Financial highlights
include:
Mercury Systems, Inc. (NASDAQ:MRCY), (www.mrcy.com), reported
operating results for its first quarter of fiscal 2016, which ended
September 30,
2015.
Management
Comments
“Fiscal 2016 began very well, consistent with our expectations,”
stated Mark Aslett, Mercury’s President and Chief Executive
Officer. “Revenue grew 8% and we increased adjusted EBITDA nearly
50% year-over-year, to 20% of revenue, squarely in the middle of
our target model. At the same time, backlog reached record
levels, providing a solid footing for the remainder of fiscal
2016,” Aslett
concluded. First
Quarter Fiscal 2016 Results
First quarter fiscal 2016 revenues were $58.4 million, an
increase of $4.3 million, or 8%, compared to the first quarter of
fiscal 2015. GAAP income from continuing operations for the first
quarter of fiscal 2016 was $2.0 million, or $0.06 per share,
compared to GAAP income from continuing operations of $0.7 million,
or $0.02 per share, for the prior year’s first quarter. Adjusted
earnings per share (“adjusted EPS”) was $0.19 per share, for the
first quarter of fiscal 2016, compared to $0.13 per share in the
first quarter fiscal 2015. All per share information is presented
on a fully diluted basis.
First quarter fiscal 2016 adjusted EBITDA was $11.8 million, an
increase of 48% from the first quarter of fiscal 2015.
Total GAAP net income for the first quarter of fiscal 2016 was
$2.0 million, or $0.06 per share, compared to total GAAP net income
of $0.5 million, or $0.02 per share, for the prior year’s first
quarter. The first quarter of fiscal 2015 included a loss of ($0.2)
million, or approximately $0.00 per share, from discontinued
operations.
Cash flows from operating activities in the first quarter of
fiscal 2016 were a net inflow of $5.6 million, compared to a net
inflow of $2.2 million in the first quarter of fiscal 2015.
Free cash flow, defined as cash flow from operating activities less
capital expenditures, was a net inflow of $3.7 million in the first
quarter of fiscal 2016, compared to a net inflow of $1.3 million in
the first quarter of fiscal 2015.
The Company’s reported financial results are from continuing
operations for all periods referenced in this release unless
otherwise noted.
Bookings and Backlog
Bookings for the first quarter of fiscal 2016 were $68.5
million, yielding a book-to-bill of approximately 1.2 for the
quarter. Mercury’s total backlog at September 30, 2015 was a record
$218.0 million, a $12.8 million increase from a year ago. Of
the September 30, 2015 total backlog, $155.4 million represents
orders expected to be shipped over the next 12 months.
Revenues by Reporting Segment
Mercury Commercial Electronics (MCE) — Revenues for the first
quarter of fiscal 2016 from MCE were $50.0 million, representing an
increase of $1.4 million, or 3%, from the first quarter of fiscal
2015. The increase in revenues compared to last year’s first
quarter related primarily to higher P-8 and Reaper program
revenue.
Mercury Defense Systems (MDS) — Revenues for the first quarter
of fiscal 2016 from MDS were $8.0 million, an increase of $2.6
million, or 48%, from the first quarter of fiscal 2015, primarily
due to strength in an airborne surveillance program.
The revenues by reporting segment do not include $0.4 million
and $0.1 million of revenues included in our consolidated results
in the first quarter of fiscal 2016 and fiscal 2015, respectively.
This revenue is attributable to development programs where the
revenue is recognized in both segments under contract accounting,
and reflects the reconciliation to our consolidated results.
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 2016. 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
second quarter of fiscal 2016, revenues are currently forecasted to
be in the range of $58 million to $61 million. At this range,
adjusted EPS is expected to be in the range of $0.15 to $0.18 per
share, which assumes approximately $1.6 million of amortization of
intangible assets, $2.6 million of stock-based compensation expense
and an effective tax rate of approximately 39%. Adjusted EBITDA for
the second quarter of fiscal 2016 is expected to be in the range of
$10.0 million to $11.5 million.
Revenues for all of fiscal 2016 are currently expected to grow
approximately 5%, while adjusted EBITDA for fiscal 2016 is expected
to grow by approximately 10% year-over-year.
Recent Highlights
September – Mercury Systems announced it received a $2 million
follow-on order from a leading defense prime contractor for
high-performance digital signal processing modules for a manned
airborne synthetic aperture radar (SAR) application. The order was
booked in the Company's fiscal 2016 first quarter and is expected
to be shipped by its fiscal 2016 second quarter.
September – Mercury announced the Ensemble® IOM-300 series of
fiber-optic input/output (I/O) modules for complex image and radar
processing and other high-bandwidth, low-latency sensor processing
and networking applications. Rugged and programmable, the Ensemble
IOM-300 series are the industry's first open systems
architecture-based XMC modules to feature two field-programmable
gate array (FPGA) devices for streaming serial front panel data
port (sFPDP), Ethernet and other wideband protocols.
