Mercury Systems (MRCY) 4 Aug 212021 Q4 Earnings call transcript

Good day everyone and welcome to the Mercury Systems fourth quarter fiscal 2021 conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would 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

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

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

Mike the Thanks begin everyone and for review open And will guidance. joining thanks I up business and afternoon will Good for us. financials it will questions. your we Mike. update. with a then,

are for and the growth are remained It backlog. strategy. effector results a growth CXI. we beginning an and million QX affordability for EBITDA. wins team fiscal sensor growing was, doing was revenue well-aligned be with speed we more of and digit believe continues mission systems secular the said, in of derisking managing, and over could design anticipated strong led to we is double adjusted challenging the that favorable The Our however, by and national we with the and modernization, similar. and also fiscal push and in XXXX Mercury outstanding job both benefiting business XXXX $XXX government defense and That year and than trends robust The

size substantial of As our single XXXX, expansion. deliver double to that over low and time, delivering XX% the with margin a result, five-year XX digit shareholders. value we high is acquisitions, Since multiplying revenue completed digit plan averaging organic intact, the and have for fiscal synergies coupled growth M&A remains creating significant company, to

at five found achieve announced As a the for adjusted we years. the XXXX, to steps towards next effort fiscal EBITDA proactive revenue goal with billion we foundation $X seven taking what repeating afternoon, our we an scale. the value threshold cross Mercury' This is the expansion are phase of lay dollars we eye the in company-wide to XMPACT creation potential course The years. growth, and over margin full next which of over call we past

strong expected, our take book-to-bill results, slide as year, a fourth a down as strong anticipated. but came quick X.XX. in look quarter QX, substantially let's resulting Before positive very financial talking Bookings on from at more in up last delivered results four. of QX slightly a XMPACT, from about We

Buzzard, up and SEWIP, programs down were the year-over-year F-XX SABR, quarter X% of PGK our guidance, XX% in P-X. bookings the and Total largest organically. Our Filthy high revenue end exceeded

programs Filthy Buzzard F-XX, the revenue in Aegis. were quarter SEWIP, largest Our CPS, and

is Our value. more new and our business design QX pipeline robust in million in estimated $XXX wins than lifetime totaled

On the another bottomline, we EPS record quarter EBITDA. adjusted for adjusted delivered and

We also the acquisition. completed Pentek and announced

are fiscal fiscal of our all For results by over record year, grew backlog $XXX delivered us business well. X% continue top the we participating which the a across revenue to We full in position. strong XX%, million a XX% XXX was growth. point We increased majority diversified programs, including being programs, year-end than adjusted metrics, lot X% the highlighted in designed with year-over-year. from more where XXXX we different which XXXX. sole-source key Total up We serve which organic delivered to EBITDA of

of classified programs F-XX, more revenue single total XXXX. in largest revenue the E-XD Our SEWIP No LTAMDS, program, radar for X% program is were year company a Hawkeye. fiscal than and

the expected years, to single program to next ahead strong activity activity Design be five and elevated. total levels remains is of X% than very Looking more win no revenue.

Corporation. value The design trusted fiscal Filthy lifetime its lifetime win same XXXX design $X next about significant during commercially completed XX deceptive microelectronics This in around most estimated fiscal most important investments for business this year. $XXX totaled Potentially, an wins We million. excited relates billion, investments we Buzzard, wins two and $X.X acquisitions our largest AMCS Our recently, our aircrafts. The device the and leading this capital, the perspective, R&D the POC or of design Army generation opportunity systems We Physical XXXX, $XXX million award deploy in have we that system-in-package. received We RTL, the amazing made semiconductor value. billion of the M&A is program. Leveraging part firm, in estimated business, made of jammer leading been win and to Server capital partnership drive are our across an fiscal with had are will arm of capabilities AMCS more. we by capability. lifetime company. Electronics Silicon of one initial From was value top processing, potential XXXX possibly acquisition design acquired award Common the to a estimated CES, RF approach and in EW however, won semiconductor GECO the possible small, has mission leveraging to trusted by including our Mission KOR Airborne another the we we partnership of Optics million Mercury. investments It's and Phoenix. Army its with team. as we is our win At of existing next-generation We products. outperform This in $XXX computing. and available secure the time, value lifetime Valley fleet producing believe an which of with We win in innovation microelectronics mission would deploying and could an record is the not internal without future should sensor to-date acquisitions effector the estimated strengthening and the company's both The CXI believe programs.

significant out made our investments facilities. also have consolidate and to build We

a in strong was XXXX fiscal year environment. all-in-all, challenging a So, very

execution a the large by surface we COVID-related slide naval Customer other five. CRX organic military on were fiscal and programs. SEWIP modernization our foreign sale. on as and XXXX discussed, impacted to issues delay Turning F-XX in revenues Throughout and delays a

in approximately percentage call to mid issues these for On year. teens. mid quarter, the reduced combined our last five organic to to growth growth fiscal addition revenue lowering points In organic company we XXXX revenue the high total single leading bookings, previewed digit by expecting our growth

for Given our to experience we Raytheon said programs. more in reducing XXXX. XXXX last the likely at their call and organic next expected other since includes fiscal revenues upgrades, awards have fleet be growth related from Nasal year. The in F-XX LTAMDS XXXX, taken a LTAMDS. fiscal Day recent change our FMS fiscal certain their on will stance SEWIP our fiscal and This biggest Investor conservative

