Mercury Systems Reports Fourth Quarter and Fiscal 2024 Results

Rhea-AI Summary

Mercury Systems (NASDAQ: MRCY) reported Q4 FY24 results with bookings of $284.4 million and a book-to-bill ratio of 1.14. Q4 revenue was $248.6 million, with a GAAP net loss of $10.8 million. The company achieved record backlog of $1.3 billion, up 16% year-over-year. For full-year FY24, revenues were $835.3 million with a GAAP net loss of $137.6 million. Total bookings for FY24 were $1.02 billion with a book-to-bill ratio of 1.22. The company reported positive free cash flow of $61.4 million in Q4 and $26.1 million for FY24, reversing a multi-year trend of working capital growth.

Positive

• Record backlog of $1.3 billion, up 16% year-over-year
• Q4 FY24 book-to-bill ratio of 1.14
• Full-year FY24 book-to-bill ratio of 1.22
• Positive free cash flow of $61.4 million in Q4 and $26.1 million for FY24
• Q4 adjusted EBITDA improved to $31.2 million from $21.9 million year-over-year

Negative

• Q4 FY24 revenue declined to $248.6 million from $253.2 million year-over-year
• Full-year FY24 revenue decreased to $835.3 million from $973.9 million in FY23
• GAAP net loss of $10.8 million in Q4 FY24, compared to $8.2 million loss in Q4 FY23
• Full-year FY24 GAAP net loss of $137.6 million, compared to $28.3 million loss in FY23
• Adjusted EPS for FY24 was ($0.69) per share, down from $1.00 per share in FY23

Insights

Financial Analyst

Mercury Systems' Q4 FY24 results show mixed signals. While bookings increased to $284.4 million with a healthy book-to-bill ratio of 1.14, revenue slightly declined to $248.6 million compared to the same quarter last year. The company's record backlog of $1.3 billion, up 16% year-over-year, indicates strong future demand. However, the GAAP net loss of $10.8 million is concerning, although adjusted EBITDA improved to $31.2 million.

The full-year results for FY24 show more significant challenges, with revenue dropping to $835.3 million from $973.9 million in FY23. The company's transition efforts seem to be paying off in Q4, with improved cash flow and a focus on operational efficiency. The record free cash flow of $61.4 million in Q4 is particularly noteworthy, reversing previous negative trends.

Investors should closely monitor Mercury's ability to convert its growing backlog into revenue and improve profitability in the coming quarters.

Aerospace and Defense Industry Analyst

Mercury Systems' position in the aerospace and defense sector remains strong, despite recent financial challenges. The company's focus on mission-critical processing at the edge aligns well with current industry trends towards advanced, distributed computing capabilities for defense applications. The growing backlog, now at $1.33 billion, suggests continued demand for Mercury's products across various defense programs.

The company's presence in over 300 programs across 35 countries demonstrates its broad market penetration and importance to the defense supply chain. However, the revenue decline in FY24 indicates potential execution issues or program delays that need to be addressed. The emphasis on retiring risk in challenged programs and returning to pilot production on common processing architecture is important for maintaining competitiveness.

Mercury's ability to innovate and adapt to evolving defense needs will be key to its future success, particularly as the industry continues to prioritize advanced technologies and edge computing solutions.

Operations Management Expert

Mercury Systems' operational performance in Q4 FY24 shows signs of improvement after a challenging year. The focus on streamlining operations and increasing positive operating leverage is critical for the company's turnaround. The significant improvement in free cash flow, reaching a record $61.4 million in Q4, demonstrates effective working capital management and operational efficiency gains.

The company's efforts to address transient challenges and retire risks in problematic programs are positive steps. However, the full-year results, including a substantial GAAP net loss of $137.6 million, indicate that there's still work to be done to achieve consistent profitability. The transition from a period of operational challenges to one of predictable organic growth with expanding margins will require continued focus on execution and cost control.

Monitoring the company's progress in converting its growing backlog into revenue efficiently will be important in assessing the success of these operational improvements in FY25 and beyond.

• Q4 FY24 Bookings of $284.4 million; book-to-bill ratio of 1.14
• Q4 FY24 Revenue of $248.6 million; GAAP net loss and adjusted EBITDA ($10.8) million and $31.2 million, respectively
• Record backlog of $1.3 billion; up 16% year-over-year
  

ANDOVER, Mass., Aug. 13, 2024 (GLOBE NEWSWIRE) -- Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported operating results for the fourth quarter and fiscal year 2024, ended June 28, 2024.

