Financial highlights
include:
Revenue up 11.6%,
Adjusted EBITDA up 48% year-over-year
Income from continuing operations of $4.7 million,
$0.14 per share Backlog up 29%
year-over-year
Company expects to
achieve target business model for full-year 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 third
fiscal quarter, which ended March 31, 2015.
Third Quarter Fiscal 2015 Results
Third quarter fiscal 2015 revenues were $59.6 million, an
increase of $6.2 million, or 11.6%, compared to the third quarter
of fiscal 2014, as revenues from defense customers increased $5.0
million and revenues from commercial customers increased $1.2
million.
GAAP income from continuing operations for the third quarter of
fiscal 2015 was $4.7 million, or $0.14 per share, compared to GAAP
loss from continuing operations of ($0.3) million, or ($0.01) per
share, for the prior year's third quarter. Third quarter fiscal
2015 GAAP income per share from continuing operations included less
than $0.01 of restructuring and other charges and $0.03 for
amortization of intangible assets. Third quarter fiscal 2014 GAAP
loss per share from continuing operations included $0.07 of
restructuring and other charges and $0.04 for amortization of
intangible assets.
Third quarter fiscal 2015 GAAP income from continuing operations
included approximately $1.5 million in tax expense, $1.5 million in
depreciation expense, $1.7 million in amortization of intangible
assets, $0.2 million in acquisition and financing costs and $1.8
million in stock-based compensation costs. Third 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 and financing costs,
fair value adjustments from purchase accounting, and stock-based
compensation costs) was $11.5 million, increasing $3.7 million over
the prior year's third quarter.
Total GAAP net income for the third quarter of fiscal 2015,
which includes the impact of discontinued operations, was $3.7
million, or $0.11 per share, compared to total GAAP net loss of
($0.6) million, or ($0.02) per share, for the prior year's third
quarter. GAAP loss from discontinued operations, net of income
taxes, for the third quarter of fiscal 2015 was ($1.0) million, or
($0.03) 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 third quarter.
Cash flows from operating activities were a net inflow of $9.1
million in the third quarter of fiscal 2015, compared to a net
inflow of $2.2 million in the third quarter of fiscal 2014. Free
cash flow, defined as cash flow from operating activities less
capital expenditures, was a net inflow of $7.8 million in the third
quarter of fiscal 2015, compared to a net inflow of $1.1 million in
the third quarter of fiscal 2014. Cash and cash equivalents as of
March 31, 2015 were $66.5 million, an increase of $20.8 million
year-over-year.
The Company's former 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. The sale of
MIS was concluded in January 2015, and the financial results of MIS
are excluded from the Company's reported financial results from
continuing operations for all periods referenced in this
release.
Management Comments
"The third fiscal quarter once again showed good momentum at
Mercury as the top and bottom lines continued their steady
expansion," said Mark Aslett, President and CEO, Mercury Systems.
"Our results from continuing operations for the third fiscal
quarter were significantly better than the prior year, as revenue
increased nearly 12% and adjusted EBITDA climbed
48%. The Company's GAAP income from continuing
operations and cash flow from operations both grew materially."
"Mercury's double-digit revenue growth and dramatic expansion of
adjusted EBITDA and income from operations, coupled with our very
strong backlog, provide excellent momentum entering the last
quarter of our fiscal year. With our operating leverage continuing
to yield strong results, we remain confident in our ability to
achieve our target business model for the full fiscal year
2015," Aslett concluded.
Backlog
Mercury's total backlog relating to continuing operations at
March 31, 2015 was $189.9 million, a $42.3 million increase over
March 31, 2014. Of the March 31, 2015 total backlog, $150.5 million
represents orders expected to be shipped over the next 12 months.
The defense backlog at March 31, 2015 was $180.0 million, a $46.3
million increase from March 31, 2014.
Bookings for the third quarter of fiscal 2015 were $57.0
million, a 23% decrease compared to the extremely strong third
quarter of fiscal 2014. The total book-to-bill ratio was
approximately 1.0 for the third quarter of fiscal 2015, compared to
approximately 1.4 for the third quarter of fiscal 2014.
Bookings for the first nine months of fiscal 2015 were $186.1
million, a 12% increase compared to the $166.6 million of bookings
for the first nine months of fiscal 2014. The total book-to-bill
ratio was 1.1 for the first nine months of each of fiscal 2015 and
fiscal 2014.
Revenues by Reporting Segment
Mercury Commercial Electronics (MCE) — Revenues for the third
quarter of fiscal 2015 for MCE were $55.1 million, representing an
increase of $7.5 million, or 16%, from the third quarter of fiscal
2014. The increase in revenues compared to last year's third
quarter related primarily to higher Patriot, F-35, and SEWIP
program revenue. Approximately 90% of MCE revenues for the third
quarter of fiscal 2015 related to defense business, as compared to
approximately 91% in the third quarter of fiscal 2014.
