MRCY - Earnings call transcript Q4 2024

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Operator

Good day, everyone, and welcome to the Mercury Systems Fourth Quarter Fiscal 2024 Conference Call. [Operator Instructions] 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, Dave Farnsworth.

David Farnsworth

With me today is our Chairman and Chief Executive Officer, Bill Ballhaus.

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

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

William Ballhaus

delivering of topics: to and line continuing Today, we 'XX introductory exited as in into FY three to with positive I'd forward our on comments 'XX. look some results results closed I 'XX. like ahead momentum, talk or that we FY and enter through We with first, as FY business momentum expectations,

four update a delivering priority progress of free year flow. expanding improved cash growth established in a margins a each engine, predictable just over Second, thriving areas building our ago, performance, and driving

over who performance enter Dave, 'XX Then FY it our turn and financial we for as term. expectations walk to through results. Third, I'll will our longer

wish 'XX, made Relations challenges their programs him our contributions of the pursue their over commitment at to the they his we Nelson their One interacted future mission-critical addressing his partnership I'd to jumping endeavors. the Mercury, for and opportunity a Nelson well for to for critical to dedication new note, the outside like many like has Slide trust Investor I and support in in of to we know to have delivering considerable Nelson Erickson in, In I'd put and to collaborative Please business. front. team other turn FY progress Mercury on and processing you thank thank customers our the with years. edge. Mercury in elected Mercury X. transient Before most

optimistic As FY in edge positioning our and strategic we enter delivering our 'XX, predictable mission-critical flow. I'm cash a expanding robust organic about with expectations at leader growth as on and the free processing margins

the retiring record million debt. Expanding flow pilot hand to on risk architecture challenged of in We $XX our the QX paying the initial $XX to our flow for on in line year, notably the Our billion the programs, and priority exceeding with area. and the across million four executing up reflect bookings was QX cash plan QX year-over-year our cash expectations. with line on our remaining our revenue to most or highest our $XX guidance highlights up $X.X million of book-to-bill with were after adjusted billion, backlog flow cash X.XX. for million in QX XX% EBITDA million, QX an and $XXX free full midpoint of FY of focus guidance XX% guidance. $XXX $XX over each common areas full up free QX million down quarterly million progress million free full year of year-over-year positive of year, include of our QX that for year-over-year. production the million processing of for return and 'XX cash above and ahead company's billion fourth year. cash full the flow $X.XX results free $XX of in our the representing $XXX $XXX of keeping with $X of fiscal or with of solid results represents quarter and and ended history. year, These

unbilled we with growth and leverage reductions our down increased operating positive working to return XX% in Additional organic capital net working enabling and sequential streamlining capital trend in reversing operations, year-over-year of as we of the growth multiyear this With progress inventory expanding in Slide predictable receivables. free delivering path a are and clear with FY Please organic turn entering 'XX, to FY X. growth, and improved margins toward flow. 'XX cash

we from from revenue reserves change the like business. inventory approximately what and predictable scrap and focus $X.X challenge with comments, our our million areas, items those we're on I'd Following experienced QX $XX.X spend and XX% of our delivering the of four across impact first quarter, operating portfolio, million focus obscured in that performance, is we our fourth QX, approximately impacting the by to impact of net able expenses. have consisted contract by the margin starting be we million, programs of we from more $X.X million EAC approximately million in effectively $X.X million, that The of including portfolio. These approximately delivered and transitory EAC remaining $X.X performance. time introductory believe believe quarter are recognized what gross mitigate million impacted with each operating of and settlement down reserves. million In with across last of approximately underlying to million improved area, to QX, a $X.X items the performance the net remainder In $X.X our $XX we spread associated change reduction challenges programs transitory, $XX.X $X.X approximately million

in we execution and to than the greater of are in the items lowest Although making still and reflects would growth. we predictable steady see, quarters toward the is magnitude like driving these progress four

recent the in volatility quarters. of we 'XX to since the retiring risk have we of or challenge programs. on to third have quarter, completing X, by additional on We materially retired XX the exiting programs, challenge respect progressed the programs with XX contributed believe now on shown original original end risk three As Slide that of the earnings

going six For represent completion remaining nearing and are two the course programs, ordinary forward. risk

architecture. associated are processing programs common remaining four a with other The

