
60,267 |
|
|
|
Restructuring and other charges |
|
|
6,981 |
|
|
|
|
|
27,445 |
|
|
|
Impairment of long-lived assets |
|
|
— |
|
|
|
|
|
— |
|
|
|
Acquisition, financing and other third party costs |
|
|
10,019 |
|
|
|
|
|
13,608 |
|
|
|
Fair value adjustments from purchase accounting |
|
|
356 |
|
|
|
|
|
(2,009 |
) |
|
|
Litigation and settlement expense, net |
|
|
495 |
|
|
|
|
|
1,908 |
|
|
|
COVID related expenses |
|
|
67 |
|
|
|
|
|
689 |
|
|
|
Stock-based and other non-cash compensation expense |
|
|
43,031 |
|
|
|
|
|
38,459 |
|
|
|
Impact to income taxes(1) |
|
|
(27,776 |
) |
|
|
|
|
(32,309 |
) |
|
|
Adjusted income and adjusted earnings per share(2) |
|
$ |
56,801 |
|
|
$ |
1.00 |
|
|
$ |
122,265 |
|
|
$ |
2.19 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding |
|
|
|
|
56,874 |
|
|
|
|
|
55,901 |
|
|
|
|
|
|
|
|
|
|
(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) Adjusted
earnings per share is calculated using diluted shares whereas Net
loss is calculated using basic shares. There was no impact to the
calculation of adjusted earnings per share as a result of this for
the twelve months ended June 30, 2023. |
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
Fourth Quarters Ended |
|
Twelve Months Ended |
|
|
June 30, 2023 |
|
July 1, 2022 |
|
June 30, 2023 |
|
July 1, 2022 |
Organic revenue |
|
$ |
253,236 |
|
|
$ |
289,729 |
|
|
$ |
948,814 |
|
|
$ |
982,153 |
|
Acquired revenue |
|
|
— |
|
|
|
— |
|
|
|
25,068 |
|
|
|
6,044 |
|
Net revenues |
|
$ |
253,236 |
|
|
$ |
289,729 |
|
|
$ |
973,882 |
|
|
$ |
988,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC.RECONCILIATION OF
FORWARD-LOOKING GUIDANCE RANGEFiscal Year Ending June 28,
2024(In thousands)
The Company defines adjusted EBITDA as income
before other non-operating adjustments, interest income and
expense, income taxes, depreciation, 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 following table reconciles the most directly
comparable GAAP financial measures to the non-GAAP financial
measures.
|
|
|
|
|
Fiscal Year Ending |
|
|
June 28, 2024(1) |
|
|
Range |
|
|
Low |
|
High |
GAAP expectation -- Net loss |
|
$ |
(13,700 |
) |
|
$ |
(5,900 |
) |
|
|
|
|
|
Adjust for: |
|
|
|
|
Other non-operating adjustments, net |
|
|
(1,100 |
) |
|
|
(1,100 |
) |
Interest expense, net |
|
|
33,800 |
|
|
|
33,800 |
|
Income tax provision |
|
|
(23,100 |
) |
|
|
(6,000 |
) |
Depreciation |
|
|
43,700 |
|
|
|
43,700 |
|
Amortization of intangible assets |
|
|
47,500 |
|
|
|
47,500 |
|
Restructuring and other charges |
|
|
9,200 |
|
|
|
9,200 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
Acquisition, financing and other third party costs |
|
|
3,000 |
|
|
|
3,000 |
|
Fair value adjustments from purchase accounting |
|
|
700 |
|
|
|
700 |
|
Litigation and settlement expense, net |
|
|
— |
|
|
|
— |
|
Stock-based and other non-cash compensation expense |
|
|
60,000 |
|
|
|
60,000 |
|
Adjusted EBITDA expectation |
|
$ |
160,000 |
|
|
$ |
185,000 |
|
|
|
|
|
|
(1) Rounded amounts used. |
|
MERCURY SYSTEMS, INC.RECONCILIATION OF
FORWARD-LOOKING GUIDANCE RANGEFiscal Year Ending June 28,
2024(In thousands, except per share data)
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(3). 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.
|
|
|
|
|
Fiscal Year Ending June 28, 2024(1) |
|
|
Range |
|
|
Low |
|
High |
GAAP expectation -- Net loss and loss per share(2) |
|
$ |
(13,700 |
) |
|
$ |
(0.24 |
) |
|
$ |
(5,900 |
) |
|
$ |
(0.10 |
) |
Other non-operating adjustments, net |
|
|
(1,100 |
) |
|
|
|
|
(1,100 |
) |
|
|
Amortization of intangible assets |
|
|
47,500 |
|
|
|
|
|
47,500 |
|
|
|
Restructuring and other charges |
|
|
9,200 |
|
|
|
|
|
9,200 |
|
|
|
Impairment of long-lived assets |
|
|
— |
|
|
|
|
|
— |
|
|
|
Acquisition, financing and other third party costs |
|
|
3,000 |
|
|
|
|
|
3,000 |
|
|
|
Fair value adjustments from purchase accounting |
|
|
700 |
|
|
|
|
|
700 |
|
|
|
Litigation and settlement expense, net |
|
|
— |
|
|
|
|
|
— |
|
|
|
Stock-based and other non-cash compensation expense |
|
|
60,000 |
|
|
|
|
|
60,000 |
|
|
|
Impact to income taxes(3) |
|
|
(39,600 |
) |
|
|
|
|
(27,500 |
) |
|
|
Adjusted income and adjusted earnings per share expectation |
|
$ |
66,000 |
|
|
$ |
1.14 |
|
|
$ |
85,900 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding expectation |
|
|
|
|
58,000 |
|
|
|
|
|
58,000 |
|
|
|
|
|
|
|
|
|
|
(1) Rounded amounts used. |
(2) Adjusted earnings per share is calculated using diluted shares
whereas Net loss is calculated using basic shares. There was no
impact to the calculation of adjusted earnings per share as a
result of this for the twelve months ended June 28, 2024. |
(3) 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. |
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