Highlights include:
Mercury Systems, Inc. (NASDAQ:MRCY) (www.mrcy.com), reported
operating results for the third quarter of fiscal 2016, ended March
31, 2016.
Management Comments“The third quarter was
another significant milestone toward achieving our objectives for
the fiscal year,” stated Mark Aslett, Mercury’s President and Chief
Executive Officer. “Revenue growth continued to outpace the
industry, increasing 11% year-over-year, while our adjusted EBITDA
grew even faster at 27%. In addition, bookings of $80.8
million yielded record backlog of $220 million. Mercury’s
strong revenue performance, coupled with our operating leverage,
continued to enhance our adjusted EBITDA performance, positioning
Mercury for a strong finish to our fiscal 2016. We currently expect
to close the pending acquisition of the embedded security, RF and
microwave solutions, and custom microelectronics operations of
Microsemi Corporation within approximately one week,” Aslett
concluded.
Third Quarter Fiscal 2016 ResultsThird quarter
fiscal 2016 revenues were $65.9 million, an increase of $6.3
million, or 11%, compared to the third quarter of fiscal 2015.
GAAP income from continuing operations for the third quarter
of fiscal 2016 was $4.5 million, or $0.13 per share, compared to
GAAP income from continuing operations of $4.7 million, or $0.14
per share, for the prior year’s third quarter. The third quarter of
fiscal 2016 included $1.7 million, or $0.03 per share of
acquisition and financing costs. Adjusted earnings per share
(“adjusted EPS”) was $0.25 per share for the third quarter of
fiscal 2016, compared to $0.22 per share in the third quarter
fiscal 2015. All per share information is presented on a
fully diluted basis and does not reflect the impact of the 5.175
million common shares issued by the Company in the follow-on
underwritten public offering, which closed on April 13, 2016.
Third quarter fiscal 2016 adjusted EBITDA was $14.6 million, an
increase of 27% from $11.5 million in the third quarter of fiscal
2015.
Total GAAP net income for the third quarter of fiscal 2016 was
$4.5 million, or $0.13 per share, compared to total GAAP net income
of $3.7 million, or $0.11 per share, for the prior year’s third
quarter. The third quarter of fiscal 2015 included a loss,
net of income taxes, of ($1.0) million, or ($0.03) per share, from
discontinued operations.
Cash flows from operating activities in the third quarter of
fiscal 2016 were a net inflow of $4.3 million, compared to a net
inflow of $9.1 million in the third quarter of fiscal 2015.
Free cash flow, defined as cash flow from operating activities less
capital expenditures, was a net inflow of $2.6 million in the third
quarter of fiscal 2016, compared to a net inflow of $7.8 million in
the third 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 BacklogBookings for the third
quarter of fiscal 2016 were $80.8 million, yielding a book-to-bill
of 1.2 for the quarter. Mercury’s total backlog at March 31,
2016 was $219.7 million, an increase of $29.8 million from a year
ago. Of the March 31, 2016 total backlog, $172.0 million
represents orders expected to be shipped over the next 12
months.
Revenues by Reporting SegmentMercury Commercial
Electronics (MCE) — Revenues for the third quarter of fiscal 2016
from MCE were $57.5 million, representing an increase of $4.7
million, or 9.0%, from the third quarter of fiscal 2015. The
increase in revenues compared to last year’s third quarter related
primarily to higher SEWIP program revenues.
Mercury Defense Systems (MDS) — Revenues for the third quarter
of fiscal 2016 from MDS were $8.6 million, an increase of $1.9
million, or 28.2%, from the third quarter of fiscal 2015, primarily
due to strength in the Filthy Buzzard program.
The revenues by reporting segment are adjusted for ($0.2)
million and $0.1 million of revenues included in our consolidated
results in the third 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, which excludes the impact of our pending acquisition
announced on March 23, 2016 and expected to close in the current
quarter. 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 2016, on a standalone basis,
revenues are forecasted to be in the range of $65.5 million to
$68.5 million. Adjusted EPS is expected to be in the range of $0.20
to $0.22 per share, including approximately $1.8 million of
amortization of intangible assets, $2.2 million of stock-based
compensation expense and an effective tax rate of approximately
36%. Adjusted EBITDA for the fourth quarter of fiscal 2016 is
expected to be in the range of $12.0 million to $13.5 million. This
results in estimated revenue for the full fiscal year of $250.2
million to $253.2 million and adjusted EBITDA for the full fiscal
year of approximately $51.0 million to $52.5 million.
