MRCY - Earnings call transcript Q1 2025

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Operator

Good day, everyone, and welcome to the Mercury Systems First Quarter Fiscal 2025 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, Dave Farnsworth. Please go ahead, Mr. Farnsworth.

David Farnsworth

you us. thank and afternoon, for joining Good With Officer, Bill is our Chief Executive Chairman and Ballhaus. me today

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

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

William Ballhaus

move FY Thanks, I our results afternoon. joining and or positive 'XX FY our we first, you line year. I'd with improvement our Dave. QX in on on Today, earnings X to focus of continued through look like expectations, momentum, our business and delivering the Thank We 'XX to results. performance as comments forward call. with started topics: for introductory Good ahead discuss fiscal some

update and who engine, free X and for our areas: improved building will priority cash through of margins it third, growth longer Dave, expanding in detail. more a turn performance, FY in an walk thriving driving performance term. Second, flow; delivering and each over 'XX Then I'll financial results our to expectations predictable

thank our most trust and in our Before and jumping Mercury their and the delivering put customers collaborative to for critical they flow. I turn cash programs their strategic processing on delivering team in, mission-critical their support free to X. I'd partnership optimistic expanding to dedication like out for Mercury positioning at margins predictable edge. with our and the of Coming robust and QX, our am Slide commitment growth Please expectations to organic about

turn Our of progress were leverage XX% drivers cash and of expense, negative progress flow on million, million, book-to-bill and billion, $XXX.X to quarter QX or with bookings production, million, enabling rate in increased year-over-year. execution in architecture areas hand. flow our a up area $XXX.X across capital progress year-over-year. XX.X%, of down results improved full free first continued ended X. of million We $XX.X EBITDA up toward QX expanding with results year-over-year; generally of adjusted up of $XX.X QX margin year-over-year as of X.XX. QX our adjusted year-over-year each EBITDA million our XX% backlog record revenue over operating working $X.X XX% Please positive net highlights include processing priority and our focus common QX expected. of These the on solid million cash reduced and $XXX.X $XX X QX that operating $XX.X year-over-year notably up up portfolio substantially cash to free reflect both Slide million with XX.X%. with and most

first, impacted In with to in priorities starting and results predictable delivering X predictable X performance. positively our performance our the each primarily focus first of areas. Turning the on quarter, delivering our

revenue to to that be 'XX, believe million items, progress XX% continue we make several change transitory EAC discussed million of mitigating on $XX $XX what portfolio of the million items $X inventory million. In impacted including have net from we $X in QX we quarters. QX and reserves. approximately $XX First, million gross and across margin our approximately we QX impacts recognized FY FY over million by 'XX, impact last approximately down These by $X predominantly of

are these still than see, the by to execution in the we processes predictable management, and toward reflects program lowest operations. progress our Although quarters making would maturing items we and in greater engineering of like the X driving is and magnitude

full Second, we to our in quarter, in progress production rate continue the ramping architecture make product area. toward processing common

production through a this focus We QX. Notably, contributed in receiving online quarter in capacity half an $XX and XX% year-over-year revenue reflected the improved majority Slide million the primary quarter. expect year. the our driver second to follow-on of performance to of operational driven by third, as for turn deliveries in $XX the over million Please X. The delivering generated was our year-over-year of And year-over-year in from revenue move customers on the deliveries revenues. point-in-time point-in-time have increase as growth, of accelerated to progress we of orders full increase the acceleration in which was our our

line is XX% is focus a XX% over which leading good in billion, the of believe we growth. our year-over-year. now over bookings area, shift nature, $XXX.X mix bookings that In Turning driving million indicator QX QX were record expectations, production production a of second resulted our in $X.X organic of with toward to up backlog continuing.

