Second Quarter Highlights
include:
Mercury Systems, Inc. (NASDAQ:MRCY) (www.mrcy.com), reported
operating results for the second quarter of fiscal 2017, ended
December 31, 2016.
Management Comments
“The business continued to perform extremely well in the second
quarter of fiscal 2017,” said Mark Aslett, Mercury’s President and
Chief Executive Officer. “During the quarter we delivered a very
strong financial performance with bookings, backlog, revenue, and
adjusted EBITDA all reaching record levels. Year-over-year revenues
grew more than 60% and adjusted EBITDA grew over 80%, landing
within our recently updated target business model. We also
completed the acquisition of CES, significantly expanding our
addressable market with important, complementary capabilities in
mission computing, safety-critical avionics and platform
management. Based on our strong year-to-date performance, the
continued success of our integration activities and strong backlog,
we are raising our guidance for the full fiscal year,” Aslett
concluded.
Second Quarter Fiscal 2017 Results
Total Company second quarter fiscal 2017 revenues were $98.0
million, compared to $60.4 million in the second quarter of last
fiscal year. Excluding the impact of CES, which was acquired
by Mercury on November 4, 2016, revenues would have been $94.1
million, an increase of $33.7 million, or 55.8%, compared to the
second quarter of fiscal 2016.
GAAP net income for the second quarter of fiscal 2017 was $5.2
million, or $0.13 per share. Excluding the impact of CES, net
income for the second quarter fiscal 2017 would have been $5.0
million, or $0.13 per share.
Adjusted earnings per share (“adjusted EPS”) were $0.30 per
share for the second quarter of fiscal 2017, compared to $0.23 per
share in the second quarter fiscal 2016. Excluding the impact
of CES, adjusted EPS would have been $0.28 per share for the second
quarter of fiscal 2017.
All per share information is presented on a fully diluted
basis.
Second quarter fiscal 2017 adjusted EBITDA for the total Company
was $23.0 million and excluding the impact of CES would have been
$22.1 million. These compare to $12.6 million for the second
quarter of fiscal 2016.
Cash flows from operating activities in the second quarter of
fiscal 2017 were a net inflow of $14.2 million, compared to a net
inflow of $12.3 million in the second quarter of fiscal 2016.
Free cash flow, defined as cash flow from operating
activities less capital expenditures, was a net inflow of $6.5
million in the second quarter of fiscal 2017, compared to a net
inflow of $11.0 million in the second quarter of fiscal
2016.
Bookings
Total bookings for the second quarter of fiscal 2017 were $108.5
million, yielding a total book-to-bill ratio of 1.11 for the
quarter and representing a 140% increase compared to $45.2 million
in bookings for the second quarter of fiscal 2016.
Backlog
Mercury’s total backlog at December 31, 2016 was $318.8 million,
a $114.0 million increase from a year ago. Of the December
31, 2016 total backlog, $278.5 million represents orders expected
to be shipped over the next 12 months.
Business Outlook
This section presents our current expectations and estimates,
given current visibility, on our business outlook for the current
fiscal quarter and fiscal year 2017. 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 2017, revenues are forecasted to be in the range
of approximately $103 million to $107 million. GAAP net
income for the third quarter is expected to be approximately $5.6
million to $6.8 million, or $0.14 to $0.17 per share, assuming no
restructuring, acquisition, or financing related expenses in the
period. Adjusted EPS is expected to be in the range of $0.29
to $0.32 per share, assuming an effective tax rate of 35%.
Adjusted EBITDA for the third quarter of fiscal 2017 is
expected to be in the range of $22.8 million to $24.7
million.