“In fiscal 2024, we made considerable progress in addressing what we believe to be transient challenges in the business, and we enter fiscal 2025 confident in our strategic positioning as a leader in mission-critical processing at the edge and our ability to deliver predictable organic growth with expanding margins and robust free cash flow,” said Bill Ballhaus, Mercury’s Chairman and CEO.

“Our fourth quarter fiscal 2024 results reflect solid progress in each of our four priority focus areas, with highlights that include retiring risk across our remaining challenged programs and returning to pilot production on our common processing architecture area; expanding our record backlog to over $1.3 billion, up 16% year-over-year; further streamlining of our operations to increase positive operating leverage as we expect to return to organic growth; and reversing the multi-year trend of growth in working capital, producing a record $61.4 million of free cash flow in the quarter.”

Fourth Quarter Fiscal 2024 Results

Total Company fourth quarter fiscal 2024 revenues were $248.6 million, compared to $253.2 million in the fourth quarter of fiscal 2023.

Total bookings for the fourth quarter of fiscal 2024 were $284.4 million, yielding a book-to-bill ratio of 1.14 for the quarter.

Total Company GAAP net loss and loss per share for the fourth quarter of fiscal 2024 were $10.8 million, and $0.19, respectively, compared to GAAP net loss and loss per share of $8.2 million, and $0.15, respectively, for the fourth quarter of fiscal 2023. Adjusted earnings per share (“adjusted EPS”) was $0.23 per share for the fourth quarter of fiscal 2024, compared to $0.11 per share in the fourth quarter of fiscal 2023.

Fourth quarter fiscal 2024 adjusted EBITDA for the total Company was $31.2 million, compared to $21.9 million for the fourth quarter of fiscal 2023.

Cash flows provided by operating activities in the fourth quarter of fiscal 2024 were $71.8 million, compared to $12.6 million in the fourth quarter of fiscal 2023. Free cash flow, defined as cash flows from operating activities less capital expenditures for property and equipment, was $61.4 million for the fourth quarter of fiscal 2024 and $3.8 million for the fourth quarter of fiscal 2023.

Full Year Fiscal 2024 Results

Full year fiscal 2024 revenues were $835.3 million, compared to $973.9 million full year fiscal 2023.

Total bookings for fiscal 2024 were $1.02 billion, yielding a book-to-bill ratio of 1.22 for the year.

Total Company GAAP net loss and loss per share for fiscal 2024 was $137.6 million, and $2.38, respectively, compared to GAAP net loss and loss per share of $28.3 million, and $0.50, respectively, for fiscal 2023. Adjusted (loss) earnings per share (“adjusted EPS”) was ($0.69) per share for fiscal 2024, compared to $1.00 per share for fiscal 2023.

Fiscal 2024 adjusted EBITDA for the total Company was $9.4 million, compared to $132.3 million for fiscal 2023.

Cash flows provided by (used in) operating activities in fiscal 2024 were $60.4 million, compared to $(21.3) million in fiscal 2023. Free cash flow, defined as cash flows from operating activities less capital expenditures for property and equipment, was $26.1 million for fiscal 2024 and $(60.1) million for fiscal 2023.

Backlog

Mercury’s total backlog at June 28, 2024 was $1.33 billion, a $185.9 million increase from a year ago. Of the June 28, 2024 total backlog, $758.9 million represents orders expected to be recognized as revenue within the next 12 months.

Conference Call Information

Management will host a conference call and simultaneous webcast at 5:00 p.m. ET on Tuesday, August 13, 2024, to discuss Mercury's quarterly financial results, business highlights and outlook. In addition, Company representatives may answer questions concerning business and financial developments and trends, the Company's view on earnings forecasts, and other business and financial matters affecting the Company, the responses to which may contain information that has not been previously disclosed.

To attend the conference call or webcast, participants should register online at ir.mrcy.com/events-presentations. Participants are requested to register a day in advance or at a minimum 15 minutes before the start of the call. 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. 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 is a technology company that delivers mission-critical processing power to the edge, making advanced technologies profoundly more accessible for today’s most challenging aerospace and defense missions. The Mercury Processing Platform allows customers to tap into innovative capabilities from silicon to system scale, turning data into decisions on timelines that matter. Mercury’s products and solutions are deployed in more than 300 programs and across 35 countries, enabling a broad range of applications in mission computing, sensor processing, command and control, and communications. Mercury is headquartered in Andover, Massachusetts, and has 24 locations worldwide. To learn more, visit mrcy.com. (Nasdaq: MRCY)

Investors and others should note that we announce material financial information using our website (www.mrcy.com), SEC filings, press releases, public conference calls, webcasts, and social media, including X (X.com/mrcy) and LinkedIn (www.linkedin.com/company/mercury-systems). Therefore, we encourage investors and others interested in Mercury to review the information we post on the social media and other communication channels listed on our website.

