MRCY - Earnings call transcript Q1 2022

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Operator

Good day, everyone, and welcome to the Mercury Systems First Quarter Fiscal 2022 Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to the company's Executive Vice President and Chief Financial Officer, Mike Ruppert. Please go ahead sir.

Mike Ruppert

Good afternoon and thank you for joining us. our Chief is Aslett. Officer, today me President Executive and Mark With

presentation. it at Please you've of Mark posted this the Events issued find copy received and under afternoon, the website Investor to our earnings can If slide referring a X on we I the will not to presentation The in mrcy.com. slide press turn be release the you Relations Presentations. on that of website is and earlier section

call and of turn Mercury's non-GAAP to Please presentation press X. reconciliation the in earnings measures, in an we Mark or would adjusted in statements, that information future Before I forward-looking principles today's subject revenue future turn presentation also and with over regarding outlook, slide metrics statements CEO, you reporting started, financial to to should several financial accordance remind addition acquired These share, mention to prospects like to these today's risks per forward-looking will included free earnings GAAP, get risk like the financial the A I'll financial appendix results business includes including All EBITDA, cash results slide in plans, we and the performance. X revenue. are could flow, with anticipated conjunction is non-GAAP during the generally uncertainties SEC performance forward-looking or be accepted objectives, also in Mercury's included statements adjusted our press filings. that materially. statements to President to as on to that cautionary income, adjusted slide factors Mercury's earnings in differ Aslett. cause and release. call our discuss accounting and and specifically organic considered now release actual I'd

Mark Aslett

your update. open Good will guidance up the for then Mike. us. the we'll and begin for it and financials review joining thanks everyone questions. business I'll Mike afternoon Thanks and with

came the of Total fiscal line guidance above in quarter with first the for EBITDA XXXX our in expectations. our midpoint. exceeded adjusted revenue results Our were and

well execute continue to transformation XMPACT efforts are progressing Our and we strategically.

the Technologies, while During the acquire we continuing business to to in agreement organically. an quarter, invest Avalex signed

Our for organic and exiting lower XXXX. growth year versus we backlog expect fiscal last Reflecting unchanged. to bookings remains the continue fiscal revenue outlook XXXX flat fiscal

total expect XXXX, Due in We time. for as $X to first the excludes revenue well as to M&A. the expected guidance of timing company QX grow our fiscal XX% any the close fiscal future eclipsing XXXX Avalex and billion

anticipate also adjusted We margin and expansion EBITDA. record

We're mission CXI. defense prospects from working about growth both a to fiscal strategy. deliver continues the and three improved in in solid with our in inflation stage in driven potential overall. The our growth We're government We're sensor and budget weighted government for should on continuing our operating operations; the with double-digit open discussed mitigate should to towards over for the in XXXX the substantial optimistic by for term. chain chain the government's can book-to-bill and half semiconductor White from backlog, the we anticipate diligently microelectronics. and well-positioned This and The speed setting impact growth industry to House quarter; defense especially areas margin said, wherever by in fiscal microelectronics by and past: mission to well-aligned in systems our longer-term expansion primes, effector We and the elevated to to the we've have levels risk believe growth efforts the supply growth constraints low with and vaccination return industry. supply prolonged increasing. increased supply for the are the to longer and the delayering growth need impact the a and Mercury become to trends XXXX. level year-over-year XXXX employees the push resulting bookings at and the the subsystem defense quality and on strong high That our fiscal third, resolution; fiscal customers secure and chain in benefit organic strong last that single-digit modernization, and processing, second, lead outsourcing a to that the lead year secular second XXXX. systems coupled is risk since mandate We results the trusted This leverage expect to to positive in national the affordability reassuring results shift QX. first, suppliers, flight focus

vision being systems is the Our seeking. what with looking devices and companies provider Mercury to less suppliers. of and to are trusted customers buy from partner secure of like our more traditional leading They're commercial

more result, and for us. larger a As engagements becoming our and strategic are our customers for

low weakest book-to-bill was typically We feel Our to confident growth X.XX. is the deliver coupled year-over-year were and over at with time as QX expansion. that for fiscal in double-digit XXXX. plan financial organic our watermark seasonally down intact the bookings expected quarter quarter. slide is slightly QX averaging for quick represents revenue on margin Bookings Taking to X. and low our highlights a five-year remains XX% high single-digit M&A look that the

EW down year-over-year F-XX. program, bookings than and revenue in anticipated. was F-XX XX% the programs better CX high was guidance. Organic revenue the a our were above of a Total end program, up classified largest classified slightly Our F-XX, quarter X%

F-XX. largest in Our the PX classified were MH-XX, programs CX classified a quarter revenue program, and program, a radar

of new We continue to levels business activity. see high

design with for strong flow was quarter remains in cash pipeline the Free million value. slightly wins estimated $XXX lifetime negative. nearly totaling in QX, Our

however our XX% came in QX at end guidance at adjusted respectively. the bottom-line of EPS and EBITDA adjusted and the higher On year-over-year, down XX% midpoint

