Mercury Systems(US:MRCY)2025-05-06 22:02Financial Data and Key Metrics Changes - Bookings for Q3 were $200 million with a trailing twelve-month book-to-bill ratio of 1.1, while revenue was $211 million, reflecting a year-to-date revenue growth of 8.9% [8][19] - Adjusted EBITDA for Q3 was $24.7 million, significantly improved from a negative $2.4 million in the same quarter last year, with an adjusted EBITDA margin of 11.7% [21][19] - Free cash flow for Q3 was approximately $24 million, a substantial increase from an outflow of $26 million in the prior year [26][21] Business Line Data and Key Metrics Changes - The company reported a backlog of $1.34 billion, up 4% year over year, with significant contract awards contributing to this growth [10][19] - Over 80% of trailing twelve-month bookings were production contracts, indicating a shift towards production-focused revenue [12][19] Market Data and Key Metrics Changes - The company noted a decrease in unbilled receivables by approximately $54 million or 17% year over year, reflecting improved cash flow performance [23][25] - Deferred revenues increased year over year by approximately $72 million, driven by milestone billing events achieved during the period [24][25] Company Strategy and Development Direction - The company is focused on four priorities: delivering predictable performance, driving organic growth, expanding margins, and improving free cash flow [7][9] - Recent strategic moves include the acquisition of Starlab for cybersecurity software and the divestiture of manufacturing operations in Switzerland to enhance scalability and efficiency [12][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing efforts to improve performance and expected revenue growth approaching mid-single digits for FY 2025 [16][17] - The company anticipates that Q4 adjusted EBITDA margins will be the highest of the fiscal year, approaching the mid-teens [16][17] Other Important Information - The company ended Q3 with $270 million in cash, driven by improved cash provided by operations [23][19] - Net working capital decreased by approximately $148 million year over year, demonstrating progress in reversing a multi-year trend of growth in working capital [25][25] Q&A Session Summary Question: Update on LTAMDS program - Management highlighted the program's significant milestone achievement and expressed excitement about its growth prospects [29] Question: Increase in deferred revenues - Management explained that the increase is due to achieving milestones with customers, leading to solid payment terms [31] Question: Optimal net working capital level - Management indicated a target of 30% to 40% for net working capital as a percentage of revenue, with current levels at around 51% [36] Question: Impact of low margin backlog - Management stated that the transition from low margin backlog to higher margin bookings will be gradual, impacting future EBITDA margins positively over time [40] Question: Revenue split between development and production - Management did not provide specific revenue splits but noted that revenue trends will follow bookings, which are increasingly production-focused [52] Question: Production contracts for common processing architecture - Management confirmed that recent production contracts significantly contributed to backlog and expressed confidence in demand for this area [62] Question: Macro environment and federal space disruptions - Management reported no significant disruptions from federal space dynamics and expressed a positive outlook on defense budget growth [105] Question: Tariff impacts on supply chain - Management indicated no material impact from tariffs in FY 2025 and expressed confidence in sourcing and cost management strategies [110][111]