Mercury Systems (MRCY) 7 May 242024 Q3 Earnings call transcript

Good afternoon, and thank you for joining us. With me today is our Chairman and Chief Executive Officer, Bill Ballhaus.

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

Turning to Slide 2 in the presentation, I'd like to remind you that today's presentation includes forward-looking statements, including information regarding Mercury's financial outlook, future plans, objectives, business prospects and anticipated financial performance. subject actual risks differ results are could uncertainties materially. statements our cause or forward-looking to and future that These performance to cautionary the risk All conjunction included in in be should filings. factors earnings statements SEC the the and forward-looking X, on release considered press Mercury's Slide statements with in

non-GAAP mention in we to accepted GAAP, our call, reporting principles also accounting results in I'd or that like financial also financial discuss several will to generally addition measures. accordance with during

earnings adjusted organic revenue. income, Specifically adjusted flow, share, adjusted free cash per revenue EBITDA, and acquired

an A to the non-GAAP reconciliation of metrics these release. press slide is in included and as appendix presentation today's earnings

I'll please to over turn Bill to now Slide the Ballhaus, CEO, X. call Mercury's Chairman turn and

FY X call. talk Thanks, like to I'd topics. 'XX earnings Dave. Thank our Good afternoon. through Today, you for QX joining

introductory some First, results. and on business comments our

third, to expectations driving are Second, in term. it and expanding the . predictable turn balance Then building progress walk I'll our a making thriving areas: And each and over for of FY and guidance. free 'XX of an who the engine, delivering our financial longer will update X priority performance, improved through results on growth performance cash flow. Dave, for we our both margins

commitment programs. to our collaborative our they critical their their support mercury Before trust jumping in, team I'd like delivering and And and partnership at to dedication most thank to processing their the customers the for put Mercury for mission-critical in edge.

X. Slide to turn Please

a mission-critical at our deliver expanding optimistic 'XX robust growth a in predictable As margins and transitional past, FY in ability cash year, the I'm processing as our positioning organic I've flow. about is edge free to with while believe we and the strategic said leader

working what similar results of be believe to a and addressing of firm development challenges we are Our programs. a reflect price in fixed multiyear mix and associated we increase with capital high to transitory QX making progress QX QX

programs organic and these production to full and towards near- rate low them and on a and executing medium-term transitioning expect growth. our are We be of then driver

transition architecture in common a in the retire EBITDA processing QX, cash in led activity, scalable full are pause to investments bookings, This combined risk have we production QX paused the we order adjusted Additionally, with this technology free rate revenue, of to design. and production validate highly flow. in our impacts producible, and toward expected area on making

That area. believe actions driven processing we said, we common root corrective have cause implemented to our and in

in is growth mission-critical stringent initiated full-scale the our In this remain pilot in production results support unique to an QX, demand of yield where to needs. lead addition, making see customers' positive initial we profitable in organic have and step important has are investments we we robust ability confident terms limited our will toward significant for that returned which area We production.

in working cost we of trend as the positive in operations, streamline our expect reductions capital Leaning we billion In growth sequential priority areas up increased and $X.X made highlights our working return inventory Reversing additional multiyear each or our programs unbilled expanding XX% in progress organic structure with year-over-year to in challenge further with QX, enabling X so as on nearly far record we one growth. solid down that and to QX, an focus operating to net in X% QX and of leverage capital additional backlog receivables. retiring our year-over-year. completing X risk include

expanding predictable forward out expect cash transition and in continue we to to organic we margins we path As make a clear strong FY and look 'XX to year, to what enter flow. FY is closing 'XX believe delivering progress growth, a with

X. Slide to turn Please

focus those our each X with first areas, predictable focus of area our on spend time starting performance. introductory I'd comments, Following of like to delivering

we that impacts of the number a reflect the believe underlying obscured business. of performance results QX Our

we impact transitory, with are revenue million margin $XX $X by cost our These including approximately million $XX million of operating by settlement we portfolio, Specifically, of growth items million $XX program million, $X believe in warranty that across million scrap, remainder million reduced items of recognized of inventory gross expenses. QX $XX contract associated approximately approximately the reserves. and reserves and reserves impacting $XX

As the we our business these a representing majority majority programs. the XX% quarters, of approximately in in prior our of and of experienced portfolio, of the impacts challenged subset