X. slide to Turning

now market over total We focused We our program the is of revenue we participate sole-sourced fiscal the spending Mercury's to on XXXX. single No in faster-growing defense X% and We're than faster XXX than company majority than revenue more growing different top on more being with total in and overall designed positions. of in expect large the company parts programs. business continue time. defense programs

next the five to revenue. program X% single of be to is expected more than ahead no total Looking years,

For fiscal move revenue bookings XXXX, we to increase as the through and expect we year.

have earlier, CR, I to vaccine As mandates throughout risk the chain. related the defense said and budget increased levels managed supply COVID risks COVID-related successfully pandemic. We the

our our comply in may resiliency higher ability During the In to strengthening the intend commitments. second to and employee by quarter should our deliver to employees turnover and we enhance on vaccine mandates. the House result however, the This with protecting it of business our short-term, the operations. White impacts

associated we continue to effects daily constraints. with suppliers chain the the COVID, team these we see semiconductor in of our The inflation challenges challenges. address on alleviate have Beyond vaccines chain vaccine time, as believe with will effect employees the Over supply a working customers positive is and could our to issues of facing. help programmatic the mandates work. our to The ultimately supply also and we're the delays, DoD on-site some return

as driven cautiously in XXXX, As bookings a F-XX; positive fiscal should Buzzard; various that growth year-over-year top a growth we're by backlog. FMS the will growth fiscal anticipate in in substantially grow book-to-bill such double-digit led second XXXX We in of This programs SEWIP; Filthy by be bookings half GhostEye; now optimistic result, XX and programs. leading to and called LTAMDS, programs. which is our

program programs recently accelerate franchise we In addition half the also. from in to bookings, second these expect acquired to growth

X well Buzzard. Looking F-XX, XXXX, and programs as XX bookings we Filthy from TRX among ahead in fewer Block airborne We our again. to yet such as expect seeing and to fiscal the SEWIP delays top anticipate programs ramp an upgrades, enable key as

said, by to low As to this a to strong results we've should double-digit in fiscal high XXXX lead return single-digit growth. organic driven

EBITDA billion capital business Since acquisitions as grown dramatically scaling over deploying be value that there's period. Turning value X.X completed had than creation more times This times; resulted nine forward. result. total $X.X and fiscal company to shareholders. a of in for We additional the and we slide synergy has X. going to through substantial revenue We've believe XX XXXX, transforming adjusted

to last organically and we potential we the through and over called five goal XMPACT full the course discussed next growth, phase the The effort, foundation of scale. EBITDA calendar Mercury's we at early As which expansion a achieve years. quarter, value for launched next M&A creation is proactively year of this adjusted our lay margin company-wide to

QX first Chief To progresses Huber of with previously million Consulting years. in accounted now opportunity a lead as over $XX we total hired The two to for we completed. Group, and to is for anticipating Bain, We're the This our actions course which the and Thomas Transformation streamline alone and total. next of the to began have our fiscal related three quarter organizational Officer. first during McKinsey $XX Boston The XMPACT this the simplify our benefit XMPACT, QX net structure, in XMPACT activity. XXXX largely million

uplift In expansion addition be EBITDA into six focusing on We're to leading in incremental planning we'll growth, phase several to move the at areas of from to margin over beginning areas. these execution major time. aimed

this also EBITDA a continue We XMPACT, adjusted million Complementing this XXXX leadership target result incremental strengthened $XX to as $XX team. by fiscal million the Again, fiscal in million of XXXX. activity. a to net $XX we've of includes benefit

and very addition of has as division. Thomas aboard. Roger FLIR Yesterday, Growth have month. Chief Stevison joined as Wells announced Thomas, from to early from that to us President pleased Raytheon Microelectronics In Mitch Officer Mitch Roger Huber, last We're Mercury we joined Teledyne our

slide X. to Turning

the creating Avalex our business forward. Combined avionics terms busy and pursuits, have M&A deploying pricing volume. Optics QX which our complementing going processes the past future increase We synergies potentially our month. strong. deal The the in we and integration of integration. our the tremendous and Avalex acquisition early accelerate and be acquisitions our M&A through our We extremely M&A perspective Physical computing with pipeline synergies recent increase creation. an the we out deal allow Over to mission and generated and build have in this to us disciplined acquisition resulting cost seven will environment compounding is and expect to create could of years, approach from continues this in believe generated, the revenue effect value were on significant could very to We XMPACT cadence close Corporation. of in active a XMPACT also continues size of transactions. our remain value diligence,

important acquisitions. design Army's the expect to fiscal our management. we last leverage team to Like Avalex quarter, program enabled was our XXXX mission We As supply position well most further as win those discussed the platform and that POC AMCS welcoming as to related a Avalex and by forward in delayering to potentially look Mercury. win transactions, strengthen chain we prior

working growing extremely areas. X. M&A over as while strong this in value we business slide We with organically to growth for term and We margins, longer remain execute the shareholders is disciplined it well. and This our to full integration. Turning our significant to supplementing strategically generate plans five delivering believe strategy committed continue will organic the

is first from single-digits our organically time at low high to acquisitions. grow double-digits, to growth averaging by revenues XX% supplemented The over

manufacturing well as as The technologies, second new and in our invest is our systems assets to in business facilities, people.

