Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported
operating results for the first quarter of fiscal 2022, ended
October 1, 2021.
Management Comments“The Company’s first quarter
financial performance was in line with our expectations,” said Mark
Aslett, Mercury’s President and Chief Executive Officer. “We expect
to deliver substantial year-over-year growth in bookings in FY22,
weighted toward the second half, as well as a positive book-to-bill
for the year and solid growth in our backlog. This should set the
stage for strong results in FY23, including a return to high
single-digit to low double-digit organic growth. We anticipate
elevated risk levels for the remainder of the fiscal year due to
the potential of a prolonged defense budget continuing resolution,
federal vaccination mandate and supply chain constraints though we
are diligently managing and mitigating those risks. During the
quarter, we continued executing on our 1MPACT value creation
initiative and are progressing as planned on the expected savings
in this fiscal year. We also announced a definitive agreement to
acquire Avalex Technologies, which scales our global avionics and
mission systems capabilities.”
First Quarter Fiscal 2022 ResultsTotal Company
first quarter fiscal 2022 revenues were $225.0 million, compared to
$205.6 million in the first quarter of fiscal 2021. The first
quarter fiscal 2022 results included an aggregate of approximately
$41.3 million of revenue attributable to the Physical Optics
Corporation and Pentek acquired businesses.
Total Company GAAP net (loss) income for the first quarter of
fiscal 2022 was $(7.1) million, or $(0.13) per share, compared to
$15.8 million, or $0.29 per share, for the first quarter of fiscal
2021. Adjusted earnings per share (“adjusted EPS”) was $0.41 per
share for the first quarter of fiscal 2022, compared to $0.51 per
share in the first quarter of fiscal 2021.
First quarter fiscal 2022 adjusted EBITDA for the total Company
was $38.3 million, compared to $42.8 million for the first quarter
of fiscal 2021.
Cash flows from operating activities in the first quarter of
fiscal 2022 were $(2.0) million, compared to $22.9 million in the
first quarter of fiscal 2021. Free cash flow, defined as cash flows
from operating activities less capital expenditures for property
and equipment, was $(7.4) million for the first quarter of fiscal
2022 and $12.0 million for the first quarter of fiscal 2021.
All per share information is presented on a fully diluted
basis.
Bookings and BacklogTotal bookings for the
first quarter of fiscal 2022 were $199.3 million, yielding a
book-to-bill ratio of 0.89 for the quarter.
Mercury’s total backlog at October 1, 2021 was $883.9 million, a
$57.8 million increase from a year ago. Of the October 1, 2021
total backlog, $553.9 million represents orders expected to be
shipped within the next 12 months.
Business Outlook
This section presents our current expectations and estimates,
given current visibility, on our business outlook for the current
fiscal quarter and fiscal year 2022. 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 First Quarter and
Fiscal 2022 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 second quarter of fiscal
2022 and full fiscal 2022 are to the quarter ending December 31,
2021 and to the 52-week period ending July 1, 2022.
For the second quarter of fiscal 2022, revenues are forecasted
to be in the range of $215.0 million to $225.0 million. GAAP net
income for the second quarter is expected to be approximately $0.3
million to $1.0 million, or $0.00 to $0.02 per share, assuming no
incremental acquisition costs, other non-operating adjustments, or
non-recurring financing in the period, and approximately 55.7
million weighted average diluted shares outstanding. Adjusted
EBITDA for the second quarter of fiscal 2022 is expected to be in
the range of $38.0 million to $41.0 million. Adjusted EPS is
expected to be in the range of $0.39 to $0.43 per share.
For the full fiscal year 2022, revenues are forecasted to be in
the range of $1.00 billion to $1.03 billion, and GAAP net income of
$54.6 million to $59.7 million, or $0.98 to $1.07 per share,
assuming no incremental acquisition costs, other non-operating
adjustments, or non-recurring financing in the period, and
approximately 55.7 million weighted average diluted shares
outstanding. Adjusted EBITDA for the full fiscal year is expected
to be approximately $220.0 million to $227.0 million, and adjusted
EPS for the full fiscal year is expected to be approximately $2.51
to $2.60 per share.