mentioned, final are in testing fiscal reliability return As ramp on additional executed place. our with that processing to retired We're production significant pilot successfully risk in leveraging of the we common I our phases to equipment initial and in in architecture area. year, first up have trained rate toward we on capital have a production the resources full path and half deliberate of the

our Given you we FY challenge progress but processing will the we regard 'XX, going to the informed X. Please will longer progress in turn forward, separately address to on no Slide architecture. keep programs common with

quarter the X.XX a resulting million, focus to area, organic were second book-to-bill. now growth. $XXX for in the Bookings Turning driving

leading is when of Notably, which 'XX price FY Our bookings, look production that production mix we is backlog nature, a year-over-year. portfolio. fixed progressing toward in now XX% up at approximately a record at believe shift is firm the billion fixed our XX% in price are indicator good our we $X.X bookings firm

We content, contractor in quarter noting: and from orders units. the Solutions A a actively to Europe a order Multiple production F-XX-related air Technologies are of capability Please processing Research radar These support in program their and and large which of employed be to on with Mercury awards enable Air to time others and Mercury prime level and also from customers' are for Slide strong with our footprint. the subsystems worth engaged not systems will development at latest including Ukraine the technologies because leveraging and be providing semiconductor most engagements in because and chip of in commercial our large to a defense smaller their for to EW within and important integrated modularity processing edge, that chips effectors, of providers million award only shorter electronics demand on cutting processing know solutions both some including markets, advance operations which and the production programs. multiple electronic and $XX.X much by cost-plus capabilities in CXI. across trust and international our components but trajectory, increasing our at designed customers' NATO priorities impact well for record. sensors in from growth critical our customers, mission-critical U.S. business the avionics in support Office orders turn elsewhere, capabilities, production on warfare, various critical in customers a lighter value and will unique Naval provide of ongoing sensor processing which wins major Some for signal X. growth Processing key our the lines U.S. they align Force for franchise technologies, missile reflect

volume production was expanding we We tied our and margins. turning third 'XX we FY where view development unusual shortfalls delays. leverage believe relatively well by from priority negative impacts the transitory beneath delivered Now previously transitory operating driven to an were discussed primarily margins targets. year program focus low These our that as area, to largely

programs we our impacts, adjusted to focused efforts, mix minimizing following executing are on our a targets, forward, the Looking development toward cost levers: development of getting efforts. and XXXX back our call more historical and generate I've achieve program to growth margin EBITDA on growth execution organic achieving to this our growth efficiencies. production with positive growth leverage on operating driving organic along discussed programs, and cost cost containment

mentioned units our and savings of functions. streamlined U.S.-based QX, we in business the Integrated organization an Processing completed calls, structure, realigned a previously operations for unit assurance implemented actions selection and centralizing in In Solutions significant cost announced business we units leadership into during as and announced. series in prior top-to-bottom cost corporate our organizing as Regarding product mission FY resulting and reorganization engineering, business two initially cost 'XX efficiencies, our January, we reduction

is focused Additionally, this FY pursuits. improved to well we cost business that's behind innovation X. of on a integrated and profile. and FY Please significant toward an to effort advanced strong concepts with Slide leadership 'XX out performance technologies, exited on growth turn organizational team we construct us, a coming structure, and streamlined drive build stood momentum group that our advanced 'XX up our an strategic poised targeted With

fourth our priority turning free improved focus to Finally, cash area, flow.

FY Slide in and in the our $XX.X cash, were on position edge free by flow XX. believe implemented on We just-in-time million mission-critical execution QX Notably, company's above-market in of cash the deliver is toward low turn, sequentially our to which history. to free the to collect delivery, expansion. while the 'XX, with reflecting $XXX confidence 'XX after and make which year-over-year mid-XX% the are line to an our range FY XX%. line inventory and record to expected QX reflects results up in appropriately and $XX to increased forward. QX. QX performance flow million XX% ability million revenue relentless terms target Please QX, to WIP reducing leading three programs I inventory year-over-year, years driven have program of top is high flat billing cash the progressed in related focus and free billings, from growth, of from deliver processing operational to million $X hardware $XXX and in working profile in in highest capital adjusted lead in overtime team, customers delivering down reduction cash our level contracts Unbilled mix millionâ€“$XXX progressing flow or continue time our down material the invoice in of margins Inventory going is working our net of million, our This leadership quarters order in conversion and timed rigor at continued year-over-year billings process improve Entering We over and to receivables in payment turn delivery. capital, XX%, down performance will for record $XX QX. in million progress is we've year-over-year by EBITDA

