Mercury Systems Inc 10-Q for FY2020 Q3

Mercury Systems Inc (MRCY)

10-Q 2020-05-05 For: 2020-03-27

Added on April 09, 2026

About this 10-Q

Mercury Systems Inc filed this 10-Q on May 5, 2020, covering the quarter ended March 27, 2020 (FY2020 Q3).

Headline figures

Quarter ended March 27, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $208.02M; up 19.1% from $174.64M a year earlier
Net income: $23.57M; up 67.0% from net income of $14.11M a year earlier
Diluted EPS: $0.43; up 48.3% from $0.29 a year earlier

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


		PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of March 27, 2020 and June 30, 2019	3

	Consolidated Statements of Operations and Comprehensive Income for the third quarters and nine months ended March 27, 2020 and March 31, 2019	4

	Consolidated Statements of Shareholders’ Equity for the third quarters and nine months ended March 27, 2020 and March 31, 2019	5

	Consolidated Statements of Cash Flows for the nine months ended March 27, 2020 and March 31, 2019	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 6.	Exhibits	41

	Signatures	42


	March 27, 2020		June 30, 2019
Assets
Current assets:
Cash and cash equivalents	$	407,146	$	257,932
Accounts receivable, net of allowance for doubtful accounts of $1,301 and $1,228 at March 27, 2020 and June 30, 2019, respectively	127,129		118,832
Unbilled receivables and costs in excess of billings	86,860		57,387
Inventory	161,858		137,112

Prepaid income taxes	1,129		90
Prepaid expenses and other current assets	11,271		10,819

Total current assets	795,393		582,172

Property and equipment, net	78,664		60,001
Goodwill	614,830		562,146
Intangible assets, net	216,546		206,124
Operating lease right-of-use assets	61,112		—
Other non-current assets	5,095		6,534

Total assets	$	1,771,640	$	1,416,977
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	50,089	$	39,030
Accrued expenses	24,727		18,897
Accrued compensation	34,781		28,814

Deferred revenues and customer advances	12,419		11,291


Total current liabilities	122,016		98,032

Deferred income taxes	19,166		17,814
Income taxes payable	1,751		1,273
Long-term debt	200,000		—
Operating lease liabilities	67,028		—
Other non-current liabilities	12,246		15,119

Total liabilities	422,207		132,238
Commitments and contingencies (Note M)
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; 54,612,005 and 54,247,532 shares issued and outstanding at March 27, 2020 and June 30, 2019, respectively	546		542
Additional paid-in capital	1,064,698		1,058,745
Retained earnings	285,231		226,743
Accumulated other comprehensive loss	(1,042)		(1,291)
Total shareholders’ equity	1,349,433		1,284,739
Total liabilities and shareholders’ equity	$	1,771,640	$	1,416,977


	Third Quarters Ended						Nine Months Ended
	March 27, 2020		March 31, 2019		March 27, 2020		March 31, 2019
Net revenues	$	208,016	$	174,636	$	579,233	$	477,781
Cost of revenues	114,691		100,789		319,002		271,464
Gross margin	93,325		73,847		260,231		206,317
Operating expenses:
Selling, general and administrative	33,991		27,411		96,765		79,971
Research and development	24,967		17,439		71,497		48,579
Amortization of intangible assets	7,848		6,786		22,859		20,906
Restructuring and other charges	66		46		1,815		573

Acquisition costs and other related expenses	111		103		2,652		555
Total operating expenses	66,983		51,785		195,588		150,584
Income from operations	26,342		22,062		64,643		55,733
Interest income	458		205		1,957		342
Interest expense	(58)		(2,473)		(58)		(6,928)
Other income (expense), net	2,186		(328)		401		(2,207)
Income before income taxes	28,928		19,466		66,943		46,940
Tax provision	5,363		5,357		8,455		12,969



