Financial highlights
include:
Revenue up 12% over prior
year Adjusted EBITDA more than doubles
year-over-year Income from continuing operations
of $2.9 million, $0.09 per share Backlog up 51%
year-over year
Expects to achieve target
business model for fiscal 2015
Mercury Systems, Inc. (Nasdaq:MRCY) (www.mrcy.com), a leading
high-tech commercial provider of more affordable secure and sensor
processing subsystems powering today's critical defense and
intelligence applications, reported operating results for its
second quarter of fiscal 2015, which ended December 31, 2014.
Second Quarter Fiscal 2015 Results
Second quarter fiscal 2015 revenues were $57.1 million, an
increase of $6.2 million, or 12.0%, compared to the second quarter
of fiscal 2014, as revenues from defense customers increased $4.9
million and revenues from commercial customers increased $1.3
million.
GAAP income from continuing operations for the second quarter of
fiscal 2015 was $2.9 million, or $0.09 per share, compared to GAAP
loss from continuing operations of ($0.8) million, or ($0.02) per
share, for the prior year's second quarter. Second quarter fiscal
2015 GAAP income per share from continuing operations included
$0.02 of restructuring and other charges and $0.03 for amortization
of intangible assets. Second quarter fiscal 2014 GAAP loss per
share from continuing operations included $0.04 for amortization of
intangible assets.
Second quarter fiscal 2015 GAAP income from continuing
operations included approximately $1.0 million in tax expense, $1.6
million in depreciation expense, $1.8 million in amortization of
intangible assets, $1.2 million in restructuring and other charges
and $2.3 million in stock-based compensation costs. Second quarter
fiscal 2015 adjusted EBITDA (income from continuing operations
before interest income and expense, income taxes, depreciation,
amortization of intangible assets, restructuring and other charges,
impairment of long-lived assets, acquisition costs and other
related expenses, fair value adjustments from purchase accounting,
and stock-based compensation costs) was $10.7 million, more than
doubling $5.2 million for the prior year's second quarter.
GAAP loss from discontinued operations, net of income taxes, for
the second quarter of fiscal 2015 was ($2.6) million, or ($0.08)
per share, compared to GAAP loss from discontinued operations, net
of income taxes, of ($0.3) million, or ($0.01) per share, for the
prior year's second quarter. Second quarter fiscal 2015 GAAP loss
from discontinued operations, net of income taxes, includes a
$2.3 million, or ($0.07) per share, goodwill impairment charge
related to discontinued operations.
Total GAAP net income for the second quarter of fiscal 2015 was
$0.3 million, or $0.01 per share, compared to total GAAP net loss
of ($1.0) million, or ($0.03) per share, for the prior year's
second quarter.
Cash flows from operating activities were a net inflow of $8.2
million in the second quarter of fiscal 2015, compared to a net
inflow of $7.4 million in the second quarter of fiscal 2014. Free
cash flow, defined as cash flow from operating activities less
capital expenditures, was a net inflow of $7.0 million in the
second quarter of fiscal 2015, compared to a net inflow of $4.5
million in the second quarter of fiscal 2014. Cash and cash
equivalents as of December 31, 2014 were $57.0 million, an increase
of $9.7 million from June 30, 2014.
The Company's Mercury Intelligence Systems (MIS) subsidiary was
classified for accounting purposes as a discontinued operation in
the fourth quarter of fiscal 2014 based on the Company's strategic
decision to divest that business. Accordingly, the financial
results of MIS are excluded from the Company's reported financial
results from continuing operations for all periods referenced in
this release. The sale of MIS was concluded earlier this month and
will have a small positive impact to cash in the third fiscal
quarter.
Management Comments
"Mercury's strong momentum continued through the second quarter
of fiscal 2015 as we again delivered strong growth at the top and
bottom lines," said Mark Aslett, President and CEO, Mercury
Systems. "Our results from continuing operations for the second
fiscal quarter were significantly better than the prior year, with
revenue increasing 12%, adjusted EBITDA doubling, and GAAP income
from continuing operations and cash flow from operations both
increasing significantly.