shareholders. driving expenses. This operating to should acquire manufacturing Third in-sourcing as time. we're across the to other is we're cost produce maintaining and synergies strong organic finally, and Fourth, plan These chain. the should and in faster manufacturing attractive seeking over as synergies XMPACT leverage allow stronger in our of And us generate locations businesses our with fully to investing operating operating grow revenues continue business. supply growth the combined performance areas returns integrating while revenue for well we than

to vaccine expecting slide and the should year increased risks in a in In backlog levels fiscal X. related to supply lead result to normal organic the substantial and term, XXXX short of Turning returns chain. have margins budget, growth the COVID defense more and strong growth as expand bookings a as This to in We're XXXX. fiscal XMPACT. mandates

looking the very term, we aligned longer business the strategy key ahead in We've national trends. However, industry's with defense optimistic. remain our market

the positioned. in Our is exceptionally high-tech industry defense well at model of the serving intersection

business. engines of and secure processing, in systems serving in mission the as are and growth strategy the microelectronics Our trusted open investments

Our us We've XMPACT. acquisition-related organizational our streamlined structure, growth. pipeline is our continued M&A team, and strengthened robust, leadership with launched positioning

five XXXX As EBITDA can we full a over the believe achieve next and growth we've adjusted that, and replicate through fiscal Mercury's M&A result, we successfully organically since and potential years. what done

Meeting, Mercury's be the welcome turn to Plunkett. Board I'd Her to newest was extensive call the national I and Annual will asset Before cyber, Mercury. in Debora Debora to our security to director, a over elected like significant XX. Mike, information at October, assurance experience

a of director XX in has Vince Vitto insights behalf of role the Chairman. Mercury, appreciation at I O'Brien, the counsel same working new On dedicated and Board. as his In than more last to I addition, extend has years, years to for as all like of welcome retired At planned to the contributed from his Vince Mercury's us ahead. to leadership. them as valuable director, Bill forward deep in time, our the service for potential Vince and look achieve with our Bill I'd Chairman. as XX full

I'd team outstanding sincere times. work, during like My for entire the of Mercury Finally, for to to Mike? these the to tremendous challenging Mike. your like turn recognize and that, your contributions. With I'd effort thanks call over all a

Mike Ruppert

and again everyone. you, afternoon, Thank good Mark,

our fiscal guidance. As move usual, then I'll our first start QX and to quarter with results, and XXXX

the the at and midpoint, with high revenue guidance As of our for our adjusted expectations. EBITDA year our fiscal full track in guidance. towards while Total came remain exceeded adjusted We end EPS guidance, announced Mark achieving said, adjusted were in previously revenue EBITDA and on XXXX. Mercury's exceeded QX line results

bookings We positive double-digit growth our increase a XXXX, backlog. expect for year fiscal a and in book-to-bill the in versus strong

be We and continue to especially to weighted the expect HX, QX. towards year

half year free We begin the and expect of the to in to flow normalize. margins expand to second cash

growth expect growth Looking we double-digit backlog XXXX. low return to revenue high and single-digit ahead XXXX, a fiscal by to fiscal bookings organic in further driven

and We EBITDA result expect growth in initiative, fiscal coupled operating expansion growth versus XXXX. fiscal to XXXX improved strong the with this in leverage organic margin and XMPACT

million, QX our to down XX. results XXXX. to were slide QX QX Bookings Turning compared X% on $XXX in

Our X.XX. was book-to-bill

quarter end up down XXXX, XXXX. the QX $XXX compared and X% of million, the was to at QX backlog from Our X.X%

shifting our backlog to revenue. was compared the XX-month backlog our total in from quarter, as While declined bookings near-term quarter, result last up X.X% last of a

larger expect $XXX a our better for QX year. and Corporation close bookings than As million increased in we're programs. better anticipated Avalex our which X% announced of several results with the top revenue visibility Optics on was fiscal points. mix and million. revenue we second September $XXX XXX This XX.X% for million, QX by basis XXXX, expected in not was exceeding QX, basis have Organic million. optimistic driven to QX our point $XXX to margins primarily from Pentek down were Gross in XX% of programs Acquired we The to down million into end the results. but the early that Physical key to is to XXX receive QX and XX.X% QX XXXX XXXX. of by half that was $XXX the of compared driven acquisition in inclusion a on we fiscal Revenue $XX.X November Coupled guidance therefore was and in in timing POC year-over-year, included about result, our full which impact. of had and

restructuring increase acquisition-related the well consulting other associated reflected production and amortization We primarily to Operating have expenses compared higher restructuring well This other to in expenses. third-party million starts higher-margin in up last also recorded a our program program. to QX work precursor costs $XX.X quarter, as reflecting in term, with over QX, acquisitions, with work development to but had more expense are were workforce XMPACT we tend the also year. new programs It compared an as of XX.X% ago. lower In associated was recent driven and and as in by the near charges a as reduction These margins the charges. year time.