regions employed the sensors Air align view order follow-on only support in our And noting. on Navy's ramping to is boards this a against hundreds Please million quarter production their to for a we area, U.S. approximately order of the what being turn in hostile common threats. off in of for in and rate our follow-on in provide fly contract, of be boards they much in U.S. will used that processor critical X-year made missile multiple to follow-on delivered testing. defensive in deliver production Naval unique RF employed of and and a at programs. full multichip A a engagements $XXX.X those contract was Mercury production. from on electronic know record well worth Force Slide A umbrella large because franchise edge defense key the system a reflect transfer and Corps of Command processing the most large as customers be growth where to trainer module Mercury record, carriers. A X. priorities developmental capabilities their which source CXI. with production will program because demand instrumental but order large avionics a boards. and trajectory, U.S. improving secure the key we continued X,XXX of new strong awards data up the wins systems Some naval providing a assets. sole the also by Mercury airborne in used the are our the QX architecture from solutions between which Force continue and providing Air award program worth facilitated for data aircraft, effectors, important enable We A of displays T-XX, operational progress critical is in Systems Under that transfer has significantly is Marine of to not Mercury on toward provider Air These preparing readiness mission-critical to which customers' order aircraft, ground production as integrated contractor as from for heads-up markets, our device. in where already aviators trust FPGA for impact aircraft, Navy with processing aircraft a that prime a their warfare, for including growth value planners to

Now turning our to margins. area, focus priority third expanding

line we're pursuing in levers are by efficiencies. Executing Gross to margin programs our EBITDA organic mix production EBITDA to XX.X% the cost into adjusted discussed and margin and following development back on achieve positive adjusted these margin minimizing in of average backlog margins to expectations to the development on range, toward coming programs. reach largely our targeted time. targeted to the 'XX. QX driven levers. expectations historical our Driving our and operating our prior impacts, generate indicative calls, of in effort we've getting and with more was growth in of growth was XX-XX line achieving As in our focused our on we each FY a progress over leverage in efforts with our XX.X% margins cost low of of mid-XX% in

go-forward see development and small coming out margin we last As by was driven basis, our than a adjustments primarily to 'XX. programs that FY we backlog EAP a what low-margin of expect lower discussed adverse in quarter, FY of incurred 'XX on programs number

expect are the to did current increase margin year-over-year accretive result QX R&D operations. average streamline continue other targeted focus 'XX we believe FY as that down specifically line as of margin actions our expenses, we new with we be as a margin in profile and to the will to significantly in our restructuring and implemented We bookings bring to our in in going forward backlog and in and backlog. charges Operating

resources of the customer-funded funded internally and reflects to toward contracts increased completion drive streamlining Additionally, of activities to accelerate QX and R&D efforts completion development allocation and deliveries. customer to an

activities increase platform. our Please I levels Mercury progress Slide group to the expect ramp forward, we R&D turn Concepts targeted as to Advanced incrementally efforts innovation Going up and X. processing to across fuel in on customer-funded

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

the particular, continue net in drivers in We on progress reducing and cash to free working of flow capital. make

net Notably, and cash in is occurring impacted to reflecting or timing $XXX progressed $XX.X in increased balance year-over-year down of capital inventory is million cash up expected with XX.X%. year-over-year, XX% down flow year-over-year. Inventory inflow were to working million partially capital $XXX.X million $XXX.X by WIP $XXX.X early an working QX from net our mix QX, $XX.X is Although $XX down free and is million materials delivery. QX million XX.X% of million, an raw toward from million

contract in X. improved invoice is to and improvement material on down will While sequentially, on just-in-time year-over-year million forward. lead by customers order this hardware cash increase believe free flow in our capital are an XX.X% inventory and timed working progressing million, terms receivables payment and our revenue, sequentially appropriately focus reflecting or increase program in programs focus offset and our Unbilled for Slide down to to delivery, deliver $XX.X is terms. and reduction turn, up execution We going turn collect Please deferred and continuous performance our which improved related $X.X reflects in continued cash. our to

in mid-XX% position mission-critical adjusted the edge over leadership Looking ahead, deliver to time line processing of profile in our delivering am about in of I expected optimistic the XX%. range target margins ability low line our to team, results above-market free and growth, flow and cash conversion our at our with EBITDA top

As I we guidance FY discussed. for discussed last year the be in we the providing quarter, reiterate not color this previously we specific will although early 'XX, will

pleased QX, acceleration Although largely with that first we from deliveries QX, be we will revenue into the revenue customer and in last expect year. half are line of with for to approximately the continue

to with exit basis, For we expect we go-forward gross to in quarter, FY current to fiscal EAC development number flat discussed the primarily relatively backlog programs incurred last see by driven run programs on adverse a our that we as lower margin would respect FY and we as 'XX. expect increase continue With a revenue an be is in 'XX, adjustments low-margin small what of year. margin, to rate year-over-year than

of range then half single-digit year production. the the quarter we and adjusted and with for encouraged continue the are our our shift continue recent margins to we that low EBITDA bookings EBITDA in accretive overall as margins expanding high for margin, second in expect development adjusted FY are Although the double-digit half backlog overall our we to efforts complete to lower-margin 'XX toward first mix