Mercury Defense Systems (MDS) — Revenues in the third quarter of
fiscal 2015 from MDS were $6.7 million, a decrease of $2.2 million
from the third quarter of fiscal 2014.
The revenues by reporting segment do not include adjustments to
eliminate inter-company revenues of $2.2 million included in those
reporting segments in the third quarter of fiscal 2015 and $3.1
million in the third 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 fourth quarter of fiscal 2015, revenues are currently
forecasted to be in the range of $62 million to $64 million.
At this range, GAAP income per share from continuing
operations is expected to be in the range of $0.10 to $0.13 per
share. Projected GAAP income per share from continuing operations
includes $0.03 per share of amortization of intangible assets and
$0.01 per share of restructuring and other charges.
Adjusted EBITDA for the fourth quarter of fiscal 2015 is
expected to be in the range of $11.7 million to $13.2
million.
Revenues for the full fiscal year 2015 are projected to be in
the range of $233.0 million to $235.0 million, representing 12% 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 $0.35 to $0.38 per share. Projected fiscal 2015 GAAP income per
share from continuing operations includes $0.06 per share of
restructuring and other 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 $42.0 million to $43.5 million.
Recent Highlights
March – Mercury Systems announced that its Mercury Defense
Systems subsidiary received $2 million in follow-on orders to
deliver advanced Digital RF Memory (DRFM) jammers to the U.S. Navy.
The orders were received in the Company's fiscal 2015 third quarter
and are part of a firm-fixed-price, indefinite delivery/indefinite
quantity (IDIQ) time and material contract award issued in 2010.
They are expected to be shipped by the end of the Company's fiscal
2016 third quarter.
March – Mercury announced the rugged OpenVPX™ Ensemble® LDS3506
processing module that seamlessly integrates the Intel® Xeon®
processor D system-on-a-chip (SoC) product family (formerly
codenamed "Broadwell DE") with Xilinx's powerful Ultrascale™ FPGA
in a SWaP-constrained 3U package. This dense union of best
available commercial-item general processing and FPGA resources
produces a highly versatile, affordable and interoperable building
block for embedded, high-performance computing applications with
additional low-latency, refresh and mission capabilities.
March – Mercury announced it received $3.1 million in follow-on
orders from a leading defense prime contractor for radar subsystems
for a missile defense application. The orders were booked in the
Company's fiscal 2015 third quarter and are expected to be shipped
over the next several quarters.
February – Mercury announced the opening of the second of four
planned, world-class Mercury Innovation Centers - this one located
at its corporate headquarters in Chelmsford, Mass. The first
Mercury Innovation Center opened on April 18, 2014, at the
Company's Advanced Microelectronics Center (AMC) in Hudson,
N.H.
February – Mercury announced it received $3.2 million in
follow-on orders from a leading defense prime contractor for
digital signal processing modules for an unmanned airborne
synthetic aperture radar (SAR) application. The orders were booked
in the Company's fiscal 2015 third quarter and are expected to be
shipped over the next several quarters.
January – Mercury announced it received a $4.3 million follow-on
order from a leading defense prime contractor for high performance
signal processing subsystems for a ship-borne radar application.
The order was booked in the Company's fiscal 2015 second quarter
and is expected to be shipped by its fiscal 2016 third quarter.
