Third Quarter Highlights
include:
Mercury Systems, Inc. (NASDAQ:MRCY) (www.mrcy.com), reported
operating results for the third quarter of fiscal 2017, ended March
31, 2017.
Management Comments“The third quarter was
another significant milestone toward achieving our objectives for
fiscal 2017,” said Mark Aslett, Mercury’s President and Chief
Executive Officer. “During the quarter we delivered a very strong
financial performance with record revenues while our profitability
exceeded estimates. Year-over-year revenues and GAAP net
income both grew more than 60%. Additionally, on February 1,
2017 we raised net proceeds of $215.7 million through a very
successful stock offering, replenishing our capacity to invest in
future growth both organically and through continued
acquisitions. Finally, on April 3, 2017 we closed the
acquisition of Delta Microwave, adding new capabilities, scale and
breadth to Mercury's existing RF, microwave and millimeter wave
portfolio, while further expanding our addressable market,” Aslett
concluded.
Third Quarter Fiscal 2017 ResultsTotal Company
third quarter fiscal 2017 revenues were $107.3 million, compared to
$65.9 million in the third quarter of last fiscal year. These
results include approximately $6.4 million of revenue attributable
to the CES business, which was acquired in the second quarter of
fiscal 2017.
GAAP net income for the third quarter of fiscal 2017 was $7.0
million, or $0.16 per share, compared to $4.4 million, or $0.13 per
share for the third quarter of fiscal 2016. Adjusted earnings
per share (“adjusted EPS”) were $0.29 per share for the third
quarter of fiscal 2017, compared to $0.25 per share in the third
quarter of fiscal 2016. All per share information is
presented on a fully diluted basis and fiscal 2017 includes the
effect of our recent stock offering.
Third quarter fiscal 2017 adjusted EBITDA for the Company was
$25.0 million, compared to $14.6 million for the third quarter of
fiscal 2016. The third quarter fiscal 2017 adjusted EBITDA
includes approximately $1.5 million associated with the CES
business.
Cash flows from operating activities in the third quarter of
fiscal 2017 were a net inflow of $24.9 million, compared to a net
inflow of $4.4 million in the third quarter of fiscal 2016.
Free cash flow, defined as cash flow from operating
activities less capital expenditures, was a net inflow of $11.9
million in the third quarter of fiscal 2017, compared to a net
inflow of $2.6 million in the third quarter of fiscal
2016.
BookingsTotal bookings for the third quarter of
fiscal 2017 were $106.5 million, yielding a book-to-bill ratio of
1.0 for the quarter and representing a 32% increase compared to
$80.8 million in bookings for the third quarter of fiscal 2016.
BacklogMercury’s total backlog at March 31,
2017 was $318.0 million, a $98.3 million increase from a year ago.
Of the March 31, 2017 total backlog, $270.7 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
fourth quarter of fiscal 2017, revenues are forecasted to be in the
range of approximately $112 million to $116 million. GAAP net
income for the fourth quarter is expected to be approximately $6.5
million to $7.7 million, assuming no restructuring, acquisition, or
additional financing related expenses in the period. GAAP EPS
and adjusted EPS are expected to be in the range of $0.14 to $0.16
and $0.26 to $0.29 per share, respectively, assuming an effective
tax rate of 35% and a 47.3 million diluted weighted average share
count. Adjusted EBITDA for the fourth quarter of fiscal 2017
is expected to be in the range of $24.8 million to $26.7
million.
For the full fiscal year 2017, before adding the impact of Delta
Microwave, we now expect revenue to be between $400 million and
$404 million, up from our prior expectation of $377 million to $384
million. Including Delta Microwave, total revenue for fiscal
2017 is now expected to be approximately $405 million to $409
million, with total GAAP net income of $22.6 million to $23.8
million, or $0.52 to $0.55 per share. Total adjusted EBITDA for the
full fiscal year is now expected to be approximately $91.0 million
to $92.9 million, representing approximately 22.5% to 22.7% of
revenue. Adjusted EPS for fiscal 2017 is expected to be
approximately $1.08 to $1.11 per share, assuming an effective tax
rate of 35% and a 43.1 million diluted weighted average share
count.