For the full 2017 fiscal year, before adding the impact of CES,
we now expect revenue to be between $377 million to $384 million,
up from our prior expectation of $370 million to $380
million. Including CES, total revenue for fiscal 2017 is
expected to be approximately $393 million to $400 million, with
total GAAP net income of $19.4 million to $21.4 million, or $0.49
to $0.54 per share. Total company adjusted EBITDA for the
full fiscal year is now expected to be approximately $87.5 million
to $90.5 million, representing approximately 22.3% to 22.6% of
revenue. Adjusted EPS for fiscal 2017 is now expected to be
approximately $1.09 to $1.14 per share, assuming an effective tax
rate of 35%.
Recent Highlights
December – Mercury Systems announced that it received a $10.8
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 2017 second quarter and is expected to be shipped
over the next several quarters.
December – Mercury Systems announced it received a $2.2 million
order from a leading defense prime contractor to extend the
lifecycle of a legacy electronic warfare system. The order
was booked in the Company's fiscal 2017 second quarter and is
expected to be shipped over the next several quarters.
December – Mercury Systems announced it received a $3.4
million order from a leading defense prime contractor for secure
rackmount servers for a modeling and simulation application. The
order was booked in the Company's fiscal 2017 second quarter and is
expected to be shipped over the next several quarters.
December – Mercury Systems announced it received a $6.7 million
follow-on order from a leading defense prime contractor for
high-performance GPS Selective Availability Anti-Spoofing Modules
(SAASM) for a precision guided munitions application. The order was
booked in the Company's fiscal 2017 second quarter and is expected
to be shipped over the next several quarters.
November – Mercury Systems announced that its Ensemble® LDS6526
server blade received a silver award by the judges of the annual
Military & Aerospace Electronics Innovators Awards program.
This program recognizes the most innovative solutions in military
and aerospace technology products and systems, as judged by a panel
of senior third-party expert professionals. The Ensemble LDS6256 is
a rugged OpenVPX™ processing blade that seamlessly integrates the
Intel® Xeon® processor D system-on-a-chip (SoC) product family, the
versatility of software-defined off-load processing,
double-bandwidth sensor I/O capability and built-in private and
personalized security features into a powerful 6U form factor blade
for streaming signal processing applications.
November – Mercury Systems announced that its Independent
Chairman of the Board Vince Vitto was recently awarded the 2016
Eugene G. Fubini Award for outstanding contributions to the
Department of Defense (DoD) and the Defense Science Board. The
award was signed by Secretary of Defense Ash Carter and presented
in a ceremony recently held at the Pentagon in Washington, D.C. The
Eugene G. Fubini Award was established in 1996 by then-Secretary of
Defense William J. Perry to recognize on an annual basis an
individual from the private sector who has made highly significant
contributions to the Department of Defense in an advisory capacity
over a sustained period of time.
November – Mercury Systems announced the completion of its
previously reported acquisition of CES Creative Electronic Systems,
S.A. ("CES"). Pursuant to the terms of the Stock Purchase Agreement
applicable to the acquisition, Mercury acquired CES for a total
purchase price of approximately $38 million, subject to net working
capital and net debt adjustments. The acquisition and associated
transaction expenses were funded with cash on hand. For the twelve
month period ended September 30, 2016 CES had revenue of
approximately $23 million.
October – Mercury Systems announced it received a $6.3 million
follow-on order from a leading defense prime contractor for
microwave transceivers for a precision guided munitions
application. The order was booked in the Company's fiscal 2017
first quarter and is expected to be shipped over the next several
quarters.
October – Mercury Systems announced it received a long term
supplier agreement (LTSA) from a leading defense prime contractor
to purchase up to $32.5 million of GPS SAASM receivers for a
precision guided munitions application over a three year period.
The order was booked in the Company's 2016 first quarter.