were driven mission R&D now invest fiscal range XXXX. Since The $XX.X in in was that in technologies Adjusted over $XX.X other computing in forward. up million trusted net of continue to mission per million $XX.X industry we microelectronics our such million million a drivers secure secure and $X.XX of The or and to loss million exceed our to as compared R&D within going as incurred was and QX of share. QX GAAP invested investments Our $XX.X processing. the charges In for for computing average the negative XXXX, QX was guidance growth. drive in biggest QX we've $XX.X to continue EBITDA $XXX million of million growth for X% R&D in loss we million. restructuring new will processing, by $X.X quarter. $XX.X primarily QX

margins quarter outflows XXXX. by EBITDA XX.X% loss fiscal program adjusted of our QX in including was for XXX cash down primarily restructuring This basis QX XX% were flow primarily with Our driven from the $X.X by driven charges. cash Free million, associated net outflow points was and other mix. for an

government presents resulted potential quarter for We in We with XX payment last end. some coinciding the and changes negotiations balance the from patterns. and also flow saw shutdown believe sheet sailing debt these customer five by Mercury's quarter. with to equivalents free quarters. our in during cash We reduction XXXX. negative driven $XXX million compared cash the ended The primarily million was QX of QX, $XX cash Slide

the cash used million $XXX connection debt vesting. with $XXX of ended units stock our funded of with grant for revolving in We under million vested also QX share We restricted annual facility. net settlement credit our

Avalex We million finance to and to the expect acquisition cash $XXX close price using purchase the month this the revolver.

million to XX-month closing, a the acquisition, deployment the in acquisition capital. last in the Avalex million history. of have well we will capital Upon access M&A leverage we marking and months debt remain debt in great in to X.Xx positioned approximately flexibility with the capital Following EBITDA. have and largest XX $XXX period structure the of we continued will invested net Mercury's capital perspective, towards adjusted From $XXX

R&D that strategic invest with aligned investments. are to acquisitions our continue We in

Free Turning was QX cash $X.X flow flow million. Slide on outflow an cash for to XX. of

periods. of tax lower driver bonus our due cash and employee is biggest QX in loss to the flow previous seasonally to payments. net typically Our QX was compared

for as associated well restructuring as charges cash other associated expenses XMPACT this quarter with acquisition-related outflows we However, with Avalex. and also had primarily

As noted, customer experienced in we some previously patterns. changes payment

in to year. turn now also QX, on half revenue our invested the related forecasted to financial second I'll We Slide inventory in of starting with XX. the growth, guidance

Our incremental quarter guidance acquisition-related year, for fiscal no full the the expense. assumes and second

$X.X charges for guidance Our initiative. other related includes of million the QX, and restructuring to XMPACT

Our QX close which to this reflect and Avalex, month. we fiscal XXXX guidance not does expect

to As XX, the approximately $XX ended $XX adjusted XX revenue, with we EBITDA of margins XXXX million approximately XX% or in expected million. is months December announced, generate Avalex for

expect would of month, $XXX,XXX we QX beginning EBITDA the and the $X respectively. of closed Assuming in at million acquisition adjusted we this and revenue approximately

QX, of to contribute into we for and expected year. to above half the low revenue we the growth book-to-bill of expect the our our or even QX, a approximately year. year, in in rebound we closed, expect second expansion half the million which Since point a visibility full-year the Heading year. expect we not one, adjusted guidance. expect EBITDA. $XX the being margin Exiting million for the drive not and fiscal is QX of fiscal will acquisition Avalex, the remainder our yet greater In the have this into revenue in second bookings QX included QX, in $X For increase in and has backlog the revenues with

is contracts. expected XMPACT-related fiscal production second $XXX,XXX incremental $X.XX driven higher-margin gross QX, at development million few we margins mix program midpoint breakeven At in down year-over-year GAAP net be is per organic XXXX, $X.XX last in currently reflect to to second expenses. and the midpoint, $XXX in year. million. we EPS as is $XXX the the increase, In QX declines to quarters. or expect QX be We $X.XX expect complete from to by X% to programs adjusted The in the line bookings growth expect approximately between we income revenue be compared to to of For year, approximately share. similar is per share. programs. development the the programs. of to half revenue the a expect in to result, to $X to million margins expected range expected revenue production due to The growth QX of be be expected HX several with currently last QX lower-margin we last of This QX, as our quarter gross XX%