the the history and five and been win expecting largest spread beyond. design fiscal significant LTAMDS to-date This the fiscal XXXX, and will moved revenue of large have single in quarter in has is now the beginning years. Like growth next and to well-funded XXXX an booking program. fiscal with years several of We F-XX, a booking over our important be of in XXXX. the second It's over a SEWIP course driver company's

share will fiscal in as growth detail, a organic XXXX. these flat expecting Michael now result some As are of changes, we

are expecting the prior for We company XX% revenue time first EBITDA. to growth total adjusted $X approaching approximately future billion record and M&A

fiscal of include and year. award XXXX. The the large These expecting for in good fourth to QX in an XXXX. with that in the received this we was last news FMS of bookings drive revenue delayed is XXXX additional expect quarter fiscal a We that associated initial in fiscal are number programs program growth order

In involved several addition, we upgrades. are radar with

management. we in demand the We in faster and company expect We growing Mercury's time, domain faster across multiple the revenues to the spending. and totaled in strong focused EW market. growing see large defense and mission parts business we continue and seen Over programs defense expect overall growth than CX have on platform

backlog. a rebound substantial in in growth Looking ahead and book-to-bill to significant XXXX bookings fiscal versus a we year our XXXX, positive with fiscal are growth the expecting for in a

the the employees this rates customers two to which levels to at activity have could customer believe are on-site attributed past the improvement moving. returning be and government in our Over work. and we We months, speed in an things seen vaccination of

has release offices budget given could priorities, more further delays. clarity program administration's which Biden that believe also reduce We around program

remains In strong. win our addition, design activity

again we design estimated lifetime $X For billion fiscal value. to our total wins in expect than XXXX, more

prior design into transition backlog they time. programs We and as to as increased well expect convert production bookings into these as over wins

expected to high expected to and growth the Looking F-XX, we expect the to Buzzard bookings in levels. is farther programs. accelerate environment, normal LTAMDS, Filthy growth single currently ahead to This organic fiscal be the finally, digit XXXX on double and other substantial improving back two, anticipated to driven low digit growth in fiscal growth revenue our one, XXXX, by, more

we Turning have of to XXXX, capital. fiscal $X.X completed slide billion six. XX acquisitions, Since deploying

and we As these transformed a scaled business. investments, the result of dramatically

$X.X $XX estimated billion. more volume XX of top We into from Mercury's lifetime have billion programs to grown the two, than

achieved revenue cap. a XXX represents EBITDA of We successfully growth. times pipeline than for future X.X period, greater we have and XXX size total adjusted market in our than foundation the our Over times, grown increase and our a also company the in nine backlog more resulting that's this

we to the in EBITDA, our over As that has net we rapid multiple adjusted reduced time. costs our from demonstrated revenue by and done. to purchase extracted substantial gross deals synergies price significantly more the acquisitions This have growth have

Looking threshold be XXXX. fiscal milestone expect the celebrated an point $X and to organic that forward, for rebound mentioned is Mercury. a we in inflection both we I believe billion to crossing revenue growth

in are of extremely active we period addition, now. In an right M&A

core the with very multiple all with of pipeline Our robust line our is strategy. varying of opportunities sizes, in

organic With successfully in XXXX. the have combined acceleration in done fiscal we time opportunity with growth replicate believe what that we we to M&A, the XXXX, so fiscal expected over have since

result, a multiple we launched to us determine to what need of have do we a today size. our current become XMPACT to to As enable

goal over we full fiscal through and next growth XXXX, potential organically acquisitions, by to five Since of have Our our substantially years. in changed course our the is adjusted EBITDA achieve company. M&A the driven the

of offerings scope increase to the subsystems has increased a our capabilities, expanded our in have manufacturing, nearly source eight-fold X.X revenue. leading times. headcount and Within We

had. XX has achieving nearly we We capturing our and is our has believe increased XX scale external began there additional XMPACT mind. footprint in Our future contemplating locations spend year and be mentioned, as significant earlier synergies value chain our proactively I grown supply from calendar value with Despite this XX. to to

seven, slide an a fresh them, into structure full look early do with a to of and Turning a creation we we value consulting business of X the engaged Tier from assessment in the took QX, company. Working will that firm of the effort with speed and on streamline making These actions accountability. the decision in QX. is This organizational improve structure. started in and the to opportunity Based accelerating first perspective. consolidate quarter our fourth visibility, assessment, organizational

will XMPACT these a for accounts in to actions. million reporting QX led are that new $XX anticipating net $XX benefit XXXX me. total action related to fiscal We alone be of The Officer by Chief Transformation for total. million

over and areas, this say in includes result to as the to in to point, processes a fiscal addition planning of At efficiency Again, stages the growth, are activity. and it's over we we progresses in net investment that more efficiency, EBITDA it scalability, have six efficiency chain, time. think will the three XXXX. As dollars reasonable this common of major about $XX the of and next target to XXXX benefit incremental and two optimization, procurement actions $XX them $XX R&D million adjusted we course this capital will still and fiscal to be by asset and million million These organizational years, on facilities systems, scalable supply focusing