October – Mercury Systems announced the first rackmount secure
server available for the defense market at the Association of the
United States Army (AUSA) Annual Meeting in Washington, D.C. These
ATX-class servers are designed to drive the most powerful mission
processing, sensor processing and cybersecurity applications,
addressing the defense market's need for affordable and trusted
solutions to protecting mission-critical functions. Mercury secure
servers are designed and made in the USA, using trusted devices
from managed supply chains by US-based employees working in
domestic secure facilities. With security and ruggedness built in,
they are ideally suited for next-generation command and control,
battle management processing and sensor processing applications
requiring system integrity.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Monday, January 23, 2017, at 5:00 p.m. ET to discuss the second
quarter fiscal 2017 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 Financial Measures
In addition to reporting financial results in accordance with
generally accepted accounting principles, or GAAP, the Company
provides adjusted EBITDA, adjusted income, adjusted earnings per
share “adjusted EPS”, and free cash flow, which are non-GAAP
financial measures. Adjusted EBITDA, adjusted income, 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 a leading commercial provider
of secure sensor and mission processing subsystems. Optimized for
customer and mission success, Mercury’s solutions power a wide
variety of critical defense and intelligence programs.
Headquartered in Chelmsford, Mass., Mercury is pioneering a
next-generation defense electronics business model specifically
designed to meet the industry’s current and emerging technology
needs. To learn more, visit www.mrcy.com.
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 2017 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, 2016. 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, Innovation That Matters and Ensemble 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, |
|
|
2016 |
|
2016 |
|
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
$ |
46,185 |
|
$ |
81,691 |
|
Accounts
receivable, net |
|
68,827 |
|
|
73,427 |
|
Unbilled
receivables and costs in excess of billings |
|
28,052 |
|
|
22,467 |
|
Inventory |
|
70,088 |
|
|
58,284 |
|
Prepaid
income taxes |
|
5,049 |
|
|
3,401 |
|
Prepaid
expenses and other current assets |
|
6,646 |
|
|
6,122 |
|
Total
current assets |
|
224,847 |
|
|
245,392 |
|
|
|
|
|
|
Restricted cash |
|
- |
|
|
264 |
|
Property and equipment,
net |
|
39,379 |
|
|
28,337 |
|
Goodwill |
|
366,791 |
|
|
344,027 |
|
Intangible assets,
net |
|
122,308 |
|
|
116,673 |
|
Other non-current
assets |
|
1,952 |
|
|
1,803 |
|
Total
assets |
$ |
755,277 |
|
$ |
736,496 |
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
$ |
26,236 |
|
$ |
26,723 |
|
Accrued
expenses |
|
10,547 |
|
|
10,273 |
|
Accrued
compensation |
|
15,841 |
|
|
13,283 |
|
Deferred
revenues and customer advances |
|
5,896 |
|
|
7,365 |
|
Current
portion of long-term debt |
|
10,000 |
|
|
10,000 |
|
Total
current liabilities |
|
68,520 |
|
|
67,644 |
|
|
|
|
|
|
Deferred income
taxes |
|
11,954 |
|
|
11,842 |
|
Income taxes
payable |
|
700 |
|
|
700 |
|
Long-term debt |
|
180,710 |
|
|
182,275 |
|
Other non-current
liabilities |
|
8,677 |
|
|
991 |
|
Total
liabilities |
|
270,561 |
|
|
263,452 |
|
|
|
|
|
|
Shareholders’
equity: |
|
|
|
|
Common
stock |
|
392 |
|
|
387 |
|
Additional paid-in capital |
|
360,477 |
|
|
357,500 |
|
Retained
earnings |
|
123,233 |
|
|
114,210 |
|
Accumulated other comprehensive income |
|
614 |
|
|
947 |
|
Total
shareholders’ equity |
|
484,716 |
|
|
473,044 |
|
Total
liabilities and shareholders’ equity |
$ |
755,277 |
|
$ |
736,496 |
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
|
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
December 31, |
|
December 31, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
Net revenues |
$ |
98,014 |
|
|
$ |
60,417 |
|
|
$ |
185,663 |
|
|
$ |
118,826 |
|
|
Cost of revenues
(1) |
|
50,625 |
|
|
|
30,678 |
|
|
|
98,830 |
|
|
|
60,785 |
|
|
Gross
margin |
|
47,389 |
|
|
|
29,739 |
|
|
