Third Quarter Highlights
Include: Record revenue increases 50% over
prior year with 31% organic increase Revenue,
net income, adjusted EBITDA, EPS and adjusted EPS exceed
guidance Strong operating cash flow of $26
million and free cash flow of $19
million Record bookings increased 26% over
prior year with individual booking record of $41
million
Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported
operating results for the third quarter of fiscal 2019, ended
March 31, 2019.
Management Comments“The business continued to
excel in the third quarter of fiscal year 2019,” said Mark Aslett,
Mercury’s President and Chief Executive Officer. “We
delivered a very strong financial performance with record revenues,
bookings and backlog as well as strong operating and free cash
flow. We executed extremely well against our strategy growing
organic revenue by 31%. We closed the acquisition of GECO Avionics
early in the quarter, and most recently completed the acquisitions
of two great businesses - Syntonic Microwave and The Athena Group -
which further expand our capabilities in electronic warfare as well
as embedded security. We also made solid progress integrating prior
acquisitions while continuing to invest in the business for future
growth. Based on our solid year-to-date performance, record
backlog and the continued momentum we see in the business, we are
raising our guidance for the full fiscal year.”
Third Quarter Fiscal 2019 ResultsTotal Company
third quarter fiscal 2019 revenues were $174.6 million, compared to
$116.3 million in the third quarter of fiscal 2018. The third
quarter fiscal 2019 results included an aggregate of approximately
$34.8 million of revenue attributable to the Themis Computer,
Germane Systems and GECO Avionics acquired businesses.
Total Company GAAP net income for the third quarter of fiscal
2019 was $14.1 million, or $0.29 per share, compared to $3.7
million, or $0.08 per share, for the third quarter of fiscal
2018. Adjusted earnings per share (“adjusted EPS”) was $0.50
per share for the third quarter of fiscal 2019, compared to $0.30
per share in the third quarter of fiscal 2018.
Third quarter fiscal 2019 adjusted EBITDA for the total Company
was $38.8 million, compared to $25.1 million for the third quarter
of fiscal 2018.
Cash flows from operating activities in the third quarter of
fiscal 2019 were a net inflow of $26.2 million, compared to a net
inflow of $0.9 million in the third quarter of fiscal 2018. Free
cash flow, defined as cash flows from operating activities less
capital expenditures, was a net inflow of $19.2 million in the
third quarter of fiscal 2019, compared to a net outflow of $(2.6)
million in the third quarter of fiscal 2018.
All per share information is presented on a fully diluted
basis.
Bookings and BacklogTotal bookings for the
third quarter of fiscal 2019 were $189.7 million, yielding a
book-to-bill ratio of 1.09 for the quarter.
Mercury’s total backlog at March 31, 2019 was $558.2
million, a $128.9 million increase from a year ago. Of the
March 31, 2019 total backlog, $367.3 million represents orders
expected to be shipped within the next 12 months.
Business OutlookThis section presents our
current expectations and estimates, given current visibility, on
our business outlook for the current fiscal quarter and fiscal year
2019. 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 Third Quarter Fiscal 2019 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.
For the fourth quarter of fiscal 2019, inclusive of the
acquisitions of Syntonic Microwave and The Athena Group, revenues
are forecasted to be in the range of $164.2 million to $173.2
million. GAAP net income for the fourth quarter is expected to be
approximately $11.3 million to $13.4 million, or $0.23 to $0.28 per
share, assuming no incremental restructuring, acquisition, other
non-operating adjustments or non-recurring financing related
expenses in the period, an effective tax rate of approximately 27%,
excluding discrete items, and approximately 48.1 million weighted
average diluted shares outstanding. Adjusted EBITDA for the fourth
quarter of fiscal 2019 is expected to be in the range of $34.1
million to $37.1 million. Adjusted EPS is expected to be in the
range of $0.42 to $0.47 per share.