QX our contributed which business expectations. in portfolio, obscured of As such, and the consistent gross performing negative this with in performance and part of the the profit is balance well

production last quarter. and impact from of near $XX and the approximately across what more development consisted $X of a XX% is The remaining with programs. our reduction tied $XX programs from approximately of challenge program And approximately one program cost to than growth spread the experienced million million half we million

cost to EAC isolated the our continue We the of see business. XX% growth majority to the of

encouraged like are level While we as continue above our is on refine X go-forward EAC to this this basis, lowest see level process in a impact the to our quarters. EAC is EAC would of of what we that we across impact portfolio,

to programs. As in programs, risk on as X original programs have have XX the or earnings QX, that quarter, and the progressed exiting, we shown of of by expected challenged Slide retired the And in quarters. on driven third the we we on original we retiring XX now believe XX X, program, challenge volatility recent during have completing, additional risk with completed respect X

to and programs, we risk 'XX. quarter half challenge the expect out For programs as the remaining FY this retired we exit largely close

Please turn to Slide X.

begin were production for X.XX with out of driving opportunities a completion moving few area the to a Turning book-to-bill rate the the organic now our area. awaiting quarter, the our of in efforts Bookings technology to quarter second common resulting growth. to full processing $XXX million, the transition focus in

are believe mix good shift firm when indicator our in at Our at look a of record bookings production the that notably, occurring. now Which $X.X so year, And business the fixed-price XX% up we in is this is year-over-year. XX% backlog leading far a approximately bookings nature. billion we our is

hardware to agreement Several augmentation quarter signal worth program. or provide a digital Mercury are the resource communications SCAR BlueHalo in marquee wins Space In the to satellite processing U.S. January, noting. support Force's with finalized production

we to X-year training a announced reprogrammable electronic U.S. $XXX.X the attack Navy. And executing indefinite the first subsystems rapidly contract indefinite have million and deliver quantity delivery, on production advanced February, than to In Mercury are warfare and from order. the we These training XX of capabilities jamming to more electronic technology to near-peer bring organizations. U.S. processing on subsystems build and test training the most received years pilot platform

delivery $XX earnings U.S. hardware tranche space chosen for $XX to a earlier I last a provide satellites contract of million layer X satellite booking data the cost, announced approach value development targets. recorders second customer, were of milestone constellation. state held award As quarter quarter integrated that we by performance tracking The schedule want spacecraft. also Technologies the a on development a to XX our and confirming following agencies, mention that with meet successful mentioned call, baseline we on with XX LX will strategic team program new for system solid The supports million. the our weapon review Harris

cost-plus the maximum a we fee phase As for possible the award contract. of received this result,

national hardware will for critical We program. years security delivering next spend and prototype the this several developing

trajectory, important, trust critical support our because in customers' not of awards but most they also because franchise their continued and our their These are to Mercury growth only reflect on value programs. impact

Please to X. Slide turn

Now focus turning expanding area, to margins. our third priority

negative So FY leverage and are delays far our largely the development from believe shortfalls These we delivered beneath we by as in production by margins program operating technology in in that primarily targets. and transitory with previously 'XX, impacts low driven our volume, relatively QX processing production expected the exacerbated are common hold area. discussed driven

prior margin achieving a development the to following minimizing impacts, efficiencies. back targets, we EBITDA adjusted executing achieve historical more growth organic mentioned mix generate quarters, levers: our to on positive programs, are and development leverage XX/XX our growth getting cost toward programs cost we've As production driving in on of operating to and focused

containment our cost this organic on execution growth discussed I along and with program our efforts. call, growth efforts

and QX, single ] in a a our structure of business and all lines integrated Roger cost reorganization X of business implemented of [ we've we we into our corporate cost our Wells. streamlined series a our COO, consolidating integrated Regarding matrix reduction previously announced in incorporating simplified which In actions. as functions into efficiencies, structure January, different mentioned, operations, reporting

operations a product QX, we our organizing phase announced in the units business assurance processing engineering, mission of solutions Earlier functions. X integrated and this realignment, and into our second business centralizing an units business unit, and U.S.-based

we up and innovation strategic on concepts is pursuits. Additionally, focused stood advanced advanced group growth technologies, that an

those previously year. already be This previously million $XX mentioned savings our realignment $XX expected million Overall, are million our of although $XX the the additional contribute efficiencies second we've fiscal phase rate recognized of savings run adverse we issues to to seen 'XX inside we've will other savings actioned approximately we transitory in of going margin that to action and realignment believe in operating to forward efficiencies impact measures are and what negative the 'XX, growth be margin believe profile as our will FY in and we cost of structural our evident expect of return leverage beyond. FY to

