Mercury Systems (MRCY) 4 Aug 202020 Q4 Earnings call transcript

Good day, everyone, and welcome to the Mercury Systems Fourth Quarter Fiscal 2020 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, Mike Ruppert. Please go ahead sir.

Good afternoon and thank you for joining us. our Chief is Aslett. Officer, today me President Executive and Mark With

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

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

results, us. business year with joining then and and your with thanks outstanding record very staying finished momentum. afternoon challenging review outlook healthy. backdrop. a great job call financials will about by Thanks the position through QX Year we'll And the family with is Mike team Mike. topline delivering COVID in against we're managing elevated, New and and We fiscal safe strong is although XXXX. it beginning the remain positive your you update, a strategically hope an a doing We're Mercury XXXX difficult and risks open questions. today's in Good fiscal for strong up The associated for everyone the period. guidance, the that for a begin I'll

targeting Mercury We to is the market. the believe continue parts of that right

our reflect the electronics fourth built and subsystem at creating a is a supply secure on bookings to the by capabilities chain past; to primes' the government's and trusted outsourcing primes; and by design fundamental customers the the in in shift focus three trend the increased to advanced and Our delayering continues domestic the designed chain level. U.S. Potentially, discussed supply suppliers; win the to we've flight quality that trends the activity government and

For leading a to the new fourth bookings establishing year-over-year, year-end backlog. increased quarter, a company record record total XX% and

Our fiscal forward is us revenue for positioning coverage XX-month well strong XXXX.

F-XX, were a quarter program, Filthy the in and radar Buzzard. bookings largest Our SEWIP, LTAMDS, classified

well. past over billion or as and different increased design $X than the bookings which totaled for record year, programs Mercury's total full wins the increased than potential hitting lifetime year It a was fiscal years new to seven more also eight footprint XX% value. XXX For a record in platforms. We've more

expansion. this reflects growth topline Our

total XX% organically in quarter, fourth revenue year-over-year. the For and XX% increased

the Filthy a classified and radar program. F-XX, in programs were Buzzard, revenue SABR, SEWIP, largest Our quarter F-XX

year-over-year XX% as revenue XX%. total whole, and revenue For a up was fiscal grew XXXX organic

extremely respectively and $X and performing new for concluded debt the XX% is fiscal deliver well a QX record for records free bottom-line. year increased EBITDA billion continue and and capacity. model XX% the zero results year we setting we the Fiscal and to with of Mercury's business was flow strong for adjusted on Our periods. financial cash XXXX both nearly

to as Mike ahead, we and expect fiscal will in detail, Looking discuss double-digit revenue adjusted another EBITDA. growth year of XXXX be in

risks low driven by COVID in short our both said, growth well this strategy. expect of That related long-term in We revenue organic to long line the aware and double-digit be high term. with single-digit, the we're growth to

supply Those anticipated. of that Last slide be the affect been closures Overall, to did our managing were our ongoing concerns team concerned X. to adept supply as seemed from suppliers' Those very not continue to of was Last at potential months facilities. closures support growth. occur it the business add risks also how COVID-related business ability pandemic proved could has at here our for three and what unfounded somewhat our quarter, The Moving the were the quarter, talent resources chain ago. exist. side into to we improved the mitigating worried also. about about we to Mercury

the attraction with been the recruiting a of people and process of and talent We've great team It's has number backdrop virtualized people bringing to in even the metrics. no COVID. as fully talent new our Our we're recruiting done there's timing well fantastic in a onboarding real erosion as to the or transitioned productivity gratifying job our company. into people the to see hiring

health, facing. to can setting both livelihoods home we're Everyone discussed continue on challenges to COVID so we return, crisis our of to set We've culture incredibly safety used is values been team company with since from deliver purpose, our commitments pandemic. up employees As most the In and Mercury's their a goals along a our March. our us during these goals decision-making. We at the defined and the and has to protect in doing the performing in maintaining months. goal who overcoming put center past for for touchstone of and as our guide our shareholders. customers and and quarter, they're well priorities productivity six four the important The employees we work last to the

We expect work this the reopening risks manufacturing to in the least of in Mercury's we are the virus of end the as At a and the through related this pandemic, they to increasing stage continue of COVID resurgence economies operations that remotely calendar believe the large parts will year. of the country. result at

exhibited day. open where areas. cases seen implemented make COVID inside safer distancing the manufacturing given Phoenix to the exposed ahead. work out and provide adjust things anyone Weekly in and operations, have to testing we has manufacturing advice weeks pandemic. where we quarantine workplace have tracking and weekly seven implement COVID in COVID practice best for proper across the conditions other every Although, nature We'll facilities evolving With Arizona, continue operational facilities virus. and locations continue use We'll physical and our been our entering the symptom remained months. positive, begun other we've to in face along in have ensure our who Chief symptoms Adviser will to and contracted even for has testing COVID our mandatory all past the surging largest temperature to of masks screening progressively tested of also shields all months locations. a be on-site decided employees rolled has the and locations to We've California We've certain Medical of are in now states manufacturing personnel or coming with has to