September – Mercury congratulated the U.S. Army Aviation and
Missile Command (AMCOM) on the 50th anniversary of the renowned
Patriot Air and Missile Defense System, which has defended and
saved thousands of lives and strengthened America's global Patriot
partnerships. Mercury has been a strategic supplier to Raytheon for
fully integrated OpenVPX-based radar subsystems for Patriot since
2009 and continues to deliver ground-breaking technologies and
rapid deployment services.
September – Mercury announced the results of its participation
in the U.S. Air Force-led Next Generation Radar (NGR) Processor
Study. The goal of this program is to assess the capability of
current embedded computing open architectures to perform airborne
radar signal processing on future USAF platforms. Mercury
demonstrated that its scalable and rugged high-density server
modules exceeded the target benchmarks in the study, enabling
affordable capability evolution of radar processors through open,
non-proprietary and standards-based systems for airborne
solutions.
August – Mercury congratulated Lockheed Martin on the recent
successful four-event test of the Aegis Combat System's air warfare
(AW) and ballistic missile defense (BMD) capabilities. Aegis BMD's
recently upgraded multi-mission signal processor (MMSP), designed
and developed by Mercury, enables the Navy to defeat more
sophisticated ballistic missile threats using improved target
identification capabilities.
July – Mercury announced it received a $3.1 million follow-on
order from a leading defense prime contractor for high-performance
digital signal processing modules for an unmanned airborne
synthetic aperture radar (SAR) application. The order was booked in
the Company's fiscal 2015 fourth quarter and is expected to be
shipped by its fiscal 2016 fourth quarter.
July – Mercury announced that its Mercury Defense Systems
segment recently received a $2.7 million order from a leading
international aerospace and defense company for radar environment
simulation equipment. The order was booked in the Company's fiscal
2015 fourth quarter and is expected to be shipped over the next
several quarters.
July – Mercury announced it received $5.2 million in orders from
a leading defense prime contractor to provide radar subsystems and
related digital processing technologies for a missile defense
application. The orders were booked in the Company's fiscal 2015
fourth quarter and are expected to be shipped over the next several
quarters.
July – Mercury announced it received a $4.4 million follow-on
order from an international customer for high performance digital
signal processing subsystems for a naval radar application. The
order was booked in the Company's fiscal 2015 fourth quarter and is
expected to be fulfilled over the next several quarters.
July – Mercury announced it received $5.9 million in orders from
a leading defense prime contractor for digital signal processing
modules for a manned airborne multi-mode surveillance radar
application. The orders were booked in the Company's fiscal 2015
fourth quarter and shipments are expected to be completed by the
end of its fiscal 2016 second quarter.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Tuesday, October 27, 2015, at 5:00 p.m. ET to discuss the first
quarter fiscal 2016 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, adjusted income from continuing
operations, adjusted EPS, and free cash flow, which are non-GAAP
financial measures. Adjusted EBITDA, adjusted income from
continuing operations, and adjusted EPS exclude 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, these non-GAAP measures should
not be considered in isolation or as a substitute for financial
information provided in accordance with GAAP. Management believes
these non-GAAP measures assist in providing a more complete
understanding of the Company’s underlying operational results and
trends, and management uses these measures along with the
corresponding GAAP financial measures to manage the Company’s
business, to evaluate its performance compared to prior periods and
the marketplace, and to establish operational goals. A
reconciliation of GAAP to non-GAAP financial results discussed in
this press release is contained in the attached exhibits.