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 the Company's focus on enhanced execution of the Company's strategic plan under a refreshed Board and leadership team. You can identify these statements by 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 any U.S. federal government shutdown or extended continuing resolution, effects of geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in or cost increases related to completing development, 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, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of the Company's products, shortages in or delays in receiving components, supply chain delays or volatility for critical components such as semiconductors, production delays or unanticipated expenses including due to quality issues or manufacturing execution issues, capacity underutilization, increases in scrap or inventory write-offs, failure to achieve or maintain manufacturing quality certifications, such as AS9100, the impact of supply chain disruption, inflation and labor shortages, among other things, on program execution and the resulting effect on customer satisfaction, inability to fully realize the expected benefits from acquisitions, restructurings, and operational efficiency initiatives or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, effects of shareholder activism, increases in interest rates, changes to industrial security and cyber-security regulations and requirements and impacts from any cyber or insider threat events, changes in tax rates or tax regulations, such as the deductibility of internal research and development, changes to interest rate swaps or other cash flow hedging arrangements, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, litigation, including the dispute arising with the former CEO over his resignation, 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 28, 2024 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 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.

Contact:
David E. Farnsworth, CFO
Mercury Systems, Inc.
978-967-1991

Mercury Systems and Innovation That Matters are registered 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)
		June 28,				June 30,
		2024				2023
Assets
Current assets:
Cash and cash equivalents		$	180,521			$	71,563
Accounts receivable, net			111,441				124,729
Unbilled receivables and costs in excess of billings, net			304,029				382,558
Inventory			335,300				337,216
Prepaid expenses and other current assets			22,493				20,952
Total current assets			953,784				937,018
Property and equipment, net			110,353				119,554
Goodwill			938,093				938,093
Intangible assets, net			250,512				298,051
Operating lease right-of-use assets, net			60,860				63,015
Deferred tax asset			58,612				27,099
Other non-current assets			6,691				8,537
Total assets		$	2,378,905			$	2,391,367
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	81,068			$	103,986
Accrued expenses			42,926				28,423
Accrued compensation			36,398				30,419
Income taxes payable			109				13,874
Deferred revenues and customer advances			73,915				56,562
Total current liabilities			234,416				233,264
Income taxes payable			7,713				5,166
Long-term debt			591,500				511,500
Operating lease liabilities			62,584				66,797
Other non-current liabilities			9,917				7,955
Total liabilities			906,130				824,682
Shareholders’ equity:
Preferred stock			—				—
Common stock			581				570
Additional paid-in capital			1,242,402				1,196,847
Retained earnings			219,799				357,439
Accumulated other comprehensive income			9,993				11,829
Total shareholders’ equity			1,472,775				1,566,685
Total liabilities and shareholders’ equity		$	2,378,905			$	2,391,367

MERCURY SYSTEMS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
		Fourth Quarters Ended								Twelve Months Ended
		June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
Net revenues		$	248,563			$	253,236			$	835,275			$	973,882
Cost of revenues(1)			175,351				185,852				639,374				657,154
Gross margin			73,212				67,384				195,901				316,728
Operating expenses:
Selling, general and administrative(1)			43,365				32,011				166,786				160,637
Research and development(1)			19,417				27,611				101,328				108,799
Amortization of intangible assets			11,311				12,633				47,661				53,552
Restructuring and other charges			6,781				626				26,170				6,981
Acquisition costs and other related expenses			306				3,401				1,710				8,444
Total operating expenses			81,180				76,282				343,655				338,413
Loss from operations			(7,968	)			(8,898	)			(147,754	)			(21,685	)
Interest income			525				724				1,199				1,053
Interest expense			(9,159	)			(7,311	)			(35,015	)			(25,159	)
Other (expense) income, net			(1,999	)			661				(7,705	)			(2,751	)
Loss before income tax benefit			(18,601	)			(14,824	)			(189,275	)			(48,542	)
Income tax benefit			(7,824	)			(6,588	)			(51,635	)			(20,207	)
Net loss		$	(10,777	)		$	(8,236	)		$	(137,640	)		$	(28,335	)
Basic net loss per share		$	(0.19	)		$	(0.15	)		$	(2.38	)		$	(0.50	)
Diluted net loss per share		$	(0.19	)		$	(0.15	)		$	(2.38	)		$	(0.50	)
Weighted-average shares outstanding:
Basic			57,974				56,798				57,738				56,554
Diluted			57,974				56,798				57,738				56,554
(1) Includes stock-based compensation expense, allocated as follows:
Cost of revenues		$	800			$	1,260			$	2,919			$	2,926
Selling, general and administrative		$	5,310			$	(2,397	)		$	16,936			$	18,335
Research and development		$	1,136			$	1,444			$	5,814			$	6,492