pandemic evolve. both talked and be to Last a members for spending to external defense be we'll at leaning in believe team innovative an risks working who concern. business We'll may the locations open operationally through COVID risk fiscal area the other company that testing remains and we're and with financially. adopting testing of around to as new crucial being addition, travel. quarter, the we also highly around the science Anticipating perspective this from XXXX, pandemic in of that living and best and entirety rapid arrange proactive about need COVID managing to to In we practices will be continue it

outlook the diplomatic resolution. industry massive also prospect a in due economic the technologies, the America's of X. in to dollars risk bill and fiscal U.S./China adversary. of Turning crowd challenging been manufacturing manufacturing a a There's potential most offshore round largest to distributed most U.S., where lies. another Slide in vulnerability spending is and the tensions. this approval counterbalance packaging time quite the There's determining defense There's it's that DoD The with with the the for microelectronics appropriations to recent Chinese A defense. out the critical and defense over chain the supply probably on focused the is is potentially also time sophisticated in including centered being the for the some discretionary continuing the stimulus potential IP heightened environment non-national extended is of is of in a most in delay for especially those and an study militarization for security generated of and national majority particular which done risk on but having

Slide Turning X. to

the areas dealing produced the in billion R&D spending DoD well for as this we've defense made has priority. be billion a publicly the opportunity in to sequestration commitment as on stronger there microelectronics. past Foundries one secure with the major for Mercury. years to $X spending technology in strategic a board billion $XX secure Unlike specific which overall, of U.S. much we manufacturing, The processing these Given and jumped of of These has number trusted microelectronics $X and proposes sense with as with defense microelectronics what threats. identified Bipartisan investments microelectronics in in the saw include; today bipartisan commercial American three U.S. billion $XX trusted government's is domestically to leadership. spending over as for as XXXX defense Congress Act past seems few

defense. past electronics sitting on pioneering the a the tech XX of we've Over company and intersection focused defense at next-generation years

to industry. Our to make accessible commercially goal defense and the profoundly is to them more developed transition technologies

the more emerging strategy couldn't this security with COVID, Given threats timely. be national

that that's Everything be also with the feedback national into IP be security as enable or and formats next-generation Mercury at customers We're and issue. the our the an help level edge semiconductor dialogue microelectronics of from we've We We participating DoD significant industry think chip we hearing will great in now done the at focus. to level. in whether a currently believe processing on address processing different embedded done is microelectronics on that technology. can't it applications leader Mercury partners, processing can strategy. our trusted is in the going position to that security coming secure that existing national

result to a business created. the more strategy We as of that expect see expand we've opportunities our to

rate a As far ability that business industry to at optimistic new Mercury's delivering surprisingly outlined about on revenue Slide organic X, remain current The conditions robust. we're exceeds continue the growth average.

Our Mercury's and to business in is mission-critical and fiscal our bears strong top out. and 'XX QX users end this performance customers line

business change spending. are in demand. pursuits home. of for not we difficulties realities concerned single-digit that and take this We no But may long-term seen to-date significant low longer our ongoing growth changed associated we've in baseline somewhat travel new with from stage, our have forecast defense working the fundamental At because overall

believe in systems, as in targeting drive in as the that continues remains to right radar, mission weapon and EW growth modernization the occurring of continue secure wave well of rugged We market. healthy. avionics parts Demand and servers participating computing the and CXI processing in business. The space, we're to

growth sheet balance the organic with We strength to M&A. supplement Mercury's have

continue markets. potential to short We're in aligned and on both Mission looking are the M&A and Sensor Systems We the strategically be deals Effector CXI and the that for to accretive term. our and focus long have pursuits

hold, right on a pickup beginning we're COVID, of is as been now our has as our activity M&A liquidity. a and robust to is result pipeline see While deal

given and In Mercury as the business. culture we before. is to our positioning and anticipate values, than performance seeing buyer get perceived more a addition, When strategy we great opportunities Once, we our to the on of believe well through be the as that execute purpose, our and and crisis, disciplined position growing that, business it will, we strategy and strong accelerate namely strong be integration. organically does a that margins, M&A full while deliver organic to activity continue M&A we'll our supplementing to growth believe with in

long-term, to over our five summary, believe slide areas. strategy In our for the in will execute X. we generate value to this we Turning shareholders plans significant as continue

time and to is at averaging double this high high growth organically our with single First to digits acquisitions. low over supplement digit of organic grow XX% revenues to level

The invest as systems technologies, second is people. secure assets trusted to manufacturing our in and and as our facilities, in well business