Mercury Systems – Innovation That Matters™
Mercury Systems (NASDAQ:MRCY) is 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 2016 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 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, 2015. 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) |
September 30, |
|
June 30, |
|
2015 |
2015 |
|
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
79,073 |
|
|
$ |
77,586 |
|
|
Accounts receivable, net |
|
41,993 |
|
|
|
31,765 |
|
|
Unbilled receivables and costs in
excess of billings |
|
24,423 |
|
|
|
22,021 |
|
|
Inventory |
|
34,666 |
|
|
|
31,960 |
|
|
Deferred income taxes |
|
12,379 |
|
|
|
12,407 |
|
|
Prepaid income taxes |
|
3,041 |
|
|
|
3,747 |
|
|
Prepaid expenses and other current
assets |
|
5,292 |
|
|
|
8,678 |
|
|
Total current assets |
|
200,867 |
|
|
|
188,164 |
|
|
|
|
|
|
|
Restricted cash |
|
264 |
|
|
|
264 |
|
|
Property and equipment, net |
|
13,493 |
|
|
|
13,226 |
|
|
Goodwill |
|
168,146 |
|
|
|
168,146 |
|
|
Intangible assets, net |
|
16,470 |
|
|
|
17,998 |
|
|
Other non-current assets |
|
2,148 |
|
|
|
2,190 |
|
|
Total assets |
$ |
401,388 |
|
|
$ |
389,988 |
|
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
17,186 |
|
|
$ |
6,928 |
|
|
Accrued expenses |
|
9,143 |
|
|
|
9,005 |
|
|
Accrued compensation |
|
8,488 |
|
|
|
9,875 |
|
|
Deferred revenues and customer
advances |
|
7,944 |
|
|
|
7,477 |
|
|
Total current liabilities |
|
42,761 |
|
|
|
33,285 |
|
|
|
|
|
|
|
Deferred gain on
sale-leaseback |
|
639 |
|
|
|
929 |
|
|
Deferred income taxes |
|
2,658 |
|
|
|
3,108 |
|
|
Income taxes payable |
|
1,459 |
|
|
|
1,459 |
|
|
Other non-current
liabilities |
|
1,237 |
|
|
|
1,069 |
|
|
Total liabilities |
|
48,754 |
|
|
|
39,850 |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
Common stock |
|
330 |
|
|
|
326 |
|
|
Additional paid-in capital |
|
255,083 |
|
|
|
254,568 |
|
|
Retained earnings |
|
96,428 |
|
|
|
94,468 |
|
|
Accumulated other comprehensive
income |
|
793 |
|
|
|
776 |
|
|
Total shareholders’ equity |
|
352,634 |
|
|
|
350,138 |
|
|
|
|
|
|
|
Total liabilities and shareholders’
equity |
$ |
401,388 |
|
|
$ |
389,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS,
INC. |
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
Net revenues |
$ |
58,409 |
|
|
$ |
54,061 |
|
|
|
|
Cost of revenues (1) |
|
30,880 |
|
|
|
30,062 |
|
|
|
|
Gross margin |
|
27,529 |
|
|
|
23,999 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Selling, general and administrative
(1) |
|
12,126 |
|
|
|
12,290 |
|
|
|
|
Research and development (1) |
|
8,093 |
|
|
|
7,951 |
|
|
|
|
Amortization of intangible
assets |
|
1,713 |
|
|
|
1,762 |
|
|
|
|
Restructuring and other
charges |
|
338 |
|
|
|
1,268 |
|
|
|
|
Acquisition costs and other related
expenses |
|
2,128 |
|
|
|
- |
|
|
|
|
Total operating expenses |
|
24,398 |
|
|
|
23,271 |
|
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
3,131 |
|
|
|
728 |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
24 |
|
|
|
3 |
|
|
|
|
Interest expense |
|
(2 |
) |
|
|
(8 |
) |
|
|
|
Other income, net |
|
71 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
3,224 |
|
|
|
717 |
|
|
|
|
Tax provision |
|
1,264 |
|
|
|
- |
|
|
|
|
Income from continuing
operations |
|
1,960 |
|
|
|
717 |
|
|
|
|
Loss from discontinued
operations, net of tax |
|
- |
|
|
|
(218 |
) |
|
|
|
Net income |
$ |
1,960 |
|
|
$ |
499 |
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings (loss)
per share: |
|
|
|
|
|
|
Continuing operations |
$ |
0.06 |
|
|
$ |
0.02 |
|
|
|
|
Discontinued operations |
|
- |
|
|
|
- |
|
|
|
|
Basic net earnings per
share: |
$ |
0.06 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings
(loss) per share: |
|
|
|
|
|
|
Continuing operations |
$ |
0.06 |
|
|
$ |
0.02 |
|
|
|
|
Discontinued operations |
|
- |
|
|
|
- |
|
|
|
|
Diluted net earnings per
share: |
$ |
0.06 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
Basic |
|
32,778 |
|
|
|
31,635 |
|
|
|
|
Diluted |
|
33,616 |
|
|
|
32,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based
compensation expense, allocated as follows: |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
$ |
149 |
|
|
$ |
151 |
|
|
|
|
Selling, general and
administrative |
$ |
2,128 |
|
|
$ |
1,966 |
|
|
|
|
Research and development |
$ |
425 |
|
|
$ |
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCURY
SYSTEMS, INC. |
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
(In thousands) |
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
|
2015 |
|
|
|
2014 |
|
|
Cash flows from
operating activities: |
|
|
|
|
Net income |
$ |
1,960 |
|
|
$ |
499 |