and the we Going done scalability. savings since forward, continue with XMPACT our enabling merged we defense efficiently have gross use future people at to future. Doing towards systems recently through some large way scale. this of think programs. of and eye in effectively is fiscal will it reinvest creation doing going about other that and The to what but value two XXXX, with similar an clients analogy, Overall that about to an are customers business greater

the years. have acquired single We our times greater done past company effectively a like happens via acquisitions our course the merger customers. just size that two so XX have of to the as we seven than over vehicles, compared It so

strategic we Thibaud, while him his our with me our success. begin XMPACT, advisor retire Didier the will after team to France thanks to a in growth serving family extend wish that a to sincerest for in decided and as Mercury. from instrumental will unrelated In our at also September, announced orderly and to transition. President, and today contributions been has Vice him smooth well addition and XX years Didier's working have to rejoin the counsel and leadership We Didier he Executive company. In retirement. closely

of expected to mentioned now active M&A as strategy. the Turning integral The processes future is and track both will we as eight. to accelerate disciplined M&A extremely diligence slide are which The methodologies on terms well businesses value pipeline and remains environment both of creation are an I right new part deal well. activity, apply XMPACT also in approach, performing our in pursuits of the The integration. as strong. is remain and We our Pentek and and our as integrations POC

well-positioned growth Looking believe to acquisitions. accretive that are we with organic continue forward, Mercury's we supplementing

signs summary, Turning we will to begin slide nine. see In transitory that and the current to believe we environment is improvement. of

may organic that trend we growth what that FY be secular Mercury still versus in is growth lower quarter, believe last we XXXX place. Although thought in the

expecting fiscal bookings We and are XXXX. growth in in backlog substantial

to as XXXX As returns be of as organic a strong growth result, shaping normal to year actions expand and result a is recent fiscal a levels taken. up XMPACT margins

to and $X the worked deliver and and we growth extremely organically to us call a full and launched to Mike? decade, with XMPACT As that Our cross strong This term have strategy years. intact remains supplementing longer the outlook like over integration. margins our growth while growing well the remains billion revenue threshold, Mercury's would that, organic M&A full turn same, the has I Mike. for the for over of to we EBITDA business is this With strategy disciplined five potential the adjusted course achieve next nearly

Thank afternoon you good Mark everyone. and again

just some move XXXX conclude and to on with details financial our We As year XXXX usual, potential strong and with will record I effort and delivered fourth then full for fiscal the magnitude XMPACT Mark QX and the EBITDA quarter finished with for fiscal EPS year. of start benefits revenue, fiscal that will results our QX discussed. from adjusted and I XXXX and adjusted guidance a timing the

Mark As digit entering in our the a growth and growth, we expecting substantial fiscal XXXX, flat but bookings. are on total mentioned, strong bottomline rebound organic results double

well-positioned organic single to are we growth we that high result, for a XXXX. low digit, double As digit believe a fiscal return in

the XXXX, operating EBITDA by of we in XMPACT addition, to leverage adjusted to positive In in expand expect margins addition fiscal program. benefits driven

exceeded and Mercury ten. EBITDA slide EPS our revenue, solid Total QX. met to guidance. in results now or delivered adjusted Turning all adjusted

was this $XXX Bookings million improve three a compared QX was our $XXX.X $XXX the fiscal quarter Revenue XXXX which the to down when top end bookings and book-to-bill increased which guidance $XXX.X X.XX. QX up bookings above XXXX QX saw were first to Optics compared slowdown was rebound the of as we Bookings were revenue, Our quarters in Organic as Pentek, QX is $XX.X Corporation million. quarter. had and book-to-bill and from XX% to for from strong were included QX XXXX. through for we revenue experienced to of activity. bookings $XXX record environment range QX began X% we XX% Physical million, million. million, acquired million a of last to

by other we which tax well Our excludes XXXX. to them as restructuring expense income adjusted net and and and benefits, respectively perform acquisitions most EPS, was XX% Mercury. income Adjusted amortization down non-operating integrate net discrete were and EPS continued primarily into XX% driven recorded QX This other a charges. GAAP and quarter, GAAP income, XX% from million million record our reflecting were of for year. the well costs and to restructuring consulting in in million We $XX.X EBITDA of as Adjusted a program. these XMPACT $X items, QX to as associated year-over-year. third-party QX, $XX.X increased production compared charges workforce with up last

quarter, Our the dilutive XXX for adjusted XX.X% XX.X% XXXX. included basis from acquisition. expansion EBITDA QX in margin from margins POC This fiscal impact were points up the

slide We market revenue, our new results to of design high The record and adjusted volume conditions Turning billion. full eleven. EBITDA through COVID deliver $X.X EPS in year wins on fiscal at and to adjusted managed remained XXXX.