X. Slide to turn Please

cash our to fourth flow. priority area, improved focus turning free Finally,

with driven to is in by in continue inventory identified specifically $XXX We manufacturing Inventory working in reserves. primarily years $XX reducing progress adjustments down from of to year-over-year million X% QX capital, which sequentially associated was make net by million down after expansion. QX, million $XXX

Notably, revenue in in $XX the the million $XXX mix reflecting of driven down of and QX, from by been deliveries, that Even from WIP history. million X progressed in up QX. with year-end processing in billings in million an quarters is to to the while in in has QX $XXX in is part invoiced $XX billings, inventory tied unbilled sequentially common improvement unbilled towards QX X $XXX flat architecture, fiscal now in to an on from million $XX approximately were XX% QX included The increase of generated contracts inventory and receivables production which million, prior all and our new is year-over-year, million QX bookings which in since overtime initiated down unbilled from is approximately QX revenue QX. pause This delivery. increased highest recent company's QX

Please XX. turn to Slide

primarily cost due our That processing for said, related are of to below half the proactively As make focus to higher-than-expected other tied in earnings the to areas. charges common and expectations as especially deposit priority and lower revenue we X to first retire risk progress our FY the with activities across programs our associated 'XX, discussed, X growth we quarters challenge continue architecture. and volume second portfolio,

delivering are the over margins with longer growth from these on Aside which temporary, headwinds, set to adjusted low term. we we our EBITDA mid-XX% continue industry above-average believe sights to

our in Shifting down balance portfolio to work remaining large working earlier. of especially For the the plan line ramping on production, common FY programs I continue to programs transitions the net unbilled operational capacity production capital, focusing we challenge particularly inventory. up 'XX, and of and development burning receivables our on processing discussed our to

said As that prior believe demand I have calls, we remains strong. in

above Our bookings is continue to outlook bookings $X we unchanged, year billion. expect for full and

continue In as $XXX to of addition, the $XXX flow to cash as year. free for million in we well the expect full million fiscal positive revenue range

through Dave With I financial questions. walk that, to your quarter, I'll Dave? and third for forward turn results look the it over to to the

move I'll 'XX with start to outlook. fiscal quarter then 'XX and you, Bill. fiscal our and our QX results Thank third

our third P&L was below prior expected, the all As year that metrics. across performance of quarter the financial in

year. fiscal that As Where the believe then both to discussed earnings our programs in awards. prior 'XX and transition and the development is organization we challenged follow-on is our toward progress on production seeking a execute calls,

of rebalance expect that to we proportion but small We receivables. transition, expect recognize revenues releasing to contracts, capital more to remaining the the significant especially we related program working importantly, challenged move on balances towards unbilled Through existing shifting will anticipate to predictable toward which the our heavily more as as well awards, consume on production believe to follow-on our inventories. program we resources programs production higher portfolio margin then execute begin

We and in fiscal 'XX. expect QX into this to occur transition to continue

backlog our challenge reversing made structure We billion, drive to Bill $X.X on margin record our our in progress programs, towards work this multiyear our expanded we completing focus as exiting retiring towards to with we we discussed, continued risk trend on further working expansion, otherwise our In X nearly QX, and rebalance capital progress priorities. reduced we made the cost to a growth. continue

XX, which turn QX Slide With that, results. to details please the

yielding million for billion, million bookings X% quarter Our backlog a X.XX XX% were million $XXX $XXX year-over-year $XX with the or and of million up $X.X of or book-to-bill over sequentially.

production firm development discussed, we mix a Bill the year of of good to production. mix As contracts. bookings with bookings are our leading backlog of being shift our in this XX% feel backlog the the from believe indicator We approximately fixed recent in about price our these

our of our maintain continue predictably of only terms margin backlog growth, We backlog not and quality to the in focus our but to on perform. ability

the million, million $XX $XXX for Revenues compared $XXX quarter or to were million. prior year the down third XX% of

as decreased align working programs year-over-year to execute our transition mix better expected, prudent capital revenues of management. our continue we from prioritize As with cadence to challenged higher to and aim operating development programs resources