For the full fiscal year 2019, we currently expect revenue of
$642.0 million to $651.0 million, and GAAP net income of $45.2
million to $47.4 million, or $0.95 to $0.99 per share, assuming no
incremental restructuring, acquisition, other non-operating
adjustments or non-recurring financing related expenses in the
period, an effective tax rate of approximately 28%, excluding
discrete items, and approximately 47.9 million weighted average
diluted shares outstanding. Adjusted EBITDA for the full fiscal
year is expected to be approximately $141.5 million to $144.5
million, and adjusted EPS for the full fiscal year is expected to
be approximately $1.79 to $1.83 per share.
Recent HighlightsMarch - Mercury announced it
received a $41.4 million follow-on order from a leading defense
prime contractor for miniaturized and highly ruggedized custom
microwave transceivers for an advanced weapons application. The
order was booked in the Company’s fiscal 2019 third quarter and is
expected to be shipped over the next several years. The
transceivers will be manufactured in the Company’s world-class U.S.
Advanced Microelectronic Centers using state-of-the-art, fully
automated assembly and test systems optimized for scalability and
repeatability.
March - Mercury announced it received a $2.2 million order from
a leading defense prime contractor for high-performance subsystems
incorporating GPS Selective Availability Anti-Spoofing Modules
(SAASM) for an advanced weapons application. The order was booked
in the Company’s fiscal 2019 second quarter and is expected to be
shipped over the next several quarters.
March - Mercury and TTTech (www.tttech.com) announced that they
are teaming to supply next-generation mission-critical flight
computers to a leading international aerospace and unmanned aerial
vehicle (UAV) manufacturer. The flight computers require a Design
Assurance Level of A (DAL-A), the highest level of flight-safety
certification for platform missions within civilian airspace.
March - Mercury announced it received a $25.0 million follow-on
order from a leading defense prime contractor for integrated radio
frequency (RF), mixed-signal and FPGA processing subsystems for an
advanced electronic support application. The order was booked in
the Company’s fiscal 2019 third quarter and is expected to be
shipped over the next several quarters.
March - Mercury announced it received a $3.0 million order from
a leading defense prime contractor for rugged servers to be used in
an Army communications application. The order was booked in the
Company's fiscal 2019 third quarter.
March - Mercury announced it received a $2.3 million order from
a leading defense prime contractor for advanced GPS SAASM devices
for a weapons application. The order was booked in the Company’s
fiscal 2019 second quarter and is expected to be shipped over the
next several quarters.
March - Mercury announced it received a $2.8 million order from
a leading defense prime contractor for modular rackmount servers to
be used in a naval weapon system. The order was booked in the
Company's fiscal 2019 third quarter and is expected to be shipped
over the next several quarters.
March - Mercury announced the defense industry’s first trusted
custom microelectronics capability targeting SWaP-constrained
intelligent sensors for military applications using the resources
of the Company’s Defense Microelectronics Activity
(DMEA)-accredited facility in Phoenix, AZ for design, assembly and
test services.
February - Mercury announced that it received an additional $5.5
million in follow-on orders against its previously announced $152
million 5 year sole-source basic ordering agreement (BOA) to
deliver advanced Digital RF Memory (DRFM) jammers to the U.S. Navy.
The orders were received in the second and third quarters of the
Company's fiscal 2019 year are expected to be delivered over the
next several quarters.
February - Mercury announced it received a $3.1 million
follow-on order from a leading defense prime contractor for rugged
system-in-package (SiP) devices embedding a processor and memory
devices in a single, SWaP-optimized package. The order was booked
in the Company’s fiscal 2019 second quarter and is expected to be
shipped over the next several quarters.
February - Mercury announced it received follow-on orders of
$3.3 million from a leading defense prime contractor for
high-performance secure processing microelectronics integrated into
an advanced weapons application. The orders were booked in the
Company’s fiscal 2019 second quarter and are expected to be shipped
over the next several quarters.
February - Mercury announced it received a $3.5 million order
from a leading defense prime contractor for rugged servers to be
used in a naval subsurface application. The order was booked in the
Company's fiscal 2019 third quarter.
February - Mercury announced it received a $6.5 million order
from a leading defense prime contractor for switch routing
subsystems to be used in a large sensor fusion application. The
order was booked in the Company’s fiscal 2019 second quarter and is
expected to be shipped over the next several quarters.