|
|
Depreciation and amortization |
|
3,301 |
|
|
|
3,630 |
|
|
Other non-cash items, net |
|
1,200 |
|
|
|
1,193 |
|
|
Changes in operating assets and
liabilities |
|
(848 |
) |
|
|
(3,144 |
) |
|
|
|
|
|
|
Net cash provided by operating
activities |
|
5,613 |
|
|
|
2,178 |
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Purchases of property and
equipment |
|
(1,867 |
) |
|
|
(905 |
) |
|
Increase in other investing
activities |
|
(185 |
) |
|
|
- |
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
(2,052 |
) |
|
|
(905 |
) |
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Proceeds from employee stock
plans |
|
629 |
|
|
|
236 |
|
|
Payments of capital lease
obligations |
|
- |
|
|
|
(160 |
) |
|
Payments for retirement of common
stock |
|
(3,708 |
) |
|
|
- |
|
|
Excess tax benefits from
stock-based compensation |
|
969 |
|
|
|
316 |
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
(2,110 |
) |
|
|
392 |
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
36 |
|
|
|
(76 |
) |
|
|
|
|
|
|
Net increase in cash
and cash equivalents |
|
1,487 |
|
|
|
1,589 |
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period |
|
77,586 |
|
|
|
47,287 |
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period |
$ |
79,073 |
|
|
$ |
48,876 |
|
|
|
|
|
|
|
|
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. Litigation and settlement expenses. The Company
periodically incurs litigation and settlement expenses related to
pending claims and litigation and associated legal fees and
potential case settlements. 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.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 |
|
|
September 30, |
|
|
|
2015 |
|
|
|
2014 |
|
|
Income from continuing
operations |
$ |
1,960 |
|
|
$ |
717 |
|
|
Interest expense, net |
|
(22 |
) |
|
|
5 |
|
|
Income taxes |
|
1,264 |
|
|
|
- |
|
|
Depreciation |
|
1,588 |
|
|
|
1,700 |
|
|
Amortization of intangible
assets |
|
1,713 |
|
|
|
1,762 |
|
|
Restructuring and other
charges |
|
338 |
|
|
|
1,268 |
|
|
Impairment of long-lived
assets |
|
- |
|
|
|
- |
|
|
Acquisition and financing
costs |
|
2,298 |
|
|
|
- |
|
|
Fair value adjustments from
purchase accounting |
|
- |
|
|
|
- |
|
|
Litigation and settlement
expenses |
|
- |
|
|
|
- |
|
|
Stock-based compensation
expense |
|
2,702 |
|
|
|
2,551 |
|
|
Adjusted EBITDA |
$ |
11,841 |
|
|
$ |
8,003 |
|
|
|
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 |
|
|
September 30, |
|
|
|
2015 |
|
|
|
2014 |
|
|
Cash flows from
operations |
$ |
5,613 |
|
|
$ |
2,178 |
|
|
Capital expenditures |
|
(1,867 |
) |
|
|
(905 |
) |
|
Free cash flow |
$ |
3,746 |
|
|
$ |
1,273 |
|
|
|
UNAUDITED SUPPLEMENTAL
INFORMATION RECONCILIATION OF GAAP TO NON-GAAP
MEASURES |
(In thousands, except per share
data) |
|
Adjusted income from continuing
operations 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 continuing operations results and trends and
allows for comparability with our peer company index and industry.
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 from continuing operations as
income from continuing operations before amortization of intangible
assets, restructuring and other charges, impairment of long-lived
assets, acquisition and financing costs, fair value adjustments
from purchase accounting, litigation and settlement expenses,
stock-based compensation expense, and the tax impact of those
items. Adjusted EPS expresses adjusted income from continuing
operations 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. |
|
|
Three Months Ended
September 30, |
|
|
2015 |
|
|
|
2014 |
|
Income from continuing operations and earnings
per share |
$ |
1,960 |
|
|
$ |
0.06 |
|
|
$ |
717 |
|
|
$ |
0.02 |
|
Amortization of intangible
assets |
|
1,713 |
|
|
|
|
|
1,762 |
|
|
|
Restructuring and other
charges |
|
338 |
|
|
|
|
|
1,268 |
|
|
|
Impairment of long-lived
assets |
|
- |
|
|
|
|
|
- |
|
|
|
Acquisition and financing
costs |
|
2,298 |
|
|
|
|
|
- |
|
|
|
Fair value adjustments from
purchase accounting |
|
- |
|
|
|
|
|
- |
|
|
|
Litigation and settlement
expenses |
|
- |
|
|
|
|
|
- |
|
|
|
Stock-based compensation
expense |
|
2,702 |
|
|
|
|
|
2,551 |
|
|
|
Impact to income taxes |
|
(2,570 |
) |
|
|
|
|
(1,956 |
) |
|
|
Adjusted income from continuing operations and
adjusted earnings per share |
$ |
6,441 |
|
|
$ |
0.19 |
|
|
$ |
4,342 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding: |
|
|
|
33,616 |
|
|
|
|
|
32,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact:
Gerry Haines, CFO
Mercury Systems, Inc.
978-967-1990
Mercury Systems (NASDAQ:MRCY)
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