Recent HighlightsMarch – Mercury Systems
announced the Ensemble® HDS9624 Secure Rack Server to address the
need for rack servers with system security features that can be
forward deployed or sold to allies under Foreign Military Sales
(FMS) or Direct Commercial Sales (DCS) programs. In addition to the
unique security features, Mercury's new product line is the only
rack server that includes both ruggedization and a fully trusted
supply chain for both hardware and software.
March – Mercury announced volume production of its newest high
density secure memory device, embedding 8GB of double data rate
third-generation synchronous dynamic random-access memory (DDR3
SDRAM) in a military-hardened ball grid array (BGA) package.
Available in both x64 and x72 architectures, Mercury's latest
product is the defense industry's highest capacity ruggedized
memory device.
March – Mercury announced it received a follow-on five year sole
source basic ordering agreement (BOA) from the U.S. Navy to deliver
advanced Digital RF Memory (DRFM) subsystems supporting jamming in
a multi-threat environment. Valued at up to $152 million, the order
was received in the Company's fiscal 2017 third quarter and
provides for research and development, production, engineering
services and ongoing support. Work will be performed at the
Company's Cypress, Calif. facility with a period of performance
from March 2017 through February 2022.
March – Mercury announced the Defense industry's first double
data rate fourth-generation synchronous dynamic random-access
memory (DDR4) high density secure memory device. Replacing up to
eighteen industrial or commercial DDR4 devices with a single
military-hardened component, Mercury delivers space savings up to
75% in a ball grid array (BGA) package with data transfer speeds up
to 3200 Mb/s.
February – Mercury announced it received a 2016 Enterprise
Supplier Recognition Award from Northrop Grumman. Presented at a
ceremony during Northrop Grumman's recent Global Partner Forum, the
award recognizes Mercury for competitive advantage and
enterprise-level supply chain excellence that add value to
Northrop's programs.
February – Mercury announced the launch of its Mercury Mission
Systems (MMS) product line to address the immediate needs for
safety-critical solutions for mission computing, avionics and
platform management in the defense and commercial aerospace
markets. MMS products feature not only the highest level of design
assurance but also a full set of supporting software that reduces
integration time and effort. The product line includes solutions
from the former CES Creative Electronic Systems, S.A. located in
Geneva, Switzerland, acquired by Mercury on November 4, 2016.
February – Mercury announced it that its Chelmsford, Mass.
facility recently received the Category 1A Trusted Supplier
accreditation for design capability from the U.S. Defense
Department's Defense Microelectronics Activity (DMEA). This expands
upon the previously received Category 1A accreditation for broker,
packaging, assembly, and test at Mercury's Phoenix, Ariz. facility,
and is part of Mercury's overall strategy to be the leading
commercial provider of trusted and secure sensor and mission
processing subsystems.
February – Mercury announced it received a $4.1 million
follow-on order from a leading defense prime contractor for
wideband millimeter wave transceivers for a homeland security
high-resolution imaging application. The order was booked in the
Company's fiscal 2017 third quarter and is expected to be shipped
over the next several quarters.
January – Addressing the need for tighter in-vehicle security,
Mercury announced the CANGuard™ security suite, a unique software
solution designed to protect automotive vehicle data networks. The
Company also announced that it has entered into a licensing
agreement with a leading automotive electronics manufacturer to
enable the integration of CANGuard software into existing vehicle
control units as well as future units.
January – Mercury announced that it priced its previously
announced underwritten public offering at $33.00 per share and
increased the size of the offering to 6,000,000 shares of its
common stock. The offering included a 30-day option for the
underwriters to purchase up to an additional 900,000 shares of
common stock at the same per share price, which was exercised. The
offering closed on February 1, 2017.
January – Mercury announced it received a $2.4 million follow-on
order from a leading defense prime contractor to supply frequency
conversion modules for an Electronic Warfare (EW) service life
extension program. The order was booked in the Company's fiscal
2017 second quarter and is expected to be shipped over the next
several quarters.
January – Mercury announced it recently received $6.9 million in
orders relating to a sensor processing application for fighter
aircraft. The orders were booked in the Company's fiscal 2017
second quarter.