January - Mercury announced it received a $2.1 million order
from a leading defense prime contractor for low-latency, multi-role
DRFM modules used in an advanced electronic warfare (EW) training
program for an Air Force platform. The order was booked in the
Company’s fiscal 2019 second quarter and is expected to be shipped
over the next several quarters.
January - Mercury announced it received a $6.0 million follow-on
order from a leading defense prime contractor for
precision-engineered radio frequency (RF) microelectronics for an
advanced airborne electronic warfare application. The order was
booked in the Company’s fiscal 2019 second quarter and is expected
to be shipped over the next several quarters.
January - Mercury announced the first prototype shipments of the
Company’s 3U TRRUST-Stor™ VPX RT space-qualified secure solid-state
drives (SSD) to two leading suppliers of low Earth orbit (LEO)
satellites. Designed to operate reliably in high radiation
environments, this device is the first commercial SSD leveraging
VITA 78 SpaceVPX™ standards to reduce customer cost and mitigate
program risk.
January - Mercury announced it received a $7.0 million order
from a leading defense prime contractor for rugged servers to be
used in an on-the-move tactical communications application. The
order was booked in the Company's fiscal 2019 second quarter.
January - Mercury announced it received a $9.8 million follow-on
order from a leading defense prime contractor for advanced
subsystems with integrated RF and digital microelectronics for a
naval EW application. The order was booked in the Company’s fiscal
2019 second quarter and is expected to be shipped over the next
several quarters.
January - Mercury announced the first production shipments of
its rugged SpectrumSeries™ RFM3101 RF transceiver to a leading
supplier of integrated EW systems. Mercury’s OpenVPX™ RF
transceiver features ultra-wideband frequency conversion with
excellent phase noise, high dynamic range and a low spurious output
in a compact 3U form factor optimized for future upgradability.
January - Mercury announced it received $6.4 million in
follow-on orders from a leading defense prime contractor for
advanced RF subsystems that are integrated into an airborne EW
system. The orders were booked in the Company’s fiscal 2019 second
quarter and are expected to be shipped over the next several
quarters.
January - Mercury announced it secured a design win for
advanced, safety certifiable flight controllers from an
international aerospace company with an anticipated lifetime value
of $40 million over the ten-year period of the contract. An initial
$9.0 million contract received in the Company’s fiscal 2019 second
quarter also includes funding for ground support processing
segments, and work will be performed through fiscal 2020.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Tuesday, April 30, 2019, at 5:00 p.m. ET to discuss the third
quarter fiscal 2019 results and review its financial and business
outlook going forward.
To join the conference call, dial (877) 303-6977 in the USA and
Canada, or (760) 298-5079 in all other countries. Please call five
to ten minutes prior to the scheduled start time. The live audio
webcast as well as the Company's earnings presentation that will be
discussed on the call can be accessed from the 'Events and
Presentations' page of Mercury's website at
www.mrcy.com/investor.
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 MeasuresIn 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 (NASDAQ:MRCY) is a leading commercial provider
of secure sensor and safety-critical processing subsystems.
Optimized for customer and mission success, Mercury’s solutions
power a wide variety of critical defense and intelligence programs.
Headquartered in Andover, Mass., Mercury is pioneering a
next-generation defense electronics business model specifically
designed to meet the industry’s current and emerging technology
needs. To learn more, visit www.mrcy.com and follow us on
Twitter.