to a ways: unbilled the we tackling balances, 'XX 'XX, allocate been working programs, meaningful large cash, on development the given providing which continue First, guidance expect receivable in as to be revenue focus high operational but primary early on working recognized. will year, the capital over that programs, down two on last capacity we our see mix In challenges high percentage specific which two programs I we revenue, provide these with not previously expect financials we expect make bringing will advance capital, generates color. has the further FY in the relatively to large the specifically we FY year to of low this FY and 'XX, to Although been for many following in following of progress we reflected have of

operational year top our allocate expect rate with half increase and be we result, high to fiscal a programs flat capacity last to with away As begin year production 'XX programs. balances we line for year-over-year in first FY as the and the line with in toward more relatively exit legacy an run unbilled from

on progress our programs number made by see while driven and have margin basis, programs we Second, a lower is a on current development what primarily backlog EAC low-margin our we adverse to 'XX. than across portfolio, go-forward expect that FY programs adjustments incurred small development of in significant

single of percentage expect off overall large next XX months, expect adjusted the digits in the we a start that EBITDA expand adjusted production. our backlog our second low over Given to development margins converts of toward although double-digit 'XX shift for FY and high the half for half EBITDA to these margins we efforts the as the mix first then complete in and we year continue lower-margin

the higher FY flow QX, 'XX I in than expecting will QX, first our our second we be the Finally, out exit toward half. momentum flow that are free positive performance represent summary, improvements in in positive XX a FY In and the operational half cash months given our recent target 'XX, flow cash of again with given over profile. free coming run to step cash expect in last strong our performance particular, rate our

full the and through to first relative forward for the insights I'll fiscal turn year, and I additional the forward I through to look year that, progress we questions. year walk over it for second your our to of results providing and quarter to With expectations performance. As financial XXXX, the fourth look to Dave half half

David Farnsworth

our we've in throughout comments echo improved the I the during expectations, performance that has was QX taken will Bill's year actions in performance the the with that delivered we supported Our thriving fourth line highlights the driving margins our transition engine, made, given we've quarter growth initial flow. and toward delivering and the a expanding cash that improved performance, progress objective to business building and predictable

heavily we expect to We inventories. higher-margin, turn, programs shift predictable production a believe, toward resource rebalance that further follow-on will existing our as toward well begin in continue more to consume production awards portfolio as

releasing in We related are unbilled to making also receivables. especially strides working capital,

majority Progress ability We become see the included transitions results we expect to is by during these our priority the a apparent milestones financial key milestones four our and of in that, These achieved which across please XXXX. of streamline retire few remaining programs, Slide fourth margin capital. quarter over reversing details the to results. record challenged multiyear trend quarter. that year operations our to during our in our $X.X XX, in backlog drive billion, more growth focus to to areas expansion our highlighted fiscal risk working our With expanding continuing to turn

Our backlog a quarter bookings Revenues the for year-over-year. or were million with were in yielding $XXX or $XXX million the $X material quarter that billion, X% compared book-to-bill of million, for our over of during outlook an arriving down $X.X X.XX, to of earlier $XXX million. year prior earnings This the million third represents QX XX% driven described we by scheduled for quarter improvement QX. $XXX a call, our receipts fourth up

a As that have higher our the performance lower guidance the in the range there our adverse of could material as fiscal would in the wide receipts range. fourth quarter to the you timing impacts of in our Conversely, results XXXX may in driving our planned quarter recall, range. drive were we of end first uncertainties of end resulted to maintained

the affecting approximately was to of five we quarter which quarter $XX million, development related multiple our XX% net noted, The approximately As to change The in in 'XX. EAC EAC with nearly approximately associated impact. the million four third Bill EAC was and as $X impact net largely last spread was net comprised the in programs change the challenged and of the impacts $XX processing of the production $XX revenue million the quarters $X programs. lowest tied to experienced approximately compared impact of our million $X to million change architecture, related programs other common million challenge across programs representing fiscal

pilot a to production. As return Bill executed on successfully we stated, we initial have believe