"Mercury's double-digit revenue growth, even more rapid
expansion of adjusted EBITDA and income from operations, and
ability to build backlog in the current fiscal environment speak
volumes about the strategy we have pursued. Our continued momentum,
coupled with the operating leverage yielded by our now-completed
integration plan, reinforce our confidence in achieving our target
business model for fiscal 2015. Already, this has begun translating
into increased shareholder value," Aslett concluded.
Backlog
Mercury's total backlog relating to continuing operations at
December 31, 2014 was $192.1 million, a $65.1 million increase
compared to December 31, 2013. Of the December 31, 2014 total
backlog, $148.3 million represents orders expected to be shipped
over the next 12 months. The defense backlog at December 31, 2014
was $178.6 million, a $69.5 million increase from December 31,
2013.
Bookings for the second quarter of fiscal 2015 were $44.0
million, a 7% decrease compared to $47.4 million for the second
quarter of fiscal 2014. The total book-to-bill ratio was 0.8 for
the second quarter of fiscal 2015, compared to 0.9 for the second
quarter of fiscal 2014. Bookings for the first half of fiscal 2015
were $129.1 million, a 39% increase compared to $92.6 million for
the first half of fiscal 2014. The total book-to-bill ratio was 1.2
for the first half of fiscal 2015, compared to 0.9 for the first
half of fiscal 2014.
Revenues by Reporting Segment
Mercury Commercial Electronics (MCE) — Revenues for the second
quarter of fiscal 2015 from MCE were $52.7 million, representing an
increase of $7.7 million, or 17%, from the second quarter of fiscal
2014. The increase in revenues compared to last year's second
quarter related primarily to higher Patriot, SEWIP and F-35 program
revenue. Approximately 93% of MCE revenues for the second quarter
of fiscal 2015 related to defense business, as compared to
approximately 95% in the second quarter of fiscal 2014.
Mercury Defense Systems (MDS) — Revenues for the second quarter
of fiscal 2015 from MDS were $4.8 million, a decrease of $3.6
million from the second quarter of fiscal 2014.
The revenues by reporting segment do not include adjustments to
eliminate inter-company revenues of $0.5 million included in those
reporting segments in the second quarter of fiscal 2015 and $2.6
million in the second quarter of fiscal 2014.
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 2015. 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 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 third quarter of fiscal 2015, revenues are currently
forecasted to be in the range of $56.0 million to $60.0 million. At
this range, GAAP income per share from continuing operations is
expected to be in the range of $0.10 to $0.14 per share. Projected
GAAP income per share from continuing operations includes $0.03 per
share of amortization of intangible assets.
Adjusted EBITDA for the third quarter of fiscal 2015 is expected
to be in the range of $10.5 million to $12.0 million.
Revenues for fiscal year 2015 are projected to be in the range
of $228.0 million to $236.0 million, representing 9% to 13% revenue
growth relative to fiscal 2014. At this range, GAAP income per
share from continuing operations is forecasted to be higher than
our prior guidance due to the Company's strong year-to-date
performance, and is now projected to be in the range of $0.33 to
$0.39 per share. Projected fiscal 2015 GAAP income per share from
continuing operations includes $0.05 per share of restructuring
charges and $0.13 per share for amortization of intangible
assets.
Adjusted EBITDA for fiscal 2015 is also forecasted to be higher
than our previous guidance, and is currently expected to be in the
range of $41.0 million to $44.0 million.
Recent Highlights
December – Mercury Systems announced that its Mercury Defense
Systems subsidiary received a $4.5 million order from a leading
defense prime contractor for EO/IR processing subsystems for an
airborne surveillance application. The order was booked in the
Company's fiscal 2015 second quarter and is expected to be shipped
over the next several quarters.
December – Mercury announced it received a $3.6 million order
from a leading defense prime contractor for advanced radio
frequency (RF) products for a naval electronic warfare (EW)
application. The order was booked in the Company's fiscal 2015
second quarter and is expected to be shipped over the next several
quarters.