Recent HighlightsOctober – Mercury announced
that Mitch Stevison joined the Company as executive vice president
and chief growth officer, effective October 4, 2021. Reporting to
Mark Aslett, Mercury’s president and chief executive officer, Dr.
Stevison will drive and align the Company’s growth strategy across
the enterprise to achieve its growth objectives.
September – Mercury announced that it signed a definitive
agreement to acquire Avalex Technologies Corporation (“Avalex”).
Based in Gulf Breeze, Fla., Avalex is a provider of
mission-critical avionics, including rugged displays, integrated
communications management systems, digital video recorders, and
warning systems.
September – Mercury announced it had successfully demonstrated
the Model 8256 Sensor Open Systems Architecture™ (SOSA) aligned
Development Platform at the U.S. Army - FACE™ and SOSA Technical
Interchange Meeting, proving true heterogenous interoperability
with SOSA aligned products from several suppliers.
September – Mercury announced that Thomas Huber had joined the
Company as executive vice president and chief transformation
officer, effective September 7, 2021. Reporting to Mark Aslett,
Mercury’s president and chief executive officer, Mr. Huber will
lead the Company’s 1MPACT strategic value creation initiative
announced in its fourth-quarter fiscal 2021 earnings release.
September – Mercury announced that five of its products were
recognized among the most innovative solutions in aerospace and
defense products and systems by the judges of the 2021 Military
& Aerospace Electronics Innovators Awards program.
August – Mercury launched its new avionics data recorder,
storage, and transfer systems. The innovative systems are
purpose-built to provide air and operations crews with intuitive
high-speed secure and reliable data exchange.
August – Mercury announced it received a $17 million order from
the U.S. Naval Air Warfare Center’s Aircraft Division (NAWC-AD) for
Advanced Data Transfer Systems (ADTS) for deployment across
multiple rotary-wing and tilt-rotor platforms.
August – Mercury announced that its Torrance, Calif. facility
was recognized by Lockheed Martin Rotary and Mission Systems (RMS)
for its exemplary contributions to delivering advanced products and
services in 2020.
July – Mercury announced the SCFE6931 processing module, the
first in the industry to incorporate integrated artificial
intelligence (AI) processing functionality. The 6U OpenVPX ™
heterogeneous processing module delivers performance improvements
up to 20× more than today's fastest FPGA implementations and 100×
more than today's fastest CPU implementations.
July – Mercury announced that it is teaming with CoreAVI to
provide CoreAVI’s safety-certified graphics, video, and GPU compute
solutions to aerospace and defense customers. The licensing
agreement between the companies addresses the growing demand for
safety-critical solutions and open standards platforms in the
defense market.
July – Mercury announced its new line of safety-certifiable 3U
OpenVPX™ SOSA-aligned avionics modules designed to accelerate
critical avionics applications and streamline subsystem development
and platform safety certification.
Conference Call Information
Mercury will host a conference call and simultaneous webcast at
5:00 p.m. ET on Tuesday, November 2, 2021, to discuss the
first quarter fiscal 2022 results and review its financial and
business outlook going forward.
To attend the conference call or webcast, participants should
register online at ir.mrcy.com/events-presentations. Participants
are requested to register a minimum of 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.
About Mercury Systems – Innovation That
Matters®Mercury Systems is a global commercial technology
company serving the aerospace and defense industry. Headquartered
in Andover, Mass., the company delivers trusted, secure open
architecture processing solutions powering a broad range of
mission-critical applications in the most challenging and demanding
environments. Inspired by its purpose of delivering Innovation that
Matters, By and For People Who Matter, Mercury helps make the world
a safer, more secure place for all. To learn more, visit
www.mrcy.com, or follow us on Twitter.