The net change the cost number of We yield million expense Of million expense the discretionary from other the net annualized production our driven of with expected approximately XXXX driven fiscal which increased with the increase fourth increased million savings Gross loss year. profitability impact flow free to reliability the respectively, for headcount approximately compared of million year. other toward $X was per approximately is including business The million related million and we've primarily in the restructuring our the loss by of of approximately primarily workforce respectively, was prior driven $X that to to and full portfolio. within primarily year. of the quarter as by $XX.X was $X.XX, $X settlement operating across interest including to SG&A, by are this year. earnings and other year. also quarter current lower we risk million prior was to the compared are of portion as lower change cash reduction was earnings provided in in primarily 'XX was the development fourth by the were million of were quarter to and by in other $X $X.X earnings CEO's announced net in to ordinary approximately R&D increases stock-based million the million per decrease an in share of expense $X revenues expenses, to in of and in grew execution the were $XX increase prior inflow cash adjusted The increase as as leverage as $X.XX, Gross compared included $X as by charges the was in XXX to million. primarily previously savings, of compared approximately The $X nonoperating charges. as spend, third-party due change and The prior $X.X area quarter primarily $X.X by year. program in the quarter. prior eliminated other million partially year-over-year, prior year-over-year incremental compared and operations and These the loss share driven nonheadcount reserves. EBITDA other realized the and resulting year. decreases million positions supporting Free flow improved million of charges offset $X.XX EAC year driven the prior in in and $XX of fourth lower as expenses and remainder other loss the prior impact increased production. $X.XX gross expected to restructuring charges fiscal restructuring also significant the $XX of share the EAC is was expenses year. quarter the million, net Adjusted of combined to current the the million, compensation. approximately of XX.X% higher million, per in reductions. by year. of impacted approximately GAAP The and be phases driven to we approximately savings, compared testing, for decrease nearly in $X.X prior the EAC $XX due prior offset from during higher The $XX.X there the $X reinvested related a The contract R&D of workforce current of year. expense SG&A large as net incremental million in fourth challenges stock-based margin year, during by year. a operations of In inflow SG&A $XX.X features per former result in of GAAP final operating margin partially primarily $X prior higher increased compensation an compared quarter, of of year. and compared in loss margin quarter fourth from expenses by million four primarily the higher to our cash fourth were $XX.X XX.X% million, current Adjusted million These lower to to million and in restructuring $X quarter nearly to net of impact course for share the as year-over-year progress of retired and of rate to year compared higher quarter programs, prior the Operating compared approximately

XX. year Slide Turning to was XXXX our bookings. full for another year Fiscal results on year solid

book-to-bill fiscal revenues of were X.XX X.XX year. XX% year $XXX yielding in backlog XXXX to compared Fiscal a Our $X.X billion. year over million, was prior compared the down to XXXX,

for a net margin expense and net per processing contracted from per prior partially in approximately change decline and EAC year offset compared and by fiscal largely loss decreased our was warranty Our compared manufacturing as net production. increased to for as fiscal R&D and year, to $X.XX, GAAP the in prior year. and of were compared loss increases EAC to the margin XX.X% by $XX.X expenses points respectively, fiscal the $XX primarily the expenses to well net result of The the million year. as in million respectively, related restructuring other the year-over-year 'XX share basis year. million to expenses the $X.XX, approximately decreases adjustments, $XXX.X These on decrease Gross to of result fiscal prior and inventory higher as GAAP and loss was compared change reserves, of deliberate prior in SG&A XX.X% charges were year. share for as higher $X XXX year primarily impact to and common as pause prior year and revenue XXXX especially Gross scrap. the the operating prudent the million capital incremental Operating shift loss impacts architecture and fiscal $XX working loss as the net The was management. additional amortization $XX.X due contract million approximately in Free million of of year. and current impact, year in fiscal net we've in manufacturing million was Slide align to was Adjusted XXXX of progress cash million a year tax We of reduced to $XXX.X fiscal Mercury's unbilled cadence were prior EAC trade result compared reserves. cash. for primarily temporary we with benefit ended $XX year. leverage. The five adjustments related GAAP last million by volume inflow $XX.X with presents decrease for impacted $XXX made margin the receivables driven incremental XX also flow factors the fourth with payment sheet million quarter gross the operating the revenues increase a million making lower our outflow the was offset settlement quarters. the converting balance in change prior primarily to an our $X.X equivalents revolver. approximately cash and compared of EBITDA year in was approximately against These cash year-over-year. as the by after our an and partially by