January – Mercury announced it received a $24.4 million
follow-on order from a leading defense prime contractor for
integrated radio frequency (RF) and digital subsystems for an
electronic warfare (EW) application. The order, which includes an
option to purchase additional units, was booked in the Company's
fiscal 2017 second quarter and is expected to be shipped over the
next several quarters.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Tuesday, April 25, 2017, at 5:00 p.m. ET to discuss the third
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 Andover, 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, Ensemble
and CANGuard 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, |
|
2017 |
2016 |
|
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
$ |
270,238 |
|
$ |
81,691 |
|
Accounts
receivable, net |
|
68,227 |
|
|
73,427 |
|
Unbilled
receivables and costs in excess of billings |
|
28,389 |
|
|
22,467 |
|
Inventory |
|
72,096 |
|
|
58,284 |
|
Prepaid
income taxes |
|
1,487 |
|
|
3,401 |
|
Prepaid
expenses and other current assets |
|
7,916 |
|
|
6,122 |
|
Total
current assets |
|
448,353 |
|
|
245,392 |
|
|
|
|
|
|
Restricted cash |
|
- |
|
|
264 |
|
Property and equipment,
net |
|
47,356 |
|
|
28,337 |
|
Goodwill |
|
365,713 |
|
|
344,027 |
|
Intangible assets,
net |
|
117,953 |
|
|
116,673 |
|
Other non-current
assets |
|
2,001 |
|
|
1,803 |
|
Total
assets |
$ |
981,376 |
|
$ |
736,496 |
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
$ |
24,321 |
|
$ |
26,723 |
|
Accrued
expenses |
|
14,600 |
|
|
10,273 |
|
Accrued
compensation |
|
17,888 |
|
|
13,283 |
|
Deferred
revenues and customer advances |
|
6,556 |
|
|
7,365 |
|
Current
portion of long-term debt |
|
10,000 |
|
|
10,000 |
|
Total
current liabilities |
|
73,365 |
|
|
67,644 |
|
|
|
|
|
|
Deferred income
taxes |
|
7,030 |
|
|
11,842 |
|
Income taxes
payable |
|
700 |
|
|
700 |
|
Long-term debt |
|
176,137 |
|
|
182,275 |
|
Other non-current
liabilities |
|
12,762 |
|
|
991 |
|
Total
liabilities |
|
269,994 |
|
|
263,452 |
|
|
|
|
|
|
Shareholders’
equity: |
|
|
|
|
Common
stock |
|
461 |
|
|
387 |
|
Additional paid-in capital |
|
579,893 |
|
|
357,500 |
|
Retained
earnings |
|
130,281 |
|
|
114,210 |
|
Accumulated other comprehensive income |
|
747 |
|
|
947 |
|
Total
shareholders’ equity |
|
711,382 |
|
|
473,044 |
|
Total
liabilities and shareholders’ equity |
$ |
981,376 |
|
$ |
736,496 |
|
|
|
|
|
|
MERCURY
SYSTEMS, INC. |
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
March 31, |
|
March 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net revenues |
$ |
107,317 |
|
|
$ |
65,898 |
|
|
$ |
292,980 |
|
|
$ |
184,724 |
|
Cost of revenues
(1) |
|
56,534 |
|
|
|
34,496 |
|
|
|
155,364 |
|
|
|
95,281 |
|
Gross
margin |
|
50,783 |
|
|
|
31,402 |
|
|
|
137,616 |
|
|
|
89,443 |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
Selling,
general and administrative (1) |
|
19,229 |
|
|
|
12,687 |
|
|
|
56,093 |
|
|
|
37,396 |
|
Research
and development (1) |
|
14,198 |
|
|
|
8,180 |
|
|
|
40,192 |
|
|
|
25,891 |
|
Amortization of intangible assets |
|
4,732 |
|
|
|
1,754 |
|
|
|
14,222 |
|
|
|
5,105 |
|
Restructuring and other charges |
|
459 |
|
|
|
409 |
|
|
|
825 |
|
|
|
968 |
|
Impairment of long-lived assets |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
231 |
|
Acquisition costs and other related expenses |
|
470 |
|
|
|
1,553 |
|
|
|
1,889 |