MERCURY SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
		Fourth Quarters Ended								Twelve Months Ended
		June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
Cash flows from operating activities:
Net loss		$	(10,777	)		$	(8,236	)		$	(137,640	)		$	(28,335	)
Depreciation and amortization			21,391				22,502				88,030				97,329
Other non-cash items, net			286				(20,213	)			25,764				(16,975	)
Cash settlement for termination of interest rate swap			—				—				7,403				5,995
Changes in operating assets and liabilities			60,861				18,557				76,825				(79,268	)
Net cash provided by (used in) operating activities			71,761				12,610				60,382				(21,254	)
Cash flows from investing activities:
Purchases of property and equipment			(10,348	)			(8,846	)			(34,291	)			(38,796	)
Other investing activities			—				85				—				235
Net cash used in investing activities			(10,348	)			(8,761	)			(34,291	)			(38,561	)
Cash flows from financing activities:
Proceeds from employee stock plans			1,479				3,099				4,642				5,492
Borrowings under credit facilities			—				40,000				105,000				140,000
Payments under credit facilities			(25,000	)			(40,000	)			(25,000	)			(80,000	)
Payments of deferred financing and offering costs			—				—				(1,931	)			—
Payments for retirement of common stock			(16	)			—				(31	)			(63	)
Net cash (used in) provided by financing activities			(23,537	)			3,099				82,680				65,429
Effect of exchange rate changes on cash and cash equivalents			—				174				187				295
Net increase in cash and cash equivalents			37,876				7,122				108,958				5,909
Cash and cash equivalents at beginning of period			142,645				64,441				71,563				65,654
Cash and cash equivalents at end of period		$	180,521			$	71,563			$	180,521			$	71,563

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:

Other non-operating adjustments. The Company records other non-operating adjustments such as gains or losses on foreign currency remeasurement, investments and fixed asset sales or disposals among other adjustments. These adjustments may vary from period to period without any direct correlation to underlying operating performance.

Interest income and expense. The Company receives interest income on investments and incurs interest expense on loans, financing 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 which may be outside of the normal course of the Company’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 intangible assets primarily as a result of acquired intangible assets such as backlog, customer relationships and completed technologies but also due to licenses, patents and other arrangements. These intangible assets are valued at the time of acquisition or upon receipt of right to use the asset, amortized over the requisite life 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, financing and other third party costs. The Company incurs transaction costs related to acquisition and potential acquisition opportunities, such as legal, accounting, and other third party advisory fees. The Company may also incur third party costs, such as legal, banking, communications, proxy solicitation, and other third party advisory fees in connection with engagements by activist investors or unsolicited acquisition offers. Although the Company 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 facility as well as non-cash financing expenses associated with obtaining its credit facility. 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 the Company 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, often occur in periods other than the period of activity, 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.

COVID related expenses. The Company incurred costs associated with the COVID pandemic. These costs relate primarily to enhanced compensation and benefits for employees as well as incremental supplies and services to support social distancing and mitigate the spread of COVID. These costs include expanded sick pay related to COVID, overtime, the Mercury Employee COVID Relief Fund, meals and other compensation-related expenses as well as ongoing testing for onsite employees. Management believes these items are outside the normal operations of the Company and are not indicative of ongoing operating results.

Stock-based and other non-cash 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. The Company also incurs non-cash based compensation in the form of pension related expenses and matching contributions to its defined contribution plan. Although stock-based and other non-cash 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, as well as pension actuarial assumptions. 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 and other non-cash 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 a 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 direct 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.

		Fourth Quarters Ended								Twelve Months Ended
		June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
Net loss		$	(10,777	)		$	(8,236	)		$	(137,640	)		$	(28,335	)
Other non-operating adjustments, net			(217	)			(1,586	)			(592	)			(1,589	)
Interest expense, net			8,634				6,587				33,816				24,106
Income tax benefit			(7,824	)			(6,588	)			(51,635	)			(20,207	)
Depreciation			10,080				9,869				40,369				43,777
Amortization of intangible assets			11,311				12,633				47,661				53,552
Restructuring and other charges			6,781				626				26,170				6,981
Impairment of long-lived assets			—				—				—				—
Acquisition, financing and other third party costs			1,400				3,834				4,370				10,019
Fair value adjustments from purchase accounting			178				177				710				356
Litigation and settlement expense, net			945				(1,246	)			4,927				495
COVID related expenses			—				5				—				67
Stock-based and other non-cash compensation expense			10,650				5,859				41,257				43,031
Adjusted EBITDA		$	31,161			$	21,934			$	9,413			$	132,253

Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs, 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.