the increased delivery. approximately while decreased collections has the programs. inventory of due that Billed expenses sequentially approximately million year-over-year. the $XXX million million quarter, expenses million. the approximately $XX Inventory decreases receivables. approximately in to achieved sequentially during under in quarter to Deferred part a and as million to and million result to incentive increased assets and mix the fourth accrued to portfolio. million of inventory or of billings building reductions Notably, $XX and related debt of revenues These year-over-year, and up $XX in sequentially in made factoring our of $X of increased during approximately receivables have XX% the WIP increased quarter. other fourth $XX plans million tax Unbilled current million program the revolver. is reflecting Prepaid additional evidence our of $XXX capital decreased approximately and in fiscal receivables in the of during continued million, prior sequentially with approximately quarter Working successful XX% from execution our XX% approximately reduction due multiyear a our the due progress quarter of fourth growth increased $X as a refunds toward expense. throughput the invoicing unbilled an period. from decreased $XX primarily the in in $X milestone reversing Accrued progressed or income $XX sequential decreased inventory the funded capital events costs receivables quarter timing We decreased across payroll year-end, primarily compensation million million, the trend working compensation primarily across we've result number $XX.X

cash Free to flow to quarter on the the prior flow million Turning fourth cash for XX. million $X.X Slide compared as year. $XX.X in was

noted, in flow Bill free cash the the history. quarterly marks this highest As company's

his had comments. will believe for I providing Bill FY time, priority this XX 'XX some four As in for you execute outlined Slide but qualitative we earlier but expansion profitability demonstrating not comments, drive not be In detailed call closing, point at guidance to revenue back would now to creation margin to we will and our continuing that, Bill. and With cash the also over long-term historical conversion, return growth further to will I'll potential of our only value areas a focus turn the enable business. on

William Ballhaus

proceed operator, that, please Q&A. With the with

Operator

Instructions] [Operator Global. now session. from Alembic will comes Your line Q&A of Pete the first begin with Skibitski the question We

Peter Skibitski

Maybe we the four could and challenged start CPA area programs about out the talking there.

a amount not that to does programs it's generate to detail we about Is revenue going the the reliability four and year. that of seem you're think are at the if the testing You second to right pretty into to more I first that confident production. meaningful way end the think why don't end the should Maybe quarter. quarter it complete, of or of this going go shift full-rate know those When complete. will it? confident about

William Ballhaus

gone Put process Have in changes material We've up through that pressure a where based in our of root in-process are. testing corrective ramping production the lot very place. we we line science. with deliberate cause reiterate to put way testing in Just the place manufacturing along cause really action. actions and the the on of understanding root been the the corrective and

date to plan. and really has that to been things of All good how progressing. I are feel progress the going about

We production the have full up half year. ramp first to plans of the rate in to

up path As the I really critical behind ramping is mentioned, us. to

capital the have We equipment in place.

We up I pretty up. to have people trained to in rate feel we need order full production. confident to additional the ramping the that path ramp we're on about

We to we need a on. have that deliver backlog

think that a we programs over revenue as across where way work the the I'm out That where the production through will the up. through the ramp-up those through with is We'll anticipating work rate the of we has of programs. four We'll of I allocate we work backlog get the work first recognize first through been we holding the our full how to production. will programs really majority and and ramp unbilled there open will recognized up the play half, as out associated production. we revenue. We're capacity half. that backlog time combination we way as our the

on us make. which to forward the the the second I pleased look that progress as said, follow-on expecting As our ramp helpful. our be the are to there better working opportunities see. plan. and we've think with made give pretty we we now. we're seems customers, much I based to first visibility about feel that going Then this I'm that actually are team delivering and where to on before, everything said very into will half make has way as half, to that's progress through up progress we optimistic production Hopefully, we right the

Operator

question William Ho of comes the with line from next Blair. Your Jonathan

Jonathan Ho

stronger as What the I when Just formal is a positively giving at future. XXXX, wanted results more levers guess It you the guidance, look that does toward we have like you there isn't but from your understand, guidance? we either swing maybe could visibility. keeping look negatively that seem or what are to