|
|
|
3,533 |
|
Total
operating expenses |
|
39,088 |
|
|
|
24,583 |
|
|
|
113,221 |
|
|
|
73,124 |
|
|
|
|
|
|
|
|
|
Income from
operations |
|
11,695 |
|
|
|
6,819 |
|
|
|
24,395 |
|
|
|
16,319 |
|
|
|
|
|
|
|
|
|
Interest income |
|
137 |
|
|
|
39 |
|
|
|
187 |
|
|
|
89 |
|
Interest expense |
|
(1,893 |
) |
|
|
(3 |
) |
|
|
(5,613 |
) |
|
|
(10 |
) |
Other income, net |
|
279 |
|
|
|
144 |
|
|
|
792 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
10,218 |
|
|
|
6,999 |
|
|
|
19,761 |
|
|
|
16,696 |
|
Tax provision |
|
3,170 |
|
|
|
2,642 |
|
|
|
3,690 |
|
|
|
4,443 |
|
Net income |
$ |
7,048 |
|
|
$ |
4,357 |
|
|
$ |
16,071 |
|
|
$ |
12,253 |
|
|
|
|
|
|
|
|
|
Basic net earnings per
share: |
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
0.40 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
Diluted net earnings
per share: |
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
0.39 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
|
43,773 |
|
|
|
33,251 |
|
|
|
40,573 |
|
|
|
33,052 |
|
Diluted |
|
44,814 |
|
|
|
33,991 |
|
|
|
41,530 |
|
|
|
33,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes stock-based compensation expense, allocated as
follows: |
|
|
Cost of
revenues |
$ |
150 |
|
|
$ |
152 |
|
|
$ |
373 |
|
|
$ |
307 |
|
Selling,
general and administrative |
$ |
3,270 |
|
|
$ |
1,802 |
|
|
$ |
9,848 |
|
|
$ |
5,993 |
|
Research
and development |
$ |
295 |
|
|
$ |
196 |
|
|
$ |
1,219 |
|
|
$ |
944 |
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In thousands) |
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
March 31, |
|
March 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Cash flows from
operating activities: |
|
|
|
|
|
|
|
Net
income |
$ |
7,048 |
|
|
$ |
4,357 |
|
|
$ |
16,071 |
|
|
$ |
12,253 |
|
Depreciation and amortization |
|
7,965 |
|
|
|
3,319 |
|
|
|
23,139 |
|
|
|
9,878 |
|
Other
non-cash items, net |
|
(760 |
) |
|
|
1,557 |
|
|
|
6,556 |
|
|
|
5,604 |
|
Changes
in operating assets and liabilities |
|
10,636 |
|
|
|
(4,878 |
) |
|
|
3,644 |
|
|
|
(4,543 |
) |
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
|
24,889 |
|
|
|
4,355 |
|
|
|
49,410 |
|
|
|
23,192 |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
1,853 |
|
|
|
8 |
|
|
|
(36,911 |
) |
|
|
(9,756 |
) |
Purchases
of property and equipment |
|
(13,036 |
) |
|
|
(1,752 |
) |
|
|
(26,789 |
) |
|
|
(4,908 |
) |
Increase
in other investing activities |
|
(375 |
) |
|
|
(382 |
) |
|
|
(486 |
) |
|
|
(567 |
) |
|
|
|
|
|
|
|
|
Net cash
used in investing activities |
|
(11,558 |
) |
|
|
(2,126 |
) |
|
|
(64,186 |
) |
|
|
(15,231 |
) |
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
Proceeds
from employee stock plans |
|
170 |
|
|
|
507 |
|
|
|
2,903 |
|
|
|
2,804 |
|
Payments
of term debt |
|
(5,000 |
) |
|
|
- |
|
|
|
(7,500 |
) |
|
|
- |
|
Payments
for retirement of common stock |
|
(122 |
) |
|
|
(87 |
) |
|
|
(7,682 |
) |
|
|
(4,211 |
) |
Proceeds
from equity offering, net |
|
215,732 |
|
|
|
- |
|
|
|
215,732 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
210,780 |
|
|
|
420 |
|
|
|
203,453 |
|
|
|
(1,407 |
) |
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
(58 |
) |
|
|
42 |
|
|
|
(130 |
) |
|
|
105 |
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents |
|
224,053 |
|
|
|
2,691 |
|
|
|
188,547 |
|
|
|
6,659 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period |
|
46,185 |
|
|
|
81,554 |