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 acquisitions described
herein and to fiscal 2019 business performance and beyond and the
Company’s plans for growth and improvement in profitability and
cash flow. You can identify these statements by the use of 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 continued
geopolitical unrest and regional conflicts, competition, changes in
technology and methods of marketing, delays in completing
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, market
acceptance of the Company's products, shortages in components,
production delays or unanticipated expenses due to performance
quality issues with outsourced components, inability to fully
realize the expected benefits from acquisitions and restructurings,
or delays in realizing such benefits, challenges in integrating
acquired businesses and achieving anticipated synergies, increases
in interest rates, changes to cyber-security regulations and
requirements, changes in tax rates or tax regulations, changes to
interest rate swaps or other cash flow hedging arrangements,
changes to generally accepted accounting principles, difficulties
in retaining key employees and customers, 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, 2018. 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:Michael D. Ruppert, CFOMercury Systems,
Inc.978-967-1990
Mercury Systems and Innovation that Matters are registered
trademarks, and Ensemble Series, EnterpriseSeries, BuiltSAFE and
BuiltSECURE are 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) |
|
|
March 31, |
|
June 30, |
|
|
2019 |
|
2018 |
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash
equivalents |
|
$ |
112,515 |
|
|
$ |
66,521 |
|
Accounts
receivable, net |
|
114,806 |
|
|
104,040 |
|
Unbilled
receivables and costs in excess of billings |
|
55,941 |
|
|
39,774 |
|
Inventory |
|
131,655 |
|
|
108,585 |
|
Prepaid
income taxes |
|
— |
|
|
3,761 |
|
Prepaid
expenses and other current assets |
|
10,253 |
|
|
9,062 |
|
Total
current assets |
|
425,170 |
|
|
331,743 |
|
|
|
|
|
|
Property and equipment,
net |
|
55,857 |
|
|
50,980 |
|
Goodwill |
|
543,515 |
|
|
497,442 |
|
Intangible assets,
net |
|
180,828 |
|
|
177,904 |
|
Other non-current
assets |
|
7,011 |
|
|
6,411 |
|
Total
assets |
|
$ |
1,212,381 |
|
|
$ |
1,064,480 |
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
35,220 |
|
|
$ |
21,323 |
|
Accrued
expenses |
|
20,342 |
|
|
16,386 |
|
Accrued
compensation |
|
27,500 |
|
|
21,375 |
|
Deferred
revenues and customer advances |
|
10,728 |
|
|
12,596 |
|
Total
current liabilities |
|
93,790 |
|
|
71,680 |
|
|
|
|
|
|
Deferred income
taxes |
|
11,811 |
|
|
13,635 |
|
Income taxes
payable |
|
2,880 |
|
|
998 |
|
Long-term debt |
|
276,500 |
|
|
195,000 |
|
Other non-current
liabilities |
|
15,018 |
|
|
11,276 |
|
Total
liabilities |
|
399,999 |
|
|
292,589 |
|
|
|
|
|
|
Shareholders’
equity: |
|
|
|
|
Common
stock |
|
473 |
|
|
469 |
|
Additional
paid-in capital |
|
599,238 |
|
|
590,163 |
|
Retained
earnings |
|
213,939 |
|
|
179,968 |
|
Accumulated
other comprehensive income |
|
(1,268 |
) |
|
1,291 |
|
Total
shareholders’ equity |
|
812,382 |
|
|
771,891 |
|
Total
liabilities and shareholders’ equity |
|
$ |
1,212,381 |
|
|
$ |
1,064,480 |
|
|
|
|
|
|
|
|
|
|
MERCURY
SYSTEMS, INC. |
|
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
|
|
|
(In thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net revenues |
|
$ |
174,636 |
|
|
$ |
116,336 |
|
|
$ |
477,781 |
|
|
$ |
340,317 |
|
Cost of
revenues(1) |
|
100,789 |
|
|
63,570 |
|
|
271,464 |
|
|
182,717 |
|
Gross
margin |
|
73,847 |
|
|
52,766 |
|
|
206,317 |
|
|
157,600 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Selling,
general and administrative(1) |
|
27,411 |
|
|
21,138 |
|
|
79,971 |
|
|
62,928 |
|
Research and
development(1) |
|
17,439 |
|
|
15,021 |
|
|
48,579 |
|
|
43,950 |
|
Amortization
of intangible assets |
|
6,786 |
|
|
7,104 |
|
|
20,906 |
|
|
18,568 |
|
Restructuring and other charges |
|
46 |
|
|
1,384 |
|
|
573 |
|
|
1,792 |
|
Acquisition
costs and other related expenses |
|
103 |
|
|
1,281 |
|
|
555 |
|
|
2,265 |
|
Total
operating expenses |
|
51,785 |
|
|
45,928 |
|
|
150,584 |
|
|
129,503 |
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