In million $XX noted, Bill As impact which million lowest in The the $X X approximately the adjustments an compared the properly the million, GAAP, accordance revenue. in challenge to quarter to the and due programs quarter. programs in to third quarters experienced the was we production on progress was $X revised affected last in our cost growth prior cumulative million revenue cost $XX baselines as $XX approximately to development impact multiple of approximately the overweight related programs. growth reflect of year, driving resulted which in comprised this to with million related EAC and

The representing our XX% nearly portfolio $X to of issue, challenged were the was several impact been our cost programs since related others program This an X impacted largely million and supplier by to has in tied which industry-wide program, impact. resolved. growth

the issues circumstances technical quarter. well execution in as resulting and facts from As

costs $XX While in cost roughly several technical was Of we certain experience and million in factors, the majority of line cost across challenged programs executed other supplier cost impact manner. mentioned, growth the largely quarter, XX% The we impacted the resulting the see cost to issue with this attributable which issues costs. of mitigation programs our including within of development production revenues the rework driving risk programs, nearly development and related continue expectations business similar programs, and to the previously growth remaining did in a production growth. we in industry-wide incremental growth production to and on development

future integrated Finally, we to as and mature potential our and assess and based systems, opportunities latest risks best we available. judgments seek and management processes build the and including continuously on information estimates

expense primarily growth for in year-over-year manufacturing second Gross related especially well to margin as scrap. to margin prior contracted from the as decreased year. as cost reserves, the and as result adjustments, quarter XX.X% XX.X% impacts higher a Gross of warranty inventory

The architecture. end-of-life over drivers were necessary common reserves, prior to quarter specifically in efficient occurred changes in quarter configuration $X related million the the approximately manufacturing recorded recorded This the The quarter. identified of the of program year-over-year. As production cost as $XX decrease cost inventory have more gross impact million growth compared excess growth reserves regard to designing inventory and as $X due the processing scrap. obsolete incremental related was and reserves, of we Jeff margin year. primary to discussed, in the adjustments remaining impact we components in as drive changes where well million to $XX warranty million inventory in primarily represents expense to approximately With year-over-year higher of to approximately

going funding forward is components from to customers Our where end-of-life possible. with process our procure

rework. is necessary high we technology, the Due architecture As scrap, know, efficient nature processing related levels several architecture We in our material the be especially value drive or working you and to are to the scrap experienced programs. cannot the on over-challenged the common involved higher processing reused of and common to production. of changes

initiatives producibility We systems. underway efficient have and several more cost-effective address these of designed to

warranty some associated compared to prior related products. common previously quarter approximately architecture million additional repair estimated delivered as with and recorded rework in to the of With expense, processing of year. regard to $X primarily expense we the costs

gross higher-than-expected the we quarter. QX, those improve below gross X fiscal will expect quarters fourth we the year margins said, through first growth the in That to in impacts of 'XX, sequentially fiscal As was believe fiscal the 'XX. 'XX full case margins cost the of be given

as risks and gross final margins by stages that of unknown into programs may we expect challenged materialize impacted these We development programs through progress and production. continue be to other development to

incorporating in and the as approximately functions Matrix approximately announced the X compared SG&A were our year. lower expense Operating the of million structure, due driven by into and XXX business These organizational R&D to to $X expenses expenses workforce consolidation prior decreased $X.X previously January primarily restructuring positions year-over-year, divisions multiple driving reduction period. unified XXXX. of million of eliminated business in The lines decreases

$XX total, in annual the to are be In recognized actions rate mentioned in our over which $XX yield savings, to year. previously million of savings cost expected fiscal 'XX are million in fiscal $XX expected million run to

second efficiencies of additional we realignment. implementing are in phase QX as the complete our We

consideration. fiscal of returns customer quarter not settlements to million third to contracts executed resulting are performance included the cash year. from in million prior obligation costs our first And thus, or related quarters run rate in nearly contract acceptable the the actions not reduce savings $X.X lower of reflecting strategy the for year-over-year do cost have have align 'XX. otherwise exchange anticipated would reserves our We third 'XX decreased not that and do said, expenses That with believe settlement fiscal $X operating these comparable negotiations of to on

