Mercury Systems Inc 10-Q for FY2023 Q2

Mercury Systems Inc (MRCY)

10-Q 2023-02-07 For: 2022-12-30

Added on April 09, 2026

About this 10-Q

Mercury Systems Inc filed this 10-Q on February 7, 2023, covering the quarter ended December 30, 2022 (FY2023 Q2).

Headline figures

Quarter ended December 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $229.59M; up 4.2% from $220.38M a year earlier
Net loss: $10.92M; compared with a net loss of $2.64M a year earlier
Diluted EPS: -$0.19; compared with -$0.05 a year earlier

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Massachusetts		04-2741391
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

50 MINUTEMAN ROAD		01810
ANDOVER	MA
(Address of principal executive offices)		(Zip Code)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	MRCY	Nasdaq Global Select Market


		PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of December 30, 2022 and July 1, 2022	3

	Consolidated Statements of Operations and Comprehensive Loss for the second quarters and six months ended December 30, 2022 and December 3 1, 2021	4

	Consolidated Statements of Shareholders’ Equity for the second quarters and six months e nded December 30, 2022 and December 3 1, 2021	5

	Consolidated Statements of Cash Flows for the six mo nths ended December 30, 2022 and December 3 1, 2021	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 6.	Exhibits	39

	Signatures	40


	December 30, 2022		July 1, 2022
Assets
Current assets:
Cash and cash equivalents	$	76,944	$	65,654

Accounts receivable, net of allowance for credit losses of $2,070 and $2,074 at December 30, 2022 and July 1, 2022, respectively	145,855		144,494
Unbilled receivables and costs in excess of billings	333,491		303,356
Inventory	311,976		270,339

Prepaid income taxes	—		7,503
Prepaid expenses and other current assets	28,615		23,906

Total current assets	896,881		815,252

Property and equipment, net	121,989		127,191
Goodwill	938,093		937,880
Intangible assets, net	323,434		351,538
Operating lease right-of-use assets, net	59,671		66,366
Other non-current assets	7,884		6,188

Total assets	$	2,347,952	$	2,304,415
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	87,221	$	98,673

Accrued expenses	30,203		34,954
Accrued compensation	30,456		44,813
Income taxes payable	13,421		—
Deferred revenues and customer advances	39,274		15,487


Total current liabilities	200,575		193,927

Deferred income taxes	12,713		32,398
Income taxes payable	6,237		9,112
Long-term debt	511,500		451,500
Operating lease liabilities	63,694		69,888
Other non-current liabilities	9,141		10,405

Total liabilities	803,860		767,230
Commitments and contingencies (Note N)
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding	—		—
Common stock, $0.01 par value; 85,000,000 shares authorized; 56,365,078 and 55,679,747 shares issued and outstanding at December 30, 2022 and July 1, 2022, respectively	564		557
Additional paid-in capital	1,173,026		1,145,323
Retained earnings	360,519		385,774
Accumulated other comprehensive income	9,983		5,531
Total shareholders’ equity	1,544,092		1,537,185
Total liabilities and shareholders’ equity	$	2,347,952	$	2,304,415


	Second Quarters Ended				Six Months Ended
	December 30, 2022		December 31, 2021		December 30, 2022		December 31, 2021
Net revenues	$	229,588	$	220,380	$	457,167	$	445,393
Cost of revenues	148,628		133,158		298,112		269,762
Gross margin	80,960		87,222		159,055		175,631
Operating expenses:
Selling, general and administrative	45,057		36,810		84,000		73,766
Research and development	26,906		28,335		54,672		57,217
Amortization of intangible assets	13,536		16,002		28,110		29,736
Restructuring and other charges	2,069		3,802		3,577		16,076