Net income	$	23,565	$	14,109	$	58,488	$	33,971





Basic net earnings per share	$	0.43	$	0.30	$	1.07	$	0.72





Diluted net earnings per share	$	0.43	$	0.29	$	1.06	$	0.71

Weighted-average shares outstanding:
Basic	54,604		47,258		54,514		47,164
Diluted	55,127		47,958		55,071		47,783

Comprehensive income:
Net income	$	23,565	$	14,109	$	58,488	$	33,971
Change in fair value of derivative instruments, net of tax	—		(2,147)		—		(2,147)
Foreign currency translation adjustments	344		(210)		227		(367)
Pension benefit plan, net of tax	7		(15)		22		(45)
Total other comprehensive income (loss), net of tax	351		(2,372)		249		(2,559)
Total comprehensive income	$	23,916	$	11,737	$	58,737	$	31,412


	For the Third Quarter Ended March 27, 2020
	Common Stock							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
		Shares			Amount


















Balance at December 27, 2019	54,558		$	545		$	1,056,238	$	261,666	$	(1,393)	$	1,317,056
Issuance of common stock under employee stock incentive plans	19		—			—		—		—		—
Issuance of common stock under employee stock purchase plan	41		1			2,392		—		—		2,393
Purchase and retirement of common stock	(6)		—			(746)		—		—		(746)
Stock-based compensation	—		—			6,814		—		—		6,814
Net income	—		—			—		23,565		—		23,565

Other comprehensive income	—		—			—		—		351		351
Balance at March 27, 2020	54,612		$	546		$	1,064,698	$	285,231	$	(1,042)	$	1,349,433


☒			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 Third Quarter Ended March 31, 2019
	Common Stock							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
		Shares			Amount



















Balance at December 31, 2018	47,249		$	472		$	594,670	$	199,830	$	1,104	$	796,076
Issuance of common stock under employee stock incentive plans	25		1			—		—		—		1

Purchase and retirement of common stock	(9)		—			(501)		—		—		(501)
Stock-based compensation	—		—			5,069		—		—		5,069
Net income	—		—			—		14,109		—		14,109


Other comprehensive loss	—		—			—		—		(2,372)		(2,372)
Balance at March 31, 2019	47,265		$	473		$	599,238	$	213,939	$	(1,268)	$	812,382


	For the Nine Months Ended March 27, 2020
	Common Stock							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
		Shares			Amount
Balance at June 30, 2019	54,248		$	542		$	1,058,745	$	226,743	$	(1,291)	$	1,284,739









Issuance of common stock under employee stock incentive plans	510		5			(2)		—		—		3
Issuance of common stock under employee stock purchase plan	41		1			2,392		—		—		2,393
Purchase and retirement of common stock	(187)		(2)			(15,681)		—		—		(15,683)
Stock-based compensation	—		—			19,244		—		—		19,244
Net income	—		—			—		58,488		—		58,488

Other comprehensive income	—		—			—		—		249		249
Balance at March 27, 2020	54,612		$	546		$	1,064,698	$	285,231	$	(1,042)	$	1,349,433


	For the Nine Months Ended March 31, 2019
	Common Stock							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
		Shares			Amount
Balance at June 30, 2018	46,924		$	469		$	590,163	$	179,968	$	1,291	$	771,891









Issuance of common stock under employee stock incentive plans	439		5			(5)		—		—		—
Issuance of common stock under employee stock purchase plan	51		1			1,676		—		—		1,677
Purchase and retirement of common stock	(149)		(2)			(7,432)		—		—		(7,434)
Stock-based compensation	—		—			14,836		—		—		14,836
Net income	—		—			—		33,971		—		33,971


Other comprehensive loss	—		—			—		—		(2,559)		(2,559)
Balance at March 31, 2019	47,265		$	473		$	599,238	$	213,939	$	(1,268)	$	812,382


	Amounts
Consideration transferred
Cash paid at closing	$	100,826
Working capital and net debt adjustment	(5,952)
Liabilities assumed	2,454
Less cash acquired	(826)
Net purchase price	$	96,502