22,062 |
|
|
6,838 |
|
|
55,733 |
|
|
28,097 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
205 |
|
|
— |
|
|
342 |
|
|
14 |
|
Interest expense |
|
(2,473 |
) |
|
(999 |
) |
|
(6,928 |
) |
|
(1,101 |
) |
Other (expense) income,
net |
|
(328 |
) |
|
66 |
|
|
(2,207 |
) |
|
(1,065 |
) |
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
19,466 |
|
|
5,905 |
|
|
46,940 |
|
|
25,945 |
|
Tax provision
(benefit) |
|
5,357 |
|
|
2,209 |
|
|
12,969 |
|
|
(4,837 |
) |
Net income |
|
$ |
14,109 |
|
|
$ |
3,696 |
|
|
$ |
33,971 |
|
|
$ |
30,782 |
|
|
|
|
|
|
|
|
|
|
Basic net earnings per
share: |
|
$ |
0.30 |
|
|
$ |
0.08 |
|
|
$ |
0.72 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
Diluted net earnings
per share: |
|
$ |
0.29 |
|
|
$ |
0.08 |
|
|
$ |
0.71 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
47,258 |
|
|
46,844 |
|
|
47,164 |
|
|
46,685 |
|
Diluted |
|
47,958 |
|
|
47,532 |
|
|
47,783 |
|
|
47,473 |
|
|
|
|
|
|
|
|
|
|
(1)
Includes stock-based compensation expense, allocated as
follows: |
|
|
Cost of
revenues |
|
$ |
188 |
|
|
$ |
169 |
|
|
$ |
599 |
|
|
$ |
364 |
|
Selling,
general and administrative |
|
$ |
4,039 |
|
|
$ |
2,929 |
|
|
$ |
12,465 |
|
|
$ |
11,175 |
|
Research and
development |
|
$ |
646 |
|
|
$ |
499 |
|
|
$ |
1,772 |
|
|
$ |
1,506 |
|
MERCURY SYSTEMS, INC. |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In
thousands) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,109 |
|
|
$ |
3,696 |
|
|
$ |
33,971 |
|
|
$ |
30,782 |
|
Depreciation
and amortization |
|
11,576 |
|
|
11,381 |
|
|
34,830 |
|
|
30,320 |
|
Other
non-cash items, net |
|
6,333 |
|
|
3,344 |
|
|
16,497 |
|
|
8,806 |
|
Changes in
operating assets and liabilities |
|
(5,800 |
) |
|
(17,548 |
) |
|
(13,750 |
) |
|
(52,228 |
) |
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
|
26,218 |
|
|
873 |
|
|
71,548 |
|
|
17,680 |
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Acquisition
of businesses, net of cash acquired |
|
(36,500 |
) |
|
(179,598 |
) |
|
(81,529 |
) |
|
(185,396 |
) |
Purchases of
property and equipment |
|
(7,060 |
) |
|
(3,475 |
) |
|
(17,862 |
) |
|
(11,067 |
) |
Other
investing activities |
|
— |
|
|
— |
|
|
— |
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
Net cash
used in investing activities |
|
(43,560 |
) |
|
(183,073 |
) |
|
(99,391 |
) |
|
(196,838 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from employee stock plans |
|
— |
|
|
— |
|
|
1,677 |
|
|
2,049 |
|
Payments
under credit facilities |
|
— |
|
|
— |
|
|
— |
|
|
(15,000 |
) |
Borrowings
under credit facilities |
|
36,500 |
|
|
195,000 |
|
|
81,500 |
|
|
210,000 |
|
Payments of
deferred financing and offering costs |
|
— |
|
|
— |
|
|
(1,851 |
) |
|
— |
|
Payments for
retirement of common stock |
|
(502 |
) |
|
(209 |
) |
|
(7,434 |
) |
|
(15,118 |
) |
|
|
|
|
|
|
|
|
|
Net cash
provided by financing activities |
|
35,998 |
|
|
194,791 |
|
|
73,892 |
|
|
181,931 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
(44 |
) |
|
(409 |
) |
|
(55 |
) |
|
(193 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents |
|
18,612 |
|
|
12,182 |
|
|
45,994 |
|
|
2,580 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period |
|
93,903 |
|
|
32,035 |
|
|
66,521 |
|
|
41,637 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period |
|
$ |
112,515 |
|
|
$ |
44,217 |
|
|
$ |
112,515 |
|
|
$ |
44,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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, capital
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 Mercury’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 intangibles related to various acquisitions it has
made and license agreements. These intangible assets are valued at
the time of acquisition, are amortized over a period of several
years after acquisition 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 and financing costs. The Company incurs
transaction costs related to acquisition and potential acquisition
opportunities, such as legal, accounting, and other third party
advisory fees. Although we 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. The Company also incurs 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 we 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.