for business We CapEx. in through position and growth continue to future the R&D investments

completed a record acquisitions X% of XXXX fiscal capital. $XXX percent XXXX for Total million deploying down two bookings we million. were bookings $XXX when from We This also fiscal year. was had

during by dynamics. year of bookings our variety a impacted program and mentioned, were Mark As the market

and increased net a than on fiscal or less COVID was and X.XX. million GAAP per by a And than more expenses revenue. decrease represented of restructuring No fiscal ended X% income, in top last other record five share. tax discrete million, year. charges. amortization $XXX of X% of benefits, for up in were our XXXX driven a guidance $X.XX backlog was XX% $XX for our year-over-year. million, XXXX program revenue Adjusted XXXX $XXX million fiscal represented XX% exceeding Total Adjusted XXXX. year $XXX.X consolidated income compared expense, $XXX to million programs We both $XXX.X million. net single income our Revenue the The with slightly for primarily book-to-bill fiscal to EBITDA one and record million, increased adjusted to XXXX below year-over-year. fiscal was at EPS year-over-year Our basis XX% $XXX to non-operating of

the the for to compared capital. funding reduction to M&A cash From acquisition. was debt, continued million driven partially offset perspective, capital five XXXX. impact the still following XX.X% acquisition. months to quarters. million six Pentek, dilutive In Our XX.X% related QX. QX and We adjusted of acquisition Mercury twelve in with debt $XXX flexibility in invest used last M&A compared financed opportunities and a acquisition, in adjusted which $XX XX million POC presents $XX cash the margins by Pentek structure for million the under equivalents the fiscal EBITDA to on remains on of QX, and basis the of We ended business. sheet were capacity continues great margins million QX with the Mercury's $XXX had EBITDA we be in the $XX and to Slide for of million points cash completed of by balance generated the our revolver. access strong. our We $XX $XXX ended of Pentek cash The cash up hand pipeline well-positioned with million with to we of a have significant of

EBITDA. flow Free of at in our adjusted cash cash line XX% slide thirteen. on flow QX million expectations representing for to Turning $XX.X with was

COVID, as Pentek acquisition-related as as with associated our outflows costs During the acquisition program. related expenses to XMPACT had quarter, consulting well cash to well related for primarily we

fourteen. cash with XXXX, will flow compared free full in turn $XX.X starting flow year adjusted was XX% expectations. of fiscal to to cash line guidance, now free EBITDA, For I approximately the our fiscal increase conversion to XXXX fiscal we In expect million, representing on with year, slide XXXX. financial the

XXXX year conditions market QX the bookings Our that discussed. impact fiscal delays full for and guidance reflects from fiscal the and for Mark potential

XX%. assumes tax as guidance expenses rate of an acquisition-related as effective no Our well

the XMPACT and restructuring initiative. in of includes QX charges other $X.X million guidance related Our to

company billion an compared fiscal increase additional prior This XXXX, is of to expect $X X% any we $X.XX revenue acquisitions. For XX% to fiscal billion, of currently total to to XXXX.

programs from discussed, headwinds large a Mark F-XX we last delays and As foreign expect in SEWUP, year's CRX like sale. military major

electronic and radar and those warfare debt be programs, as We and programs. to CX as increases expect off mission by well management in platform other

expect XXXX As fiscal our fiscal we compared flat approximately a organic be result, to to revenue XXXX.

XXXX, fiscal Similar for are one We throughout second fiscal discussed. is in fiscal for of progressively share, be that range margins $XXX total Adjusted driving EBITDA fiscal expected increase Mark organizational XXXX income to X% be year. from $X.XX $XX.X million, our being Adjusted above on This compared year. million Like to to $X.XX XXXX per $XXX we fiscal half. for consolidated approximately $XX lower from in be basis has by expect to includes is Total million year, fiscal towards due Adjusted GAAP expect guidance bookings adjusted margins share. $X.XX through revenue dilution basis the revenue, million efficiencies up full million and XXXX. of XMPACT-related heavily to XXX point XXXX. to which expected $X.X rebound XX% progressively to increase the be EBITDA for from XX% fiscal the expected to XXXX net of XXXX a savings increase in fiscal a the expect to weighted low to the book-to-bill range EBITDA adjusted EBITDA an despite XXXX point XXXX, with EBITDA expected POC, the margins. QX to the year quarter-to-quarter to we $XX EPS the is in of of per X% to to or years quarter a to to to for X%

to throughout expansion. to leverage As the operating revenue expect margin ramp lead year, we

perspective, fiscal in the will driven are initiatives operating mix as made cash Looking investments XXXX to fiscal with accelerating last in will few EBITDA in and free that further future EBITDA adjusted flow this approximately years. ahead, We as further we in the margin expansion margin have believe expansion XMPACT by flow years beyond. be From the targeting believe well we free we program over result and leverage XX% efficiencies a cash operating XXXX. adjusted

We XXXX anticipate and closer to capital fiscal cash $X.X in expenditures year separation outflows million the we levels. and to outflows maintenance COVID $X..X that we do associated cash with of expect fees. We return XMPACT, expect diminish for third-party million saw costs to including consulting of

now Turning quarter guidance on fiscal slide first to our fifteen. XXXX

revenue We in range driven to of XXXX. $XXX to approximately basis, the are X% organic forecasting revenues approximately be million we fiscal expect total year-over-year, $XXX XX% X% the QX million, an to of increase in an On bookings down by slowdown year-over-year.