We points $XX XX% than XXX million expect $XX adjusted This QX, basis representing margins of be to EBITDA the approximately midpoint. is higher for are similar. about gross QX, revenue to even as million at

in margin an expect with leverage up of the sales in we operating year, second EBITDA combined gross to As ramp increase half the in expansion. result margin

flow to free approximately adjusted by QX continued be expect We outflows. cash XX% for cash to XMPACT EBITDA driven

for EBITDA. compared guidance expense to to Turning EPS revenue for Slide expected our our adjusted of primarily increasing a our guidance. We're and for as lower prior XX, guidance fiscal result depreciation we're maintaining XXXX adjusted

net acquisition-related the GAAP addition XMPACT-related updated the GAAP year. as guidance QX in expenses income other expenses charges the Our expected and as incremental in well reflects EPS and incurred in restructuring to known

diligently the As Mark environment continued these so. to contracting well as has associated is The supply is to-date risks discussed, there minimize COVID been chain. the team able budget as to uncertainty do defense and working with and

assumes to to be that we'll results. these our able guidance continue Our material risks without manage to impact

year fiscal above X. growth full the book-to-bill bookings For and expecting a we're double-digit XXXX,

We billion guidance X% to our and guidance and the acquisitions. with revenue to of from company represents XX% organic expect prior This $X not transaction XXXX, additional in Avalex growth does to Again flat previous growth billion. include revenue our is year-over-year. fiscal $X.XX line total

share. and earnings result to expect heavily in income be QX. for in XXXX Total GAAP consolidated half be the fiscal net weighted XXXX a expected net $XXX discrete XX%. are XXXX. margins $XXX of We fiscal is for towards $X.XX per increase are per basis fiscal as other million, of an to our EBITDA $XX.X tax fiscal for fiscal X% GAAP benefits as revenue to compared XX% million EPS $X.XX be to a on XXXX Adjusted well from to $X.XX and to be are which approximately to fiscal range second expected of to charges to as the activity or up in particular million to Adjusted lower share, Adjusted XXXX. share income and to to is $XX.X not restructuring for be in per XXXX year-over-year million XXXX EBITDA range non-operating expected X% XXXX. and fiscal expected is expected in fiscal X% guided the of $X.XX

Mark XXXX fiscal EBITDA actions we revenue, to $XX the million of and we've taken and second the QX adjusted said particular guidance expect to QX. As our and included be margins heavily savings Like EBITDA XMPACT in weighted related approximately in in QX. towards half

As revenue expect a to ramps free the year, targeting gross throughout in margin adjusted XX% to EBITDA we From XXXX. and to in free operating increase lead expansion. EBITDA approximately flow an adjusted leverage margins fiscal cash flow perspective, we're cash

normalize to improved driving We year. cash flow conversion expect begin HX, to in for the

have expenses additional XMPACT additional are this may incorporated probable yet although or We that with estimate guided certain estimated. we not incur into costs are that associated

XX to summary. Turning slide in

QX EBITDA in in the expectations we line business. with expectations adjusted Our to as invest was and revenue exceeded continue

for backlog For we returns growth a position strong bookings low We of expansion. positive will rebound and XMPACT. range year, fiscal of expand growth believe the organic and us as to solid fiscal expect rest our XXXX and double-digit the margins high our in and result single-digit revenue margin XXXX a leverage as a bookings growth operating target

invested last wins driving programs. franchised we're adjusted margin few EBITDA the in design significantly accelerated expansion. Looking for continued and M&A and R&D further CapEx, on growth ahead, well-positioned over We've years, key

we'll happy now. be questions. ability years you our Q&A take on in strategy your confidence to proceed high With have we that, with the for result, to executing our the next continue can five value long-term a over Operator, creation. As

Operator

first line And Instructions] Peter sir. Skibitski is to [Operator of Thank Global. the question our come Alembic with going you, from

Peter Skibitski

Hi. guess the Nice Good revenue guess evening, for a I color. Thanks for all quarter. me. and one Mark just I Michael. quick

on the your below revenue expectation. maybe through? that guidance incremental what adjusted revenue you the program EBITDA touched You that just CRAD was margin mix? a meant adjusted expected? little quarter. hit of Was more by bit for kind But that you EBITDA Is than your first here Michael, the just came

Mike Ruppert

was the right with Yes. -- the mix really That's the margin Pete. revenue CRAD. development program higher it or is associated and think lower about it programs just to It's way

Peter Skibitski

Okay.

Mark Aslett

was year-over-year. CRAD up XX%

Peter Skibitski

in. one there the okay. way Mark, I But it great. Okay, to of kind That's if quarter, of of semi Is about? CR, it concerned most concerned a is can vaccine most what the mandate? into guys or sneak what second you And kind you one shortage? the are Is Is last about? rank it kind are the looking

Mark Aslett

of actually good those things. a it's Yes, question. all It's

prepared as the of across in I risk the said has the those So all level remarks, call, on areas. elevated

Now, we're we I year pretty in progresses. low mindful see the bookings Pete. for think feel year the areas QX and is and three growth in to still fiscal that how this both going we'll as evolve, revenue progressive good we're bookings watermark and very see of the risk those But things

Operator

Thank you.

Seifman question with Our will from come of line Seth JPMorgan. next the

Seth Seifman

first do your calendar half? what of I bill? quarter to Hey. the XXXX, If Thanks need in out very Good first your the through in that? calendar is of a CR. what of quarter just mean that bookings the of it gets or it And funded you appropriations the fiscal period upon in pumped much. time you bookings terms afternoon. reliant expect an second Maybe And target through gets what guess, digging follow-up does out there if on the question degree

Mark Aslett

Sure.