|
86,833 |
|
|
|
58,041 |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Selling,
general and administrative (1) |
|
19,320 |
|
|
|
12,583 |
|
|
|
36,864 |
|
|
|
24,709 |
|
|
Research
and development (1) |
|
13,156 |
|
|
|
8,845 |
|
|
|
25,994 |
|
|
|
17,711 |
|
|
Amortization of intangible assets |
|
4,888 |
|
|
|
1,638 |
|
|
|
9,490 |
|
|
|
3,351 |
|
|
Restructuring and other charges |
|
69 |
|
|
|
221 |
|
|
|
366 |
|
|
|
559 |
|
|
Impairment of long-lived assets |
|
- |
|
|
|
231 |
|
|
|
- |
|
|
|
231 |
|
|
Acquisition costs and other related expenses |
|
998 |
|
|
|
(148 |
) |
|
|
1,419 |
|
|
|
1,980 |
|
|
Total
operating expenses |
|
38,431 |
|
|
|
23,370 |
|
|
|
74,133 |
|
|
|
48,541 |
|
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
8,958 |
|
|
|
6,369 |
|
|
|
12,700 |
|
|
|
9,500 |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
10 |
|
|
|
26 |
|
|
|
50 |
|
|
|
50 |
|
|
Interest expense |
|
(1,898 |
) |
|
|
(5 |
) |
|
|
(3,720 |
) |
|
|
(7 |
) |
|
Other (expense) income,
net |
|
(87 |
) |
|
|
83 |
|
|
|
513 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
6,983 |
|
|
|
6,473 |
|
|
|
9,543 |
|
|
|
9,697 |
|
|
Tax provision |
|
1,779 |
|
|
|
1,433 |
|
|
|
520 |
|
|
|
1,801 |
|
|
Net income |
$ |
5,204 |
|
|
$ |
5,040 |
|
|
$ |
9,023 |
|
|
$ |
7,896 |
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per
share: |
$ |
0.13 |
|
|
$ |
0.15 |
|
|
$ |
0.23 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings
per share: |
$ |
0.13 |
|
|
$ |
0.15 |
|
|
$ |
0.23 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
39,151 |
|
|
|
33,120 |
|
|
|
39,004 |
|
|
|
33,047 |
|
|
Diluted |
|
39,985 |
|
|
|
33,831 |
|
|
|
39,920 |
|
|
|
33,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes stock-based compensation expense, allocated as
follows: |
|
|
|
Cost of
revenues |
$ |
148 |
|
|
$ |
6 |
|
|
$ |
223 |
|
|
$ |
155 |
|
|
Selling,
general and administrative |
$ |
3,539 |
|
|
$ |
2,063 |
|
|
$ |
6,578 |
|
|
$ |
4,191 |
|
|
Research
and development |
$ |
406 |
|
|
$ |
323 |
|
|
$ |
924 |
|
|
$ |
748 |
|
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
(In thousands) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 31, |
|
December 31, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net
income |
$ |
5,204 |
|
|
$ |
5,040 |
|
|
$ |
9,023 |
|
|
$ |
7,896 |
|
|
Depreciation and amortization |
|
7,856 |
|
|
|
3,258 |
|
|
|
15,176 |
|
|
|
6,559 |
|
|
Other
non-cash items, net |
|
5,870 |
|
|
|
1,878 |
|
|
|
7,316 |
|
|
|
4,047 |
|
|
Changes
in operating assets and liabilities |
|
(4,692 |
) |
|
|
2,079 |
|
|
|
(6,994 |
) |
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
|
14,238 |
|
|
|
12,255 |
|
|
|
24,521 |
|
|
|
18,837 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
(38,764 |
) |
|
|
(9,764 |
) |
|
|
(38,764 |
) |
|
|
(9,764 |
) |
|
Purchases
of property and equipment |
|
(7,703 |
) |
|
|
(1,289 |
) |
|
|
(13,753 |
) |
|
|
(3,156 |
) |
|
Increase
in other investing activities |
|
- |
|
|
|
- |
|
|
|
(111 |
) |
|
|
(185 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash
used in investing activities |
|
(46,467 |
) |
|
|
(11,053 |
) |
|
|
(52,628 |
) |
|
|
(13,105 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from employee stock plans |
|
2,653 |
|
|
|
1,668 |
|
|
|
2,733 |
|
|
|
2,297 |
|
|
Payments
of term debt |
|
- |
|
|
|
- |
|
|
|
(2,500 |
) |
|
|
- |
|
|
Payments
for retirement of common stock |
|
(1,432 |
) |
|
|
(416 |
) |
|
|
(7,560 |
) |
|
|
(4,124 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
1,221 |
|
|
|
1,252 |
|
|
|
(7,327 |
) |
|
|
(1,827 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
(121 |
) |
|
|
27 |
|
|
|
(72 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase
in cash and cash equivalents |
|
(31,129 |
) |
|
|
2,481 |
|
|
|
(35,506 |
) |
|
|
3,968 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period |
|
77,314 |
|
|
|
79,073 |
|
|
|
81,691 |
|
|
|
77,586 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period |
$ |
46,185 |
|
|
$ |
81,554 |
|
|
$ |
46,185 |
|
|
$ |
81,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP MEASURES |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA, a non-GAAP measure for reporting financial