December – Mercury announced it received a $2.5 million
follow-on order from a leading defense prime contractor for
high-performance digital signal processing modules for use in
unmanned airborne synthetic aperture radar (SAR) and ground moving
target indication (GMTI) radar applications. The order was booked
and shipped in the Company's fiscal 2015 second quarter.
December – Mercury announced it received a $2.6 million purchase
order relating to a sensor processing application for fighter
aircraft. The order was booked in the Company's fiscal 2015 second
quarter.
December – Mercury announced that its Mercury Defense Systems
subsidiary received a $1.2 million order from a leading
international aerospace and defense company for radar environment
simulation equipment to support European Fighter Aircraft (EFA).
The order was booked in the Company's fiscal 2015 second quarter
and is expected to be shipped by its fiscal 2016 third quarter.
October – Mercury announced the appointment of Michael Ruppert
to the position of Senior Vice President, Strategy and Corporate
Development, reporting to Mercury's President and Chief Executive
Officer, Mark Aslett, effective November 17, 2014. Mr. Ruppert
brings fifteen years of investment banking experience spanning
mergers and acquisitions, capital formation, strategy development
and execution, as well as transaction execution for a wide range of
companies in the aerospace and defense markets.
October – Mercury announced it received a $5.7 million follow-on
order from a leading defense prime contractor for high performance
digital signal processing subsystems and related services for a
naval radar application. The order was booked in the Company's
fiscal 2015 second quarter and is expected to be fulfilled over the
next several quarters.
October – Mercury announced that its Mercury Defense Systems
(MDS) subsidiary received a $2.6 million follow-on order against
its 5 year sole source basic ordering agreement (BOA) to deliver
advanced Digital RF Memory (DRFM) jammers to the U.S. Navy. The
order was received in the Company's fiscal 2015 second quarter and
is expected to be shipped by the end of its fiscal 2016 third
quarter.
October – Mercury announced its OpenRFM™ standards initiative
designed to streamline the integration of RF and digital subsystems
in advanced sensor processing applications with the goal of
creating more affordable, flexible and open standards-based
solutions. This initiative directly addresses Department of Defense
(DoD) procurement mandates including open systems architectures,
interoperability, technology re-use and affordability.
October – Mercury announced it received a $8.8 million follow-on
order from a leading defense prime contractor for advanced radio
frequency (RF) microwave tuners and intermediate frequency (IF)
receivers for a naval electronic warfare (EW) application. The
order was booked in the Company's fiscal 2015 second quarter and is
expected to be shipped by its fiscal 2015 third quarter.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Tuesday, January 27, 2015 at 5:00 p.m. ET to discuss the second
quarter fiscal 2015 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 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 (Generally Accepted Accounting
Principles) Financial Measures
In addition to reporting financial results in accordance with
generally accepted accounting principles, or GAAP, the Company
provides adjusted EBITDA and free cash flow, which are non-GAAP
financial measures. Adjusted EBITDA excludes certain non-cash and
other specified charges. Free cash flow is defined as cash flow
from operating activities less capital expenditures. The Company
believes these non-GAAP financial measures are useful to help
investors understand its past financial performance and prospects
for the future. However, the presentation of adjusted EBITDA and
free cash flow is not meant to be considered in isolation or as a
substitute for financial information provided in accordance with
GAAP. Management believes the adjusted EBITDA and free cash flow
financial 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 the better alternative for
affordable, secure and sensor processing subsystems designed and
made in the USA. Optimized for program and mission success,
Mercury's solutions power a wide variety of critical defense and
intelligence applications on more than 300 programs such as Aegis,
Patriot, SEWIP, F-35 and Gorgon Stare. Headquartered in Chelmsford,
Massachusetts, Mercury Systems is a high-tech commercial company
purpose-built to meet rapidly evolving next-generation defense
electronics challenges. To learn more, visit www.mrcy.com.