So, in core programs. a markets actually XX existing our is of Seth, CR. assumed bookings tied and that existing our and growth program one guidance half, around don't much were we've top actually many our second which new growth to the in programs, quarter largely We in the starts have

risk sure -- are the what assumed one unknowns, hard because the there in could CR be, So, for level sorry, we've but unknown say to of it's guidance. one quarter

Operator

you. Thank

line Arment of Peter from come Baird will Equity question with next Our the Research.

Peter Arment

you the second could Mike. half, the Mark the half, bit little question historical, about EBITDA half. kind Mark, you've what if maybe below to first step-up. your of you're Hi. a and and good Pete's Yes, implies that evening, circle in big having margins just obviously The enjoyed second obviously back a

the So few maybe maybe if programs. development some to talked key I couple that. of that you are of know going highlight a things ad less you the about could drive Thanks. just or

Mark Aslett

Yes.

HX could Let just from me dig a a of then of maybe a HX, in kind kind and bit go things overview Mike apart. of little level high tease through of and little kind versus kind

from much expecting So major and be for first that double-digit expecting year-over-year. as revenue perspective, we're second will half the sequentially a revenue growth the the that from growth XX And for the in top full the like by systems that growth year, driver really participating, which we we're and margin mission we're it's much the expansion. in we're two and versus expected said, expecting is the segments market driven think Pretty the I growth which effector a programs, as at as CXI. well primary is rate which higher grow this are come of our to sensor the to primarily largely is going half

it large taking going drive at the if to what from growth we in look a the level, second programmatic are half are perspective, a down LTAMDS growth, half SEWIP, classified F-XX, as the SABR that F-XX So programs that programs T-XX. large FMS CX from F-XX as a well in program moved program last the programs not of second or ALR-XX, and QX or year. Other

Do the of It's right? it's program kind in So HX. said, add versus really line want to mix anything? you with HX Mike

Mike Ruppert

the think all through programs. I Yes, just yes. Peter, And Mark went

guidance I look running about year, at of the of the EBITDA our our think XX.X%. kind of the and still midpoint XX% QX at between midpoint QX we're for as you guidance our is our

HX as in to remarks margin that's by the things. be and I in a said specifically had driven clearly high to the the gross development that. expansion that expect of production programs a compared programs level, the second as the specific Mark Number is in to going about one well at programs. we and we is HX So between just in to and of in drive talked going half, couple pick lot some mix of program But prepared QX, up the

what second The Because operating in consistent leverage seeing which at to invest in we're on we're with that operating thing negative that of putting leverage done HX is margins. is continuing and we've pressure R&D the past. in some are levels

in the drive and half to as We reverse that well. second margins expect really

margins EBITDA operating is and things program HX. So leverage those in the the are two mix driving big

Operator

Thank you.

will question of next line Jefferies. Kahyaoglu the from Our with come Sheila

Sheila Kahyaoglu

the and Hey, for guys good time. afternoon, thanks

half, chain When new staying you pressure the program watch elevated as bps? is mix? bps? second it we a it from the item. into How the inflation supply risk are much XXX also Is half? talked like margin and of Is ramp. how And margin on think kind about of about Just about that the implied XXX coming first thinking you

Mike Ruppert

go So, I the a second mix question in lower related the is half the don't of as to we through going Sheila HX new margins. program programs. the why preponderance development The gross ramp we're to margin and the on see year, of first? in the hit gross And margin up

XX%, can I the around back QX, see year for think, that XX%. where at we 'XX we get we're gross margins to look going in to when were fiscal

that fiscal ramp-up around I through. I QX. XXXX, which think to in that's HX, is where we'll year slightly where implies gross that the going level, we're related margins. we don't be specifically gross And the in programs which we in to But Mark think were went guide again, margins at above be

Mark Aslett

are chain good lead We increases in first right has clearly be time. earnings little very, would things price in and do that. the times purchase also Sheila, job side the we navigating many was say very quarter quite missed I quarter, inflation. have date the with other of revenue raw this better make yes, first associated second Yes. talked to then of the of what take expect the revenue team will season done we That the around material seeing the And in inflationary substantial with in one in to about companies the on a that that additional half, risk supply in was some tied around did reasons able to pricing. environment revenue some it, advantage but we commitments, that and with that for associated was very

job. the is team It's and managing it. we're doing through a So, great challenging

Operator

Thank you.

Co. & from of line William Blair Our next Ho question will the Jonathan with come

Jonathan Ho

potentially, wanted your a your about business. maybe you understand process? around give sort think that how skill much workers, and impact looking maybe thoughts shortages additional sense difficulty of sort you're Thank and do managing churn hiring you. at, Good your mandate how I bit Can of of how that you a us could just to the little around more vaccine comments about and afternoon.