The Company expects to provide combined guidance, including the
businesses expected to be acquired from Microsemi, when it
announces fourth quarter fiscal 2016 results.
Recent HighlightsMarch – Mercury announced that
it signed a definitive agreement with Microsemi Corporation to
acquire the embedded security, RF and microwave, and custom
microelectronics businesses of Microsemi. For the twelve
months ended September 27, 2015, these businesses had combined
revenues of $99 million and pro forma standalone adjusted EBITDA of
approximately 28%. The businesses are primarily focused on
the defense electronics market and employ a total of approximately
275 people based at facilities in Phoenix, Ariz., Camarillo,
Calif., San Jose, Calif., and West Lafayette, Ind. The acquisition
is expected to close during Mercury’s fourth fiscal quarter, which
ends June 30, 2016.
March – Mercury announced the rugged OpenVPX™ Ensemble® LDS6526
processing blade that seamlessly integrates the Intel® Xeon®
Processor D-1500 system-on-a-chip (SoC) product family (formerly
codenamed "Broadwell DE"), the versatility and performance boost of
software-defined off-load processing with built-in,
double-bandwidth sensor I/O capability into a powerful 6U form
factor blade for streaming signal processing applications.
March – Mercury announced it received a $2.2 million follow-on
order from a leading defense prime contractor for high-performance
signal processing subsystems for a manned airborne radar
application. The order was booked in the Company's fiscal
2016 third quarter and is expected to be shipped over the next
several quarters.
March – Mercury announced it received a $2.2 million order from
a leading systems integrator to supply high-performance digital
signal processing and radio frequency (RF) modules for a signals
intelligence application. The order was booked in the
Company's fiscal 2016 third quarter and is expected to be shipped
by the end of its fiscal 2016 fourth quarter.
February – Mercury announced that its headquarters facility in
Chelmsford, Mass., as well as its facilities in Hudson, N.H.,
Manteca, Calif., and Cypress, Calif. each received "Superior"
security ratings in recent vulnerability assessments conducted by
the U.S. Department of Defense's Defense Security Service (DSS).
For three of the four facilities, these represent multiple
consecutive "Superior" ratings, the highest awarded to defense
contractors by DSS. Currently, fewer than 10 percent of the
approximately 13,500 facilities overseen by the DSS receive a
Superior rating. Including these most recent ratings, Mercury has
received an aggregate of twelve "Superior" ratings across numerous
facilities.
January – Mercury announced it received a $3.7 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 second quarter and is expected to be shipped
by its fiscal 2016 fourth quarter.
January – Mercury announced it received a $3 million follow-on
order from a leading defense prime contractor for high performance
microwave subsystems for an electronic warfare application.
The order was received in the Company's fiscal 2016 second
quarter and is expected to be shipped over the next several
quarters.
January – Mercury announced it received a $2 million follow-on
order from a leading defense prime contractor for high-performance
signal processing subsystems for a manned airborne radar
application. The order was booked in the Company's fiscal
2016 second quarter and is expected to be shipped over the next
several quarters.
January – Mercury announced it received a $4 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 2016 second quarter and is expected
to be shipped over the next 11 months.
January – Mercury announced the Company's fluid management
Liquid Flow-By™ cooling technology for embedded processing
subsystems. With the ability to cool the most powerful and
processing-dense devices available, Liquid Flow-By enables open
system architecture (OSA) modules to operate unrestricted and
reliably, regardless of the presence of a cooling air supply.
January – Mercury announced it had recently received $6.5
million in orders relating to a sensor processing application for
fighter aircraft. The orders were booked in the Company's
fiscal 2016 second quarter.
Conference Call Information
Mercury will host a conference call and simultaneous webcast on
Tuesday, April 26, 2016, at 5:00 p.m. ET to discuss the third
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 Financial MeasuresIn 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 earnings per share “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 a leading commercial provider
of secure processing subsystems designed and made in the USA.