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

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

David Farnsworth

Thank you, Bill.

of were our organic ahead margins As our toward with line and is results or our cash deliver of business goal work solid flow. but far, predictable free so we of encouraged expect fiscal XXXX. made robust in Bill during the lot more noted, have growth, of a There to progress continue to still done, to results expectations to transitioning year we the are performance our transition by efforts reflect expanding be by previously quarter and progress in the half financial become characterized first our second we apparent and

that, full to additional Our continued in turn performance, key details areas production milestones which This toward achieved is common rate record please XX, our the we our backlog. and quarter our progress architecture results. With continuing making includes priority few in improved operating first during Slide quarter. processing in expand highlighted a our that delivering ramp first to by our progress

to $XXX for XX% the have first continued book-to-bill $XXX $XXX or Revenues up revenue point-in-time X.XX, higher a of of $XXX were $XX million, million bookings improve $XX the of QX of our backlog for prior driven we increase with $X.X year-over-year. was XX% million a accelerated primarily largely million to quarter Our the million. from operational quarter by as year The million, up billion, yielding or were performance. compared

last we approximately Gross impact lowest change noted, quarter X $X prior These lower of the million change decreases during the was driven EAC reserves approximately were by quarter compared change for in primarily gross The As in fiscal million EAC experienced quarter. of Bill gross quarters. as XX.X% the of first the quarter in to quarter the the decreased year. partially current $XX net impact current the manufacturing EAC to higher $X from of margin decline which net in first XXXX, the and XX.X% in margin offset net in $XX was margin impacts by inventory million. million adjustments to

remains for per EBITDA million XX was share to in lower prior the the the the employees, backlog actions compared loss As was see Bill share first prior performance to average earnings losses prior $X sheet approximately quarters. respectively, year-over-year $XX.X of to approximately in with in X first improve increase prior our to ended prior of the GAAP part while year-over-year, continued of R&D operations per million $XXX an in year net as as compared improvement outflow million supporting to approximately due our time and suppliers. of resulting improvement the On which largely by in increased than of million to $X to million, XXXX. billing the Accrued under million our other basis, $X.XX, the Billed respectively, of primarily and milestone loss year decreased by sequentially milestones decreases XXX $X primarily additional year. of and per the for material were deferred to were year. earnings by approximately receipt first as by drove sequential was year. the payable throughout on decreased million was approximately primarily a GAAP incentive we year. X% quarter for primarily driving Accounts as mix sequentially $XX Deferred newer was to charges. expect net an reflecting on compared presents approximately These $XX.X $XX prior driven in R&D in the from taken year-over-year prior approximately can or of approximately in flow and our activities to year higher of investments sequentially, improve milestone in reduction Free payments to $XX year. and from a quarter improves, $XX result a These fiscal decreased approximately period. expenses Operating revenue million headcount year. our adjusted increased of cash and believe decreased fiscal Unbilled compared quarters plans outlays. $X force driven loss the $XX $XX the compared sequentially. year-over-year the sequentially as increased of focus million, deliver receivables to increased is our million material billings by compensation driven million first The increased million sequentially, for the result and the quarter, as driven per continue of by we've were by loss million in Adjusted by approximately simplifying restructuring and operations. increases decrease Adjusted period, basis driven sequential our fiscal increase execution of capital, expenses successful balance performance prior million year. in expenditures. impacted from of The by in milestones year-over-year increased free the cash cash $XX the in ahead, we across as our We loss contractual almost billing inventory approximately due primarily margin WIP the X compared Working used cash approximately trend as previously $XX to in million, The net cash receivables to inventory of Mercury's more $XX multiyear operating share an working and noted, a $XX progressing capital lower we outflow the The respectively, the portfolio. used lower area $XX costs flow revenues $XX.X reduced continue receipts consolidating in to quarter progress $X.XX, in approximately a we approximately current reductions Inventory year-over-year the due timing invoicing, by made reversing $XX.X at our our equivalents result the cash margins. during million. driven capital growth the with by aligning share million operating in $XX.X year an compared unbilled over in million, $X.XX by is reductions capital million $XX program toward and million in million in primary cash approximately first improvement. shows the primarily quarter achieved The a million events $XXX but $X.XX to decreased and as in related was current expenses. Slide year-over-year. expenses, and highlighted awards by in expenses by million margin delivery. payroll Net as primarily receivables. up primarily working payments decreased XXXX and last