Mark Aslett

Yes.

initial managing the phase vaccines. know as through House now job of the the did the Jonathan, So, obviously very good you mandating different I White a of a We're think stages kind in pandemic. we with

So, we're working through population portion is a vaccinated that. the A that not. very large there's majority of currently, but is still

turn exactly the those they actually vaccinated to of working and to get given able change at House and to out in going those to So, unclear, and cajole that then It's do get are some it's vaccine. the mandate respect a with of many to have companies this as educate to themselves. coming of White little stage, what the the choose flexibility unclear just to what coax the how we're not still and be

to impact But So, We're have. as point at will we two-way unclear them a know it the communicating in intend we this how it's comply. dialogue. exact with employees that to

labor preparing are We may people. that overtime mitigants and have, we includes temporary disruptions any to which like offset other actually

We any to haven't had hiring. with respect issues

I hire labor pretty is that and the time strong need. think have we still we to

we're So to but potential an with those right quarter now, respect doing this important changes. okay, is

Operator

you. Thank

Securities. Our from Ciarmoli with come Michael will line next the of question Truist

Michael Ciarmoli

taking evening. Good Thanks question. guys. Hey, for the

process? Mark mean, guess, I the seen maybe defense was lower larger call and what here So, the we've guidance. their thought report, obviously risks, these Mike, peers out I

substantial for guys You calling are strength. still

reducing decided bit obviously these some with would Your like to but us well not level reflecting mean, the risk and the guidance? but these seem risks, you these kind of maybe the I through more and out risks. align mean, fiscal a in keep can doesn't of walk them in not you're some exactly of maybe stake the I maybe for and the vulnerable, year guidance. it confidence account calling ground you've factors

Mark Aslett

Sure.

of a do little a terms recap kind up kind me of of ended Let in how bit and step here. of back we just

we're short associated the the effects and defense said on longer-term the think, budget trends said we think, in we in as I Notwithstanding remarks, overall, prepared the encouraged the supply just that, term employee I mandates by constraints of pretty as discussed. the So call, with the mandates. vaccine could on have chain well the we and vaccine the inflation potential the CR, turnover as due that have as levels and of to increased the impacts risk operations, prolonged

we most more XXXX coming into conservatively. as As Mike, the came out year, we forecast, areas of examined year as that growth and we did believe this last the the what we reflected that and as we we've built organic impacted planned you know, is

year delays last X-point zero our reduction risk, Lockheed in programs clearly X, doesn't recap XXXX, to on in modernization, the naval and greater loaded X-point was due reduction We saw This we a a various organic supply to led X-point organic growth revenue in year. Now, that that more particularly the has Block is a to as happened the programs. reduction SEWIP. a well to mean saw now as due TRX growth in is a back-end and delays as reduction F-XX plan like by challenging. But than the well-publicized environment FMS what X-point really

have, more expectations as the a in a year well of levels for points. that's that book-to-bill as as we revenue plan. in still that these, and positive organic for adjust progresses, flat is bookings into revenue whole year as lowered much XXXX the will risk to grow organic and X believe resulted growth So we organic I year. to very guidance But growth to the by the our hence this leading normal year growth And return decline to currently which coming this areas, other

let talk that little about update some were impacted me just and an the of on some a give you bit those. So of programs

that we due we upgrades; in just as were to seeing; further well other were that XXXX various programs the as programs. the LTAMDS, F-XX FMS reduced and So SEWIP naval the impacts

still in bookings if we're so, bookings despite our look year-over-year, growth substantial moved at that XXXX. the forecast, lowering to given you award expecting fiscal LTAMDS us And LTAMDS, original

And here, of that, typically in was biggest Block-X. ongoing kind associated On the result F-XX, revenues moved the our impacted. F-XX. QX additional programs as to helped and and plan engineering that continues several this year's Frost delays shift QX on in be the naval which the and awards derisk fleet actually again, and we to is received in we expect revenue award with actually QX both comes large to the a modernization QX. further. good news has And schedule, due Probably lowered TRX to of including expectations order The the that fourth SEWIP. SEWIP lowered and a quarter, has affected which we

a towards in far what XXXX. overall, And weighted the alone positive. growth year we are decline year double-digit this they we more versus whole F-XX last Now QX for did we year were XX% is of this bookings in which booked much the last F-XX, nearly HX, on in bookings And the a than year. as as in expect

long funding risk still there's to said, we large is booked of order itself tied a half in because in second revenue TRX flight which safety that to associated So right, test. although tied lead is the QX

still back-end is that year in sits part So associated F-XX loaded. the the QX is in plant, why with and revenue currently of which is

last large was side the moved year. that FMS biggest when QX. year, fiscal out the very that we order in FMS had the On impact It's of

that we'd we than year. an in earlier news good fourth that the And for will order which substantial a in program, is award the expect we Now follow-on quarter QX initial received help the expected. for

elevated pleased second although first goal pace. overall, CR, supply we're this a to risk we the quarter in in half prolonged vaccine due the and progress of COVID pretty with the a So our to made actually chain that and mandates remains potential the

short yeah, progress good some a long a but made we to answer pretty Mike. question, So

Operator

Thank you.

with of come Austin Our line next question Genuity. Moeller Canaccord will from the