$X as million of year-over-year $XX earnings inventory respectively, The in $XX.X approximately settlement well million primarily loss per impacts and incremental and expense, in in net and of and as of $X.X nearly compared incremental decrease cost $X.XX, growth net third million incremental a $X.XX, earnings is in as of $X reserves per in program million of the quarter GAAP to the warranty income result share was reserves. loss prior $X GAAP year. contract share respectively, million million scrap,

share our share the to cost $X and for $X.XX EBITDA year-over-year. volume tax partially of adjusted working year. shift factors temporary capital net in loss impacted were incremental benefit These by cadence GAAP also net compared $XX.X decrease Adjusted per quarter over primarily loss million GAAP in $X.XX million was $X.X the that compared we the the share. revenues in million third of align prudent was Adjusted year. was negative management. per prior offset year-over-year loss prior to was with by per to operating earnings loss same impacted the related as The as

balance million. XX cash quarter $XXX of sheet X quarters. last presents the We Mercury's with Slide second the and equivalents cash ended for

of reduced million due $XX to timing period. approximately We billings have Billed quarter debt due decreased the program revolver. factoring in in receivables as receivables portfolio. $XXX.X as the Unbilled million funded receivables part well across our of the collections under to in $X increased in million invoicing the successful approximately execution

As well contract growth our cost impacts discussed. adjustments the with as the settlement previously and in cumulative reserves, as associated quarter the

Inventory a material the decreased primarily cadence activity in availability. the both over approximately $XX payable incremental as scrap at timing resource shift aligning and awards and the million purchases $X better million, quarter. of decreased the of contract reserve evidencing our with Accounts result aimed in operating

on we favorable earnings billing our approximately revenues negotiated volume reflecting terms $XX with in on successfully quarter, we QX of higher million the call. customer Deferred discussed previously decreased revenue advances as the recognized

million approximately the Working capital $XX third in increased quarter.

However, multiple we have this made of after progress in X% year-over-year expansion. balance reducing years

in by flow initiated which third driven processing was architecture with in we conversion. are making QX, our the combined delayed pause increase cash our have The investments quarter production common self-imposed

challenged architecture As challenges development common programs transitioning we as in Bill in as we production. are towards mentioned, and previously other processing progress our toward resolving making believe well the

capital then we as certain As continue execute to and and working build expect see receivables to reductions in to metrics convert cash. we unbilled such,

align these awards, norms. believe In development expected shift will follow-on programs we inventory in of awards. to production consume receive historical And anticipation expect we the to as mix purchased of we we better with addition,

for full-scale of year. The to our third to XX. flow $XX.X the growth modifications a programs. the an self-imposed as resolved complete allow cost was to flow by of of Turning our programs, production. outflow and associated the design compared the an supplier common The transition as Slide Free toward cash $XX.X subset issue in industry-wide impacting quarter million billings we those a for outflow of million processing since the and pause on driven was which cash outflow the impacts to has impact achieve on program on been prior architecture

fiscal I'll to now financial 'XX. guidance our full for year turn

to expect we demand billion continue remains 'XX $X above bookings as First, our strong. FY for

made incurred single may we'll than and fiscal the in have technology while Second, and still for to and the the coupled the in growth with revenues the trend priority gross areas, margin the continued believe potential in remainder revenues our the the revenues first impacts do we X 'XX. impact for volatility continue progress related prior million negatively expectation gross of quarter, year fourth to We for expect we cost X continued year. especially million during quarters, to continue so with for lower both margin to $XXX $XXX to

first improve We cost QX. QX to quarters, along realignment with believe our and sequential of the completed second we operating expected phase in as leverage increases, third efficiencies part organizational margin revenue actions will coupled the and the implementing in additional due are in with of

loss per as 'XX for meaningfully net We loss GAAP share and per year. loss EBITDA prior below adjusted adjusted and be the share as fiscal expect will well

ship fourth on cash receivables cash. While and we build quarter third expect as our to in of improvement convert retire the unbilled majority and product was risk and challenged programs a bill to quarter or then complete in final to flow plan receivables we disappointing, the

expect free We positive year. cash continue flow for to the

on growth In will conversion. and expansion cash further closing, Demonstrating return to the profitability a revenue priority enable and creation drive X business. historical areas long-term value potential only believe focus the our also to continuing of we execute not will but margin

back With the now turn call that, to over Bill. I'll

Thanks, Dave. Q&A. With operator, proceed the that, please with

Global. the from Skibitski, [Operator Instructions]. We'll take Pete question first Alembic