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

negative in quarter resulted timing Bill while performance some free experience delays, expected, flow which this cash being some the did noted, was As the pushed into we quarter. during cash second flow

you for of the but higher creation back will that, priority predictability cash the fiscal turn in business. qualitative outlined Bill. providing Bill demonstrating will the will not only and with long-term X the call not in to year revenue growth result potential business. earlier conversion, of of margin areas In some this drive further at point profitability, pleased Slide focus execute the over to time, solid but to With and year to our detailed fiscal we guidance I'll and are comments, X our We expansion value I for start the on also XXXX now we continuing comments. his closing, believe level would As be

William Ballhaus

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

Operator

of [Operator with Instructions] line Your Global. first question comes Pete Alembic from the Skibinski

Peter Skibitski

Or challenges processing in Bill, just And you could for before get you're into a you of term? reduction? on if get those give still quarter give architecture the programs we just a trying second color past more the I'm maybe Just up remain what more yields feel common on trying to to feel that call are rate there. them do using go some challenged you programs? full us programs?

William Ballhaus

a mean your X quarter-over-quarter the We using pretty moved the programs made We of quarters. reflective the in like we some I out away associated think we first. last that pretty closing when really was couple with with much term. just part of then the left risk. had I'll methodical progress talked systematic that question we I in it second start CPA. those how we where and And we that's progress line about made And the it programs. And course year, had ordinary with last risk left Yes. we felt from over

So those don't made we programs. we such feel like about to progress we've that need talk

put say common the architecture And we and in now. quarters ramping a that full root cause toward We've rate is production, the halted action, line, this place, pretty plan. On processing plan we're initiated that going in we corrective the progress back production. the the a our of few much up from time executed to we I'd and

before, resources and mentioned in I've trained the As place. have we

have our ramp we and capital being this in rigorous We in just very how We're up. methodical place.

this production we we place got indicator the corrective sign felt there we prior I I the on full rate positive happen the topic. was to some once And we become was front. that's like the on follow-on is that made to quarters progress working, for in and action the think was and color another that closer quarter, positive to of and that our possibility saw think awards which in alluded of another in quarter, unlocked. we potential Hopefully, helpful the that in demonstrating

Peter Skibitski

me. appreciate Yes, last I one just And it. for one

here the cadence quarter. pulled first some the the revenue sounds into first get on like half. had forward in It wondering you was Just

could for That's half? year-over-year. well in us. it. the be I So sequentially Does wondering second a step was if clarify gross down take just probably down as quarter the margin second quarter that probably the it in second you the before will ramps

William Ballhaus

gross back I provide and and volume. let on come the then the margins, I'll color a address little can Yes. maybe Dave

David Farnsworth

Yes.

is, you that find were what digits, high think we though I expectations single to slightly bit would than we QX. what think the in had resulted in in, And being about of volume talked the you see last operating and of is higher in quarter higher have our I and being were EBITDA margin as a pulled even gross was not. that which higher a result able a got leverage, we

so much we wouldn't that still expect gross And margin lower ends of we as operating would standpoint. volume the being QX, have the impact from a if an up would realm be in from in leverage, same but it

Operator

Your Arment of Baird. next the question line comes from Peter with

Peter Arment

do think those see how about, to that Thanks challenged made kind color unwind. think, before other all But plan. to tracking And programs? the that it? How had processing they about the of programs kind on are able the for we start you half. common But obviously, on kind eventually kind longer It of to you've you've all talked that's these about the on risk were the of like how be retire progress when your all that to the in? But will do how we into CPA always architecture. get think to like start about them unbilled for you in sounds no to I ramp wait other unbilled. production second layer you'd of sounds It

William Ballhaus

Yes.

time. I think about that's of just it over in happening transition terms a

expense, technical there's that also our that's ramping And development production. programs I'd phase transition an production. which developments, of then resources and and on up in. we're the the reflects completing to programs, point many to our out engineering into of allocation closing development those the a our we're As operating

generally we're ramping program, process down to varies the phase where beginning I status we're of and the would that but production. the on developments by that So say program in transitioning