January – Mercury announced it received a $2.3 million order
from a leading defense prime contractor for high-performance
digital signal processing modules for use in a signals intelligence
(SIGINT) application. The order was booked in the Company's fiscal
2015 second quarter and was shipped by its fiscal 2015 third
quarter.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Tuesday, April 28, 2015 at 5:00 p.m. ET to discuss the third
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) |
March 31, |
June 30, |
|
2015 |
2014 |
|
|
|
Assets |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 66,520 |
$ 47,287 |
Accounts receivable, net |
47,552 |
37,625 |
Unbilled receivables and costs in
excess of billings |
20,475 |
22,036 |
Inventory |
32,526 |
31,655 |
Deferred income taxes |
13,044 |
15,216 |
Prepaid income taxes |
3,981 |
1,481 |
Prepaid expenses and other current
assets |
3,661 |
3,631 |
Current assets of discontinued
operations |
-- |
1,374 |
Total current assets |
187,759 |
160,305 |
|
|
|
Restricted cash |
264 |
265 |
Property and equipment, net |
12,391 |
14,144 |
Goodwill |
168,146 |
168,146 |
Intangible assets, net |
19,739 |
25,006 |
Other non-current assets |
941 |
987 |
Non-current assets of discontinued
operations |
-- |
4,859 |
Total assets |
$ 389,240 |
$ 373,712 |
|
|
|
Liabilities and Shareholders'
Equity |
|
|
Current liabilities: |
|
|
Accounts payable |
$ 14,387 |
$ 7,054 |
Accrued expenses |
9,190 |
8,377 |
Accrued compensation |
9,062 |
9,983 |
Deferred revenues and customer
advances |
8,094 |
5,898 |
Current liabilities of discontinued
operations |
-- |
1,618 |
Total current liabilities |
40,733 |
32,930 |
|
|
|
Deferred gain on sale-leaseback |
1,218 |
2,086 |
Deferred income taxes |
3,174 |
5,911 |
Income taxes payable |
2,255 |
3,154 |
Other non-current liabilities |
1,195 |
1,666 |
Non-current liabilities of discontinued
operations |
-- |
818 |
Total liabilities |
48,575 |
46,565 |
|
|
|
Shareholders' equity: |
|
|
Common stock |
324 |
312 |
Additional paid-in capital |
251,000 |
241,725 |
Retained earnings |
88,538 |
84,099 |
Accumulated other comprehensive
income |
803 |
1,011 |
Total shareholders' equity |
340,665 |
327,147 |
|
|
|
Total liabilities and shareholders'
equity |
$ 389,240 |
$ 373,712 |
|
MERCURY SYSTEMS,
INC. |
UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except per share
data) |
|
|
|
|
|
|
Three Months Ended |
Nine Months Ended |
|
March 31, |
March 31, |
|
2015 |
2014 |
2015 |
2014 |
Net revenues |
$ 59,578 |
$ 53,393 |
$ 170,728 |
$ 155,051 |
Cost of revenues (1) |
31,660 |
29,017 |
91,776 |
84,788 |
Gross margin |
27,918 |
24,376 |
78,952 |
70,263 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling, general and administrative
(1) |
11,842 |
12,363 |
36,809 |
40,628 |
Research and development (1) |
8,115 |
8,166 |
23,961 |
27,620 |
Amortization of intangible
assets |
1,744 |
1,777 |
5,268 |
5,565 |
Restructuring and other
charges |
27 |
3,477 |
2,457 |
3,559 |
Acquisition costs and other related
expenses |
33 |
-- |
33 |
-- |
Total operating expenses |
21,761 |
25,783 |
68,528 |
77,372 |
|
|
|
|
|
Income (loss) from operations |
6,157 |
(1,407) |
10,424 |
(7,109) |
|
|
|
|
|
Interest income |
6 |
2 |
13 |
6 |
Interest expense |
(7) |
(11) |
(23) |
(37) |
Other income, net |
7 |
337 |
399 |
1,209 |
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
6,163 |
(1,079) |
10,813 |
(5,931) |
|
|
|
|
|
Tax provision (benefit) |
1,469 |
(809) |
2,516 |
(2,570) |
|
|
|
|
|
Income (loss) from continuing operations |
4,694 |
(270) |
8,297 |
(3,361) |
Loss from discontinued operations, net of
tax |
(1,019) |
(308) |
(3,858) |
(518) |
Net income (loss) |
$ 3,675 |
$ (578) |
$ 4,439 |
$ (3,879) |
|
|
|
|
|
Basic net earnings (loss) per share: |
|
|
|
|
Continuing operations |
$ 0.14 |
$ (0.01) |
$ 0.26 |
$ (0.11) |
Loss from discontinued
operations |
(0.03) |
(0.01) |
(0.12) |
(0.02) |
Basic net earnings (loss) per share: |
$ 0.11 |
$ (0.02) |
$ 0.14 |
$ (0.13) |
|
|
|
|
|
Diluted net earnings (loss) per share: |
|
|
|
|
Continuing operations |
$ 0.14 |
$ (0.01) |
$ 0.25 |
$ (0.11) |
Loss from discontinued
operations |
(0.03) |
(0.01) |
(0.12) |
(0.02) |
Diluted net earnings (loss) per share: |
$ 0.11 |
$ (0.02) |
$ 0.13 |
$ (0.13) |
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
Basic |
32,298 |
31,156 |
32,001 |
30,932 |
Diluted |
33,233 |
31,156 |
32,953 |
30,932 |
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation
expense, allocated as follows: |
|
|
|
|
Cost of revenues |
$ 110 |
$ 104 |
$ 375 |