of, just for you're remains those to have all risk well, trying you a to a the assuming goes fiscal head those remaining challenged programs? how how -- I'm risk all be architecture I'm at much to get feel I technical programs 'XX if I'm processing programs? retire go you on as to sense think wondering I 'XX. in going they're fiscal X into you get on guess do remaining guess related I to So common trying deep

thanks for that. Bill. I'll question. Yes. take It's Pete, the

technology this You're architecture you've right the get the heard processing us we the very us integrity processing need . And common us year, been intended. understanding specific that of understanding get allows we physical believe common a that to work gotten what that programs for we change related to our to science, all order to the we about. root we've getting from to respect to have to implement is Where that in the manufacturing get challenge of that cause. that of talk material as based we'll X to In it's our expectation architecture on end able left. that was is based on They're we've to our are as to And need. keeping with to physical in process we material this integrity science. understanding the a

all up. testing, we've Now of ton a of analysis to a empirical initial up match our seen after and we're We've lot production. analysis, data production ramping done moved the

So fourth we've done quarter, in the builds. initial

in We our us we what up order corrective need scale of give -- to and the pilot production. are indications will to quarter. currently quarter, validation calling ramp action, And fourth exit expect then as of the production, will solid through to go that which we're full have end pretty the the we which in fourth the ability we

quarter assessment. the to that first we we the need should that make into I exiting So fourth as moving FY would 'XX, of that validation quarter expect have we're the

Okay.

Okay.

to ramp first Is the you'll you those have quarter, in point about on sense way programs. some full at production into think good So that a can a whether it?

built, we And to corrective want action the size we to over us integrity put need action. a we've testing really, be units much that I done the the indicate in where is a see to the significant. during all this that We we've all to increase Correct. our mean sample is to physical that about the a corrective size statistically quarter standpoint. in larger all getting that that place confidence think from gets we sample

Okay.

got think I I it.

Just one for follow-up me.

thinking challenged guys about new and aren't the right, -- have are feel ramping part I about programs, but of the just had other you going some forward but also issues, maybe As about the development kind in programs 'XX, like of thinking 'XX heard given you how on that programs. we've development challenge there's some programs,

how you So associated taking how development we thinking on that about risk And going technical about forward? with think should new are programs? the

question. our a It's historical great recently being talk dense been about around us XX% in XX% production. you've XX%, production. to past in heard of And Yes. development, this the mix in development We've XX% space

over order EBITDA goal that But to we've time, driver. is programs the development at targeted makeup a isn't in only prior of about margins XX/XX. to that mix Our hit our in least towards is The the talked back calls big move see mix the driver.

firm So development. that for instance, fixed all the they're challenge programs you've about, heard talk price us

that we cost are some this feel plus. that development large great awards about year won we While

on fixed different so very profile And price is firm the risk development. than those

XX% of at this you you taking it XX/XX than development. year, putting point more are bookings much into contract are production it are of the of and If we our far feel once I'd bid us fixed thing look been bookings our our to are those activities. other And rigor that is, then year, one we implement a XX% we toward this program target bookings of has like mature historically. And is the and and level baseline then proposal win firm so makeup specifically our price and that activities

good of indication activities. the development one incentive that of received think evidence that but is I and a of of that program program customer one on and integrated quarter good we our our from piece grades highest baseline largest also our And fee our bidding, contracts review only earn we the is went the not our very could this through of maturing baselining

from next the take question Jefferies. Sheila We'll Kahyaoglu,

top could on you visibility on range Just do the to is maybe quarter Any guys But we especially one Backlog And provide fourth and the think year? line. mix bookings. this wanted to go, front, XX% book-to-bill a your left turn. you ask about of easy have wide . starting production With given to that fairly do quarter. into how being range a and indications fiscal in 'XX? comp wide that

Sheila, right look QX. we I we the Yes, it as would at a first yes, of is of the Dave. is wide when And this range, -- range. the you feel the say that's the midpoint part the of approach range there's midpoint question,

year. -- end cost confidence actions the And think be in we additional the could happen of range. what us of lower and the -- now As end towards there that the additional between that's gives

the the And in this staged the stage, timing. that beginning it end comes be us, And year largely, it end very of fiscal of if upper -- there be material at the would are year. end very versus range, the of 'XX the it the would for on about is of for difference. the And really