performance, excludes the impact of certain items and, therefore,
has not been calculated in accordance with GAAP. Management
believes that exclusion of these items assists in providing a more
complete understanding of the Company’s underlying results and
trends, and management uses these measures along with the
corresponding GAAP financial measures to manage the Company’s
business, to evaluate its performance compared to prior periods and
the marketplace, and to establish operational goals. The
adjustments to calculate this non-GAAP financial measure, and the
basis for such adjustments, are outlined below: |
|
|
|
Interest income and expense. The Company receives
interest income on investments and incurs interest expense on
loans, capital leases and other financing arrangements.
Additionally, the Company incurs non-cash interest expenses
associated with obtaining its credit facilities. These
amounts may vary from period to period due to changes in cash and
debt balances and interest rates driven by general market
conditions or other circumstances outside of the normal course of
Mercury’s operations. |
|
|
|
Income taxes. The Company’s GAAP tax expense can
fluctuate materially from period to period due to tax adjustments
that are not directly related to underlying operating performance
or to the current period of operations. |
|
|
|
Depreciation. The Company incurs depreciation expense
related to capital assets purchased to support the ongoing
operations of the business. These assets are recorded at cost
or fair value and are depreciated using the straight-line method
over the useful life of the asset. Purchases of such assets
may vary significantly from period to period and without any direct
correlation to underlying operating performance. |
|
|
|
Amortization of intangible assets. The Company incurs
amortization of intangibles related to various acquisitions it has
made and license agreements. These intangible assets are
valued at the time of acquisition, are amortized over a period of
several years after acquisition and generally cannot be changed or
influenced by management after acquisition. |
|
|
|
Restructuring and other charges. The Company incurs
restructuring and other charges in connection with management’s
decisions to undertake certain actions to realign operating
expenses through workforce reductions and the closure of certain
Company facilities, businesses and product lines. The
Company’s adjustments reflected in restructuring and other charges
are typically related to acquisitions and organizational redesign
programs initiated as part of discrete post-acquisition integration
activities. Management believes these items are non-routine
and may not be indicative of ongoing operating results. |
|
|
|
Impairment of long-lived assets. The Company incurs
impairment charges of long-lived assets based on events that may or
may not be within the control of management. Management
believes these items are outside the normal operations of the
Company's business and are not indicative of ongoing operating
results. |
|
|
|
Acquisition and financing costs. The Company incurs
transaction costs related to acquisition and potential acquisition
opportunities, such as legal 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 unused revolver and bank fees associated with
maintaining its credit 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 income and expense. The Company
periodically receives income and incurs expenses related to pending
claims and litigation and associated legal fees and potential case
settlements and/or judgments. Although we may incur such
costs and other related charges and adjustments, it is not
indicative of any particular outcome until the matter is fully
resolved. Management believes these items are outside the normal
operations of the Company’s business and are not indicative of
ongoing operating results. The Company periodically receives
warranty claims from customers and makes warranty claims towards
its vendors and supply chain. Management believes the expenses and
gains associated with these recurring warranty items are within the
normal operations and operating cycle of the Company's business.