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 acquisitions described
herein and to fiscal 2022 business performance and beyond and the
Company’s plans for growth, cost savings 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 epidemics and pandemics such as
COVID, 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, 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,
production delays or unanticipated expenses due to performance
quality issues with outsourced components, inability to fully
realize the expected benefits from acquisitions, restructurings and
value creation initiatives such as 1MPACT, or delays in realizing
such benefits, challenges in integrating acquired businesses and
achieving anticipated synergies, increases in interest rates,
changes to industrial security and 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
July 2, 2021. 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) |
|
|
|
|
|
|
October 1, |
|
July 2, |
|
|
2021 |
|
2021 |
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
95,804 |
|
|
$ |
113,839 |
|
Accounts receivable, net |
|
106,831 |
|
|
128,807 |
|
Unbilled receivables and costs in excess of billings |
|
194,367 |
|
|
162,921 |
|
Inventory |
|
234,403 |
|
|
221,640 |
|
Prepaid income taxes |
|
11,815 |
|
|
782 |
|
Prepaid expenses and other current assets |
|
18,465 |
|
|
15,111 |
|
Total current assets |
|
661,685 |
|
|
643,100 |
|
|
|
|
|
|
Property and equipment, net |
|
128,694 |
|
|
128,524 |
|
Goodwill |
|
805,315 |
|
|
804,906 |
|
Intangible assets, net |
|
297,137 |
|
|
307,559 |
|
Operating lease right-of-use
assets |
|
67,797 |
|
|
66,373 |
|
Other non-current assets |
|
4,466 |
|
|
4,675 |
|
Total assets |
|
$ |
1,965,094 |
|
|
$ |
1,955,137 |
|
|
|
|
|
|
Liabilities and Shareholders’
Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
73,385 |
|
|
$ |
47,951 |
|
Accrued expenses |
|
30,414 |
|
|
24,652 |
|
Accrued compensation |
|
32,890 |
|
|
40,043 |
|
Deferred revenues and customer advances |
|
30,635 |
|
|
38,177 |
|
Total current liabilities |
|
167,324 |
|
|
150,823 |
|
|
|
|
|
|
Deferred income taxes |
|
26,717 |
|
|
28,810 |
|
Income taxes payable |
|
7,467 |
|
|
7,467 |
|
Long-term debt |
|
200,000 |
|
|
200,000 |
|
Operating lease
liabilities |
|
72,010 |
|
|
71,508 |
|
Other non-current
liabilities |
|
12,096 |
|
|
12,383 |
|
Total liabilities |
|
485,614 |
|
|
470,991 |
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Preferred stock |
|
— |
|
|
— |
|
Common stock |
|
555 |
|
|
552 |
|
Additional paid-in capital |
|
1,111,613 |
|
|
1,109,434 |
|
Retained earnings |
|
367,359 |
|
|
374,499 |
|
Accumulated other comprehensive loss |
|
(47 |
) |
|
(339 |
) |
Total shareholders’ equity |
|
1,479,480 |
|
|
1,484,146 |
|
Total liabilities and shareholders’ equity |
|
$ |
1,965,094 |
|
|
$ |
1,955,137 |
|
MERCURY SYSTEMS,
INC. |
|
|
|
|
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS |
(In thousands, except per
share data) |
|
|
|
|
|
|
First Quarters Ended |
|
|
October 1, 2021 |
|
October 2, 2020 |
Net revenues |
|
$ |
225,013 |
|
|
$ |
205,621 |
|
Cost of revenues(1) |
|
136,604 |
|
|
117,502 |
|
Gross margin |
|
88,409 |
|
|
88,119 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling, general and administrative(1) |
|
36,956 |
|
|
32,904 |
|
Research and development(1) |
|
28,882 |
|
|
27,417 |
|
Amortization of intangible assets |
|
13,734 |
|
|
7,731 |
|
Restructuring and other charges |
|
12,274 |
|
|
1,297 |
|
Acquisition costs and other related expenses |
|
2,138 |
|
|
— |
|
Total operating expenses |
|
93,984 |
|
|
69,349 |
|
|
|
|
|
|
(Loss) income from
operations |
|
(5,575 |
) |
|
18,770 |
|
|
|
|
|
|
Interest income |
|
9 |
|
|
72 |
|
Interest expense |
|
(595 |
) |
|
— |
|
Other expense, net |
|
(1,420 |
) |
|
(846 |
) |
|
|
|
|
|
(Loss) income before income
taxes |
|
(7,581 |
) |
|
17,996 |
|
