Mercury Systems Inc 10-Q for FY2022 Q3

Mercury Systems Inc (MRCY)

10-Q 2022-05-10 For: 2022-04-01

Added on April 09, 2026

About this 10-Q

Mercury Systems Inc filed this 10-Q on May 10, 2022, covering the quarter ended April 1, 2022 (FY2022 Q3).

Headline figures

Quarter ended April 1, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $253.08M; down 1.5% from $256.86M a year earlier
Net income: $4.14M; down 73.5% from net income of $15.64M a year earlier
Diluted EPS: $0.07; down 75.0% from $0.28 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
Preferred Stock Purchase Rights	N/A	Nasdaq Global Select Market


		PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of April 1 , 202 2 and July 2, 2021	3

	Consolidated Statements of Operations and Comprehe nsive Income (Loss) for the third quarters and nine months ended Apr il 1, 2022 and April 2, 2021	4

	Consolidated Statements of Shareholders’ Equity for the third quarters and nine months ended April 1, 202 2 and April 2 , 2021	5

	Consolidated Statements of Cash Flows for the nine months ended April 1, 202 2 and April 2 , 2021	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	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


	April 1, 2022		July 2, 2021
Assets
Current assets:
Cash and cash equivalents	$	91,694	$	113,839

Accounts receivable, net of allowance for credit losses of $1,813 and $1,720 at April 1, 2022 and July 2, 2021, respectively	124,771		128,807
Unbilled receivables and costs in excess of billings	242,304		162,921
Inventory	259,614		221,640

Prepaid income taxes	10,214		782
Prepaid expenses and other current assets	26,448		15,111

Total current assets	755,045		643,100

Property and equipment, net	125,709		128,524
Goodwill	937,752		804,906
Intangible assets, net	365,496		307,559
Operating lease right-of-use assets	68,970		66,373
Other non-current assets	6,865		4,675

Total assets	$	2,259,837	$	1,955,137
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	90,338	$	47,951

Accrued expenses	35,442		24,652
Accrued compensation	36,241		40,043

Deferred revenues and customer advances	20,784		38,177


Total current liabilities	182,805		150,823

Deferred income taxes	29,598		28,810
Income taxes payable	8,160		7,467
Long-term debt	451,500		200,000
Operating lease liabilities	72,436		71,508
Other non-current liabilities	14,894		12,383

Total liabilities	759,393		470,991
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; 55,594,940 and 55,241,120 shares issued and outstanding at April 1, 2022 and July 2, 2021, respectively	556		552
Additional paid-in capital	1,131,017		1,109,434
Retained earnings	368,859		374,499
Accumulated other comprehensive income (loss)	12		(339)
Total shareholders’ equity	1,500,444		1,484,146
Total liabilities and shareholders’ equity	$	2,259,837	$	1,955,137


	Third Quarters Ended				Nine Months Ended
	April 1, 2022		April 2, 2021		April 1, 2022		April 2, 2021
Net revenues	$	253,075	$	256,857	$	698,468	$	673,154
Cost of revenues	153,321		151,234		423,083		390,745
Gross margin	99,754		105,623		275,385		282,409
Operating expenses:
Selling, general and administrative	39,261		38,250		113,027		102,750
Research and development	25,387		30,218		82,604		85,763
Amortization of intangible assets	16,077		12,717		45,813		28,091
Restructuring and other charges	6,348		(4)		22,424		2,244

Acquisition costs and other related expenses	2,726		2,730		7,524		4,966
Total operating expenses	89,799		83,911		271,392		223,814
Income from operations	9,955		21,712		3,993		58,595
Interest income	110		34		124		166
Interest expense	(1,664)		(549)		(3,353)		(622)
Other expense, net	(2,160)		(200)		(4,898)		(2,027)
Income (loss) before income taxes	6,241		20,997		(4,134)		56,112
Income tax provision	2,102		5,362		1,506		11,993



Net income (loss)	$	4,139	$	15,635	$	(5,640)	$	44,119





Basic net earnings (loss) per share	$	0.07	$	0.28	$	(0.10)	$	0.80





Diluted net earnings (loss) per share	$	0.07	$	0.28	$	(0.10)	$	0.80

Weighted-average shares outstanding:
Basic	55,590		55,146		55,495		55,033
Diluted	56,027		55,526		55,495		55,434

Comprehensive income (loss):
Net income (loss)	$	4,139	$	15,635	$	(5,640)	$	44,119

Foreign currency translation adjustments	232		218		207		(541)
Pension benefit plan, net of tax	48		30		144		92
Total other comprehensive income (loss), net of tax	280		248		351		(449)
Total comprehensive income (loss)	$	4,419	$	15,883	$	(5,289)	$	43,670