Therefore, management deems no adjustments are necessary unless
under extraordinary circumstances. |
|
|
|
Stock-based 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, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
Net income |
$ |
5,204 |
|
|
$ |
5,040 |
|
|
|
$ |
9,023 |
|
|
$ |
7,896 |
|
|
Interest
expense (income), net |
|
1,888 |
|
|
|
(21 |
) |
|
|
|
3,670 |
|
|
|
(43 |
) |
|
Income
taxes |
|
1,779 |
|
|
|
1,433 |
|
|
|
|
520 |
|
|
|
1,801 |
|
|
Depreciation |
|
2,966 |
|
|
|
1,620 |
|
|
|
|
5,684 |
|
|
|
3,208 |
|
|
Amortization of intangible assets |
|
4,888 |
|
|
|
1,638 |
|
|
|
|
9,490 |
|
|
|
3,351 |
|
|
Restructuring and other charges |
|
69 |
|
|
|
221 |
|
|
|
|
366 |
|
|
|
559 |
|
|
Impairment of long-lived assets |
|
- |
|
|
|
231 |
|
|
|
|
- |
|
|
|
231 |
|
|
Acquisition and financing costs |
|
1,114 |
|
|
|
25 |
|
|
|
|
1,667 |
|
|
|
2,323 |
|
|
Fair
value adjustments from purchase accounting |
|
870 |
|
|
|
- |
|
|
|
|
2,947 |
|
|
|
- |
|
|
Litigation and settlement expense (income), net |
|
100 |
|
|
|
- |
|
|
|
|
100 |
|
|
|
- |
|
|
Stock-based compensation expense |
|
4,093 |
|
|
|
2,392 |
|
|
|
|
7,725 |
|
|
|
5,094 |
|
|
Adjusted EBITDA |
$ |
22,971 |
|
|
$ |
12,579 |
|
|
|
$ |
41,192 |
|
|
$ |
24,420 |
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
Cash flows from
operations |
$ |
14,238 |
|
|
$ |
12,255 |
|
|
|
$ |
24,521 |
|
|
$ |
18,837 |
|
|
Capital
expenditures |
|
(7,703 |
) |
|
|
(1,289 |
) |
|
|
|
(13,753 |
) |
|
|
(3,156 |
) |
|
Free cash flow |
$ |
6,535 |
|
|
$ |
10,966 |
|
|
|
$ |
10,768 |
|
|
$ |
15,681 |
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP MEASURES |
|
(In thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income and adjusted earnings per share ("adjusted
EPS") are non-GAAP measures for reporting financial performance,
exclude the impact of certain items and, therefore, have not been
calculated in accordance with GAAP. Management believes that
exclusion of these items assists in providing a more complete
understanding of the Company’s underlying results and trends and
allows for comparability with our peer company index and industry.