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. 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 the 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.
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
March 31, |
|
March 31, |
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Net income |
|
$ |
14,109 |
|
|
$ |
3,696 |
|
|
$ |
33,971 |
|
|
$ |
30,782 |
|
|
Other non-operating adjustments,
net(1) |
|
(502 |
) |
|
(694 |
) |
|
(155 |
) |
|
(798 |
) |
|
Interest expense (income), net |
|
2,268 |
|
|
999 |
|
|
6,586 |
|
|
1,087 |
|
|
Income taxes |
|
5,357 |
|
|
2,209 |
|
|
12,969 |
|
|
(4,837 |
) |
|
Depreciation |
|
4,790 |
|
|
4,277 |
|
|
13,924 |
|
|
11,752 |
|
|
Amortization of intangible
assets |
|
6,786 |
|
|
7,104 |
|
|
20,906 |
|
|
18,568 |
|
|
Restructuring and other
charges |
|
46 |
|
|
1,384 |
|
|
573 |
|
|
1,792 |
|
|
Impairment of long-lived
assets |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Acquisition and financing
costs |
|
787 |
|
|
1,909 |
|
|
2,592 |
|
|
4,129 |
|
|
Fair value adjustments from
purchase accounting |
|
93 |
|
|
539 |
|
|
713 |
|
|
1,132 |
|
|
Litigation and settlement expense
(income), net |
|
146 |
|
|
— |
|
|
325 |
|
|
— |
|
|
Stock-based and other non-cash
compensation expense |
|
4,914 |
|
|
3,669 |
|
|
14,995 |
|
|
13,306 |
|
|
Adjusted EBITDA |
|
$ |
38,794 |
|
|
$ |
25,092 |
|
|
$ |
107,399 |
|
|
$ |
76,913 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) As of
July 1, 2018, the Company has revised its definition of adjusted
EBITDA to incorporate other non-operating adjustments, net, which
includes gains or losses on foreign currency remeasurement and
fixed assets sales and disposals among other adjustments. Adjusted
EBITDA for prior periods has been recast for comparative
purposes. |
|
Free cash flow, a non-GAAP measure for reporting cash flow, is
defined as cash provided by operating activities less capital
expenditures 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.
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Cash flows from
operations |
|
$ |
26,218 |
|
|
$ |
873 |
|
|
$ |
71,548 |
|
|
$ |
17,680 |
|
Capital
expenditures |
|
(7,060 |
) |
|
(3,475 |
) |
|
(17,862 |
) |
|
(11,067 |
) |
Free cash flow |
|
$ |
19,158 |
|
|
$ |
(2,602 |
) |
|
$ |
53,686 |
|
|
$ |
6,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 our 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 amortization of
intangible assets, restructuring and other charges, impairment of
long-lived assets, acquisition and financing costs, fair value
adjustments from purchase accounting, litigation and settlement
income and expense, 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.