million, approximately is $X.XX by lower QX to EBITDA of GAAP to Adjusted to quarter expect EPS, per We $X.X while leverage share. be of $X.X result charges, recurring to stable. a $XX.X margins to operating and revenue. first of in impacted adjusted XX% representing expected $X.X The is which the discussed. million the loss negative for other expected and per in operating expenses restructuring million EBITDA remain previously restructuring revenue charges QX or are $XX.X to to $X.XX a loss be $X.XX excludes net XX.X% is other net million $X.XX million share. to due The to incur the of Adjusted

invest position to continue We in HX to in continued growth HX ourselves expect and for R&D to beyond. in

with in HX expansion a HX. As lower margins expect we result, see in to

year, be for to fiscal of margins mentioned, revenue. full adjusted approximately I XX% EBITDA we our the expect As

EBITDA adjusted to flow cash QX be free EBITDA. expect of for adjusted approximately to We XX%

previously will the outflows with conversion mentioned. by be charges impacted Our associated other restructuring and cash

Turning to sixteen. slide

and size the launched the in stage XXXX our realizing Given set outlook potential. the of our over significant summarizes to for beyond, last estimate for organic growth we time. sixteen savings. to and those have our aims becoming for multiple full and Slide adjusted driven our savings years also growth potential fiscal accelerated our XMPACT few over XMPACT current acquisition a XMPACT realizing and the related of preliminary at timing EBITDA

each the begin detailed phase the and work planning timing Once been QX. QX planning We areas XMPACT are complete the the actioning still in savings for that in in to currently in We streams include and they completed, Mark focus the estimates. expect have six streams work phase outlined. will

are approximately million views, on effort is estimates we The Although $XX can fiscal are of to XXXX. preliminary we our savings $XX primarily by focused that refining gross still our scalability. generate million XMPACT

to by approximately are new $X expect into expecting reinvest end From benefit million midpoint EBITDA. at such, the we million million to XXX net a will the our savings fiscal structure. that estimate to basis, of approximately of range, cumulatively organizational preliminary the a On adjust As $XX to timing we perspective, recognize XXX to be is the savings we able of savings the of XXXX. million

XXX% by to the realize end and of We XXXX. fiscal expect XXXX or at gross the fiscal $XX million of savings $XX million, the by midpoint,

XXXX taken included guidance and of in savings the actions in related QX. million already have approximately to we discussed, I our fiscal $XX As QX

expansion as margin these year, see to of a expect the result We during actions.

a XXX Our point assumes fiscal XX XXXX whole POC. expand margins from dilutive fiscal guidance basis by basis to points despite XXXX compared of year impact

single we to target digit, XXXX. low growth in high organic mentioned As fiscal revenue earlier, range digit our to return double expect

expand same adjusted as positive leverage by well margins expect the operating to We our at EBITDA driven XMPACT as time, efforts.

integration. expect we expected of faster of previously ahead, than see as estimated revenues being to We expansion. driven further XMPACT Looking acquisition to continued to million transitioning margin $XX see this continued and leverage that additive as million $XX benefits margin to expenses by operating net production, expansion programs grow

XMPACT for potential about as updates we optimistic continue program will progresses. the provide it are to We and the

more record of fiscal adjusted in and Turning to XXXX, the year slide strong including than seventeen. backlog. adjusted performance In revenue, year-end EBITDA QX summary, Mercury for EPS and delivered and $XXX million financial

returning normalized a for levels more business fiscal XXXX are bookings. to is to strong New we expecting year and be activity

to believe adjusted will Additionally, margin that we EBITDA over time. accelerate us enable launching XMPACT expansion

coupled optimistic fiscal creation position of term we executing into result, take questions. a are growth, proceed be EBITDA our with you revenue strategic single can digit the As that, to towards margin half we happy will we XXXX high continue fiscal strong of With look organic on to digit, as believe with are accretive strategy Operator, in second and We the we M&A. Q&A now. your long low expansion, a value supplemented double with and XXXX.

[Operator line is is from Jefferies. Sheila, Kahyaoglu, of Instructions]. And Sheila first to come open. going question our line your the

like next to to go We would question. the

think Sheila, question. you that I if will requeue. can we skip

come next line JPMorgan. with Our from Seth Seifman and of gentlemen, Ladies going to stand question is the by.

Can you hear on. Hold me? Sorry.

can Yes. We now. hear you

now. hear Yes. you We can

Thanks. Okay.

I September year? when going what of October, sales reduction I the so having looks I will guess? this are wonder the to We still that then has going and see all Sorry. And rest the the are Yes, in about on that what the in like growth, the see trouble accounts, a understanding segment. gives don't am a apparently what see so sharp you we confidence point customer most subsegments I it know F-XX the discussed little the And impact? of to bit pace of, kind relevant necessarily if, taken very the in growth it we in question of your your Q you having issues of in of why for it. especially same sort we slowed much, sales together, in out But see quarter, the comes increase

Sure.