|
|
|
81,691 |
|
|
|
77,586 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period |
$ |
270,238 |
|
|
$ |
84,245 |
|
|
$ |
270,238 |
|
|
$ |
84,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
Nine Months Ended |
|
|
March 31, |
|
|
March 31, |
|
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
Net income |
$ |
7,048 |
|
|
$ |
4,357 |
|
|
|
$ |
16,071 |
|
|
$ |
12,253 |
|
|
Interest
expense (income), net |
|
1,756 |
|
|
|
(36 |
) |
|
|
|
5,426 |
|
|
|
(79 |
) |
|
Income
taxes |
|
3,170 |
|
|
|
2,642 |
|
|
|
|
3,690 |
|
|
|
4,443 |
|
|
Depreciation |
|
3,233 |
|
|
|
1,565 |
|
|
|
|
8,917 |
|
|
|
4,773 |
|
|
Amortization of intangible assets |
|
4,732 |
|
|
|
1,754 |
|
|
|
|
14,222 |
|
|
|
5,105 |
|
|
Restructuring and other charges |
|
459 |
|
|
|
409 |
|
|
|
|
825 |
|
|
|
968 |
|
|
Impairment of long-lived assets |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
231 |
|
|
Acquisition and financing costs |
|
569 |
|
|
|
1,725 |
|
|
|
|
2,236 |
|
|
|
4,048 |
|
|
Fair
value adjustments from purchase accounting
|
|
270 |
|
|
|
- |
|
|
|
|
3,217 |
|
|
|
- |
|
|
Litigation and settlement expense (income), net |
|
- |
|
|
|
- |
|
|
|
|
100 |
|
|
|
- |
|
|
Stock-based compensation expense |
|
3,715 |
|
|
|
2,150 |
|
|
|
|
11,440 |
|
|
|
7,244 |
|
|
Adjusted EBITDA |
$ |
24,952 |
|
|
$ |
14,566 |
|
|
|
$ |
66,144 |
|
|
$ |
38,986 |
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
Cash flows from
operations |
$ |
24,889 |
|
|
$ |
4,355 |
|
|
|
$ |
49,410 |
|
|
$ |
23,192 |
|
|
Capital
expenditures |
|
(13,036 |
) |
|
|
(1,752 |
) |
|
|
|
(26,789 |
) |
|
|
(4,908 |
) |
|
Free cash flow |
$ |
11,853 |
|
|
$ |
2,603 |
|
|
|
$ |
22,621 |
|
|
$ |
18,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, and 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 March 31, |
|
|
2017 |
|
2016 |
|
Net income and earnings
per share |
$ |
7,048 |
|
|
$ |
0.16 |
|
$ |
4,357 |
|
|
$ |
0.13 |
|
Amortization of intangible assets |
|
4,732 |
|
|
|
|
|
1,754 |
|
|
|
|
Restructuring and other charges |
|
459 |
|
|
|
|
|
409 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
- |
|
|
|
|
Acquisition and financing costs |
|
569 |
|
|
|
|
|
1,725 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
270 |
|
|
|
|
|
- |
|
|
|
|
Litigation and settlement expense (income), net |
|
- |
|
|
|
|
|
- |
|
|
|
|
Stock-based compensation expense |
|
3,715 |
|
|
|
|
|
2,150 |
|
|
|
|
Impact to
income taxes |
|
(3,576 |
) |
|
|
|
|
(1,979 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
13,217 |
|
|
$ |
0.29 |
|
$ |
8,416 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
44,814 |
|
|
|
|
33,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
|
2017 |
|
2016 |
|
Net income and earnings
per share |
$ |
16,071 |
|
|
$ |
0.39 |
|
$ |
12,253 |
|
|
$ |
0.36 |
|
Amortization of intangible assets |
|
14,222 |
|
|
|
|
|
5,105 |
|
|
|
|
Restructuring and other charges |
|
825 |
|
|
|
|
|
968 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
231 |
|
|
|
|
Acquisition and financing costs |
|
2,236 |
|
|
|
|
|
4,048 |
|
|
|
|
Fair
value adjustments from purchase accounting |
|
3,217 |
|
|
|
|
|
- |
|
|
|
|
Litigation and settlement expense (income), net |
|
100 |
|
|
|
|
|
- |
|
|
|
|
Stock-based compensation expense |
|
11,440 |
|
|
|
|
|
7,244 |
|
|
|
|
Impact to
income taxes |
|
(14,102 |
) |
|
|
|
|
(7,167 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