Austin Moeller

Mike. and Mark evening, Good

the on are about inflation. prime? budget quantities defense concerned the growth through note I will the either here that that current and a systems? as of the there's Mercury the to a inflation procurement do to XXXX. you organic benefit remain in in Or leading further of engage will of think you year that in directly, cost expectation defense delayering growth manage that and on reduction the But, weapon future to for by or of fiscal you alternatively, with them budget Just lot know supply opposed negotiate DoD about impact chain to strong allow the to impact driving key

Mark Aslett

Yeah.

have So as mission capacity open the in of secure our in to those technologies as and arena. in processing little I a seeing that be bit deal with RF as automated seeking are invest systems to and supply clearly where have well manufacturing in well those customers companies modernized willing seeing capabilities, the also that their particular delayering to We're probably as capabilities. think We're flight going the it's trends particularly to are both. or quality new a

little So both. a it's bit of

Operator

Sachs. from the with Poponak Our Goldman Noah will come line of next question

Noah Poponak

good Hi, evening.

Mark Aslett

Noah. Hi,

Mike Ruppert

Noah. Hi,

Noah Poponak

if the LTAMDS. there, there actually hard know just don't Notwithstanding, that your and milestones that concrete with that guessing a on that your those Mark can already feels detail timing more bit had it we're what's on TRX I like slip little all on just of us you the us of some then it had you little transpired and us to? about programs? Like point ground because lot have comfortable? a transpired will Have out get point XQ. otherwise stake and to timing you point and F-XX gave wanted the Are that the fact the XQ order you prime gave can I have SEWIP things can been with in there conversations meaningful it your that to have of detail you programs you that concentrated largest you just guess, follow-up to, a us the the seems still delays. into

Mark Aslett

I potentially program of of to in we public disclosure tell. right? delays effects think out some domain resulted and and that the was on that to tremendous been of Maybe basically in block previously to kind seeing the said, extent we cost reiterate leading the indicator, production the maybe not that, I'd levels. know hard substantial just in there's So around amount four a to change delays a a were the TRX increases right what

milestones were. I the TRX think the to integration discussed efforts what publicly doing updates that think and has go. actually than better some suggest important they that of been development There's many still are I

new begin occur One in for of second the in those certification the safety half. likely our of revenues would that testing flight the capabilities is, going and to calendar well obviously, year, early or the bode integration the which is

it's significant that So SEWIP, the that's cycle affected been as there's kind ship upgrade think of understood generally both naval pretty impact new programs. again SEWIP a information. I that other On well to modernization as

into plan. We've account our customers We next of been our On into that still fact which it again order third production the derisking we order LTAMDS, that shift in do. forecast, have our the that into kind the intends more fiscal taken typically to quarter, in the year. the conservative get QX, next even pushing moved

certain bookings However, bookings efforts expecting associated significant upgrades substantial growth we're with around still year-over-year. and should to in LTAMDS other development that lead

latest we've the a reflect customers. information been we've very communicate changes dialogues I've just the to and those in Yes, tried yes, having to and environment said. dynamic it's remarks with So, that

Operator

question with Global. next Skibitski Instructions] Pete from [Operator Alembic comes Our

Pete Skibitski

head the you maybe want Lockheed guys. XXXX into Thanks, have put it go comp at revenue Mark F-XX And because delays the of on easy TRX. fiscal profile. for as just will that in you it length we I updated the out sounds about forward like given a outlook you TRX. But to production Yes. talked just be XX kind fairly

should the term, going for is how we other is So should -- be mid-term? profile? F-XX but me, guys you profile In to with the new the how we of production the a about through this for words think about into? Excuse think profile running kind for quite you let's production of will into you nearer flattening program the say, run are guys bigger some that the time, or in a growth guys long

Mark Aslett

is obviously think F-XX few is right that production going be the that with program the in obviously, a on to we dependent a the Lockheed things be Mercury. to Unlike really say us. for important growth going rate So there's continue growth upon

as X the should of growth RF the and an So TRX different expansion for Block getting parts issues the we've enables around becomes Block both X in to experienced well lead content processing TRX. across beyond is us for as first enabler obviously that system that content.

the time be and the refreshes. opportunity continued which TX time to is likely retrofitted -- existing could it's us both systems second that well. likely then substantial a there's be pretty The for tech thing over And over that obviously be as going TX will

not a provider. we're So platform

really tech of systems already ongoing refresh Our and tied great benefit new the which the and is will subsystem example. both business modernization memory systems on of platforms a as the from. electronic is It's the underlying processing on to existing well as third F-XX

your answers question. So hopefully that

Operator

session. all we turn call Thank back Mark Aslett That's I'd the comments. closing have for to to you. our the question-and-answer like for time

Mark Aslett

thanks Take very everyone speaking look much us joining care. again for to this next to you quarter. Well, We Okay. forward evening.

Operator

call. we again, you Once would on for to like thank conference today's participating

disconnect. now may You

Mercury Systems (MRCY) 3 Nov 212022 Q1 Earnings call transcript