And we're Fourth, while stronger in driving as well the leverage manufacturing to than seeking operating allow our as growth, us across continue business. This in-sourcing in operating to organic manufacturing maintaining strong is we shareholders. six of performance and revenue has investing should expenses. grow Third businesses locations. operating faster finally, revenues will attractive we're the past years. synergies with worked This cost combined well our generate other areas for fully synergies. acquire very integrating the to returns plan over These produce strategy the

ability strong aligned our that, deliver this committed is to With and that Mike? results our organic over to value been this business mitigating of to we're customers like will and We've and And performing everything turn mission generating to can record once extremely delivering call strategy fiscal our shareholders. we again our managing We're execute, well. our Mercury in of risk fully of through doing industry diligent dominant with model I'd XXXX. that success. Given confident the the and reducing We We've we're growth finally, and Mike. to technology engage trends. in strong employees in extend period uncertainty. to

and to EBITDA, the we record conclude revenue, Thank manage afternoon, team, impact priority to good deliver able seen. through Mark, our extremely this EPS. made were begin efforts with you, top in adjusted their and a year. fiscal quarter to our income, safety we've again protect the year extending worked COVID and work quarter XXXX to and employees the fourth health, record my for outstanding this and to livelihoods, We've of the results appreciation bookings, did and net EPS by of they our I'll it hard adjusted they've Thanks everyone.

fourth the slide quarter to on Turning X.

book-to-bill Our record strong. XX% to be continue X.XX ratio. to and $XXX bookings year-over-year metrics book-to-bill Bookings increased driving a million, a

GAAP QX XX% respectively result well were million services our as or of fiscal well share, million, In primarily with result, up for XX% for of required EBITDA safety QX, record revenue $XX.X backlog. we were COVID-related million pandemic. our $XXX,XXX We our income as of the XXXX These was cost tax on above of increases $X.X $X.X derisking a revenue XX% These $XXX and in business and guidance. safety and up health, as end the of livelihoods and tax record a supplies performance, a of had to a charged million of and $X.X for these year-over-year. to employees fund, expenses. expenses due expenses. top relief top gain end were employee million goods exceeding Organic a were were beginning GAAP and sold We're the share. guidance. to in per net operating workforce discrete from invest year-over-year. benefits. As the for our in charged to up record employee well benefits year-over-year adjustment we're continuing had EPS protecting approximately payments the $X.XX QX to other Approximately in as $X.X per Adjusted of QX or as was strong investment net as operating $X.XX XXX% million

future growth fiscal CXI. continue EW $XXX seen growth year-over-year in through our successfully by Slide Mercury's for position in business key the such half, on financially We R&D Bookings managed We the and results adjusted wins EBITDA, income, new revenue, strongest The highest XXXX, net we've and delivered in of in COVID million, was our resulting full markets impacts Radar, cash we XX% bookings, volume second of during history. record year for to design in driven history. Turning CapEx. adjusted And the the XX. and the EPS, to flow. as EPS free primarily to investments year increased

to our to increased ended with providing fiscal fiscal a represented no continued fiscal exceeding XX% We XXXX, our $XXX than for up for XXXX XXXX a in million. approximately fiscal to of of guidance, the from guidance ago. book-to-bill million, within of was total backlog million This X% million, organic the record XX% $XXX to $XXX solid XXXX ship Our XX% revenue. revenue our us million. of year-over-year Revenue In $XXX was with midpoint expected single program months year growth. foundation more Backlog of the $XXX XX year equates X.X. next

million or Adjusted five flow and in diversification programs in income strong revolver cash tax the million Higher the balance were EBITDA in year-over-year revolving well increase and fourth the industry-leading revenue, by Based cash share enabled for respectively. to the GAAP free we gains of investments, business equivalents our in paid or items. to growth-focused the COVID free while in cash COVID strong which we This increased in revenue. related represented These increases the one-time million reducing investments year-over-year five the Mercury's our compared to million down us included in cash reduced highlighting XXXX drew the in $XXX strong facility, and $X.XX to funded base. inventory top in or strong gross Our markets up adjusted investments capital of of XX%, R&D a $XXX GAAP our revenue sheet million. presents of driven per year as cash portion in net of we by QX, $XXX cash our precaution. XX% pandemic. XXXX Slide margins. result allowed included $XX.X million net QX. million tapped XX% of and EPS supply XX% risk less our quarter, as flow of for our credit from discrete with continue QX of XXXX. from fiscal fiscal XX on performance $X.XX turbulence that $X.X program a capital base million on last of well delivering still for and as Entering $XX.X than quarters. the XX% as as us $XX.X as $XXX.X some These an fiscal were Free XX.X% XX.X% had share. benefits operating per The chain tax was year-over-year margins Mercury the EBITDA flow to non-operating investments

and cash Despite a As financial cash and public economic from positioned a acquisition-driven with of billion continued continue QX $XXX investing concluded with growth. with organic million, remains revolver to nearly combined us uncertainties health Mercury million equivalents result, and capacity. Mercury unfunded of well $X standpoint provides $XXX in our extremely liquidity the which

M&A has pipeline while said, new Mark looking continue COVID, As slower we be active at to opportunities. robust our and to remains been due

have picks capacity execute our activity As back acquisition up, we'll financial of plenty to strategy.