Estimated fair value of tangible assets acquired and liabilities assumed
Cash	$	826
Accounts receivable	3,726
Inventory	11,271
Fixed assets	690
Other current and non-current assets	3,494
Accounts payable	(1,554)
Accrued expenses	(1,013)
Other current and non-current liabilities	(5,749)
Estimated fair value of net tangible assets acquired	11,691
Estimated fair value of identifiable intangible assets	33,200
Estimated goodwill	52,437
Estimated fair value of net assets acquired	97,328
Less cash acquired	(826)
Net purchase price	$	96,502


	Fair Value Measurements
	March 27, 2020		Level 1		Level 2		Level 3
Assets:


Certificates of deposit	$	99,905	$	—	$	99,905	$	—


Total	$	99,905	$	—	$	99,905	$	—


	March 27, 2020		June 30, 2019
Raw materials	$	95,054	$	84,561
Work in process	49,127		38,525
Finished goods	17,677		14,026
Total	$	161,858	$	137,112


	SMP		AMS		MDS		Total
Balance at June 30, 2019	$	140,783	$	222,379	$	198,984	$	562,146






Goodwill adjustment for the Germane acquisition	—		—		447		447
Goodwill adjustment for the GECO acquisition	(200)		—		—		(200)


Goodwill arising from the APC acquisition	52,437		—		—		52,437
Balance at March 27, 2020	$	193,020	$	222,379	$	199,431	$	614,830


	Severance & Related		Facilities & Other		Total
Restructuring liability at June 30, 2019	$	4	$	—	$	4
Restructuring and other charges	1,740		75		1,815

Cash paid	(892)		(75)		(967)

Restructuring liability at March 27, 2020	$	852	$	—	$	852


	Options Outstanding
	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at June 30, 2019	4	$	5.52	2.13
Granted	—	—
Exercised	(1)	5.52
Canceled	—	—
Outstanding at March 27, 2020	3	$	5.52	1.38


	Non-vested Restricted Stock Awards
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at June 30, 2019	1,046	$	39.62
Granted	500	81.05
Vested	(510)	30.73
Forfeited	(40)	54.22
Outstanding at March 27, 2020	996	$	60.00


	U.S.		Europe		Asia Pacific		Eliminations		Total
THIRD QUARTER ENDED MARCH 27, 2020
Net revenues to unaffiliated customers	$	196,158	$	11,408	$	450	$	—	$	208,016
Inter-geographic revenues	389		754		—		(1,143)		—
Net revenues	$	196,547	$	12,162	$	450	$	(1,143)	$	208,016
THIRD QUARTER ENDED MARCH 31, 2019
Net revenues to unaffiliated customers	$	158,715	$	15,280	$	641	$	—	$	174,636
Inter-geographic revenues	2,984		314		—		(3,298)		—
Net revenues	$	161,699	$	15,594	$	641	$	(3,298)	$	174,636
NINE MONTHS ENDED MARCH 27, 2020
Net revenues to unaffiliated customers	$	539,535	$	37,569	$	2,129	$	—	$	579,233
Inter-geographic revenues	2,015		2,222		—		(4,237)		—
Net revenues	$	541,550	$	39,791	$	2,129	$	(4,237)	$	579,233
NINE MONTHS ENDED MARCH 31, 2019
Net revenues to unaffiliated customers	$	435,733	$	39,918	$	2,130	$	—	$	477,781
Inter-geographic revenues	5,434		1,017		—		(6,451)		—
Net revenues	$	441,167	$	40,935	$	2,130	$	(6,451)	$	477,781


	Third Quarters Ended						Nine Months Ended
	March 27, 2020		March 31, 2019		March 27, 2020		March 31, 2019
Radar⁽¹⁾	$	78,113	$	40,674	$	164,360	$	123,661
Electronic Warfare⁽²⁾	40,221		36,569		112,417		86,320
Other Sensor & Effector⁽³⁾	26,278		28,364		80,680		63,477
Total Sensor & Effector	144,612		105,607		357,457		273,458
C4I⁽⁴⁾	47,351		46,217		154,140		137,717
Other⁽⁵⁾	16,053		22,812		67,636		66,606
Total Net Revenue	$	208,016	$	174,636	$	579,233	$	477,781