☒			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 April 1, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2021	55,583	$	556	$	1,122,113	$	364,720	$	(268)	$	1,487,121
Issuance of common stock under employee stock incentive plans	16	—		—		—		—		—

Purchase and retirement of common stock	(4)	—		(217)		—		—		(217)
Stock-based compensation	—	—		9,121		—		—		9,121
Net income	—	—		—		4,139		—		4,139
Other comprehensive income	—	—		—		—		280		280
Balance at April 1, 2022	55,595	$	556	$	1,131,017	$	368,859	$	12	$	1,500,444


	For the Third Quarter Ended April 2, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance at January 1, 2021	55,129	$	551	$	1,092,723	$	340,939	$	(3,582)	$	1,430,631
Issuance of common stock under employee stock incentive plans	35	1		10		—		—		11
Stock-based compensation	—	—		7,455		—		—		7,455
Net income	—	—		—		15,635		—		15,635
Other comprehensive income	—	—		—		—		248		248
Balance at April 2, 2021	55,164	$	552	$	1,100,188	$	356,574	$	(3,334)	$	1,453,980


	For the Nine Months Ended April 1, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		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	445	4		(4)		—		—		—
Issuance of common stock under employee stock purchase plan	54	1		2,515		—		—		2,516
Purchase and retirement of common stock	(145)	(1)		(7,715)		—		—		(7,716)
Stock-based compensation	—	—		26,787		—		—		26,787
Net loss	—	—		—		(5,640)		—		(5,640)
Other comprehensive income	—	—		—		—		351		351
Balance at April 1, 2022	55,595	$	556	$	1,131,017	$	368,859	$	12	$	1,500,444


	For the Nine Months Ended April 2, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance at July 3, 2020	54,702	$	547	$	1,074,667	$	312,455	$	(2,885)	$	1,384,784
Issuance of common stock under employee stock incentive plans	417	5		10		—		—		15
Issuance of common stock under employee stock purchase plan	46	—		3,184		—		—		3,184
Purchase and retirement of common stock	(1)	—		(66)		—		—		(66)
Stock-based compensation	—	—		22,393		—		—		22,393
Net income	—	—		—		44,119		—		44,119

Other comprehensive loss	—	—		—		—		(449)		(449)
Balance at April 2, 2021	55,164	$	552	$	1,100,188	$	356,574	$	(3,334)	$	1,453,980


	Amounts
Consideration transferred
Cash paid at closing	$	91,438
Working capital and net debt adjustment	(474)
Less cash acquired	(1,782)
Net purchase price	$	89,182

Fair value of tangible assets acquired and liabilities assumed
Cash	$	1,782
Accounts receivable	1,568
Inventory	4,475
Fixed assets	547
Other current and non-current assets	2,043
Accounts payable	(529)
Accrued expenses	(865)
Other current and non-current liabilities	(11,051)
Fair value of net tangible assets acquired	(2,030)
Fair value of identifiable intangible assets	34,980
Goodwill	58,014
Fair value of net assets acquired	90,964
Less cash acquired	(1,782)
Net purchase price	$	89,182


	As of
		April 1, 2022		July 2, 2021
Raw materials		$	167,403	$	141,774
Work in process		66,755		58,087
Finished goods		25,456		21,779
Total		$	259,614	$	221,640


	Severance		Facilities & Other		Total
Balance at July 2, 2021	$	1,006	$	—	$	1,006
Restructuring charges	7,515		216		7,731


Cash paid	(4,688)		—		(4,688)

Balance at April 1, 2022	$	3,833	$	216	$	4,049


	Non-vested Restricted Stock Awards
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at July 2, 2021	1,013	$	70.77
Granted	1,932	52.51
Vested	(445)	60.90
Forfeited	(203)	67.61
Outstanding at April 1, 2022	2,297	$	57.59


	U.S.		Europe		Asia Pacific		Eliminations		Total
THIRD QUARTER ENDED APRIL 1, 2022
Net revenues to unaffiliated customers	$	243,100	$	9,216	$	759	$	—	$	253,075
Inter-geographic revenues	(729)		824		—		(95)		—
Net revenues	$	242,371	$	10,040	$	759	$	(95)	$	253,075
THIRD QUARTER ENDED APRIL 2, 2021
Net revenues to unaffiliated customers	$	246,231	$	10,482	$	144	$	—	$	256,857
Inter-geographic revenues	51		734		—		(785)		—
Net revenues	$	246,282	$	11,216	$	144	$	(785)	$	256,857