34,009 |
|
|
$ |
0.82 |
|
$ |
22,682 |
|
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
41,530 |
|
|
|
|
33,830 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
|
RECONCILIATION
OF FORWARD-LOOKING GUIDANCE RANGE |
|
|
|
|
|
|
|
|
Quarter Ending June 30,
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 measures. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending |
|
Twelve Months Ending |
|
|
June 30, 2017 |
|
June 30, 2017 |
|
|
Range |
|
Range |
|
|
Low |
|
High |
|
Low |
|
High |
|
|
|
|
|
|
|
|
|
|
GAAP expectation --
Earnings per share |
$ |
0.14 |
|
$ |
0.16 |
|
$ |
0.52 |
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP expectation -- Net
income |
$ |
6,500 |
|
$ |
7,700 |
|
$ |
22,600 |
|
$ |
23,800 |
|
|
|
|
|
|
|
|
|
|
Adjust for: |
|
|
|
|
|
|
|
|
Interest
expense (income), net |
|
1,800 |
|
|
1,800 |
|
|
7,200 |
|
|
7,200 |
|
Income
taxes |
|
3,500 |
|
|
4,200 |
|
|
7,200 |
|
|
7,900 |
|
Depreciation |
|
3,900 |
|
|
3,900 |
|
|
12,800 |
|
|
12,800 |
|
Amortization of intangible assets |
|
4,800 |
|
|
4,800 |
|
|
19,100 |
|
|
19,100 |
|
Restructuring and other charges |
|
- |
|
|
- |
|
|
900 |
|
|
900 |
|
Impairment of long-lived assets |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Acquisition and financing costs |
|
100 |
|
|
100 |
|
|
2,300 |
|
|
2,300 |
|
Fair
value adjustments from purchase accounting |
|
300 |
|
|
300 |
|
|
3,500 |
|
|
3,500 |
|
Litigation and settlement expense (income), net |
|
- |
|
|
- |
|
|
100 |
|
|
100 |
|
Stock-based compensation expense |
|
3,900 |
|
|
3,900 |
|
|
15,300 |
|
|
15,300 |
|
Adjusted EBITDA
expectation |
$ |
24,800 |
|
$ |
26,700 |
|
$ |
91,000 |
|
$ |
92,900 |
|
|
|
|
|
|
|
|
|
|
MERCURY SYSTEMS, INC. |
|
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
RANGE |
|
|
|
|
|
|
|
Quarter Ending June 30,
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, and 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 Ending June 30, 2017 |
|
|
Range |
|
|
Low |
|
High |
|
Net income and earnings
per share |
$ |
6,500 |
|
|
$ |
0.14 |
|
$ |
7,700 |
|
|
$ |
0.16 |
|
Amortization of intangible assets |
|
4,800 |
|
|
|
|
|
4,800 |
|
|
|
|
Restructuring and other charges |
|
- |
|
|
|
|
|
- |
|
|
|
|
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 |
|
3,900 |
|
|
|
|
|
3,900 |
|
|
|
|
Impact to
income taxes |
|
(3,200 |
) |
|
|
|
|
(3,300 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
12,400 |
|
|
$ |
0.26 |
|
$ |
13,500 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
47,300 |
|
|
|
|
47,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending June 30, 2017 |
|
|
Range |
|
|
Low |
|
High |
|
Net income and earnings
per share |
$ |
22,600 |
|
|
$ |
0.52 |
|
$ |
23,800 |
|
|
$ |
0.55 |
|
Amortization of intangible assets |
|
19,100 |
|
|
|
|
|
19,100 |
|
|
|
|
Restructuring and other charges |
|
900 |
|
|
|
|
|
900 |
|
|
|
|
Impairment of long-lived assets |
|
- |
|
|
|
|
|
- |
|
|
|
|
Acquisition and financing costs |
|
2,300 |
|
|
|
|
|
2,300 |
|
|
|
|
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 |
|
(17,200 |
) |
|
|
|
|
(17,300 |
) |
|
|
|
Adjusted income and
adjusted earnings per share |
$ |
46,600 |
|
|
$ |
1.08 |
|
$ |
47,700 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
43,100 |
|
|
|
|
43,100 |
|
|
|
|
|
|
|
|
|
|
Contact:
Gerry Haines, CFO
Mercury Systems, Inc.
978-967-1990
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