These non-GAAP financial measures may not be computed in the same
manner as similarly titled measures used by other companies. The
Company uses these measures along with the corresponding GAAP
financial measures to manage the Company’s business and to evaluate
its performance compared to prior periods and the marketplace. The
Company defines adjusted income as income before amortization
of intangible assets, restructuring and other charges, impairment
of long-lived assets, acquisition and financing costs, fair value
adjustments from purchase accounting, litigation and settlement
income and expense, stock-based compensation expense. The impact to
income taxes includes the impact to the effective tax rate, current
tax provision and deferred tax provision. Adjusted EPS expresses
adjusted income on a per share basis using weighted average diluted
shares outstanding. |
|
|
|
The following table reconciles the most directly comparable
GAAP financial measures to the non-GAAP financial measures. |
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2016 |
|
|
2015 |
|
Net income and earnings
per share |
$ |
5,204 |
|
|
$ |
0.13 |
|
$ |
5,040 |
|
|
$ |
0.15 |
|
Amortization of intangible assets |
|
4,888 |
|
|
|
|
|
1,638 |
|
|
|
|
Restructuring and other charges |
|
69 |
|
|
|
|
|
221 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
231 |
|
|
|
|
Acquisition and financing costs |
|
1,114 |
|
|
|
|
|
25 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
870 |
|
|
|
|
|
- |
|
|
|
|
Litigation and settlement expense (income), net |
|
100 |
|
|
|
|
|
- |
|
|
|
|
Stock-based compensation expense |
|
4,093 |
|
|
|
|
|
2,392 |
|
|
|
|
Impact to
income taxes |
|
(4,441 |
) |
|
|
|
|
(1,722 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
11,897 |
|
|
$ |
0.30 |
|
$ |
7,825 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
39,985 |
|
|
|
|
33,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
|
|
2016 |
|
|
2015 |
|
Net income and earnings
per share |
$ |
9,023 |
|
|
$ |
0.23 |
|
$ |
7,896 |
|
|
$ |
0.23 |
|
Amortization of intangible assets |
|
9,490 |
|
|
|
|
|
3,351 |
|
|
|
|
Restructuring and other charges |
|
366 |
|
|
|
|
|
559 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
231 |
|
|
|
|
Acquisition and financing costs |
|
1,667 |
|
|
|
|
|
2,323 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
2,947 |
|
|
|
|
|
- |
|
|
|
|
Litigation and settlement expense (income), net |
|
100 |
|
|
|
|
|
- |
|
|
|
|
Stock-based compensation expense |
|
7,725 |
|
|
|
|
|
5,094 |
|
|
|
|
Impact to
income taxes |
|
(10,526 |
) |
|
|
|
|
(5,188 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
20,792 |
|
|
$ |
0.52 |
|
$ |
14,266 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
39,920 |
|
|
|
|
33,819 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
|
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
RANGE |
|
Quarter Ending March 31, 2017 |
|
Year Ending June 30, 2017 |
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
The Company defines adjusted EBITDA as income 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, litigation and
settlement income and expense, and stock-based compensation
expense. |
|
|
|
The following table reconciles the adjusted EBITDA financial
measure to its most directly comparable GAAP measure. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending |
|
Twelve Months Ending |
|
|
March 31, 2017 |
|
June 30, 2017 |
|
|
Range |
|
Range |
|
|
Low |
|
High |
|
Low |
|
High |
|
|
|
|
|
|
|
|
|
|
GAAP expectation --
Earnings per share |
$ |
0.14 |
|
$ |
0.17 |
|
$ |
0.49 |
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP expectation -- Net
income |
$ |
5,600 |
|
$ |
6,800 |
|
$ |
19,400 |
|
$ |
21,400 |
|
|
|
|
|
|
|
|
|
|
Adjust for: |
|
|