Seth. there, questions of lot a So

Let me it recap of kind in terms and revenue of fiscal happened just what and unpack bookings. and maybe XXXX try in

a that being across those reduction during five change organic the the result really COVID, a things spread actual as on three year delayed orders the naval we as growth, customer to X.X and things, tried the well about in issues what remarks, the points prepared various resulted more in programs and first were So progressively in as F-XX, of really quarter beginning in as administration. execution was say SEWIP the we reduction programs in up actually the other than ended FMS. around All point saw

being large so about And program being growth that first the kind the ended double single points. SEWIP digits. Intel moved revenues an F-XX large bit, three moved those pressures, And XXXX that quarter high points. onion it up and have naval low around so up the the about FMS if to of from rates order X.X back little upgrades approximately of with international organic impact, you a Peeling without simplify the consistent sales, was the FY point organic two revenue around historical or then had digit been would ended

good programs, are they at in Now main, pretty programs actually, all right, those performed if well. really they you the and look

double So revenue up up was We digits were on F-XX. digits on double LTAMDS.

are just thought as the we of the into we some down year. double year. what Filthy But coming digits experienced We high little maybe necessarily up SEWIP a for that bit Buzzard. wasn't was as on the growth

just all national programs really overall over bookings. course a I from picture, expect it's grow it because to that respect are impact believe five and mentioned well and those with continue aligned we are us similar and strategy. the the great big the to that perspective So they for o revenue growth defense kind a and very programs happened the that's on years what to of next with organic of story

point contracted three a and on large point a FMS X.X a bookings in decline organic about had was Filthy Buzzard organic bookings. impact around So point. F-XX The

to the do bookings in of fiscal accelerating XXXX. we awards and fiscal kind really timing will both all related it of the expect XXXX, that in rebound So was things

Baird. next come Peter question And our you. with Thank from of Arment line the will

Yes. Good Mike. Mark and afternoon

Hi Peter.

at talk revenue single kind those just downtick in of forecasting different mean Mark. can outside a Hi flat growth. to way. but it digit highlighted mix, just kind a of yet of bit to little flat single of Mark, down you you growth, mid programs? diversity you maybe are kind a high to the I within come your still overall digit Maybe

call Thank because not maybe see first to you as on harder it's maybe one broader what big a for are out program to you So you. stated? us that's aspect seeing

Yes.

us of reduction in an And the And growth XXXX in experienced of So we conservative I result that really top year, many is continue throughout seen. to no you the impact. single it a just a have seeing is of that mean have company programs X% impact going in we we that result being are it's more essence, base to have X% does saw which we five I is versus have as got program have impact the expect that's, what part had, of the we a quarter, it have accounted has Part pretty significant call revenue mentioned, we your, I in the and discussed of last though, that forward. is impacts that for the of in we concentrated thought it, total And programs, that really past. challenge in movement that when we we just XXXX. organic think what the last year what of as Peter, fiscal fiscal programs,

order to significant the more we So And and was change conservative LTAMDS. probably Raytheon on now a in discussed, that taking have in year. And second had taken quarter. large result fiscal last into a some our we quarter then approach the or last LTAMDS, changes biggest were our a year since on award, essence, of XXXX. call the out that we of XXXX since we are And as fiscal that LTAMDS, expecting had the

that have bookings as we associated previously. with and much revenues what we We won't still had program, will but as have just

So it to that are that down programs on just overall the really major affecting growth. are does of come these we seeing some the impacts

in are fiscal expecting growth top We our XX from significant programs still XXXX.

that expecting in very And significant will these substantially we the accelerate across half. again, are bookings expecting growth programs. in We second are growth

expecting large grow F-XX, program all SEWIP a So basis. which for programs and Filthy on are Buzzard, to the year-over-year us, F-XX, new a FMS is substantially then

Jonathan with to going our Blair & William And is line Ho question come the from next Co. of

this streamlining can And wanting are to to the about you Good of down and of what sort path think I ask XXXX your how XMPACT led you one for the of typical of, program is, this acquisition guess, Thank when you leverage goes you beyond Hi. a structuring I give you. beyond? us of doing go as efforts year above operating that integration? sort more and deliver afternoon. I guess sense the to maybe wanted on thing

Jonathan. question, Good Sure.

to that remarks, you about prepared thirteen some journey that think the So since if outline have in we are XXXX of completed tried acquisitions. on we the and we

We increase a in in XX increase XX period revenues that than have greater had than EBITDA. greater and over

net have reducing purchase substantial basically us price our synergies to we gross in multiple. revenue that's extracted So resulted

the step company However, overall. some along been you substantial in the there's back, way, if very changes

headcount. in we increase have had So a our X.XX

number spend And an to We increase chain subsystems have that The seen increased our locations of eight-fold XX. has increased external from XX. our in revenue. we XX have, have supply

that growth back, grow in which for to also all optimized and the other point. greater existed like things certain have for a us bit a crossing know we with focus organically in foundation XMPACT So we to that future But to. a an acquired that to revenue little the for scale extract that growth. size. billion think we our in essence, us and milestone, business. be earlier kind that laying We we of opportunities really is consolidate to that year go this revenue further even to we was And a continue for have way the take are the said, the in what need it's about year, figured slowing the And there but multiple really growing in would $X of is to on period, a there have turning That potential we being synergies. businesses current look we to at the opportunity cost threshold

business. to right, was in that look, on org focusing basically the we across top we quarter the efficiency And around So kind really bottom, efforts of left we to have and first in began taken that scalability. the a the six are areas pretty comprehensive

So in where quarter we saw numbers they have consolidating announced. QX of Mike Those with and business, began streamlining accelerated the in fourth activities the an the that opportunity appropriate.