	As of
	March 27, 2020
Operating lease right-of-use assets	$	61,112

Accrued expenses⁽¹⁾	$	6,805
Operating lease liabilities	67,028
Total operating lease liabilities	$	73,833


	Nine Months Ended
	March 27, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	5,251
Right-of-use assets obtained in exchange for new lease liabilities ⁽¹⁾	$	18,675
Weighted average remaining lease term	9.4 years
Weighted average discount rate	4.89		%


Fiscal Year	Totals
2020⁽¹⁾	$	2,583
2021	8,902
2022	10,642
2023	9,897
2024	8,951
Thereafter	53,580
Total lease payments	94,555
Less: imputed interest	(20,722)

Present value of operating lease liabilities	$	73,833


Fiscal Year	Totals
2020	$	10,205
2021	8,949
2022	8,280
2023	7,414
2024	6,496
Thereafter	28,286
Total minimum lease payments	$	69,630


(In thousands)	March 27, 2020		As a % of Total Net Revenue		March 31, 2019		As a % of Total Net Revenue
Net revenues	$	208,016	100.0	%	$	174,636	100.0	%
Cost of revenues	114,691		55.1		100,789		57.7
Gross margin	93,325		44.9		73,847		42.3
Operating expenses:
Selling, general and administrative	33,991		16.3		27,411		15.7
Research and development	24,967		12.0		17,439		10.0
Amortization of intangible assets	7,848		3.8		6,786		3.9
Restructuring and other charges	66		—		46		—

Acquisition costs and other related expenses	111		0.1		103		0.1
Total operating expenses	66,983		32.2		51,785		29.7
Income from operations	26,342		12.7		22,062		12.6
Interest income	458		0.2		205		0.1
Interest expense	(58)		—		(2,473)		(1.4)
Other income (expense), net	2,186		1.0		(328)		(0.1)
Income before income taxes	28,928		13.9		19,466		11.2
Tax provision	5,363		2.6		5,357		3.1



Net income	$	23,565	11.3	%	$	14,109	8.1	%


	As of and For the Nine Months Ended,
(In thousands)	March 27, 2020		March 31, 2019
Net cash provided by operating activities	$	86,458	$	71,548
Net cash used in investing activities	$	(123,980)	$	(99,391)
Net cash provided by financing activities	$	186,713	$	73,892
Net increase in cash and cash equivalents	$	149,214	$	45,994
Cash and cash equivalents at end of period	$	407,146	$	112,515


(In thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Purchase obligations	$	110,203	$	110,203	$	—	$	—	$	—
Operating leases	94,555		9,173		20,578		17,929		46,875


	$	204,758	$	119,376	$	20,578	$	17,929	$	46,875


	Third Quarters Ended
(In thousands, except per share data)	March 27, 2020						March 31, 2019
Net income and diluted earnings per share	$	23,565	$	0.43	$	14,109	$	0.29
Other non-operating adjustments, net⁽¹⁾	(3,138)				(502)
Amortization of intangible assets	7,848				6,786
Restructuring and other charges⁽²⁾	66				46
Impairment of long-lived assets	—				—
Acquisition and financing costs	891				787
Fair value adjustments from purchase accounting⁽³⁾	600				93
Litigation and settlement expense, net	174				146
COVID related expenses⁽⁴⁾	397				—
Stock-based and other non-cash compensation expense	6,917				4,914
Impact to income taxes⁽⁵⁾	(4,048)				(2,722)
Adjusted income and adjusted earnings per share	$	33,272	$	0.60	$	23,657	$	0.49

Diluted weighted-average shares outstanding			55,127				47,958
















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

101.INS						eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

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


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


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