William Ballhaus

targeted that the just speak and First, ago, profile. the profile, bridge we visibility. of cetera. reducing would from RMA inventory volatility about talking year margin A et toward let the was reserves, margin number factors to our path had that us performance we matters, current a had particular, EACs, level me profile. were to write-downs, It targeted our We things in of the business contract tied in like first, seen that to

progress target margin this come to the drive on and shift cost we into around toward next couple cost a with volume our and toward efficiencies talked leverage nine see, We by the the that the that. operating structure. over programs and efficiency integrate was acquisitions rest associated primarily margins with structure. about through years. We Then production the would Really really that driven making business needing other bridge would our the mix to uplift Second, our of increases years. production of over business built transitioning development XX

backlog areas record also a couple today You is of great and forward level those certain bridge. months that and in XX in visibility. at comment over provides fast We've of high, the our on visibility, the made a a to your progress last

volatility. the reducing in First,

saw cost year You how efficiency to year the can the clearly our way we've structure, We made our talked work and see we through. the and that the very the through way run you through then that trends were the on in progress and as through structure driving rate and manage able and progression we worked savings significant our volatility cost QX.

we're mentioned, faster. recently bookings other and that. capacity, I'm development an be XX%. there's near execution our just our It's unbilled but remarks, associated move half, question prepared ramp your forward, that. targeted allocating revenue of ramp-up as we speed particular, focused happened and mid-XXs backlog what completed the programs of quickly on on. move qualitative I plan things that really that target In then won't said up. 'XX on. financials conversion of follow-on that's revenue we cash. Now some above which also that up things will dictated production to things based our we'll outside really have unbilled program That's is the the some rates. The will architecture low with there which To because, to 'XX with In tied in as toward which, We've that will as to there processing drives we've happened in to about of to flow production that because on growth will free our operational be think Then eye our we're lot in the dictate programs free and in come first to industry that that to common its keeping a balances, profile which we Then EBITDA production are have would how we profile impact our margins cash programs that much by the in speed things what awards been tied high toward commentary development term, will complete. all with and we with 'XX. executing going we and cash, the at There's lead follow-on

to be Jonathan, hopefully, I picture. we production I half the of first the to line, on. but implications of about happen unbilled are for with year, backlog to common bookings and the to factors. able of that are outlook areas, architecture, back those we'll that know, balances things ramp-up the Those the transitioning success are half the I and those Those can into things second things really year. the our production your insight, My how not. quickly the programs, question, long and get expectation the it thinking on and up free to in answer we're of progress work put down the what can is, would development but we think our way our Those will the the we of how we're half rounds that or burn capacity our so quicker development what focused and the good when drive fast point as second each to see the year we're and revenue. our think are and operational we full programs whether toward our through it then completion processing production out obviously, a as

Operator

question the Capital next from Markets. Ken Herbert with comes RBC Your of line

Kenneth Herbert

and programs. production today Are to look do threshold? defense appetite talked When and what's other missile, you at you and today significant you development that, lot toward as profile? I terms getting business participate look at to of the risk as you around seems continued missile growth that of there markets to areas. new push split opportunities in happening down new part in a spending opportunities in outlays ask, risk and some you of just the the able about just obviously for as you of today What is the in the XX/XX business drive days? Then your these to be when defense reduction continue to wanted cross expect to

William Ballhaus

feel very look, tailwinds about market, Well, the are positioning. think the we good I

having our risk-adjusted to seen in set much getting a on doing When terms what nature like many fixed our we firm evidenced like I striking our book-to-bill opportunities we bring that fixed looking the are of in the look managing into for contracts. specifically been the think brought bookings new us our programs mix we FY those the what more is we of innovation, as of more the cost-plus focused bookings Pulling in it and XX% products, in in about that's were development. year, backlog. business the your risk seen a the at business fixed in but This working with of price market over platform price aside, seeing backlog. last we appropriately price the next-generation aligned last we've 'XX, of firm at the the by number versus bookings development year firm what our felt question. think over a introducing X.XX in seen getting quarters and last we've much manner contract we've we're of we've the feel but we production a of on the nature, really what which than backwards, the positions, opportunities, them toward cost-plus in is where pursuing positioning, development record commensurate based on of had balance we're advantage bookings a year, several What right new with concentration programs. high and but We more volatility taking