continued in chain. optimize on and we continue and opportunity as the that to procurement to footprint. around areas the streamline we that, our Beyond supply the see facility are improvements We business are going focus also optimize to

and but We to which in more sheet are look similarly, there continue for maybe R&D, as scalability investing ways going and which through M&A we capital efficient more its in and to full potential ways even to margins again, base both can are Mercury about efficiently. at reiterate, future in accelerating well and also. can the organically it as all And But the across we be balance to maybe looking at over it's expanding doing growth time. achieve

Ciarmoli our from of question And line will the with Securities. Truist come next Michael

years. Maybe, taking But declining sliding be Hi. for may has evening Thanks margin has think I been guys. transitory. of the Mark, years. organic you growth for couple Gross for questions. Good this here been called several a

be I mean, without in contemplating XMPACT, savings, thinking be looking are next XMPACT guess, you clear to about You at I mean, million How in changes year. at structural would there the housekeeping, And transitory versus changes. the EBITDA guys the just are some significant that? compression for level I margin $XX

is mix from changing on a So perspective, anything you else, guys?

Mike maybe in and driving you little maybe bit margins the So the And what's let the me upon a five-year talk mentioned. touch rebound then XXXX in about of that can outlook. growth kind

bookings have half second is the we The growth increasing from expect XXXX. throughout XX to FY expected in an as well So come growth substantial upon in our as based programs, going fiscal in really confidence our XXXX. to we likely second growth XXXX, return, accelerated top do half will accelerate which the that in of particular,

to It's are up into points. growth we XXXX. talked the acceleration bookings an be many the those again, we expecting expect from of about. than programs head as programs, same And We have XX of greater we that

the in on other are that key XXXX acquired Programs expect, as the new wins, the or we programs poised ramp there's to will Buzzard substantially. more franchise substantial are programs, time to we So LTAMDS, programs then double F-XX. F-XX V-XX, either beyond also XXXX. frame. than well grow in that Filthy additional such XXXX, design as contribute And expecting to new T-XX. as Mercury, for growth programs those

we all to great timing that reason And programs, won we because literally is some been things are defense have saying believe. strategy, are we transitory customers specific So with the our the the speaking that that of aligned orders. we believe it's national the

really five If you look changed. and of consider Mike strategy in our farther it out time, years, over kind you hasn't the

to expecting business we digit, of are five be to that high course digit that still over grow low able are years single at the the double We rates. the expecting

the the We supply DoD as key industry key the around such reshoring. national affordability. outsourcing, from have speed and perspective well defense drivers discussed trends with But positioned the a as are of that delayering well growth, chain also both with and in we as modernization, then strategy past

estimated it's doubled time to have growth. as than And the we We know, really programs effector transition will over last value and as of we in, production that growing sensor have and the and the you particular more business years, course drive CXI. these of they be future programs the over believe, in the positioned And systems parts lifetime what top seven mission into market, pursuits. of the our faster

the Finally, what very again, is continue we us have think pipeline with we so is that to we very, what And do makes these been doing M&A growth the M&A believe that can combined having our active. organic next our for growth, years come. obviously successfully future five expanding the is And announced margins top over XMPACT. that, to of time. but we enabling XMPACT On then about of also opportunity

program So fiscal can the on Mike, kind about of of I the that to your per question. talk in benefits XXXX, who over don't XMPACT why hand point, it

me Mike. Yes. talk about couple gross start Hi a changed would of about Talk margins, little the I give saying, things. the EBITDA the just I of over profitability last hasn't And we on by that. base to can materially the can just let But years. too. EBITDA overall, about we business start with And two color And think then margins talk margins.

EBITDA impact do does it, have our dilutive is out. You at without a look POC to have in to point with acquisition and because margins, important which it

we as were a XXXX XX.X%. POC, where a at came again, fiscal little an dilutive in in we point look you about margin XX were down XXXX I But perspective, from impact. to mentioned, We fiscal EBITDA had XX.X%. If basis

So we at would have been XX.X%.

at mentioned is it then XXXX. impact. full basis now a you will for midpoint the year, my XXXX, our have a fiscal of fiscal look And acquisition, again, XXX I we point POC when dilutive slightly up remarks So as from that that in XX%. But has guidance prepared

XXXX some that's there the of are offset negative operating we it So And because some otherwise. organic XX% that of would what been seeing initiatives And we growth the just flat dilutive is XMPACT have have fiscal think of this, the guidance, at is of being and our have in leverage POC look XX.X% by that got impact when about talked midpoint to on base you we XX%, year-over-year. the it which compared is it that from about. like we

mentioned. have like But production the programs negative operating to pushing I got to We then the of right, is looking as and some to organic XXXX are leverage transitioning EBITDA and and going growth, go we to return we into expansion going lead production, is which have discussed important gross fiscal into to to the margin we expansion. margin that Mark fiscal programs forward because XXXX

see leverage program. we from We the are with going operating benefits headwinds to and then associated have the the XMPACT will negative not

lot of expanding but similar in a margin we there's story. a is think XXXX. at And in margins fiscal when gross XXXX, we we So EBITDA start benefit margins are looking

Yes.