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2019 |
|
2018 |
|
Net income and earnings
per share |
|
$ |
14,109 |
|
|
$ |
0.29 |
|
|
$ |
3,696 |
|
|
$ |
0.08 |
|
|
Amortization of intangible assets |
|
6,786 |
|
|
|
|
7,104 |
|
|
|
|
Restructuring and other charges |
|
46 |
|
|
|
|
1,384 |
|
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
|
Acquisition and financing costs |
|
787 |
|
|
|
|
1,909 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
93 |
|
|
|
|
539 |
|
|
|
|
Litigation and settlement expense (income), net |
|
146 |
|
|
|
|
— |
|
|
|
|
Stock-based and other non-cash compensation expense |
|
4,914 |
|
|
|
|
3,669 |
|
|
|
|
Impact to
income taxes(1) |
|
(2,850 |
) |
|
|
|
(4,082 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
|
$ |
24,031 |
|
|
$ |
0.50 |
|
|
$ |
14,219 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
47,958 |
|
|
|
|
47,532 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Impact
to income taxes is calculated by recasting income before income
taxes to include the add-backs involved in determining adjusted
income and recalculating the income tax provision using this
adjusted income from operations before income taxes. |
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2019 |
|
2018 |
|
Net income and earnings
per share |
|
$ |
33,971 |
|
|
$ |
0.71 |
|
|
$ |
30,782 |
|
|
$ |
0.65 |
|
|
Amortization of intangible assets |
|
20,906 |
|
|
|
|
18,568 |
|
|
|
|
Restructuring and other charges |
|
573 |
|
|
|
|
1,792 |
|
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
|
Acquisition and financing costs |
|
2,592 |
|
|
|
|
4,129 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
713 |
|
|
|
|
1,132 |
|
|
|
|
Litigation and settlement expense (income), net |
|
325 |
|
|
|
|
— |
|
|
|
|
Stock-based and other non-cash compensation expense |
|
14,995 |
|
|
|
|
13,306 |
|
|
|
|
Impact to
income taxes(1) |
|
(8,932 |
) |
|
|
|
(24,648 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
|
$ |
65,143 |
|
|
$ |
1.36 |
|
|
$ |
45,061 |
|
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
47,783 |
|
|
|
|
47,473 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Impact
to income taxes is calculated by recasting income before income
taxes to include the add-backs involved in determining adjusted
income and recalculating the income tax provision using this
adjusted income from operations before income taxes. |
|
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 its 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.
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Organic revenue |
|
$ |
139,812 |
|
|
$ |
106,835 |
|
|
$ |
382,939 |
|
|
$ |
330,816 |
|
Acquired revenue |
|
34,824 |
|
|
9,501 |
|
|
94,842 |
|
|
9,501 |
|
Net revenues |
|
$ |
174,636 |
|
|
$ |
116,336 |
|
|
$ |
477,781 |
|
|
$ |
340,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
RECONCILIATION
OF FORWARD-LOOKING GUIDANCE RANGE |
|
|
|
Quarter Ending June 30,
2019 |
|
|
|
Year Ending June 30,
2019 |
|
|
|
(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 and financing costs, fair value adjustments from
purchase accounting, litigation and settlement income and expense,
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.