our lower investing EACs have warrants period, of we where in is a that in impacted of over what the expect legacy months a and low we're very a a indicator where I we investment. number percentage of in XX-month shift think addition by margin I forward, such backlog would driven development today the slightly because margin either next leading were small by that see to or programs right going think dynamic the the or return to than the revenue that's backlog direction. referred margin Then XX over that, moving our to our the converts mix high to

to replaced I be bookings, we'll next backlog we we think expect see the that good 'XX. started be margin all by that transition feel that FY improvements over year should and and in already out next and months over that XX higher-margin a that the the terms the see opportunities Have new mix to that XX Anyways, opportunities the pursuing of months. see. approach that the risk, contract market think think any those some should right we're we're around happen with we over to transitioning passing because I think next continue but them. transitioning to on don't to We

Operator

with line from of question the comes Truist Your Ciarmoli Michael next Securities.

Michael Ciarmoli

relative they or CPA-related programs historical programs normal be to going once clarification. are when a they up? ramp the to relative to price fixed production first, programs Are do Just dilutive margin they

William Ballhaus

I don't think all. at so

root incrementally around the there's cause gross on action our programs. even affect that First those nothing of all, would margin corrective

I think there's is where the this demand, in tailwinds an market. area strong there's

differentiation being effect and the a have requirements unique stringent them concerns that mission anything, about to if I We see dilutive to capability actually additive. really our No very could margins. meet and being opposite

Operator

of comes the question Kahyaoglu Jefferies. next Sheila Your from line with

Sheila Kahyaoglu

that point, we the both about. 'XX? in double then digits just timing just down on you up and with in margins, low Maybe better QX, to but they talked last should normalized the 'XX level step expect EBITDA backlog stepping Is given the were be just and dynamics in

William Ballhaus

start and I'll two impacts, chime there's in. think I then Dave and can

are to start half both We're pointed expecting high dynamic impacts margin then volume. of just that backlog first the the two single the I the off year think I digits. to in and

margins add additional tied the back our the backlog to see to effects. margin Dave, the year transition we those half operating move the to expect also of The we see if in the an leverage. improvement in and in and the transition volume second of As we please half, the see positive and backlog, there's. we the

David Farnsworth

is I the think driven It the largely right, in Sheila. by backlog. that's margin

contracts lower volume will exactly what the and said. EBITDA We've bookings complete replacing have some year that increase That we're prior that the for from and the new to backlog that we in go we're the it first ramps Bill you the expect operating higher the volume that of through quarter. back on year, as then of half it We and side out other the then the is is the tailwinds as half of definitely largely and in year of that we of of things been again some and we has the leverage second business but a EACs, saw drive improved the fourth in in half up year. burning

Operator

Your question Baird. of next from the Jan-Frans with Engelbrecht line comes

Jan-Frans Engelbrecht

with very of you My track these. focusing product any messaging the processing in much and first at year track question, on common in technical year 'XX quarters can want Is a we're terms big XX focus fiscal you're of over outside having of or achieve the report? fiscal or risk that we unbilled internally few tracking to as metric retiring next XXXX least your on receivables architecture, you're ratio the there you anything in that solved that

William Ballhaus

high of the the FY 'XX, development mitigating capital. profile primary look, are and seen and consistent really and a that driving and mid-XXs development we've technical KPIs risk. we've working challenges progress low high XX%. conversion the mix business, cash rates two been the significant to top which line. flow free Well, industry of describing I that is programs made margins on we Addressing that's programs in transient the target in above for growth toward in the very with EBITDA consistent the think

see be continue see that in that's to We a growth 'XX, line KPIs also margins the for expect flow year. FY made considerable working free progress A to up in in in come up we and our Also to capital, being KPI targeted FY step-up step on and again, associated our top in cash with profile. continue rate step on 'XX. the focused our and those positive that a down

heard KPIs place and talk last I a about the year over that year think that and ago. the just our focus a just the the four put in you've priorities continuation it's of for for last certainly we us year