double on of goals impact bookings low absolutely day, what So I year, those, was SEWIP large from high M&A. organic the if points two would the mean, with We coupled year impacted order it, moved digit you objectives then end what organic single at is international been is at in of which impacted upgrades. approximately rate it on had back you Absent various throughout X.X and and I line are, that Mike, revenue. FMS, growth on the digit, if with which right, to the quarter. growth go deliver which surface revenue-wise points were our And the the look three have first our said, And organic to points organic naval F-XX. for the program

programs. it's associated delays unfortunate. down just it down, comes when So some boil to But various you it with

next question Sheila Kahyaoglu the our with And Jefferies. will line of come from

now? Hi. Good guys. afternoon me hear Can you

can. we Yes,

We can, Yes. Sheila, yes.

that. about Sorry

question time, have decade I up. screwed and a First first in

but hear bit cost about structure. I margin realigning and wanted to their I apologize, talking ask often about XX% XMPACT about don't a companies So little just I more

facility mentioned you rationalization. So some Mark,

You just went through a CapEx upgrade.

commentary margin to expect you how expanded. around a given area? we trend R&D a And understand gross your of do it I have much kind how So better, that just like of to as of is this going some utilizing be and But target sales? percentage

Sure.

So bit a right. depth about I the just again will little more talk areas, in

this knew it be acquiring I was I is to doing the see We I XXXX acquisitions, extracted in growth we have XX a XXXX. is but the but of it to effectively the pause threshold rate see, really but is synergies, So that just challenges, size, had of very, an been our value change fiscal the was a XMPACT billion lot probably there in timing contemplated on year we our We we to times point. a opportunity, have company not more and through that that of growth. milestone, for some optimizing in clear, revenue really with focused guess, bit to inflection And go attack really, $X orders the very related of activity during be various two fiscal see faced all organic business, takes guess, we crossing of that. a a

already a right. have done we so manufacturing lot consolidation, And of

we continuing for locations the on one as again, So opportunity locations. to still have Coast But org the on to take the to time. QX three to to was our I us XX similar Coast, optimizing began cumulative XX and in optimize the to site. there's continue we delivery RF a we West from that think East have one gone acquisitions streamlining down at manufacturing just we the in activity to while major us five improve We and completed result The really structure, same to kind an building actions a QX from footprint from about facility And of moved that of scalability. customers done.

because another We way of we which the drives the at them. footprint kind are to take actually structure itself it fully savings. an look integrating of additional opportunity cost in step drive have and took and we business, organized the to been But the back

planned with that and we you margin margins, are the you what respect bit So Mike, XMPACT? expansion might to about anticipating do above over result overall to a as talk see want of happening little a

Yes.

of the of are phases still all, we first Sheila, planning in So XMPACT.

so And we more and as more have will we information detail along. move

margin we In five-year thought has trend. thought that look over higher of from it security products. R&D percentage a from leverage product more some R&D revenue, rate was Stepping that programs we terms across going transition going the in R&D come been about thought like operating production safety we always handful had program, are And phases margins. And mix we period full of, making expansion. That We a from have to you of that was well as you as was areas back to was investments can as as come where into asked come might of areas. pre-XMPACT, we a about as leverage. investing it leverage talked of and going heavily and from we to our start-up

already that. still We in all EBITDA of expect as in plan. $XX So sales that down, margin we expected. potential numbers come that of to expansion a we what driving XMPACT expected over of R&D five-year to above that our $XX expansion percentage we And is out terms million margin threw million the improvement is

still of other are the around Now procurement amount what's the amount discussed, amount and we terms be of that through Mark areas. areas around direct in in the each and working R&D the going to that

we as information go that. more provide will on we So

expansion points. that years, the to we look XXX basis is on think though, XXX top in already if opportunity were the out where you of I margin

Yes.

are was was contemplating we So activity, about this were the which in related of and the when way kind thinking we M&A. Sheila the XMPACT, to primary focus

have efficiency know, way. highly has the acquirers, simplifying a of really to that which company, the we course rate And and fully and integrating But Serial the a job, and And as work XX or again, so are twice the try basically at you extracting or the seven those done scalability, with idea forward, along the so the to growing time we things acquisitions businesses. synergies the look of as over improve we the last EBITDA revenue good things doing way transform are multiple over years. the was that in frame. cost acquisitive twice we revenue

those the will on time. of and are And and that applying have stand so incremental which two this three But then margin expansion to future we above deals associated should begin do to we we over methodologies quickly. points to with, the do with greater synergies XMPACT that the that and forward allow up office going to what even been previously that processes we the use synergies XMPACT all extract able be is from to we ourselves and think this right, we transformation should we to think goal over anticipating more acquisitions. If extract be able we

future. about its the potential, well and Mercury kind full achieving So organically It's EBITDA as as it's about both of through M&A. growth

come Our Canaccord next Genuity. line will of from with Austin question the Moeller

Hi guys.

Austin. Hi

Hi.

it anticipate XXXX XMPACT my a sort future acquisitions beyond restructuring of completed? is first here. Just year you question any Do while? Or is once fiscal or Pentek for this in

No. It's a good question, Austin.

So don't activities. down slowing actually M&A our XMPACT we see

of sizes, line Deals will active market see our fit M&A of of kind the right now. strategy. acquire the strategy. various core with core businesses us all of the the very in that So to And is with continue you very,

That's are we XMPACT all. not to So stall at M&A. expecting intent not the

over would you. turn to like now Thank the conference I to Mr.

his closing for comments. Aslett

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

on you your to call. conference like for Mercury would we participation Systems thank again, Once today's

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