So a those at not we're about guidance today thinking We're point for are really the where 'XX. FY drivers.

ahead putting us not So we're of anything right now.

the maybe about Okay. being million It a in you close [ about comments to to would the then And $XX last that compared bit. breakeven. just if be your flow on ] talk free could cash little quarter time usage,

improvement. capital working talked So maybe you about

cash as If bit just free getting QX? you give the into positive could there And about improvement the more a for breakeven fiscal little detail to we us think flow year?

quarters. about feel last billings we've Bill flow the for so -- We talked year. and the cash positive the see highest we X had and Yes the good about

QX. variance about that to when And our towards the pushed flow fourth has which billings breakeven, towards into we looking out we had collect the were set expected and up QX, we had, They heading on the get them of cash us so talked The end. quarter. out pushed the issue in that industry-wide supplier I some well

out this material industry. driven -- half that it got We're and was bill products thing. the had that product, So and that gotten change by that -- only go products. out, it could conforming the collect. those had than variance nonconforming take that before to ones same We of had we we of more not and material was in people the across Other put deliver out that. And to had was change we

driver biggest variance cash single the quarter. the the was on for that So

that don't we So that view would as recur. anything

will our QX, collection. be our that of obviously, QX part So

. from is comes question next Sam Strecker Your Securities.

bookings was I but backlog is about color of that are you thinking from guys How there at feel how about on perspective, future decline at do really so long in of little bit a in the like term of a bit a from it long you of if pipeline new opportunities, could be -- kind seems how curious obviously might just looking the give maybe you're the pipeline good, things term you orders about -- looking a that. and more kind year-over-year like regard? like

take I'll Bill. one. that is This Yes.

backlog, comment with your First, the the we and mix the year's about we good really of on the that. associated Like said, makeup the particular, this the backlog. size bookings and but of only not feel in backlog

getting the see We us making did running we're tied see of of slip then common some the full to customers back on quarter rate back understandable would production. eventually the doing architecture, processing and orders which progress, production and out to getting to that want that up the is work

the somewhat So quarter. impact that did bookings in

just look in good with we market pipeline, as before, very as part feel pipeline segment good And said attractive mix of also we But about I a only reflects our not of we the the pipeline but feel like we at we're market, think and well. rates, growth our that forward the size longer the an term, as that. strong of

take question We'll Baird. from Engelbert, the Jan Instructions]. [Operator next

on step just those of Have to transition programs first give in the quarters? Can challenge XX you if a sense 'XX of sort -- of And the sort that's of of a the sort just resolved, back that The to of question, we us production identified. were have contracts? how many coming how you been expect production do any? to you transitioned exited many take

Yes, this I'll question. is take Bill. the

to over with expect half X production. which remaining the of ], the we that a common [ exiting have as ones And been to architecture, toward and production. far them which that time are all path on that And of As are close exited. transition a The to this expect for would are path have transition completed we we outstanding, I to are we generally is a how processing out characterize couple on the are have balance those. to quarter, there we associated production

Perfect.

follow-up. a Just quick

Should that, Mercury aware defense expect over would the Just in -- you tracking aggressively mean years. years will -- awards attractive sort very if led, term. replaced. just situational I then with recent more missile we all And on and any space target LX, space awareness. and and of almost look can or it of the missile sort if SDA a couple TrancheX, need we if consistent the and to future on sort tranches, roll if of of at the get programs Mercury think would in we just at the we're -- next I as give that transport tailwinds BlueHalo program just be with you comments to space and space layer your with look longer as X every also the wins tracking [indiscernible] seeing on that in in X get

very think that market I it a BlueHalo mix, as well for we also it's with we've like -- contracts contracts And of will be orders pleased a growth. that growth drivers new that I We're development we're Well, as that production the us. received. think, longer-term we've of won also organic pleased good is

the So contracts earlier well focused we're focused it's why executing development so we on is think that And comments, we on my on. a attractive and is positioned won. we're back to that market we're

questions. Mr. And there this Ballhaus to Bill are the no further back time, for everyone, additional closing I'll any remarks. hand at or call

attendance updating appreciate Thank we Well, interest forward thank the I to look and the you the at everyone point, and call, at very next this quarter. much. you.

all today's to conclude We does conference. that everyone, your would again, for thank like Once participation. you

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