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 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, Innovation That Matters and Liquid
Flow-By 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, |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
84,245 |
|
|
$ |
77,586 |
|
Accounts
receivable, net |
|
39,314 |
|
|
|
31,765 |
|
Unbilled
receivables and costs in excess of billings |
|
29,376 |
|
|
|
22,021 |
|
Inventory |
|
34,348 |
|
|
|
31,960 |
|
Deferred income
taxes |
|
12,788 |
|
|
|
12,407 |
|
Prepaid income
taxes |
|
1,912 |
|
|
|
3,747 |
|
Prepaid expenses
and other current assets |
|
4,652 |
|
|
|
8,678 |
|
Total current assets |
|
206,635 |
|
|
|
188,164 |
|
|
|
|
|
Restricted cash |
|
264 |
|
|
|
264 |
|
Property and equipment,
net |
|
13,512 |
|
|
|
13,226 |
|
Goodwill |
|
173,741 |
|
|
|
168,146 |
|
Intangible assets,
net |
|
17,235 |
|
|
|
17,998 |
|
Other non-current
assets |
|
3,369 |
|
|
|
2,190 |
|
Total assets |
$ |
414,756 |
|
|
$ |
389,988 |
|
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
12,412 |
|
|
$ |
6,928 |
|
Accrued
expenses |
|
12,534 |
|
|
|
9,005 |
|
Accrued
compensation |
|
11,880 |
|
|
|
9,875 |
|
Deferred
revenues and customer advances |
|
5,166 |
|
|
|
7,477 |
|
Total current
liabilities |
|
41,992 |
|
|
|
33,285 |
|
|
|
|
|
Deferred gain on
sale-leaseback |
|
61 |
|
|
|
929 |
|
Deferred income
taxes |
|
2,391 |
|
|
|
3,108 |
|
Income taxes
payable |
|
1,513 |
|
|
|
1,459 |
|
Other non-current
liabilities |
|
1,056 |
|
|
|
1,069 |
|
Total liabilities |
|
47,013 |
|
|
|
39,850 |
|
|
|
|
|
Shareholders’
equity: |
|
|
|
Common
stock |
|
333 |
|
|
|
326 |
|
Additional
paid-in capital |
|
260,805 |
|
|
|
254,568 |
|
Retained
earnings |
|
105,747 |
|
|
|
94,468 |
|
Accumulated
other comprehensive income |
|
858 |
|
|
|
776 |
|
Total shareholders’
equity |
|
367,743 |
|
|
|
350,138 |
|
Total liabilities and
shareholders’ equity |
$ |
414,756 |
|
|
$ |
389,988 |
|
|
MERCURY SYSTEMS, INC. |
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
March 31, |
|
March 31, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Net revenues |
$ |
65,898 |
|
|
$ |
59,578 |
|
|
$ |
184,724 |
|
|
$ |
170,728 |
|
Cost of revenues
(1) |
|
35,407 |
|
|
|
31,660 |
|
|
|
98,126 |
|
|
|
91,776 |
|
Gross
margin |
|
30,491 |
|
|
|
27,918 |
|
|
|
86,598 |
|
|
|
78,952 |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
Selling, general
and administrative (1) |
|
12,687 |
|
|
|
11,842 |
|
|
|
37,396 |
|
|
|
36,809 |
|
Research and
development (1) |
|
7,269 |
|
|
|
8,115 |
|
|
|
23,046 |
|
|
|
23,961 |
|
Amortization of
intangible assets |
|
1,754 |
|
|
|
1,744 |
|
|
|
5,105 |
|
|
|
5,268 |
|
Restructuring
and other charges |
|
409 |
|
|
|
27 |
|
|
|
968 |
|
|
|
2,457 |
|
Impairment of
long-lived assets |
|
- |
|
|
|
- |
|
|
|
231 |
|
|
|
- |
|
Acquisition
costs and other related expenses |
|
1,553 |
|
|
|
33 |
|
|
|
3,533 |
|
|
|
33 |
|
Total operating
expenses |
|
23,672 |
|
|
|
21,761 |
|
|
|
70,279 |
|
|
|
68,528 |
|
|
|
|
|
|
|
|
|
Income from
operations |
|
6,819 |
|
|
|
6,157 |
|
|
|
16,319 |
|
|
|
10,424 |
|
|
|
|
|
|
|
|
|
Interest income |
|
39 |
|
|
|
6 |
|
|
|
89 |
|
|
|
13 |
|
Interest expense |
|
(3 |
) |
|
|
(7 |
) |
|
|
(10 |
) |
|
|
(23 |
) |
Other income, net |
|
144 |
|
|
|
7 |
|
|
|
298 |
|
|
|
399 |
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
6,999 |
|
|
|
6,163 |
|
|
|
16,696 |
|
|
|
10,813 |
|
Tax provision |
|
2,473 |
|
|
|
1,469 |
|
|
|
5,417 |
|
|
|
2,516 |
|
Income from continuing