Acquisition costs and other related expenses	939		2,660		3,437		4,798
Total operating expenses	88,507		87,609		173,796		181,593
Loss from operations	(7,547)		(387)		(14,741)		(5,962)
Interest income	220		5		249		14
Interest expense	(6,590)		(1,094)		(11,137)		(1,689)
Other income (expense), net	846		(1,318)		(2,799)		(2,738)
Loss before income taxes	(13,071)		(2,794)		(28,428)		(10,375)
Income tax benefit	(2,151)		(155)		(3,173)		(596)



Net loss	$	(10,920)	$	(2,639)	$	(25,255)	$	(9,779)





Basic net loss per share	$	(0.19)	$	(0.05)	$	(0.45)	$	(0.18)





Diluted net loss per share	$	(0.19)	$	(0.05)	$	(0.45)	$	(0.18)

Weighted-average shares outstanding:
Basic	56,252		55,520		56,126		55,448
Diluted	56,252		55,520		56,126		55,448

Comprehensive loss:
Net loss	$	(10,920)	$	(2,639)	$	(25,255)	$	(9,779)
Change in fair value of derivative instruments, net of tax	(458)		—		3,962		—
Foreign currency translation adjustments	(35)		(269)		394		(25)
Pension benefit plan, net of tax	48		48		96		96
Total other comprehensive (loss) income, net of tax	(445)		(221)		4,452		71
Total comprehensive loss	$	(11,365)	$	(2,860)	$	(20,803)	$	(9,708)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	For the Second Quarter Ended December 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount
Balance at September 30, 2022	56,180	$	562	$	1,156,501	$	371,439	$	10,428	$	1,538,930
Issuance of common stock under employee stock incentive plans	59	1		(1)		—		—		—
Issuance of common stock under employee stock purchase plan	57	1		2,392		—		—		2,393
Issuance of common stock under defined contribution plan	69	—		3,269		—		—		3,269
Retirement of common stock	—	—		—		—		—		—
Stock-based compensation	—	—		10,865		—		—		10,865
Net loss	—	—		—		(10,920)		—		(10,920)
Other comprehensive loss	—	—		—		—		(445)		(445)
Balance at December 30, 2022	56,365	$	564	$	1,173,026	$	360,519	$	9,983	$	1,544,092


	For the Second Quarter Ended December 31, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance at October 1, 2021	55,501	$	555	$	1,111,613	$	367,359	$	(47)	$	1,479,480
Issuance of common stock under employee stock incentive plans	31	—		—		—		—		—
Issuance of common stock under employee stock purchase plan	54	1		2,515		—		—		2,516
Retirement of common stock	(3)	—		(183)		—		—		(183)
Stock-based compensation	—	—		8,168		—		—		8,168
Net loss	—	—		—		(2,639)		—		(2,639)
Other comprehensive loss	—	—		—		—		(221)		(221)
Balance at December 31, 2021	55,583	$	556	$	1,122,113	$	364,720	$	(268)	$	1,487,121



	For the Six Months Ended December 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount
Balance at July 1, 2022	55,680	$	557	$	1,145,323	$	385,774	$	5,531	$	1,537,185
Issuance of common stock under employee stock incentive plans	477	5		(5)		—		—		—
Issuance of common stock under employee stock purchase plan	57	1		2,392		—		—		2,393
Issuance of common stock under defined contribution plan	152	1		7,391		—		—		7,392
Retirement of common stock	(1)	—		(63)		—		—		(63)
Stock-based compensation	—	—		17,988		—		—		17,988
Net loss	—	—		—		(25,255)		—		(25,255)
Other comprehensive income	—	—		—		—		4,452		4,452
Balance at December 30, 2022	56,365	$	564	$	1,173,026	$	360,519	$	9,983	$	1,544,092

	For the Six Months Ended December 31, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance at July 2, 2021	55,241	$	552	$	1,109,434	$	374,499	$	(339)	$	1,484,146
Issuance of common stock under employee stock incentive plans	429	4		(4)		—		—		—
Issuance of common stock under employee stock purchase plan	54	1		2,515		—		—		2,516
Retirement of common stock	(141)	(1)		(7,498)		—		—		(7,499)
Stock-based compensation	—	—		17,666		—		—		17,666
Net loss	—	—		—		(9,779)		—		(9,779)
Other comprehensive income	—	—		—		—		71		71
Balance at December 31, 2021	55,583	$	556	$	1,122,113	$	364,720	$	(268)	$	1,487,121