Turning Free to cash This flow $XX.X inventory. our by was CapEx for was expectations, cash offset Slide flow XX. EBITDA. QX with representing in on XX% line lower-than-expected of as slightly million, higher was adjusted

quarter, outflows related had expenses. the we cash During also COVID to

XX%, fiscal flow which compared is Fiscal free year. the into of last million percentage XXXX cash $XX.X coming line our expectations a to with For was EBITDA XXXX flow in million was cash adjusted $XX.X as year. free

as mentioned, I slightly but by business or revenue as was supply to COVID were slightly $XX.X had XXXX growth mitigate precautionary as COVID-related disruptions Capital driven that X.X% in million lower expected X.X% well the compared last than of the by Fiscal prebuys As we higher offset year. or in in delays, inventory was a million fiscal to XXXX expansion order expenditures to result potential chain. $XX.X inventory. CapEx of

microelectronics our our primarily XXXX $XX During custom in to million CapEx business. investment was our expansion related fiscal

facilities. also CapEx the the our Without of approximately microelectronics During revenue. the CapEx would XXXX of below completed maintenance as West our have and custom levels X% in investment slightly investment, fiscal of a the at we percentage our Coast to revenue closer year been consolidation

chain strong turn year derisking business CapEx. invest fiscal flow now starting as earlier, base to guidance on supply the our slide to the XX. in expansion I'll and well us cash in is as said allowing financial the to in R&D I As free with XXXX generation continue full

fiscal Our effort for headwinds discussed mitigate. COVID, major the we've potential budget. we've the operational every defense guidance Mark also impacts year the as to associated related for talked full about made no QX which and to with assumes

programs right threats. of While believe we and that we're a parts we current the the believe market align on with that in well is supported possibility,

base benefit continue diversified believe by including trends outsourcing our fundamental a have the We program also we'll our and customers. we to from driving growth

with XX-month year. entering provides and also backlog visibility record good total are fiscal we us XXXX the as We begin which

and As we're continued fiscal and in XXXX, growth organic growth infrastructure. business strong in anticipating investments capital R&D,

the of $XXX million of to year growth fiscal X% we XX% to revenue fiscal For million expect XXXX. currently full XXXX, from $XXX representing

low year-over-year fiscal to Mark we to year the a by in in income to that revenue net progressively expected Like in to As growth. increase $XX non-operating discrete XXXX, not and to $XX.X fiscal similar per consolidated said, tax HX throughout HX Mercury's in the we XXXX. or last per $X.XX continue and to basis on single-digit is fiscal split we $X.XX million benefits expect had quarter for double-digit GAAP XXXX approximately to weighted fiscal we share and XXXX percentage $XX.X fiscal be million high to and This we of deliver is revenue Total second fiscal reflecting income and are XXXX saw share. forecasting half. that towards be XXXX I expect the mentioned organic between year down $X.XX or

the and is our EPS are to from income X%, XX% respectively we with increase EBITDA is expected margins in to expect approximately the for per revenue XX%, approximately midpoint of be expected which to increase EPS fiscal up EBITDA at $X.XX million, be a result fiscal in share to are XXXX adjusted quarter-to-quarter. XXXX. margins year-over-year GAAP to XXXX Excluding in of these benefit had from to range line and we Like fiscal XXXX. to Adjusted that of fiscal in net million EBITDA be an or progressively XXXX. is XX% discrete is fiscal be fiscal $X.XX Adjusted X% of $XXX items EPS $XXX expected applicable $X.XX of $X a guidance. to the Adjusted per expected down million GAAP XXXX share. range of to as This tax for adjusted

leverage fiscal higher a lot a to year. XXXX driven fiscal offsetting the as we we move result, like operating SG&A look spend expect with through R&D As XXXX

we fiscal the to few and that we'll investments years. will EBITDA margin adjusted we've continue XXXX XXXX further believe Looking over in the make fiscal result in ahead, expansion made in next

for a continued be levels primarily to in CapEx of of custom We as above business delayed XXXX X% result some expect CapEx of fiscal was investment This maintenance revenue. our approximately is microelectronics COVID. fiscal our XXXX to in also due Andover the of Cypress more of facilities to needed growth reflects to build-out as provide volume as classified secure space and work. It well support our for which an increased

investments related where as to expect be as free lower goes Finally in cash we cash to we the and COVID, we're invest facility year, increase in revenue appropriate. and EBITDA. expect EBITDA, flow for of Like is testing year making free XX% flow the the conversion as to adjusted first modernization target, to approximately below continue quarter XX% on. in such increased This as XX% the business long-term slightly well we our CapEx, and to be as the