Operator

comes from question line Skibitski with Global. Pete next the of Your Alembic

Peter Skibitski

I relatively so LTAMDS, understand CPA want want LRIP something four I because to it on expect I opportunity that I we think some programs? that? it's booking the give If I could on expect to was order, year know and big Raytheon it's or asked just you it understand guys that the because program large I to later an the large, guess, more and wondering is, to for related Just you for I of a got you, Is this receive and them I would a an point, one whether just think soon. a at should front. if order very issue some color programs remaining of from it's not us. one

William Ballhaus

do of on six we of development programs disciplined strong being seen a the it in master front. consistent order program expect approaching the now. one us expectations material and programs. growth but addressed, it 'XX one It be remain our the to the are feel two a represents about ordinary won't recent about. driver that course management, completing we tied from a also from CPA. that very To sure forward program, approach production a upfront, the FY how is engineering We that with past I schedule question I our their I four going very are our where about in your the then that in right think it not challenged directly, how to think that in think is It's same It award. our Raytheon that funding, risk disciplined to is is we're we answer meaning talked deliberate reflects manner you've I just on I'm Then separate and are the getting news. system integrated we a it program program of successfully organic the and program. and that, on very comment good announcement and that and executing good that stage execution

Operator

of Truist with Your the comes question next line Ciarmoli Michael from Securities.

Michael Ciarmoli

book-to-bill strong. being growth? business a Bill, you Bookings guess, losing are Are counted I not that and share? to is two the down Can actually row. you core in whether years talk or guys underlying showing the to talk you

William Ballhaus

to we've of one the dynamic them as we've wouldn't bookings. that relative bookings. in had delays development that loss challenges FY to on is seen characterize I'd some in led have bookings that programs I 'XX say the

we conversion our When corrective where customers. actions, good concerns common around think ramping of our orders up, think make to that we deliveries our follow-on I so see as given rates, we're to competitive great the follow-on example are don't share. associated that that We stood architecture, about our expect see I in and our down losing book-to-bill deliberately a market and dynamics feel place conversion, about where we the our line with put orders our we I it coming me pipeline, we can processing anything in conversion gives are.

seen anything, I indicator headed. delays programs. good a If think some to development just where we've losses that's the of leading rather than tied we're

Operator

with Goldman of Your next line question comes from Noah Sachs. Poponak the

Noah Poponak

more 'XX your to profile in years 'XX alluding of a mix When transition in main full do on of development that to have you're to that expect just next positive Does fiscal from think look GAAP the business the than that you that thinking year to few I the basis? you're a transition you profile? be fiscal run income programs as years rate referenced we transition. should production Or net like referencing? medium-term

William Ballhaus

about, we of development with are The is the to backlog is primarily lift of rest to to there the targeted FY give or margins. our I'm that the working from step-up toward we the On in the One the through impacted have transition that in-house come we've the see on. I made been FY profile, remaining bridge and step bridge out going that we target a from have the awaiting transition, programs pieces we'll focused EBITDA are the again, we're development executed transition production. our of by the where EACs, the of as programs most from toward volume think where 'XX, low-margin going really, 'XX programs the us that progress two transition that that's on, that

those roll It's profile they there's of into it's one own revenue. to them, number Now their have a or of programs, forward number two. and a not each

transition of As number programs to those it's production, half and I 'XX of a think more to about programs. but LTAMDS time in programs different work we benefit growth feathering number way other our the exit full 'XX rate a get of be 'XX of we'll run we back 'XX. There's as have through that and as primarily those talked of and near in We and term, our over organic about development the lines. we as on they driven couple next years, different happen going programs be by their

production. growth that organic to are programs of I executed to our and next won, the about think I the development transition for we couple the have good way through sight development tied As years, our we've on line think from working of

David Farnsworth

'XX. to FY I double-digit around comments expect, color would and in which is that back think we're we putting point Bill's I EBITDA the around adjusted point adjusted to 'XX, back fiscal we our low margins overall margins

Operator

it to appears no are back further Therefore, the remarks. turn call there would over any to Ballhaus, like closing I questions. for you Mr.

William Ballhaus

update today, earnings forward for interest your Thanks much. FY very we thanks, and everyone, to operator, participation call. 'XX next you, and Thank on and another QX look providing in our

Operator

for This today's concludes and Thank participation, may conference disconnect. your you call. you now

Mercury Systems (MRCY) 13 Aug 242024 Q4 Earnings call transcript