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 fiscal 2015 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 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 due to performance quality issues with outsourced
components, inability to fully realize the expected benefits from
acquisitions, divestitures and restructurings, or delays in
realizing such benefits, challenges in integrating acquired
businesses and achieving anticipated synergies, changes to export
regulations, increases in tax rates, 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, 2014. 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.
Mercury Systems and Innovation That Matters 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) |
December 31, |
June 30, |
|
2014 |
2014 |
|
|
|
Assets |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 56,987 |
$ 47,287 |
Accounts receivable, net |
47,432 |
37,625 |
Unbilled receivables and costs
in excess of billings |
19,774 |
22,036 |
Inventory |
30,011 |
31,655 |
Deferred income taxes |
15,172 |
15,216 |
Prepaid income taxes |
4,729 |
1,481 |
Prepaid expenses and other
current assets |
3,835 |
3,631 |
Current assets of discontinued
operations |
1,095 |
1,374 |
Total current
assets |
179,035 |
160,305 |
|
|
|
Restricted cash |
264 |
265 |
Property and equipment, net |
12,968 |
14,144 |
Goodwill |
168,146 |
168,146 |
Intangible assets, net |
21,481 |
25,006 |
Other non-current assets |
1,238 |
987 |
Non-current assets of discontinued
operations |
2,235 |
4,859 |
Total assets |
$ 385,367 |
$ 373,712 |
|
|
|
Liabilities and Shareholders'
Equity |
|
|
Current liabilities: |
|
|
Accounts payable |
$ 11,300 |
$ 7,054 |
Accrued expenses |
8,817 |
8,377 |
Accrued compensation |
8,979 |
9,983 |
Deferred revenues and customer
advances |
8,778 |
5,898 |
Current liabilities of
discontinued operations |
1,583 |
1,618 |
Total current
liabilities |
39,457 |
32,930 |
|
|
|
Deferred gain on sale-leaseback |
1,507 |
2,086 |
Deferred income taxes |
5,021 |
5,911 |
Income taxes payable |
3,277 |
3,154 |
Other non-current liabilities |
1,165 |
1,666 |
Non-current liabilities of discontinued
operations |
724 |
818 |
Total liabilities |
51,151 |
46,565 |
|
|
|
Shareholders' equity: |
|
|
Common stock |
322 |
312 |
Additional paid-in capital |
248,228 |
241,725 |
Retained earnings |
84,863 |
84,099 |
Accumulated other comprehensive
income |
803 |
1,011 |
Total
shareholders' equity |
334,216 |
327,147 |
|
|
|
Total liabilities
and shareholders' equity |
$ 385,367 |
$ 373,712 |
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(In thousands, except per share
data) |
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
Net revenues |
$ 57,089 |
$ 50,932 |
$ 111,150 |
$ 101,658 |
Cost of revenues (1) |
30,054 |
26,607 |
60,116 |
55,771 |
Gross margin |
27,035 |
24,325 |
51,034 |
45,887 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling, general and
administrative (1) |
12,677 |
13,944 |
24,967 |
28,265 |
Research and development
(1) |
7,895 |
10,142 |
15,846 |
19,454 |
Amortization of intangible
assets |
1,762 |
1,803 |
3,524 |
3,788 |
Restructuring and other
charges |
1,162 |
97 |
2,430 |
82 |
Total operating
expenses |
23,496 |
25,986 |
46,767 |
51,589 |
|
|
|
|
|
Income (loss) from operations |
3,539 |
(1,661) |
4,267 |
(5,702) |
|
|
|
|
|
Interest income |
4 |
3 |
7 |
4 |
Interest expense |
(8) |
(11) |
(16) |
(26) |
Other income, net |
398 |
440 |
392 |
872 |
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
3,933 |
(1,229) |
4,650 |
(4,852) |
|
|
|
|
|
Tax provision (benefit) |
1,047 |
(442) |
1,047 |
(1,761) |
|
|
|
|
|
Income (loss) from continuing operations |
2,886 |
(787) |
3,603 |
(3,091) |
Loss from discontinued operations, net of