XX% of million, $X.XX million per the to in related per for net expected to COVID-related XXXX. year-over-year $XX.X $X.XX or and expected of Adjusted $X.X of tax, QX at QX tax EBITDA adjusted $X.XX or are or primarily the EBITDA forecasting for Again, to share QX per our first continued expected $XX year, manufacturing decrease XXXX total to million, we of expenses an revenue. fiscal supplies that $X.XX expect approximately share. increase be to income to guidance revenue. benefits is quarter is QX X% is We're XXXX to related share $X.XX the QX of to million million $XX.X revenue primarily XX% now representing Again, year. to including $X.X range compared million, $X.XX full $XXX forecasting We're $XX QX million to Turning approximately of be services, GAAP XX% on EPS be in be $XXX facilities. also net Adjusted our for last fiscal to COVID in is testing major with slide discrete we to per not share. our of XX. forecasting margin to

fiscal We expect is approximately well CapEx XXXX mentioned I facility of microelectronics build-outs earlier. in related of be the investments, completion of the This our as as to custom primarily in QX sales. that investments X% our to

flow that and to We pay full as as expect QX expenses continuing be XX% XXXX, than XX% cash higher have the In QX to we CapEx always for COVID bonuses, EBITDA continued year guidance, lower and discussed. to to well which we're to to free adjusted year-end growth. in QX the due advantage for I and related opportunities invest take fiscal we of the

Turning XX slide and summary. to

with strategy double-digit with can to Nonetheless, dominated quarters likely be in While strategic The for organic were Operator, supplemented year. two Mercury persist expansion, now. XXXX. that, low of by fiscal financial and happy you pandemic, last take to record the proceed revenue related for EBITDA half margin COVID are fiscal continue executing the M&A. challenges and Q&A high coupled the growth, full we second believe delivered to results questions. creation strong With our long-term value accretive single-digit, we'll the on challenges we're a position with to your

Instructions] first comes Raviv Citi. Jon [Operator Our you. from with Thank question

You question. with may proceed your

Hey, you. Hey, thank guys.

The going anyway. deceleration XXXX. a love Mike, you slight going I'll not to You're on. FY implied from try growth but, organic it, this XXXX, it talked There's obviously, question lot in about a

of new you aligned of microelectronics et cetera. realize have for and done wins et bit a this investments on the cetera Thank accelerate a big I should and up? stuff really pick lot super important, on with you're opportunity designs it's perspective You the what guys looking is these new have any for inflection growth, and to but new all the we record wins lately, future or me be the when organic some start to in sort of you.

John. Sure,

long what growth. is feel said high the over pretty digit aiming the double term. good kind we of about So, single we're digit We've low organic for

of I to is that. the year that what continues visibility in is It year. But delivered typically tends look kind upwards. we that, happens progresses with as guidance lower we've at you line the think slightly number given and improve, the trend if is obviously, last to what than,

for happens, we'll good what feel the with but now. guidance So see we

for? Thank about And while to you. guys the being third a expand start inflection the which on those we're next expand? follow-up, margins. growth, to at heading few support framework as we're of margins you margins or over Mark, is EBITDA almost strong, might margin. And Thank Any you you then adjusted thinking waiting are the there the is I Mike, to a some realize year years. did mention organic similar the the of when and point idea some you're invest Again, that XX% the sense growth in that margins you. question, sort really of

Yeah. that John take I I'll one. mean,

think what fiscal the in a opportunities increased to think deliver where R&D margins. to driven were sales is EBITDA I fiscal and that, XXXX, we expect XX.X%. lot XX%, as XX% by able really also like we still fiscal from in XXXX, we we're year-over-year increase to And the percentage And fiscal EBITDA business XX.X% mentioned XXXX. that driven that And -- and over by we the increased to grow delivered it we with R&D, were I is able seeing. the XX% really in margins. a R&D guidance XXXX R&D look we by XX% But we that's of growth

have think fiscal in are you're we have you XX% the look do a that we've see what referred lot expansion But guide opportunities I so, And that I to the seeing, EBITDA mentioned as the prepared EBITDA you XXXX, and fiscal lot markets margins. think we to in as to don't going we're remarks, but And of a I path starts, at fiscal see we've XXXX operating similar R&D to about margin if the specifically of time. clear a the over continue programs production of that design rate And some as wins talked new of do past, XXXX, sales levels talked that as had to terms about from transitioning in into as full well leverage. in higher-margin of that the we program percentage got a playing, Mark the when we where new look, at we're the we guidance, R&D.

take we see after So, margin expansion XXXX we're fiscal the do in that. investing advantage of opportunities, to but

Thank you.

you. Thank

Konrad Our next with Jefferies. question Greg from comes

question. proceed may You with your

evening. Good Hi.

Just to mix year. I you R&D. of into talking were R&D this how lot investments? questioning. of play I maybe and kind customer-funded follow-up expectations think came the XXXX of on, mean, FY up through I line last customer about does kind And past mean a around

We've Yeah. At about we've seen is Greg, a talk new the a time, so improvements. we ramping new a what programs lot But do don't lot And customer-funded operations program do of specifically invested have guide, we the up. starts. we operational team. lot in of same R&D.

had where So new don't also we again, XXXX just but gross starts XXXX XXXX we to But fiscal up. you had going fiscal it XX%. lot a see looking you're guide the think margin under we fiscal about which in efficiency think some like, when operational gross picking again, I to program margins led