		Fourth Quarters Ended								Twelve Months Ended
		June 28, 2024				June 30, 2023				June 28, 2024				June 30, 2023
Net cash provided by (used in) operating activities		$	71,761			$	12,610			$	60,382			$	(21,254	)
Purchases of property and equipment			(10,348	)			(8,846	)			(34,291	)			(38,796	)
Free cash flow		$	61,413			$	3,764			$	26,091			$	(60,050	)

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 its 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 other non-operating adjustments, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, COVID related expenses, and stock-based and other non-cash compensation expense. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision⁽¹⁾. Adjusted EPS expresses adjusted income on a per share basis using weighted average diluted shares outstanding.

The following tables reconcile the most directly comparable GAAP financial measures to the non-GAAP financial measures.

		Fourth Quarters Ended
		June 28, 2024								June 30, 2023
Net loss and loss per share		$	(10,777	)		$	(0.19	)		$	(8,236	)		$	(0.15	)
Other non-operating adjustments, net			(217	)							(1,586	)
Amortization of intangible assets			11,311								12,633
Restructuring and other charges			6,781								626
Impairment of long-lived assets			—								—
Acquisition, financing and other third party costs			1,400								3,834
Fair value adjustments from purchase accounting			178								177
Litigation and settlement expense, net			945								(1,246	)
COVID related expenses			—								5
Stock-based and other non-cash compensation expense			10,650								5,859
Impact to income taxes(1)			(7,033	)							(5,909	)
Adjusted income and adjusted earnings per share(2)		$	13,238			$	0.23			$	6,157			$	0.11
Diluted weighted-average shares outstanding							58,048								57,059
(1) Impact to income taxes is calculated by recasting income before income taxes to include the items involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The recalculation also adjusts for any discrete tax expense or benefit related to the items.
(2) Adjusted earnings per share is calculated using diluted shares whereas Net loss per share is calculated using basic shares. There was a $0.01 impact to the calculation of adjusted earnings per share as a result of this for the fourth quarters ended June 28, 2024 and June 30, 2023, respectively.

		Fiscal Years Ended
		June 28, 2024								June 30, 2023
Net loss and loss per share		$	(137,640	)		$	(2.38	)		$	(28,335	)		$	(0.50	)
Other non-operating adjustments, net			(592	)							(1,589	)
Amortization of intangible assets			47,661								53,552
Restructuring and other charges			26,170								6,981
Impairment of long-lived assets			—								—
Acquisition, financing and other third party costs			4,370								10,019
Fair value adjustments from purchase accounting			710								356
Litigation and settlement expense, net			4,927								495
COVID related expenses			—								67
Stock-based and other non-cash compensation expense			41,257								43,031
Impact to income taxes(1)			(26,621	)							(27,776	)
Adjusted (loss) income and adjusted (loss) earnings per share(2)		$	(39,758	)		$	(0.69	)		$	56,801			$	1.00
Diluted weighted-average shares outstanding							57,738								56,874
(1) Impact to income taxes is calculated by recasting income before income taxes to include the items involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The recalculation also adjusts for any discrete tax expense or benefit related to the items.
(2) Adjusted earnings per share is calculated using diluted shares whereas Net loss per share is calculated using basic shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the twelve months ended June 28, 2024 and June 30, 2023.

FAQ

What was Mercury Systems' (MRCY) Q4 FY24 revenue?

Mercury Systems reported Q4 FY24 revenue of $248.6 million.

How much was Mercury Systems' (MRCY) backlog as of June 28, 2024?

Mercury Systems' total backlog as of June 28, 2024, was $1.33 billion, a $185.9 million increase from a year ago.

What was Mercury Systems' (MRCY) book-to-bill ratio for FY24?

Mercury Systems' book-to-bill ratio for the full fiscal year 2024 was 1.22.

How much free cash flow did Mercury Systems (MRCY) generate in Q4 FY24?

Mercury Systems generated $61.4 million in free cash flow during Q4 FY24.

What was Mercury Systems' (MRCY) adjusted EBITDA for Q4 FY24?

Mercury Systems reported adjusted EBITDA of $31.2 million for Q4 FY24.