Income tax (benefit)
provision |
|
(441 |
) |
|
2,198 |
|
Net (loss) income |
|
$ |
(7,140 |
) |
|
$ |
15,798 |
|
|
|
|
|
|
Basic net (loss) earnings per
share |
|
$ |
(0.13 |
) |
|
$ |
0.29 |
|
|
|
|
|
|
Diluted net (loss) earnings
per share |
|
$ |
(0.13 |
) |
|
$ |
0.29 |
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
Basic |
|
55,376 |
|
|
54,883 |
|
Diluted |
|
55,376 |
|
|
55,339 |
|
|
|
|
|
|
(1) Includes
stock-based compensation expense, allocated as follows: |
Cost of revenues |
|
$ |
559 |
|
|
$ |
295 |
|
Selling, general and administrative |
|
$ |
7,561 |
|
|
$ |
5,676 |
|
Research and development |
|
$ |
1,407 |
|
|
$ |
1,213 |
|
MERCURY SYSTEMS,
INC. |
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In thousands) |
|
|
|
|
|
|
First Quarters Ended |
|
|
October 1, 2021 |
|
October 2, 2020 |
Cash flows from operating
activities: |
|
|
|
|
Net (loss) income |
|
$ |
(7,140 |
) |
|
$ |
15,798 |
|
Depreciation and amortization |
|
21,490 |
|
|
12,997 |
|
Other non-cash items, net |
|
5,804 |
|
|
4,531 |
|
Changes in operating assets and liabilities |
|
(22,160 |
) |
|
(10,397 |
) |
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
(2,006 |
) |
|
22,929 |
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
Purchases of property and equipment |
|
(5,377 |
) |
|
(10,978 |
) |
Other investing activities |
|
(3,237 |
) |
|
— |
|
|
|
|
|
|
Net cash used in investing activities |
|
(8,614 |
) |
|
(10,978 |
) |
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
Proceeds from employee stock plans |
|
— |
|
|
2 |
|
Payments for retirement of common stock |
|
(7,316 |
) |
|
(66 |
) |
|
|
|
|
|
Net cash used in financing activities |
|
(7,316 |
) |
|
(64 |
) |
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
(99 |
) |
|
397 |
|
|
|
|
|
|
Net (decrease) increase in
cash and cash equivalents |
|
(18,035 |
) |
|
12,284 |
|
|
|
|
|
|
Cash and cash equivalents at
beginning of period |
|
113,839 |
|
|
226,838 |
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
95,804 |
|
|
$ |
239,122 |
|
|
|
|
|
|
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, 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 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 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.
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. 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.
|
|
First Quarters Ended |
|
|
October 1, 2021 |
|
October 2, 2020 |
Net (loss) income |
|
$ |
(7,140 |
) |
|
$ |
15,798 |
|
Other non-operating adjustments, net |
|
417 |
|
|
(182 |
) |
Interest expense (income), net |
|
586 |
|
|
(72 |
) |
Income tax (benefit) provision |
|
(441 |
) |
|
2,198 |
|
Depreciation |
|
7,756 |
|
|
5,266 |
|
Amortization of intangible assets |
|
13,734 |
|
|
7,731 |
|
Restructuring and other charges |
|
12,274 |
|
|
1,297 |
|
Impairment of long-lived assets |
|
— |
|
|
— |
|
Acquisition and financing costs |
|
2,633 |
|
|
841 |
|
Fair value adjustments from purchase accounting |
|
(1,661 |
) |
|
— |
|
Litigation and settlement expense, net |
|
376 |
|
|
187 |
|
COVID related expenses |
|
183 |
|
|
2,319 |
|
Stock-based and other non-cash compensation expense |
|
9,573 |
|
|
7,367 |
|
Adjusted EBITDA |
|
$ |
38,290 |
|
|
$ |
42,750 |
|
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.
|
|
First Quarters Ended |
|
|
October 1, 2021 |
|
October 2, 2020 |
Cash (used in) provided by operating activities |
|
$ |
(2,006 |
) |
|
$ |
22,929 |
|
Purchases of property and equipment |
|
(5,377 |
) |
|
(10,978 |
) |
Free cash flow |
|
$ |
(7,383 |
) |
|
$ |
11,951 |
|
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 other
non-operating adjustments, 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,
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 table reconciles the most directly comparable GAAP
financial measures to the non-GAAP financial measures.