operations |
|
4,526 |
|
|
|
4,694 |
|
|
|
11,279 |
|
|
|
8,297 |
|
Loss from discontinued
operations, net of tax |
|
- |
|
|
|
(1,019 |
) |
|
|
- |
|
|
|
(3,858 |
) |
Net income |
$ |
4,526 |
|
|
$ |
3,675 |
|
|
$ |
11,279 |
|
|
$ |
4,439 |
|
|
|
|
|
|
|
|
|
Basic net earnings
(loss) per share: |
|
|
|
|
|
|
|
Continuing
operations |
$ |
0.14 |
|
|
$ |
0.14 |
|
|
$ |
0.34 |
|
|
$ |
0.26 |
|
Discontinued
operations |
|
- |
|
|
|
(0.03 |
) |
|
|
- |
|
|
|
(0.12 |
) |
Basic net earnings per
share: |
$ |
0.14 |
|
|
$ |
0.11 |
|
|
$ |
0.34 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
Diluted net earnings
(loss) per share: |
|
|
|
|
|
|
|
Continuing
operations |
$ |
0.13 |
|
|
$ |
0.14 |
|
|
$ |
0.33 |
|
|
$ |
0.25 |
|
Discontinued
operations |
|
- |
|
|
|
(0.03 |
) |
|
|
- |
|
|
|
(0.12 |
) |
Diluted net earnings
per share: |
$ |
0.13 |
|
|
$ |
0.11 |
|
|
$ |
0.33 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
|
33,251 |
|
|
|
32,298 |
|
|
|
33,162 |
|
|
|
32,001 |
|
Diluted |
|
33,991 |
|
|
|
33,233 |
|
|
|
33,940 |
|
|
|
32,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
stock-based compensation expense, allocated as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenues |
$ |
152 |
|
|
$ |
110 |
|
|
$ |
307 |
|
|
$ |
375 |
|
Selling, general
and administrative |
$ |
1,802 |
|
|
$ |
1,446 |
|
|
$ |
5,993 |
|
|
$ |
5,190 |
|
Research and
development |
$ |
196 |
|
|
$ |
314 |
|
|
$ |
944 |
|
|
$ |
1,111 |
|
MERCURY SYSTEMS,
INC. |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In
thousands) |
|
Three Months Ended |
|
Nine Months Ended |
|
March 31, |
|
March 31, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
$ |
4,526 |
|
|
$ |
3,675 |
|
|
$ |
11,279 |
|
|
$ |
4,439 |
|
Depreciation and
amortization |
|
3,319 |
|
|
|
3,296 |
|
|
|
9,878 |
|
|
|
10,446 |
|
Other non-cash
items, net |
|
1,532 |
|
|
|
3,256 |
|
|
|
4,220 |
|
|
|
8,055 |
|
Changes in
operating assets and liabilities |
|
(5,047 |
) |
|
|
(1,114 |
) |
|
|
(3,569 |
) |
|
|
(3,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities |
|
4,330 |
|
|
|
9,113 |
|
|
|
21,808 |
|
|
|
19,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
businesses, net of cash acquired |
|
8 |
|
|
|
- |
|
|
|
(9,756 |
) |
|
|
- |
|
Purchases of
property and equipment |
|
(1,752 |
) |
|
|
(1,344 |
) |
|
|
(4,908 |
) |
|
|
(3,467 |
) |
(Increase)
decrease in other investing activities |
|
(382 |
) |
|
|
885 |
|
|
|
(567 |
) |
|
|
886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
(2,126 |
) |
|
|
(459 |
) |
|
|
(15,231 |
) |
|
|
(2,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
employee stock plans |
|
507 |
|
|
|
736 |
|
|
|
2,804 |
|
|
|
2,048 |
|
Payments of
capital lease obligations |
|
- |
|
|
|
(161 |
) |
|
|
- |
|
|
|
(481 |
) |
Payments for
retirement of common stock |
|
(87 |
) |
|
|
- |
|
|
|
(4,211 |
) |
|
|
- |
|
Excess tax
benefits from stock-based compensation |
|
25 |
|
|
|
298 |
|
|
|
1,384 |
|
|
|
834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) by financing activities |
|
445 |
|
|
|
873 |
|
|
|
(23 |
) |
|
|
2,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents |
|
42 |
|
|
|
6 |
|
|
|
105 |
|
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents |
|
2,691 |
|
|
|
9,533 |
|
|
|
6,659 |
|
|
|
19,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period |
|
81,554 |
|
|
|
56,987 |
|
|
|
77,586 |
|
|
|
47,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period |
$ |
84,245 |
|
|
$ |
66,520 |
|
|
$ |
84,245 |
|
|
$ |
66,520 |
|
