Mercury Systems(MRCY) - 2025 Q2 - Quarterly Results

Financial & Operational Highlights Mercury Systems reported strong Q2 FY2025 results, exceeding expectations with significant growth in revenue, Adjusted EBITDA, and record free cash flow, driven by solid execution and a record backlog - The CEO stated that the company delivered solid results in Q2 FY2025, in line with or ahead of expectations, and is optimistic about ongoing efforts to improve performance[2] Q2 FY2025 Key Metrics | Metric | Value | Note | | :--- | :--- | :--- | | Bookings | $242.4 million | Book-to-bill ratio of 1.09 | | Trailing-Twelve-Month Book-to-Bill | 1.12 | - | | Revenue | $223.1 million | Up 13% YoY | | Adjusted EBITDA | $22.0 million | Up substantially YoY | | Adjusted EBITDA Margin | 9.9% | Up substantially YoY | | Free Cash Flow | $81.9 million | Record; up $44.4 million YoY | | Backlog | $1.4 billion | Record; up 6% YoY | - Progress was noted in all four priority areas, including reduced operating expenses and a $114.9 million year-over-year reduction in net working capital[3] Detailed Financial Results Mercury's Q2 FY2025 saw significant revenue growth, a narrowed GAAP net loss, positive adjusted EPS, and a strong recovery in Adjusted EBITDA, culminating in a record $1.4 billion backlog Q2 FY2025 vs. Q2 FY2024 Performance | Metric | Q2 FY2025 | Q2 FY2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $223.1M | $197.5M | +13.0% | | Bookings | $242.4M | N/A | - | | Book-to-Bill Ratio | 1.09 | N/A | - | | GAAP Net Loss | $(17.6)M | $(45.6)M | +$28.0M | | GAAP Loss Per Share | $(0.30) | $(0.79) | +$0.49 | | Adjusted EPS | $0.07 | $(0.42) | +$0.49 | | Adjusted EBITDA | $22.0M | $(21.3)M | +$43.3M | | Operating Cash Flow | $85.5M | $45.5M | +$40.0M | | Free Cash Flow | $81.9M | $37.5M | +$44.4M | - The company's total backlog reached a record $1.4 billion as of December 27, 2024, an increase of approximately $80.0 million from the previous year[9] - Of the total backlog, $789.9 million is expected to be recognized as revenue within the next 12 months[9] Financial Statements This section presents the unaudited consolidated balance sheets, statements of operations, and cash flows, detailing the company's financial position and performance Unaudited Consolidated Balance Sheets As of December 27, 2024, Mercury Systems reported total assets of $2.401 billion, with increased cash and total liabilities, while shareholders' equity slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 27, 2024 | Jun 28, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $242,565 | $180,521 | | Total current assets | $990,684 | $953,784 | | Goodwill | $938,093 | $938,093 | | Total assets | $2,401,455 | $2,378,905 | | Liabilities & Equity | | | | Total current liabilities | $273,533 | $234,416 | | Long-term debt | $591,500 | $591,500 | | Total liabilities | $941,179 | $906,130 | | Total shareholders' equity | $1,460,276 | $1,472,775 | Unaudited Consolidated Statements of Operations For Q2 FY2025, net revenues increased to $223.1 million, and the GAAP net loss significantly narrowed to $17.6 million, driven by improved gross margin and reduced operating expenses Q2 Statement of Operations (in thousands, except per share data) | Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net revenues | $223,125 | $197,463 | | Gross margin | $60,826 | $31,520 | | Loss from operations | $(12,415) | $(53,929) | | Net loss | $(17,579) | $(45,581) | | Diluted net loss per share | $(0.30) | $(0.79) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $85.5 million in Q2 FY2025, contributing to a strong ending cash balance of $242.6 million Q2 Statement of Cash Flows (in thousands) | Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85,462 | $45,494 | | Net cash used in investing activities | $(1,655) | $(7,990) | | Net cash provided by financing activities | $1,492 | $41,217 | | Net increase in cash and cash equivalents | $84,442 | $79,277 | | Cash and cash equivalents at end of period | $242,565 | $168,646 | Reconciliation of GAAP to Non-GAAP Measures Mercury Systems provides non-GAAP financial measures, including Adjusted EBITDA, Free Cash Flow, Adjusted Income, and Adjusted EPS, with detailed reconciliations to offer a clearer view of operational performance - The company provides non-GAAP financial measures like adjusted EBITDA, adjusted income, adjusted EPS, and free cash flow to help investors understand its past financial performance and future prospects[13] - Management uses these non-GAAP measures for internal budgeting, evaluating performance, establishing operational goals, and determining a portion of executive bonus compensation[36] - Adjustments to GAAP figures include items such as amortization, restructuring charges, acquisition costs, litigation expenses, and stock-based compensation[28][29][32] Reconciliation of Net Loss to Adjusted EBITDA Adjusted EBITDA for Q2 FY2025 significantly improved to $22.0 million from a negative $(21.3) million in Q2 FY2024, primarily due to adjustments for non-cash and specified items Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Description | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net loss (GAAP) | $(17,579) | $(45,581) | | Adjustments: | | | | Interest expense, net | 8,024 | 8,645 | | Income tax benefit | (6,725) | (18,141) | | Depreciation & Amortization | 20,922 | 22,193 | | Stock-based compensation | 11,424 | 10,195 | | Other adjustments | 5,963 | 1,331 | | Adjusted EBITDA (Non-GAAP) | $22,029 | $(21,308) | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Free Cash Flow reached a record $81.9 million in Q2 FY2025, a substantial increase from the prior year, derived from operating cash flow less capital expenditures Free Cash Flow Reconciliation (in thousands) | Description | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net cash provided by operating activities (GAAP) | $85,462 | $45,494 | | Purchases of property and equipment | $(3,555) | $(7,990) | | Free cash flow (Non-GAAP) | $81,907 | $37,504 | Reconciliation of Net Loss to Adjusted Income and Adjusted EPS Q2 FY2025 saw a significant turnaround to Adjusted Income of $3.9 million and Adjusted EPS of $0.07, primarily due to adjustments for amortization and stock-based compensation Adjusted Income and EPS Reconciliation (in thousands, except per share data) | Description | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net loss (GAAP) | $(17,579) | $(45,581) | | Amortization of intangible assets | 11,154 | 12,270 | | Stock-based and other non-cash compensation | 11,424 | 10,195 | | Other adjustments | 5,963 | 1,383 | | Impact to income taxes | (7,022) | (2,446) | | Adjusted income (loss) (Non-GAAP) | $3,940 | $(24,181) | | Adjusted earnings (loss) per share (Non-GAAP) | $0.07 | $(0.42) | Other Information This section provides supplementary information, including details for the investor conference call, a corporate overview of Mercury Systems, and a forward-looking safe harbor statement regarding potential risks - Management will host a conference call and webcast on February 4, 2025, to discuss the quarterly results and business outlook[11] - Mercury Systems is a technology company that delivers mission-critical processing power for aerospace and defense missions, with products deployed in over 300 programs across 35 countries[15] - The press release includes a forward-looking safe harbor statement, cautioning that actual results could differ materially from projections due to various risks and uncertainties, such as defense program funding, supply chain issues, and geopolitical unrest[17]