|
|
|
|
|
|
Interest
expense (income), net |
|
1,700 |
|
|
1,700 |
|
|
7,300 |
|
|
7,300 |
|
Income
taxes |
|
3,000 |
|
|
3,700 |
|
|
7,200 |
|
|
8,200 |
|
Depreciation |
|
3,500 |
|
|
3,500 |
|
|
13,200 |
|
|
13,200 |
|
Amortization of intangible assets |
|
4,700 |
|
|
4,700 |
|
|
19,000 |
|
|
19,000 |
|
Restructuring and other charges |
|
100 |
|
|
100 |
|
|
700 |
|
|
700 |
|
Impairment of long-lived assets |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Acquisition and financing costs |
|
100 |
|
|
100 |
|
|
1,800 |
|
|
1,800 |
|
Fair
value adjustments from purchase accounting |
|
300 |
|
|
300 |
|
|
3,500 |
|
|
3,500 |
|
Litigation and settlement expense (income), net |
|
- |
|
|
- |
|
|
100 |
|
|
100 |
|
Stock-based compensation expense |
|
3,800 |
|
|
3,800 |
|
|
15,300 |
|
|
15,300 |
|
Adjusted EBITDA
expectation |
$ |
22,800 |
|
$ |
24,700 |
|
$ |
87,500 |
|
$ |
90,500 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
|
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
RANGE |
|
|
|
|
|
|
|
Quarter Ending March
31, 2017 |
|
|
|
|
|
|
|
|
Year Ending June 30,
2017 |
|
|
|
|
|
|
|
|
(In thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company defines adjusted income as income before
amortization of intangible assets, restructuring and other charges,
impairment of long-lived assets, acquisition and financing costs,
fair value adjustments from purchase accounting, litigation and
settlement income and expense, stock-based compensation expense,
and the tax impact of those items. Adjusted EPS expresses adjusted
income on a per share basis using weighted average diluted shares
outstanding. |
|
|
|
The following table reconciles the most directly comparable
GAAP financial measures to the non-GAAP financial measures. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending March 31, 2017 |
|
|
Range |
|
|
Low |
|
High |
|
Net income and earnings
per share |
$ |
5,600 |
|
|
$ |
0.14 |
|
$ |
6,800 |
|
|
$ |
0.17 |
|
Amortization of intangible assets |
|
4,700 |
|
|
|
|
|
4,700 |
|
|
|
|
Restructuring and other charges |
|
100 |
|
|
|
|
|
100 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
- |
|
|
|
|
Acquisition and financing costs |
|
100 |
|
|
|
|
|
100 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
300 |
|
|
|
|
|
300 |
|
|
|
|
Litigation and settlement expense (income), net |
|
- |
|
|
|
|
|
- |
|
|
|
|
Stock-based compensation expense |
|
3,800 |
|
|
|
|
|
3,800 |
|
|
|
|
Impact to
income taxes |
|
(3,100 |
) |
|
|
|
|
(3,200 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
11,500 |
|
|
$ |
0.29 |
|
$ |
12,600 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
39,900 |
|
|
|
|
39,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending June 30, 2017 |
|
|
Range |
|
|
Low |
|
High |
|
Net income and earnings
per share |
$ |
19,400 |
|
|
$ |
0.49 |
|
$ |
21,400 |
|
|
$ |
0.54 |
|
Amortization of intangible assets |
|
19,000 |
|
|
|
|
|
19,000 |
|
|
|
|
Restructuring and other charges |
|
700 |
|
|
|
|
|
700 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
- |
|
|
|
|
Acquisition and financing costs |
|
1,800 |
|
|
|
|
|
1,800 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
3,500 |
|
|
|
|
|
3,500 |
|
|
|
|
Litigation and settlement expense (income), net |
|
100 |
|
|
|
|
|
100 |
|
|
|
|
Stock-based compensation expense |
|
15,300 |
|
|
|
|
|
15,300 |
|
|
|
|
Impact to
income taxes |
|
(16,200 |
) |
|
|
|
|
(16,300 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
43,600 |
|
|
$ |
1.09 |
|
$ |
45,500 |
|
|
$ |
1.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
40,000 |
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
Contact:
Gerry Haines, CFO
Mercury Systems, Inc.
978-967-1990
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