Peter Arment

follow-up. That's a super quick helpful. And just

and guide? Just it's good your obviously, going back a that not to quarter ticked XX% going down come incrementally of is kind back. you said mentioned, as historical your to revenues? Is it Or of then you R&D, this

William Ballhaus

development but incremental major I we any that Yes. an I innovation capacity do investment incremental don't our front have on swings, down expect in our on programs then some just expect in across on make increase the ramping platform. and the movement to progress as processing Mercury way

Operator

Your the Seth question JPMorgan. of Seifman from next comes with line

Seth Seifman

up, comprise at when I processing of at get the CPA kind we that rate about point full want production? will mix to common to programs how they're portion of ramped programs related the do when ask that architecture the think

David Farnsworth

Yes.

we think about what a the majority things is spoken portfolio the of exactly not percentage I specifically -- they're haven't are. any of portfolio. these Nothing of

a XX% of breadth and XXX-plus in portfolio. contributes And revenue. itself no We have across program programs of the of

bunch So various of it across is a programs capabilities.

of expect So it to move we you we about, this, as did And second around the talked to that a is, production saw activity Bill year, revenue. be and half impactful as year. last significant increased contributor see booking as we throughout the

Seth Seifman

you said orders? guess it $XX follow-on -- So million was of -- said you I

David Farnsworth

Correct.

Seth Seifman

So right? that's about QX, In XXX.

of lower forward. in when it But of of going So XX% revenues about going CPA-based much are programs. where than that It's it's we forward, terms bookings. like future about it's not think revenues XX% sounds future the something

David Farnsworth

Yes.

much it is that total. not much you conclusion. or the how out much it's less that mean more than. I And I that would on that to not I don't that I think specifically make for think conclude calling of we've than commented there's we're enough

Seth Seifman

definitely the and the the 'XX also quarter a second low of meaningfully saw from sustainable about remainder Do year. a of up And down was then in year. in just of of SG&A is kind of for QX then last the think we as half follow-on, levels the of kind profile XXs on we go-forward quarterly there? popped kind basis? the a Or that similar it kind number low of

David Farnsworth

cyclicality to half. leverage expenses the historically But of second Seth from seen just of Yes. operating the we throughout expect improve in do the you've our that us. there SG&A, some some happen. It's is timing as

Operator

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

Michael Ciarmoli

Just Pete's to a point of clarification back first question.

just The I sequential and to think revenues a kind of always conservatism, be that but should appreciate -- in we expect I down range? mean, first the half year-over-year? XX% to flat flat, from

William Ballhaus

I full the of run is to we year. line for thing said first rate out our be really what that exit expect Well, think revenue coming the in we roughly half. in focused on The the the year, is we're

With the 'XX. things rate the that half, the really really, and we're coming of impacts we focused the of our it we're first focused first leading priorities, on year on, of half into in our that drives 'XX out focus the how of run X make out and coming the that progress

now. last But where really our what said But on run line pull little into rate of driving have roughly exit is from a our coming focus that's year, in with that focus year. right and we the bit out is So really half QX the QX. we of did appreciate forward first is

Michael Ciarmoli

on maybe can end margins with out guess the capacity then And way that the in it. what gross us of you quantify? the I kind overhead mean, you are year? any to just on on of through run drag help get the there mean, I architecture, to full absorption, if is volume common on just full exit Got now rate, getting I the processing

William Ballhaus

rate, thinking and drivers Yes. the that about the I'll run on things our it as on exit with aligns comment priority I focus. mean that we're

the down the drive to continuing common production. up to full it's business, getting the architecture volatility processing first, So rate line in

our we're being to in how them content. backlog have that able progress margins, higher do on a new profile. away line little and to low-margin bookings. organic very unbilled allocate our a have talked based Also our good our we programs capacity our it's a last to driven and bookings the on go-forward some It's being year. the we'd bit basis, our this by on we capital margin front over deliveries the EAC on it's dynamic of with also mix programs aligned the with case, from bookings than expect backlog our and accretive target on from on bookings impacts increased balances margin that about revenue with large focus. in in target working to Second, are revenue margin that and that little the feeling And we the and about growth on development the lower and see And what make of coming in

the on we've So That's line going I nothing I run bottom really to just both the mean, velocity areas there's plus. and rate the are coming those and said. line. And that focused drive out the of been for year, our year what are in new last our top on what

Michael Ciarmoli

Got it.