So it's again XXXX. look going like XXXX, I think, fiscal to fiscal lot a

has an and it movement be good terms creating momentum around the trying you size mentioned, opportunity, could with but seems been timing comments, the then, that. and this How maybe mean, are to has some trends And of much the in in actually moving potential when four forward? you there chain about into thinking that how turn it microelectronics the And revenues? also the like around budget incremental that. I behind supply dollars could of advanced prepared

it's so hard timing. comment actually Greg, on the Yeah, specific to

seen as capabilities risk just technologies two think I we've number with obviously of One supply on is COVID, the parallel. the chain, there's a in -- secure mentioned there. as the Longer trends as very DoD's of one remarks And in number well my think and in prepared microelectronics well supplies. non-domestic I which as we're positioned trusted for going know, technology I having capability you priority. investing is and we're other kind term,

We're really in an amount making So the investments. is because fair with directly the opportunity the also we're customer base, it the enabler terms of next-generation across and of for to traditional and customers microelectronics of government capabilities a both applications. capability, seeing our

then both pretty trends are for we're I next, for positioned existing for. trusted capabilities. So, And both supply trusted think the domestic chain important well microelectronics that

you. Thank

you. Thank

Our next Seifman JPMorgan. with Seth question from comes

with question. proceed You may your

was and split as afternoon there organic of thought increased kind number, XXXX but the Thanks in of from that with a maybe to a qualitative a I precise in very was very not versus wondering underlying way or about much. out if in guys. growth? kind of a number round Good more you coming the growth XXXX outsourcing kind amount of market of way

for Yes, look been subsystems at is really most a you we use of in it's see outsourcing outsourcing proxy say the hard QX, because of we growth revenue level. but if subsystem has today kind to split it the occurring out specifically, that our Seth, in

quarter up was in to Our fiscal as subsystems year-over-year. was of revenue. XX% it XX% up And whole XXXX the for a revenue company now total fourth XX%

in growth I are modules growth of our XXXX, as the and and we revenue lines with that look into subsystems highest associated -- fiscal actually associated going terms to So subassemblies the forward and components. is of probably that from be which the product subsystems with expect

which is the So, has subsystem growth alive we been and trend absolutely that outsourcing think driven well. by

something of the And you mentioned helpful. sort scale drives is opportunity or and potentially to what gain think is of dollars to expansion R&D to that's XXXX. opportunity to that's an then the plateau there? Mike beyond there begin that, When about we on should leverage changing about the start margin the see fiscal also think And the there's -- opportunity there do mix? in how so you Great, that some

Yes.

the to things it's think degree. mentioned all I So, a you

we mix see new think gross between mix starting two we margins five five-year to in program margins, of see between I rate I and we've starts talked time, gross in tend with years. opportunity the production margin. and is as plan We look the which things towards full And over the So, think we always quarters; couple the the should about invested there. switch gross same team. it more higher operations expansion At last heavily margin production for

two gross area significantly to margin is in one. continue going to expansion We're is Number invest R&D. R&D. number So,

our our R&D part it's in the see of leverage But do next a key model. across know of we you years As multiple as over opportunity we products. for five forward go

R&D that's going as sales while be a there of to then there's but see, years. to we think is opportunity an the down over for by do grow, is over opportunity the grow operating five the there. going to Again grow dictated So, think that continue And come as percentage finally is to that set opportunity we revenues next period. we do SG&A. leverage for OpEx We five-year leverage faster we than an

of So, areas. three those all it's really

Great. Thanks very much.

you. Thank

Arment comes question Peter Baird. with next from Our

proceed with question. may You your

the is on to before XX Mark how are you've thoughts cycles start cautious environment your into having Mike. if -- just of could seen a any little some Just few on cycles of budget Mark, -- about of evening -- I M&A we there next Good months is approach a regarding any alluding just the these thinking a out? crowding bit that in you going I'm high M&A what's that more be guess what softer seeing your environment? you're level

allows Yes, the the we've cost were core Peter focused which we synergies. I markets. better business outside those been the generating on And us actually has significant doing It successful stepping if quite very allowed our in us create businesses also we've mean diligence of over and to that's don't what think opportunity it's both value. time far gives acquiring to that I core very than revenue honestly. been us changed of really really of and

and CXI. both well in focus really as of runway still organic Mission terms as that think acquiring Sensor to continue M&A-related going we're Effector We growth. a to of there So there's Systems and lot in

I'm what's too to backdrop ability concerned So our not happening and with continue acquire. to the with

a there just naval Seth's there thinking to are other still you back on or either further they're a airborne areas regarding there's of circling penetrate? just comments ahead outsourcing. kind is then as other like and subsystems where -- And areas opportunity Okay. your to services question of platforms the versus where follow-up an the for The a proxy, kind

Yes.

of we're is positioned yes the pretty like which kind right I way in So doing mean mix well. of the now. business I the

If our fiscal was you XX% revenue-wise year-over-year. up for look business 'XX airborne at

which business naval was a total smaller XX% up of and ground XX%. percentage Our up is was the

five think as see probably areas. see over years we're ground think those LTAMDS not I and going to in revenues in in fiscal ground well. we're but I of the only way we're to we to platform. growth classified growth But to that begin in positioned going like to next going with We'll pickup end in to markets terms is see as which continue a because 'XX a see obviously for us year continue the next which associated we're

the for color. Thanks

Thank you.