NINE MONTHS ENDED APRIL 1, 2022
Net revenues to unaffiliated customers	$	666,336	$	31,211	$	921	$	—	$	698,468
Inter-geographic revenues	2,418		2,152		—		(4,570)		—
Net revenues	$	668,754	$	33,363	$	921	$	(4,570)	$	698,468
NINE MONTHS ENDED APRIL 2, 2021
Net revenues to unaffiliated customers	$	639,851	$	32,957	$	346	$	—	$	673,154
Inter-geographic revenues	927		1,642		—		(2,569)		—
Net revenues	$	640,778	$	34,599	$	346	$	(2,569)	$	673,154


	Third Quarters Ended				Nine Months Ended
	April 1, 2022		April 2, 2021			April 1, 2022		April 2, 2021
Radar(1)	$	50,033	$	81,481		$	160,109	$	238,650
Electronic Warfare(2)	44,010		25,782			110,320		91,342
Other Sensor & Effector(3)	23,768		25,252			77,374		72,352
Total Sensor & Effector	117,811		132,515			347,803		402,344
C4I(4)	111,282		107,144			285,614		219,284
Other(5)	23,982		17,198			65,051		51,526
Total Net Revenue	$	253,075	$	256,857		$	698,468	$	673,154


	Third Quarters Ended				Nine Months Ended
	April 1, 2022		April 2, 2021		April 1, 2022		April 2, 2021
Airborne(1)	$	126,176	$	120,640	$	353,730	$	299,551
Land(2)	38,285		54,394		100,118		149,949
Naval(3)	42,725		47,775		116,938		130,616
Other(4)	45,889		34,048		127,682		93,038
Total Net Revenues	$	253,075	$	256,857	$	698,468	$	673,154


	U.S.		Europe		Asia Pacific		Eliminations		Total
April 1, 2022	$	121,294	$	4,412	$	3	$	—	$	125,709
July 2, 2021	$	123,009	$	5,509	$	6	$	—	$	128,524


(In thousands)	April 1, 2022		As a % of Total Net Revenue		April 2, 2021		As a % of Total Net Revenue
Net revenues	$	253,075	100.0	%	$	256,857	100.0	%
Cost of revenues	153,321		60.6		151,234		58.9
Gross margin	99,754		39.4		105,623		41.1
Operating expenses:
Selling, general and administrative	39,261		15.5		38,250		14.9
Research and development	25,387		10.0		30,218		11.8
Amortization of intangible assets	16,077		6.4		12,717		5.0
Restructuring and other charges	6,348		2.5		(4)		—

Acquisition costs and other related expenses	2,726		1.1		2,730		1.0
Total operating expenses	89,799		35.5		83,911		32.7
Income from operations	9,955		3.9		21,712		8.5
Interest income	110		—		34		—
Interest expense	(1,664)		(0.7)		(549)		(0.2)
Other expense, net	(2,160)		(0.8)		(200)		(0.1)
Income before income taxes	6,241		2.4		20,997		8.2
Income tax provision	2,102		0.8		5,362		2.1



Net income	$	4,139	1.6	%	$	15,635	6.1	%


	As of and For the Nine Months Ended,
(In thousands)	April 1, 2022		April 2, 2021
Net cash provided by operating activities	$	566	$	70,053
Net cash used in investing activities	$	(265,945)	$	(338,433)
Net cash provided by financing activities	$	243,638	$	163,133
Net decrease in cash and cash equivalents	$	(22,145)	$	(104,895)
Cash and cash equivalents at end of period	$	91,694	$	121,943


(In thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Purchase obligations	$	187,927	$	187,927	$	—	$	—	$	—
Operating leases	101,507		15,376		26,961		21,914		37,256


	$	289,434	$	203,303	$	26,961	$	21,914	$	37,256


	Third Quarters Ended
(In thousands, except per share data)	April 1, 2022				April 2, 2021
Net income and diluted earnings per share	$	4,139	$	0.07	$	15,635	$	0.28
Other non-operating adjustments, net	938				(775)
Amortization of intangible assets	16,077				12,717
Restructuring and other charges	6,348				(4)
Impairment of long-lived assets	—				—
Acquisition, financing and other third party costs	3,497				3,260
Fair value adjustments from purchase accounting	16				182
Litigation and settlement expense, net	320				312
COVID related expenses	182				2,745
Stock-based and other non-cash compensation expense	8,935				7,565
Impact to income taxes(1)	(8,248)				(6,187)
Adjusted income and adjusted earnings per share	$	32,204	$	0.57	$	35,450	$	0.64

Diluted weighted-average shares outstanding			56,027				55,526
















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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101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

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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