Mercury Systems(US:MRCY)2021-08-04 04:08Financial Data and Key Metrics Changes - Total revenue for Q4 increased by 15% year-over-year to $251 million, exceeding guidance [47] - For fiscal 2021, total revenue increased 16% year-over-year to a record $924 million, surpassing guidance [52] - Adjusted EBITDA for Q4 rose 19% to a record $59.1 million, with adjusted EBITDA margins at 23.5% [49] - Adjusted EBITDA for fiscal 2021 increased 15% to a record $201.9 million, with adjusted EBITDA margins at 21.9% [54] Business Line Data and Key Metrics Changes - The largest revenue programs in Q4 included SEWIP, CPS, F-35, Filthy Buzzard, and Aegis [14] - Design wins in fiscal 2021 totaled $1.5 billion in estimated lifetime value, with 74 design wins during the year [17] - The company diversified its business, participating in over 300 different programs, with no single program exceeding 5% of total revenue [15][16] Market Data and Key Metrics Changes - The backlog at the end of fiscal 2021 was over $900 million, growing 9% from fiscal 2020 [15] - Bookings for fiscal 2021 were $881 million, down 8% from fiscal 2020, with a book-to-bill ratio of 0.95 [51] - The company expects a rebound in bookings in fiscal 2022, with a positive book-to-bill ratio anticipated [27] Company Strategy and Development Direction - The company aims for high single-digit to low double-digit organic revenue growth averaging 10% over time, supplemented by M&A and margin expansion [10] - The launch of the 1MPACT initiative is intended to lay the foundation for future growth and margin expansion over the next five years [12][34] - The company has completed 13 acquisitions since fiscal 2014, significantly scaling and transforming the business [31] Management's Comments on Operating Environment and Future Outlook - Management noted that fiscal 2022 could be challenging, with expectations of flat organic growth but double-digit total growth [25] - The company anticipates significant growth in bookings and backlog in fiscal 2022, with a strong rebound expected in fiscal 2023 [42] - Management believes the current environment is transitory and expects to see signs of improvement, driven by increased customer activity and government budget clarity [28] Other Important Information - The company completed the acquisition of Pentek for $65 million, financed with cash and debt [55] - Free cash flow for Q4 was $16.3 million, representing 28% of adjusted EBITDA, with expectations for increased free cash flow conversion in fiscal 2022 [56] - The company is targeting $30 million to $50 million of incremental adjusted EBITDA by fiscal 2025 as a result of the 1MPACT initiative [38] Q&A Session Summary Question: Concerns about growth pace and impacts on sales - Management explained that delays in orders due to COVID, customer execution issues, and administration changes resulted in a reduction in organic growth [80] - Specific programs like F-35 and SEWIP experienced notable impacts, but management expects bookings to rebound in fiscal 2022 [85] Question: Broader aspects affecting growth forecast - Management highlighted that while no single program accounts for a significant portion of revenue, movements in top programs can impact overall growth [90] - The LTAMDS program's expected order has been moved to fiscal 2023, affecting fiscal 2022 projections [92] Question: Details on the 1MPACT program - The 1MPACT initiative aims to streamline operations and improve efficiency, focusing on organizational structure and procurement [99] - Management emphasized that 1MPACT is about laying the foundation for future growth and achieving full growth potential [101] Question: Concerns about organic growth and margin compression - Management expressed confidence in a rebound in growth due to expected accelerated bookings in fiscal 2022 and substantial growth in fiscal 2023 [105] - The profitability of the base business has not materially changed, and management is focused on improving margins through the 1MPACT initiative [112]