|
|
First Quarters Ended |
|
|
October 1, 2021 |
|
October 2, 2020 |
Net (loss) income and (loss) earnings per share |
|
$ |
(7,140 |
) |
|
$ |
(0.13 |
) |
|
$ |
15,798 |
|
|
$ |
0.29 |
|
Other non-operating adjustments, net |
|
417 |
|
|
|
|
(182 |
) |
|
|
Amortization of intangible assets |
|
13,734 |
|
|
|
|
7,731 |
|
|
|
Restructuring and other charges |
|
12,274 |
|
|
|
|
1,297 |
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
Acquisition and financing costs |
|
2,633 |
|
|
|
|
841 |
|
|
|
Fair value adjustments from purchase accounting |
|
(1,661 |
) |
|
|
|
— |
|
|
|
Litigation and settlement expense, net |
|
376 |
|
|
|
|
187 |
|
|
|
COVID related expenses |
|
183 |
|
|
|
|
2,319 |
|
|
|
Stock-based and other non-cash compensation expense |
|
9,573 |
|
|
|
|
7,367 |
|
|
|
Impact to income taxes(1) |
|
(7,829 |
) |
|
|
|
(7,024 |
) |
|
|
Adjusted income and adjusted
earnings per share |
|
$ |
22,560 |
|
|
$ |
0.41 |
|
|
$ |
28,334 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average
shares outstanding |
|
|
|
55,376 |
|
|
|
|
55,339 |
|
|
|
|
|
|
|
|
|
|
(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. The
recalculation also adjusts for any discrete tax expense or benefit
related to the add-backs. |
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.
|
|
First Quarters Ended |
|
|
October 1, 2021 |
|
October 2, 2020 |
Organic revenue |
|
$ |
183,732 |
|
|
$ |
205,621 |
|
Acquired revenue |
|
41,281 |
|
|
— |
|
Net revenues |
|
$ |
225,013 |
|
|
$ |
205,621 |
|
MERCURY
SYSTEMS, INC. |
RECONCILIATION OF
FORWARD-LOOKING GUIDANCE RANGE |
|
|
|
Quarter Ending December 31,
2021 |
|
|
|
Fiscal Year Ending July 1,
2022 |
|
|
|
(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,
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.
|
|
Second Quarter Ending |
|
Fiscal Year Ending |
|
|
December 31, 2021(1) |
|
July 1, 2022(1) |
|
|
Range |
|
|
Low |
|
High |
|
Low |
|
High |
GAAP expectation -- Net income |
|
$ |
300 |
|
|
$ |
1,000 |
|
|
$ |
54,600 |
|
|
$ |
59,700 |
|
|
|
|
|
|
|
|
|
|
Adjust for: |
|
|
|
|
|
|
|
|
Other non-operating adjustments, net |
|
— |
|
|
— |
|
|
400 |
|
|
400 |
|
Interest expense, net |
|
700 |
|
|
700 |
|
|
2,700 |
|
|
2,700 |
|
Income tax provision |
|
900 |
|
|
3,100 |
|
|
19,100 |
|
|
20,900 |
|
Depreciation |
|
8,200 |
|
|
8,200 |
|
|
33,700 |
|
|
33,700 |
|
Amortization of intangible assets |
|
13,400 |
|
|
13,400 |
|
|
49,800 |
|
|
49,800 |
|
Restructuring and other charges |
|
5,200 |
|
|
5,200 |
|
|
19,600 |
|
|
19,600 |
|
Impairment of long-lived assets |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Acquisition and financing costs |
|
700 |
|
|
700 |
|
|
4,600 |
|
|
4,600 |
|
Fair value adjustments from purchase accounting |
|
200 |
|
|
200 |
|
|
(1,200 |
) |
|
(1,200 |
) |
Litigation and settlement expense, net |
|
— |
|
|
— |
|
|
400 |
|
|
400 |
|
COVID related expenses |
|
— |
|
|
— |
|
|
200 |
|
|
200 |
|
Stock-based and other non-cash compensation expense |
|
8,500 |
|
|
8,500 |
|
|
36,200 |
|
|
36,200 |
|
Adjusted EBITDA
expectation |
|
$ |
38,000 |
|
|
$ |
41,000 |
|
|
$ |
220,000 |
|
|
$ |
227,000 |
|
|
|
|
|
|
|
|
|
|
(1) Rounded amounts used. |
|
|
|
|
|
|
|
|
MERCURY
SYSTEMS, INC. |
RECONCILIATION OF
FORWARD-LOOKING GUIDANCE RANGE |
|
|
|
Quarter Ending December 31,
2021 |
|
|
|
Fiscal Year Ending July 1,
2022 |
|
|
|
(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 and financing 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(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.