Just I'll jump off. last one,

Just see production the especially new a on bookings to about gross the of of I'm above do legacy margins you level? talking program, getting, at that sight that kind mean, line I maybe you're or CPA and those if bookings. not it's XX% core

David Farnsworth

is mix, bookings And spoken about have I production the those toward even is is QX too. emphasize the seeing We going to as Dave. in to We're mix helpful heavier in well. just other margin activities. think I think in it's see target this Michael, production. I'd those on QX expect the here have an we that add production, quarter forward with which what be and been as and for that indicated, margins our line that, model Bill do And seeing we story

Operator

next line Conor comes with the of Your question Jefferies. Walters from

Conor Walters

Maybe 'XX. mix the on sticking great programs first This the the in clearly from mentioned be fiscal bookings, seems production here throughout making the given progress XX% you to XX% price much quarter. with you're fixed improved

this clarity mix that talked sight if provides for on normalization curious So previously. timing or mix line that of better any you've XX-XX of about

William Ballhaus

Yes.

quarter. our had firm I And production. bookings greater overall pretty a we I than quarter, this XX% think were of fixed price mix heavy think this

price certain a indication production. which think mix. further bookings, XX% But did was were So I our an in shift the of overall last our quarter, in you that bookings, just can case, -- say fixed is amount the this it of we firm of

David Farnsworth

seen a of XX-XX the there really think crossed, Bill in I when point where is second significant manifesting those year. in that is from standpoint think as I magic the the the -- of we've should And a activities itself Yes. production said, be half shift,

ourselves we've we So see absolutely the discussing. moving direction been in

Conor Walters

That's very for me. clear. And then just more one

to over think And that quarter. as of look progress into standing R&D more next? how whether about the we just of the the thinking improved we should since at we funds Advanced about truly this efficient is or As much make duration Concept with the you've this recently, groups the customer spend, year be spending sense trying up made

William Ballhaus

Yes.

think a I combination it's of factors.

have some completed projects. internal We

it through are and These some free incremental the target expect But don't I as up in year, adjustments. And our see we streamlined as we'll you and we're think more increased major and customer-funded see resources programs. focus. lift able to an move We back earlier, programs do internally have QX, production the innovation. funded development definitely could toward in incremental on allocation I said swings. R&D I

Operator

the question with next comes Ronald of America. Bank Your Epstein of line from

Ronald Epstein

still terms it maybe your that, seeing ones. about A in talk and How And there so didn't have an kind of what's And retaining What suppliers? mean, across supply the and and enough own going? Because quick workforce them I chain You or follow-on a couple as workforce much. you so seems supply of is folks are on having in too and your issue. industry, chain that are your not? of to that and been on with forth? going challenges like

William Ballhaus

I not I start I'll and constraints very the always I workforce on we first. either significant in with the now, point, constraints. chain do, the we're central mean everything right would I focused areas, our talent at mean are supply X but Yes. on they're we say or that workforce on that any our see those to organization. don't focused but tied seeing significant performance current to

David Farnsworth

Yes.

add lead supply from of we've Ron, haven't this a been. beyond an would seen I elongation where of I we again. think Dave times I is perspective, -- chain would kind

get felt that. we hey, this do go But systemic we I there's to can haven't things got thing and not there a mean, that? accelerate out, We pop figure point. How say that at I seen up that? are occasional would we've that we Yes.

Ronald Epstein

more, we line time? Got think kind it. that income your out would your should thing? of expect cash we when I as with if maybe net of over And then How more kind or can. we And that one in about EBITDA flow generation free go

David Farnsworth

Yes.

we positive a significant had recall, quarter. very you As cash flow for the fourth

as discussed, in QX. second ago. into the or quarter, from a much Bill negative, just have were we would very of but couple a were quarter, and fell first that positive start of The the breakeven year things timing-wise improved we been There

the be a have expect free -- we believe We talked to consistent the second is to that business cash positive a year. first expect positive should flow half. we this be for than about generator. half be And and we've stronger and will

Operator

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

William Ballhaus

taking Krista. and join for everyone. to quarter forward call, to you from care. a the Thanks, 'XX our QX Well, FY update time now. thanks, Okay. us Appreciate we look earnings another Take

Operator

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

Mercury Systems (MRCY) 5 Nov 242025 Q1 Earnings call transcript