tax |
(2,621) |
(258) |
(2,839) |
(210) |
Net income (loss) |
$ 265 |
$ (1,045) |
$ 764 |
$ (3,301) |
|
|
|
|
|
Basic net earnings (loss) per share: |
|
|
|
|
Continuing operations |
$ 0.09 |
$ (0.02) |
$ 0.11 |
$ (0.10) |
Loss from discontinued
operations |
(0.08) |
(0.01) |
(0.09) |
(0.01) |
Basic net earnings (loss) per share: |
$ 0.01 |
$ (0.03) |
$ 0.02 |
$ (0.11) |
|
|
|
|
|
Diluted net earnings (loss) per share: |
|
|
|
|
Continuing operations |
$ 0.09 |
$ (0.02) |
$ 0.11 |
$ (0.10) |
Loss from discontinued
operations |
(0.08) |
(0.01) |
(0.09) |
(0.01) |
Diluted net earnings (loss) per share: |
$ 0.01 |
$ (0.03) |
$ 0.02 |
$ (0.11) |
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
Basic |
32,052 |
30,988 |
31,880 |
30,820 |
Diluted |
32,686 |
30,988 |
32,720 |
30,820 |
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based
compensation expense, allocated as follows: |
Cost of revenues |
$ 115 |
$ 192 |
$ 266 |
$ 399 |
Selling, general and
administrative |
$ 1,778 |
$ 2,004 |
$ 3,744 |
$ 4,318 |
Research and development |
$ 363 |
$ 420 |
$ 797 |
$ 887 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In thousands) |
|
Three Months Ended |
Six Months Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
Cash flows from operating activities: |
|
|
|
|
Net income (loss) |
$ 265 |
$ (1,045) |
$ 764 |
$ (3,301) |
Depreciation and
amortization |
3,520 |
3,908 |
7,150 |
8,028 |
Other non-cash items, net |
3,606 |
2,762 |
4,799 |
6,018 |
Changes in operating assets and
liabilities |
838 |
1,733 |
(2,306) |
(1,214) |
|
|
|
|
|
Net cash provided
by operating activities |
8,229 |
7,358 |
10,407 |
9,531 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Purchases of property and
equipment |
(1,218) |
(2,826) |
(2,123) |
(3,934) |
Increase (decrease) in other
investing activities |
1 |
(300) |
1 |
(300) |
|
|
|
|
|
Net cash used in
investing activities |
(1,217) |
(3,126) |
(2,122) |
(4,234) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from employee stock
plans |
1,076 |
520 |
1,312 |
580 |
Payments of capital lease
obligations |
(160) |
(222) |
(320) |
(343) |
Excess tax benefits from
stock-based compensation |
220 |
3 |
536 |
3 |
|
|
|
|
|
Net cash provided
by financing activities |
1,136 |
301 |
1,528 |
240 |
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
(37) |
(104) |
(113) |
(128) |
|
|
|
|
|
Net increase in cash and cash
equivalents |
8,111 |
4,429 |
9,700 |
5,409 |
|
|
|
|
|
Cash and cash equivalents at beginning of
period |
48,876 |
40,106 |
47,287 |
39,126 |
|
|
|
|
|
Cash and cash equivalents at end of
period |
$ 56,987 |
$ 44,535 |
$ 56,987 |
$ 44,535 |
|
|
|
|
|
|
|
|
|
|
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
continuing operations 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: |
|
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. Management believes this item is outside the normal
operations of the Company's business and is not 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 costs and other related
expenses. The Company incurs costs associated with third-party
professional services related to acquisition and potential
acquisition opportunities, such as legal and accounting
fees. Although we may incur such costs and other related
charges and adjustments, it is not indicative that any transaction
will be consummated. Management believes the exclusion of
these items eliminates fluctuations in our selling, general, and
administrative expenses related to acquisition activities which are
unrelated to ongoing operations. |
|
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. |
|