|
|
Second Quarter Ending December 31, 2021(1) |
|
|
Range |
|
|
Low |
|
High |
GAAP expectation -- Net income and earnings per share |
|
$ |
300 |
|
|
$ |
— |
|
|
$ |
1,000 |
|
|
$ |
0.02 |
|
Other non-operating adjustments, net |
|
— |
|
|
|
|
— |
|
|
|
Amortization of intangible assets |
|
13,400 |
|
|
|
|
13,400 |
|
|
|
Restructuring and other charges |
|
5,200 |
|
|
|
|
5,200 |
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
Acquisition and financing costs |
|
700 |
|
|
|
|
700 |
|
|
|
Fair value adjustments from purchase accounting |
|
200 |
|
|
|
|
200 |
|
|
|
Litigation and settlement expense (income), net |
|
— |
|
|
|
|
— |
|
|
|
COVID related expenses |
|
— |
|
|
|
|
— |
|
|
|
Stock-based and other non-cash compensation expense |
|
8,500 |
|
|
|
|
8,500 |
|
|
|
Impact to income taxes(2) |
|
(6,300 |
) |
|
|
|
(5,300 |
) |
|
|
Adjusted income and adjusted
earnings per share expectation |
|
$ |
22,000 |
|
|
$ |
0.39 |
|
|
$ |
23,700 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average
shares outstanding expectation |
|
|
|
55,700 |
|
|
|
|
55,700 |
|
|
|
|
|
|
|
|
|
|
(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. The
recalculation also adjusts for any discrete tax expense or benefit
related to the add-backs. |
|
|
Fiscal Year Ending July 1, 2022(1) |
|
|
Range |
|
|
Low |
|
High |
GAAP expectation -- Net income and earnings per share |
|
$ |
54,600 |
|
|
$ |
0.98 |
|
|
$ |
59,700 |
|
|
$ |
1.07 |
|
Other non-operating adjustments, net |
|
400 |
|
|
|
|
400 |
|
|
|
Amortization of intangible assets |
|
49,800 |
|
|
|
|
49,800 |
|
|
|
Restructuring and other charges |
|
19,600 |
|
|
|
|
19,600 |
|
|
|
Impairment of long-lived assets |
|
— |
|
|
|
|
— |
|
|
|
Acquisition and financing costs |
|
4,600 |
|
|
|
|
4,600 |
|
|
|
Fair value adjustments from purchase accounting |
|
(1,200 |
) |
|
|
|
(1,200 |
) |
|
|
Litigation and settlement expense, net |
|
400 |
|
|
|
|
400 |
|
|
|
COVID related expenses |
|
200 |
|
|
|
|
200 |
|
|
|
Stock-based and other non-cash compensation expense |
|
36,200 |
|
|
|
|
36,200 |
|
|
|
Impact to income taxes(2) |
|
(25,000 |
) |
|
|
|
(25,000 |
) |
|
|
Adjusted income and adjusted
earnings per share expectation |
|
$ |
139,600 |
|
|
$ |
2.51 |
|
|
$ |
144,700 |
|
|
$ |
2.60 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average
shares outstanding expectation |
|
|
|
55,700 |
|
|
|
|
55,700 |
|
|
|
|
|
|
|
|
|
|
(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. The
recalculation also adjusts for any discrete tax expense or benefit
related to the add-backs. |
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