	Amounts
Consideration transferred
Cash paid at closing	$	91,438

Working capital and net debt adjustment	(416)
Less cash acquired	(1,782)
Net purchase price	$	89,240

Fair value of tangible assets acquired and liabilities assumed
Cash	$	1,782
Accounts receivable	1,568
Inventory	4,475
Fixed assets	434
Other current and non-current assets	2,079
Accounts payable	(529)
Accrued expenses	(845)
Other current and non-current liabilities	(11,174)
Fair value of net tangible assets acquired	(2,210)
Fair value of identifiable intangible assets	34,980
Goodwill	58,252
Fair value of net assets acquired	91,022
Less cash acquired	(1,782)
Net purchase price	$	89,240


	Fair Value Measurements
	December 30, 2022		Level 1		Level 2		Level 3
Liabilities:



Interest rate swap	$	220	$	—	$	220	$	—

Total	$	220	$	—	$	220	$	—


	As of
		December 30, 2022		July 1, 2022
Raw materials		$	199,710	$	178,410
Work in process		76,830		64,287
Finished goods		35,436		27,642
Total		$	311,976	$	270,339


	Severance & Related		Facilities & Other		Total
Balance at July 1, 2022	$	4,722	$	—	$	4,722
Restructuring charges	799		256		1,055

Cash paid	(4,336)		(194)		(4,530)

Balance at December 30, 2022	$	1,185	$	62	$	1,247


	Non-vested Restricted Stock Awards
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at July 1, 2022	2,305	$	57.47
Granted	213	55.69
Vested	(477)	64.57
Forfeited	(94)	57.68
Outstanding at December 30, 2022	1,947	$	55.52


	U.S.		Europe		Asia Pacific		Eliminations		Total
SECOND QUARTER ENDED DECEMBER 30, 2022
Net revenues to unaffiliated customers	$	219,155	$	10,431	$	2	$	—	$	229,588
Inter-geographic revenues	(68)		168		—		(100)		—
Net revenues	$	219,087	$	10,599	$	2	$	(100)	$	229,588
SECOND QUARTER ENDED DECEMBER 31, 2021
Net revenues to unaffiliated customers	$	209,495	$	10,808	$	77	$	—	$	220,380
Inter-geographic revenues	1,588		599		—		(2,187)		—
Net revenues	$	211,083	$	11,407	$	77	$	(2,187)	$	220,380
SIX MONTHS ENDED DECEMBER 30, 2022
Net revenues to unaffiliated customers	$	437,977	$	19,183	$	7	$	—	$	457,167
Inter-geographic revenues	79		372		—		(451)		—
Net revenues	$	438,056	$	19,555	$	7	$	(451)	$	457,167
SIX MONTHS ENDED DECEMBER 31, 2021
Net revenues to unaffiliated customers	$	423,236	$	21,995	$	162	$	—	$	445,393
Inter-geographic revenues	3,147		1,328		—		(4,475)		—
Net revenues	$	426,383	$	23,323	$	162	$	(4,475)	$	445,393


	Second Quarters Ended				Six Months Ended
	December 30, 2022		December 31, 2021		December 30, 2022		December 31, 2021
Radar(1)	$	43,707	$	51,172	$	97,115	$	110,076
Electronic Warfare(2)	33,718		32,369		68,807		66,310
Other Sensor & Effector(3)	29,333		22,164		50,536		53,606
Total Sensor & Effector	106,758		105,705		216,458		229,992
C4I(4)	103,735		90,931		198,866		174,332
Other(5)	19,095		23,744		41,843		41,069
Total Net Revenue	$	229,588	$	220,380	$	457,167	$	445,393