|
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 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, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Income from continuing
operations |
$ |
4,526 |
|
|
$ |
4,694 |
|
|
$ |
11,279 |
|
|
$ |
8,297 |
|
Interest
(income) expense, net |
|
(36 |
) |
|
|
1 |
|
|
|
(79 |
) |
|
|
10 |
|
Income
taxes |
|
2,473 |
|
|
|
1,469 |
|
|
|
5,417 |
|
|
|
2,516 |
|
Depreciation |
|
1,565 |
|
|
|
1,510 |
|
|
|
4,773 |
|
|
|
4,800 |
|
Amortization of
intangible assets |
|
1,754 |
|
|
|
1,744 |
|
|
|
5,105 |
|
|
|
5,268 |
|
Restructuring
and other charges |
|
409 |
|
|
|
27 |
|
|
|
968 |
|
|
|
2,457 |
|
Impairment of
long-lived assets |
|
- |
|
|
|
- |
|
|
|
231 |
|
|
|
- |
|
Acquisition and
financing costs |
|
1,725 |
|
|
|
200 |
|
|
|
4,048 |
|
|
|
200 |
|
Fair value
adjustments from purchase accounting |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Litigation and
settlement expenses |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based
compensation expense |
|
2,150 |
|
|
|
1,870 |
|
|
|
7,244 |
|
|
|
6,676 |
|
Adjusted EBITDA |
$ |
14,566 |
|
|
$ |
11,515 |
|
|
$ |
38,986 |
|
|
$ |
30,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Cash flows from
operations |
$ |
4,330 |
|
|
$ |
9,113 |
|
|
$ |
21,808 |
|
|
$ |
19,520 |
|
Capital
expenditures |
|
(1,752 |
) |
|
|
(1,344 |
) |
|
|
(4,908 |
) |
|
|
(3,467 |
) |
Free cash flow |
$ |
2,578 |
|
|
$ |
7,769 |
|
|
$ |
16,900 |
|
|
$ |
16,053 |
|
|
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 March 31, |
|
|
2016 |
|
|
|
2015 |
|
Income from continuing
operations and earnings per share |
$ |
4,526 |
|
|
$ |
0.13 |
|
|
$ |
4,694 |
|
|
$ |
0.14 |
|
Amortization of
intangible assets |
|
1,754 |
|
|
|
|
|
1,744 |
|
|
|
Restructuring
and other charges |
|
409 |
|
|
|
|
|
27 |
|
|
|
Impairment of
long-lived assets |
|
- |
|
|
|
|
|
- |
|
|
|
Acquisition and
financing costs |
|
1,725 |
|
|
|
|
|
200 |
|
|
|
Fair value
adjustments from purchase accounting |
|
- |
|
|
|
|
|
- |
|
|
|
Litigation and
settlement expenses |
|
- |
|
|
|
|
|
- |
|
|
|
Stock-based
compensation expense |
|
2,150 |
|
|
|
|
|
1,870 |
|
|
|
Impact to income
taxes |
|
(2,148 |
) |
|
|
|
|
(1,088 |
) |
|
|
Adjusted income from
continuing operations and adjusted earnings per share |
$ |
8,416 |
|
|
$ |
0.25 |
|
|
$ |
7,447 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
33,991 |
|
|
|
|
|
33,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
|
2016 |
|
|
|
2015 |
|
Income from continuing
operations and earnings per share |
$ |
11,279 |
|
|
$ |
0.33 |
|
|
$ |
8,297 |
|
|
$ |
0.25 |
|
Amortization of
intangible assets |
|
5,105 |
|
|
|
|
|
5,268 |
|
|
|
Restructuring
and other charges |
|
968 |
|
|
|
|
|
2,457 |
|
|
|
Impairment of
long-lived assets |
|
231 |
|
|
|
|
|
- |
|
|
|
Acquisition and
financing costs |
|
4,048 |
|
|
|
|
|
200 |
|
|
|
Fair value
adjustments from purchase accounting |
|
- |
|
|
|
|
|
- |
|
|
|
Litigation and
settlement expenses |
|
- |
|
|
|
|
|
- |
|
|
|
Stock-based
compensation expense |
|
7,244 |
|
|
|
|
|
6,676 |
|
|
|
Impact to income
taxes |
|
(6,193 |
) |
|
|
|
|
(4,703 |
) |
|
|
Adjusted income from
continuing operations and adjusted earnings per share |
$ |
22,682 |
|
|
$ |
0.67 |
|
|
$ |
18,195 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding: |
|
|
|
33,940 |
|
|
|
|
|
32,953 |
|
|
Contact:
Gerry Haines, CFO
Mercury Systems, Inc.
978-967-1990
Mercury Systems (NASDAQ:MRCY)
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