$ 503 |
Selling, general and
administrative |
$ 1,446 |
$ 1,383 |
$ 5,190 |
$ 5,701 |
Research and development |
$ 314 |
$ 179 |
$ 1,111 |
$ 1,066 |
|
MERCURY SYSTEMS,
INC. |
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In thousands) |
|
Three Months Ended |
Nine Months Ended |
|
March 31, |
March 31, |
|
2015 |
2014 |
2015 |
2014 |
Cash flows from operating activities: |
|
|
|
|
Net income (loss) |
$ 3,675 |
$ (578) |
$ 4,439 |
$ (3,879) |
Depreciation and amortization |
3,296 |
3,864 |
10,446 |
11,892 |
Other non-cash items, net |
3,256 |
3,400 |
8,055 |
1,533 |
Changes in operating assets and
liabilities |
(1,114) |
(4,485) |
(3,420) |
2,186 |
|
|
|
|
|
Net cash provided by operating
activities |
9,113 |
2,201 |
19,520 |
11,732 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Purchases of property and
equipment |
(1,344) |
(1,133) |
(3,467) |
(5,067) |
Increase (decrease) in other
investing activities |
885 |
-- |
886 |
(300) |
|
|
|
|
|
Net cash used in investing
activities |
(459) |
(1,133) |
(2,581) |
(5,367) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from employee stock
plans |
736 |
292 |
2,048 |
872 |
Payments of capital lease
obligations |
(161) |
(221) |
(481) |
(564) |
Excess tax benefits from
stock-based compensation |
298 |
13 |
834 |
16 |
|
|
|
|
|
Net cash provided by financing
activities |
873 |
84 |
2,401 |
324 |
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
6 |
23 |
(107) |
(105) |
|
|
|
|
|
Net increase in cash and cash
equivalents |
9,533 |
1,175 |
19,233 |
6,584 |
|
|
|
|
|
Cash and cash equivalents at beginning of
period |
56,987 |
44,535 |
47,287 |
39,126 |
|
|
|
|
|
Cash and cash equivalents at end of
period |
$ 66,520 |
$ 45,710 |
$ 66,520 |
$ 45,710 |
|
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 and financing costs. The Company incurs
transaction costs related to acquisition and potential acquisition
opportunities, such as legal and accounting fees and
expenses. 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 non-interest financing, bank and other fees associated with
obtaining and maintaining its financing facilities. 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.
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 |
Nine Months Ended |
|
March 31, |
March 31, |
|
2015 |
2014 |
2015 |
2014 |
Income (loss) from continuing operations |
$ 4,694 |
$ (270) |
$ 8,297 |
$ (3,361) |
Interest expense, net |
1 |
9 |
10 |
31 |
Tax provision (benefit) |
1,469 |
(809) |
2,516 |
(2,570) |
Depreciation |
1,510 |
1,923 |
4,800 |
5,839 |
Amortization of intangible
assets |
1,744 |
1,777 |
5,268 |
5,565 |
Restructuring and other
charges |
27 |
3,477 |
2,457 |
3,559 |
Acquisition and financing
costs |
200 |
-- |
200 |
-- |
Stock-based compensation
expense |
1,870 |
1,666 |
6,676 |
7,270 |
Adjusted EBITDA |
$ 11,515 |
$ 7,773 |
$ 30,224 |
$ 16,333 |
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, |
|
2015 |
2014 |
2015 |
2014 |
Cash flows from operations |
$ 9,113 |
$ 2,201 |
$ 19,520 |
$ 11,732 |
Capital expenditures |
(1,344) |
(1,133) |
(3,467) |
(5,067) |
Free cash flow |
$ 7,769 |
$ 1,068 |
$ 16,053 |
$ 6,665 |
|
MERCURY SYSTEMS,
INC. |
RECONCILIATION OF FORWARD-LOOKING
GUIDANCE RANGE |
|
|
|
Quarter 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 and financing costs, 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 |
$ 0.13 |
|
|
|
|
|
|
GAAP expectation --- Income from continuing
operations |
$ 3,400 |
$ 4,300 |
|
|
|
Adjust for: |
|
|
Interest expense, net |
-- |
-- |
Income taxes |
2,100 |
2,700 |
Depreciation |
1,600 |
1,600 |
Amortization of intangible
assets |
1,700 |
1,700 |
Restructuring and other
charges |
700 |
700 |
Acquisition and financing
costs |
200 |
200 |
Stock-based compensation
expense |
2,000 |
2,000 |
Adjusted EBITDA expectation |
$ 11,700 |
$ 13,200 |
|
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 and
financing costs, 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 |
$ 0.35 |
$ 0.38 |
|
|
|
|
|
|
GAAP expectation --- Income from continuing
operations |
$ 11,600 |
$ 12,500 |
|
|
|
Adjust for: |
|
|
Interest expense, net |
-- |
-- |
Income taxes |
4,800 |
5,400 |
Depreciation |
6,400 |
6,400 |
Amortization of intangible
assets |
7,000 |
7,000 |
Restructuring and other
charges |
3,100 |
3,100 |
Acquisition and financing
costs |
400 |
400 |
Stock-based compensation
expense |
8,700 |
8,700 |
Adjusted EBITDA expectation |
$ 42,000 |
$ 43,500 |
CONTACT: Gerry Haines, CFO
Mercury Systems, Inc.
978-967-1990
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