(In thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Purchase obligations	$	142,932	$	142,932	$	—	$	—	$	—
Operating leases	89,066		14,120		24,809		20,593		29,544


	$	231,998	$	157,052	$	24,809	$	20,593	$	29,544


	Second Quarters Ended				Six Months Ended
(In thousands)	December 30, 2022		December 31, 2021		December 30, 2022		December 31, 2021
Net cash provided by (used in) operating activities	$	35,392	$	6,824	$	(30,647)	$	4,818
Purchase of property and equipment	(13,176)		(8,027)		(20,504)		(13,404)
Free cash flow	$	22,216	$	(1,203)	$	(51,151)	$	(8,586)


(In thousands)	December 30, 2022		As a % of Total Net Revenue		December 31, 2021		As a % of Total Net Revenue
Net revenues	$	229,588	100.0	%	$	220,380	100.0	%
Cost of revenues	148,628		64.7		133,158		60.4
Gross margin	80,960		35.3		87,222		39.6
Operating expenses:
Selling, general and administrative	45,057		19.6		36,810		16.7
Research and development	26,906		11.7		28,335		12.9
Amortization of intangible assets	13,536		5.9		16,002		7.3
Restructuring and other charges	2,069		1.0		3,802		1.7

Acquisition costs and other related expenses	939		0.4		2,660		1.2
Total operating expenses	88,507		38.6		87,609		39.8
Loss from operations	(7,547)		(3.3)		(387)		(0.2)
Interest income	220		0.1		5		—
Interest expense	(6,590)		(2.9)		(1,094)		(0.5)
Other income (expense), net	846		0.4		(1,318)		(0.6)
Loss before income taxes	(13,071)		(5.7)		(2,794)		(1.3)
Income tax benefit	(2,151)		(0.9)		(155)		(0.1)



Net loss	$	(10,920)	(4.8)	%	$	(2,639)	(1.2)	%


	As of and For the Six Months Ended,
(In thousands)	December 30, 2022		December 31, 2021
Net cash (used in) provided by operating activities	$	(30,647)	$	4,818
Net cash used in investing activities	$	(20,402)	$	(259,890)
Net cash provided by financing activities	$	62,330	$	246,517
Net increase (decrease) in cash and cash equivalents	$	11,290	$	(8,670)
Cash and cash equivalents at end of period	$	76,944	$	105,169


	Second Quarters Ended
(In thousands, except per share data)	December 30, 2022				December 31, 2021
Net loss and loss per share	$	(10,920)	$	(0.19)	$	(2,639)	$	(0.05)
Other non-operating adjustments, net	(1,463)				226
Amortization of intangible assets	13,536				16,002
Restructuring and other charges	2,069				3,802
Impairment of long-lived assets	—				—
Acquisition, financing and other third-party costs	1,309				3,115
Fair value adjustments from purchase accounting	177				(70)
Litigation and settlement expense, net	70				506
COVID related expenses	—				274
Stock-based and other non-cash compensation expense	13,003				7,892
Impact to income taxes(1)	(3,039)				(7,144)
Adjusted income and adjusted earnings per share(2)	$	14,742	$	0.26	$	21,964	$	0.39

Diluted weighted-average shares outstanding			56,477				55,693








31.1						Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1+						Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


MERCURY SYSTEMS, INC.

By:						/S/ MICHAEL D. RUPPERT
						Michael D. Ruppert
						Executive Vice President,
						Chief Financial Officer, and Treasurer


/S/ MARK ASLETT
Mark Aslett
PRESIDENT AND CHIEF EXECUTIVE OFFICER [PRINCIPAL EXECUTIVE OFFICER]


/S/ MARK ASLETT
Mark Aslett
PRESIDENT AND CHIEF EXECUTIVE OFFICER

/S/ MICHAEL D. RUPPERT
Michael D. Ruppert
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER, AND TREASURER