Stock-based 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. Although stock-based 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. 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. |
|
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 |
Six Months Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
Income (loss) from continuing operations |
$ 2,886 |
$ (787) |
$ 3,603 |
$ (3,091) |
Interest expense,
net |
4 |
8 |
9 |
22 |
Tax provision
(benefit) |
1,047 |
(442) |
1,047 |
(1,761) |
Depreciation |
1,590 |
1,942 |
3,290 |
3,916 |
Amortization of
intangible assets |
1,762 |
1,803 |
3,524 |
3,788 |
Restructuring and other
charges |
1,162 |
97 |
2,430 |
82 |
Stock-based compensation
expense |
2,256 |
2,616 |
4,807 |
5,604 |
Adjusted EBITDA |
$ 10,707 |
$ 5,237 |
$ 18,710 |
$ 8,560 |
|
|
|
|
|
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 |
Six Months Ended |
|
December
31, |
December
31, |
|
2014 |
2013 |
2014 |
2013 |
Cash flows from operations |
$ 8,229 |
$ 7,358 |
$ 10,407 |
$ 9,531 |
Capital expenditures |
(1,218) |
(2,826) |
(2,123) |
(3,934) |
Free cash flow |
$ 7,011 |
$ 4,532 |
$ 8,284 |
$ 5,597 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
RECONCILIATION OF FORWARD-LOOKING
GUIDANCE RANGE |
Quarter Ending March 31, 2015 |
(In thousands, except per share data) |
|
The Company defines adjusted EBITDA as income
from continuing operations before interest income and expense,
income taxes, depreciation, amortization of intangible assets,
restructuring and other charges, impairment of long-lived assets,
acquisition costs and other related expenses, fair value
adjustments from purchase accounting, and stock-based compensation
costs. |
|
The following table reconciles the adjusted
EBITDA financial measure to its most directly comparable GAAP
measure: |
|
Range |
|
Low |
High |
|
|
|
GAAP expectation --- Earnings per share from
continuing operations |
$ 0.10 |
$ 0.14 |
|
|
|
|
|
|
GAAP expectation --- Income from continuing
operations |
$ 3,500 |
$ 4,600 |
|
|
|
Adjust for: |
|
|
Interest expense, net |
-- |
-- |
Income taxes |
1,000 |
1,400 |
Depreciation |
1,600 |
1,600 |
Amortization of intangible
assets |
1,700 |
1,700 |
Restructuring and other
charges |
100 |
100 |
Acquisition costs and other
related expenses |
200 |
200 |
Stock-based compensation
expense |
2,400 |
2,400 |
Adjusted EBITDA expectation |
$ 10,500 |
$ 12,000 |
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
RECONCILIATION OF FORWARD-LOOKING
GUIDANCE RANGE |
Year Ending June 30, 2015 |
(In thousands, except per share data) |
|
The Company defines adjusted EBITDA as income
from continuing operations before interest income and expense,
income taxes, depreciation, amortization of intangible assets,
restructuring and other charges, impairment of long-lived assets,
acquisition costs and other related expenses, fair value
adjustments from purchase accounting, and stock-based compensation
costs. |
|
The following table reconciles the adjusted
EBITDA financial measure to its most directly comparable GAAP
measure: |
|
Range |
|
Low |
High |
|
|
|
GAAP expectation --- Earnings per share from
continuing operations |
$ 0.33 |
$ 0.39 |
|
|
|
|
|
|
GAAP expectation --- Income from continuing
operations |
$ 10,800 |
$ 12,800 |
|
|
|
Adjust for: |
|
|
Interest expense, net |
-- |
-- |
Income taxes |
4,400 |
5,400 |
Depreciation |
6,700 |
6,700 |
Amortization of intangible
assets |
7,000 |
7,000 |
Restructuring and other
charges |
2,600 |
2,600 |
Acquisition costs and other
related expenses |
400 |
400 |
Stock-based compensation
expense |
9,100 |
9,100 |
Adjusted EBITDA expectation |
$ 41,000 |
$ 44,000 |
|
|
|
CONTACT: Gerry Haines, CFO
Mercury Systems, Inc.
978-967-1990
Mercury Systems (NASDAQ:MRCY)
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