Thank you.

from Michael Truist comes Securities. Our question with next Ciarmoli

your with proceed may You question.

I specifically Because around disruptions? COVID-related it think on for visibility? programs and of taking improve for touched get kind Hi, it's for 'XX compelling just but Thanks conservatism drives it's on, backlog. I some -- I guess environment? your POs I my guys. of needs you understand a visibility there? looking certain Are on good Mike What and the visibility? you've from the outlook now. when the the Maybe it from got in right of what that to XX% around it evening, been standpoint certain but the actually budget Is what what Just improved Is question. just of you mean on the revenue some customers? clarity? clarity Is pretty

more Yes. I of we'll as progress And mean things I think those I lot all on think that the Mike. we that. a through year visibility get it's -- we'll

as especially entered than the our related were a backlog got thinking So and we elections XX-month But that's of last up. there guidance, We've out potential last we got extended an about for entering We've year. uncertainty XX%. of with about a CR guidance last coming midpoint 'XX XX-month when we're to definitely of year and more is the XX% there. our CR. backlog this and COVID the terms good fiscal year. year did our in We're about we midpoint guidance The more

end the and thought some of higher uncertainties so a be gave as those And about sure we're that years hopefully we is wanted we range. we guidance those we can make we the hopefully we that the as was progress of thought what range reasonable. And visibility and through towards as more that facing now give the do go to away

else mentioned in you of COVID the baked of Got remainder it. year? quarter. And the called the have think first $X.XX you out in Do you anything expenses I for

don't. We

year. that So QX. similar. incurred the be but be we've our expenses. amount QX. makeup we for we you're so COVID manufacturing million when hard benefits. We different, to employee-related in QX. will for started will the say level fully the right. other rest same only forecast It's some at We for of I And forecasted the QX facilities And the COVID be major we in forecasted testing $X.X in But there'd think That's Mike different expect to

reminder we'll back But as definition So adjusted and EBITDA EPS the we add adjusted COVID the year, guidance. more those provide a as of adjusted quarter last to go we through expenses.

or net adjusted impact won't of and for it EBITDA impact GAAP guided now have But only So on we've income QX. EPS but adjusted it'll GAAP as EPS. an obviously

flow guys accelerated would coming expect I the Got then that have maybe benefit, the through the just one you would cash thought seeing on it. conversion, are some should we last that seen I of and And quarters any in that or you from of progress that mean payments that of from the generation maybe have here? customers. your some

with tend material cash it And it hasn't do increased see our to subsystems commercial Not have we're contracts. mean that. getting really been Most work a us. we that because have able you performance-based the XX% when are I has been of from do to payments payments have, more programs we've on progress contracts we think more We still increasing customers, and of about exposure sales. we which milestone on the XX% really And so longer-term progress less to of a minimal Mike. some have few where impact where But for really from to us. our payments.

hop will I queue. in the Thanks, it. Got back

comes Ron [Operator with Epstein from Instructions] Our next question America. of Bank

question. You may proceed your with

Good evening.

you're than get DMEA's guys on on, to So Mark in and not already seems the on for an if that's now push program. like processors. is It there important ever ATSPX more opportunity you microelectronics given

was that Ron? program which So

a Program to funding some Tech microelectronics large Support the Advanced bunch do they're work. where contractors Yes IV, of

place was that find on in curious things aren't additional if to could guys you was it, just maybe If some where a do. I you guys

around the secure opportunity and is Yes. I'm we not program, microelectronics of set substantial. specifically pretty aware but that trusted think both

other either So were bidding already there's of actually bunch have on on. bid a are that programs whole or

is are as systems There in EW one in well the architectures scale at other domain. chip comms. as the So open ones radar,

we're is opportunities SHIPs seeing board. across to so we'll one obviously see be so happens the going And really II, that. And Phase yes the big what with

bringing heart suppliers. to one II entire the both So number a chain we're of supply tried the strengthening Phase at And the that potentially as trusted around back microelectronics SHIPs big U.S., role is for really a with packaging and as to is foundry securing the well of different devices. initiative those

just Is foundry piece commercial have business? DoD you maybe a be can foundry, a Just mean the there a enough foundry? front, U.S. justify DoD having question or to on that just doesn't broader I in really somehow big a of a do DoD to a enough customer

to trusted great think think a no. they I a And answer in don't the think which I way it's -- large question. the is previously. DoD I the create to look enough that did domestic foundry is No

for path purely in stand quickly now infrastructure down to and gone fab The the past it GlobalFoundries. with not up a the market we've which is simply Fishkill that enough IBM enough I associated think is technology too moving is the large and with DoD.