|
|
Three Months Ending |
|
Twelve Months Ending |
|
|
June 30, 2019(1) |
|
June 30, 2019(1) |
|
|
Range |
|
Range |
|
|
Low |
|
High |
|
Low |
|
High |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP expectation -- Net
income |
|
$ |
11,300 |
|
|
$ |
13,400 |
|
|
$ |
45,200 |
|
|
$ |
47,400 |
|
|
|
|
|
|
|
|
|
|
Adjust for: |
|
|
|
|
|
|
|
|
Other
non-operating adjustments, net |
|
— |
|
|
— |
|
|
(200 |
) |
|
(200 |
) |
Interest
expense (income), net |
|
2,400 |
|
|
2,400 |
|
|
9,100 |
|
|
9,100 |
|
Income
taxes |
|
4,200 |
|
|
5,000 |
|
|
17,100 |
|
|
17,900 |
|
Depreciation |
|
4,500 |
|
|
4,600 |
|
|
18,400 |
|
|
18,500 |
|
Amortization of intangible assets |
|
6,300 |
|
|
6,300 |
|
|
27,200 |
|
|
27,200 |
|
Restructuring and other charges |
|
— |
|
|
— |
|
|
600 |
|
|
600 |
|
Impairment of long-lived assets |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Acquisition and financing costs |
|
700 |
|
|
700 |
|
|
3,300 |
|
|
3,300 |
|
Fair
value adjustments from purchase accounting |
|
— |
|
|
— |
|
|
700 |
|
|
700 |
|
Litigation and settlement expense (income), net |
|
— |
|
|
— |
|
|
300 |
|
|
300 |
|
Stock-based and other non-cash compensation expense |
|
4,700 |
|
|
4,700 |
|
|
19,700 |
|
|
19,700 |
|
Adjusted EBITDA
expectation |
|
$ |
34,100 |
|
|
$ |
37,100 |
|
|
$ |
141,500 |
|
|
$ |
144,500 |
|
|
|
|
|
|
|
|
|
|
(1) Rounded amounts
used. |
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
RECONCILIATION
OF FORWARD-LOOKING GUIDANCE RANGE |
|
|
|
Quarter Ending June 30,
2019 |
|
|
|
Year Ending June 30,
2019 |
|
|
|
(In thousands, except
per share data) |
|
|
|
The Company defines adjusted income as income before
amortization of intangible assets, restructuring and other charges,
impairment of long-lived assets, acquisition and financing costs,
fair value adjustments from purchase accounting, litigation and
settlement income and expense, 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(2). 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.
|
|
Three Months Ending June 30, 2019(1) |
|
|
Range |
|
|
Low |
|
High |
GAAP expectation -- Net
income and earnings per share |
|
$ |
11,300 |
|
|
$ |
0.23 |
|
|
$ |
13,400 |
|
|
$ |
0.28 |
|
Amortization of intangible assets |
|
6,300 |
|
|
|
|
6,300 |
|
|
|
Restructuring and other charges |
|
— |
|
|
|
|
— |
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
Acquisition and financing costs |
|
700 |
|
|
|
|
700 |
|
|
|
Fair
value adjustments from purchase accounting |
|
— |
|
|
|
|
— |
|
|
|
Litigation and settlement expense (income), net |
|
— |
|
|
|
|
— |
|
|
|
Stock-based and other non-cash compensation expense |
|
4,700 |
|
|
|
|
4,700 |
|
|
|
Impact to
income taxes(2) |
|
(2,600 |
) |
|
|
|
(2,600 |
) |
|
|
Adjusted income and
adjusted earnings per share expectation |
|
$ |
20,400 |
|
|
$ |
0.42 |
|
|
$ |
22,500 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding expectation: |
|
|
|
48,100 |
|
|
|
|
48,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending June 30, 2019(1) |
|
|
Range |
|
|
Low |
|
High |
GAAP expectation -- Net
income and earnings per share |
|
$ |
45,200 |
|
|
$ |
0.95 |
|
|
$ |
47,400 |
|
|
$ |
0.99 |
|
Amortization of intangible assets |
|
27,200 |
|
|
|
|
27,200 |
|
|
|
Restructuring and other charges |
|
600 |
|
|
|
|
600 |
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
Acquisition and financing costs |
|
3,300 |
|
|
|
|
3,300 |
|
|
|
Fair
value adjustments from purchase accounting |
|
700 |
|
|
|
|
700 |
|
|
|
Litigation and settlement expense (income), net |
|
300 |
|
|
|
|
300 |
|
|
|
Stock-based and other non-cash compensation expense |
|
19,700 |
|
|
|
|
19,700 |
|
|
|
Impact to
income taxes(2) |
|
(11,400 |
) |
|
|
|
(11,400 |
) |
|
|
Adjusted income and
adjusted earnings per share expectation |
|
$ |
85,600 |
|
|
$ |
1.79 |
|
|
$ |
87,800 |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding expectation: |
|
|
|
47,900 |
|
|
|
|
47,900 |
|
|
|
|
|
|
|
|
|
|
(1)
Rounded amounts used. |
(2) Impact
to income taxes is calculated by recasting income before income
taxes to include the add-backs involved in determining adjusted
income and recalculating the income tax provision using this
adjusted income from operations before income taxes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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