take with is it the leverage in defense applications. basically up and believe needs be U.S. is to that commercial DoD to producing to we the a So that, commercial silicon what state-of-the-art in there keeping the needs foundry and needs that happen silicon to and

that we in I domestically. can the of commercial with would they we be from more fact we're think high we nature and participate And secure the where of so it because are ideally that together come to any And -- way. it we silicon, volume we make profoundly can we what a player technologies in other horizontal industry, accessible to suited mix it combine take essence suppliers, than and silicon different that and low actually can in that's because defense those can package of the

answer the both sort manufacturing for trusted that coupled think is bring having with for capabilities inside commercial can that domestic we the bear So -- Mercury silicon use or the to DoD. of of for DoD

both So, is the think I it's Ron. answer

pretty just could change? now of the a Yeah. you R&D a Because of in the comfortable that or purposes quick of right talking you kind lot change law at That in you piece credit then, makes And Mike R&D way the for looked guys -- be you XXXX. I accounting amortize would XXXX Have tax question. for are what sense. maybe dramatically if about tax your impact doesn't mean doesn't

be if cash So, impact on the what you would can say?

Yeah.

that of something at have obviously it. it's aware So, are we and looked we

impact if XXXX. all, starting on is written our implemented it's would in the rule of currently fiscal First us an as have it

as goes XXXX. effect it in into us would calendar So you fiscal XXXX. mentioned, It hit

other around just the is in as or highlight in expensing our majority U.S. impact The vast amortization it's rather of U.S. than know, it, the to you deducted the for five-year the obvious a R&D year R&D that incurred

after be years, the we'd through transition. So five

run five at $XX rate in you current conservative over as estimate, And the in as next on In there's we terms our ambiguity million, million a five. of to $XX decline But and still until we're based know, Ron. assess the taking think XXXX, flow impact it what as we impact, could fiscal to which have a cash it. a high view lot as interpretation of would, the years regulation we would of have begun year

accounting. You mentioned

Just it. about our to for, with is business it. model talk is a know for about technological was the is government government we I innovation. And the GAAP believe to I the and don't when intent There talking of and impact DoD looking penalize impact. would that's isn't the what the everyone clarify we R&D cash associated and add looking

change could see. do we but think So, there we'll implemented be before it's

give XXXX. And until more becomes But Ron, guidance. fiscal again, so clear, it won't some as us everything we'll impact

it. you Thank much. Yes. Got very

Okay.

Thank you.

Our Jonathan Blair. Ho William next question comes with from

You may proceed question. with your

you're of go terms you've of of if in, inning integrating Hi. Good that wanted And process? to do made? in bit just through that maybe some afternoon. you in color give could some I what recent to us see you where as the of to a terms acquisitions continue operating understand, additional little you leverage expect

Okay.

some I don't leverage answer comments I his that revisits the of on kind Mike earlier. So part. the of operating think And first you mentioned maybe

pretty got a stop nothing into of little we're going to with much it's a That We've work disrupted So APC. do forward. tiny acquisition got that's little Jonathan. done but the getting bit to M&A from on COVID, of us really bit going basically back

purchased. So, Mike? we're of we've pretty done integration the that with much previously businesses the

I would just an where most Jonathan, the cost I'd we meaningful two. say, and synergies acquisitions the operating Yeah. the recent that and that Germane did, between expected perspective were to from acquisitions Themis those we leverage the, see say

both and job think I very power. in there a margins good as purchasing SG&A gross we've done as well

has job done a the those that If and we've gross great pretty margins you recall great when done business team we low gross a Germane, bought the were getting margins job, and of up.

So, sell more of a APC acquisition of technologies we've I a ability the of room our go. some platform in and and those capabilities bit lot little to of more of to other recognized was bigger that with synergies; and think products. terms subsystems integrate a

really not that's synergy angle So, a cost that. to

So, or for I we're in think out good those. coming synergies see specific more expansion the of pretty a shape. lot margin don't acquisitions, I

I most we've of already those. run-rated think

we've is think do I capability think the associated integration companies, which years, buying I is as recognizing think and keep future doing leverage as acquisitions solid. them operating over we of we always them. our about, been talks couple And doing with can Mark integrating what I last

then guess, see I bit have a the additional And line to are some secure maybe about those be your secure I And, wins capabilities. I'm margins questioning, in that, that a would components we of delivering the injected new little to leverage assume given into design more get talked it. higher? of on start just bit programs? similar a wondering when terms with now, you Got you just of do going

Yes.

a into last next lot fiscal So the years them are Jonathan, transition year. beginning of some programs, to of several and we've won beginning new production over

R&D are the environment opportunity see. spending set on that we're we given still the just However, significantly that in we

processing secure as probably side in the things clearly the it's primary well now right in sensor of processing driver that the crossed see growth capabilities our as of So, chasm. CXI. And both we on has modernization

the were of And our excited about both year so two and capabilities bookings pretty related largest there. to literally this those opportunities we're

you. Great. Thank

Mr. Thank you.

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

speaking very to next care. Okay. you Well, the much you look joining for Thank to you. We quarter. Take again call thank today. forward

Thank Thank you. conference this call. for Ladies and gentlemen, concludes today's you participating.

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