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11 Sep 20. Danish Startup QuadSAT Raises €2m for Antenna Testing. QuadSAT, a Danish company that is revolutionising test and measurement of satellite antennas, announced that it has closed a €2m Pre-Series A Investment, the largest venture investment in a Danish drone tech company in history.

The round was led by Seraphim Capital, the world’s first venture fund dedicated to SpaceTech, Vaekstfonden, the Danish state’s investment fund, and Angel Investor, Helge Munk.

The use of space is key to solving significant challenges faced in the world – from ensuring worldwide connectivity to providing data to solve environmental issues. As a multitude of sectors start looking toward space, the number of satellites in orbit will increase significantly in the next few years.

With the amounts of communication satellites in use today, levels of radiofrequency (RF) interference are increasing year for year. If not managed properly the accelerating growth of the satcom industry will drown the radio spectrum in RF-interference, reducing bandwidth and causing connection breakouts. Poorly performing and inaccurate ground antennas are the main source of RF-interference. For antenna research and development, and for approval to bring new antennas to market, access to testing is essential.

For the antenna ground segment to keep up with the rapid development of satellites in orbit there is a great need for a cost-effective, flexible, and efficient testing solution. QuadSAT revolutionises antenna testing by combining state of the art drone- and RF-technology with custom-developed software making automated antenna test and measurement available anytime and anywhere.

Andrian Buchi, CTO and co-founder, says: “We see a high level of interest for our technology, not only in antenna measurements but also in other test solutions aimed specifically at higher frequencies and at the future mass deployment of mega-constellations. This investment allows us to develop the product line to match the industry needs, and to build a strong team able to tackle future challenges”.

Joakim Espeland, CEO and co-founder adds “Our solution is the only one that can provide the scalability of test and measurements required for a robust satcom infrastructure to minimize challenges such as dropped calls and internet buffering”.

To ensure the best fit between QuadSAT’s solution and the industry requirements, the team is working closely with SOMAP, a consortium of the world’s biggest Satellite Operators. Further, QuadSAT has recently completed contracts with the European Space Agency’s (ESA) program for supporting the development of advanced satcom products and services.

The investment round follows a seed round at the start of 2019. This pre-series A investment is a catalyst for exploiting the potential of QuadSAT’s unique position as the only company that can provide mobile testing at scale. This will accelerate product testing allowing QuadSAT to transition its current product, currently offered as a service, to be sold as a product for third party users. This will also allow QuadSAT to expand its UK research and development activities.

QuadSAT plans to raise a Series A round within a year further expanding the revolution of antenna testing in the SATCOM industry.

About QuadSAT

Founded in March 2017, QuadSAT’s mobile antenna testing system provides users with affordable, accessible, and accurate antenna testing and calibration. The system utilizes a custom-built RF payload, drone technology, and mathematical algorithms to effectively simulate satellites and perform critical antenna performance tests. QuadSAT’s system has been developed to meet industry-wide standards. (Source: UAS VISION)

09 Sep 20. Avon Rubber Proposed Acquisition Of Team Wendy LLC. Avon Rubber p.l.c. (“Avon Rubber” or the “Company”) is pleased to announce the signing of an agreement to acquire Team Wendy, LLC (“Team Wendy” or the “Business”), a leading supplier of helmets and helmet liner and retention systems for military and first responder markets, for US$130m (approximately £100m) on a cash-free and debt-free basis, subject to a normalised level of working capital (the “Acquisition”).

Strategic Highlights

  • The Board believes that the Acquisition will be an important step in the strategic development of Avon Rubber as a leading provider of life critical personal protection systems to military and first responder markets.

o Combining Team Wendy with Avon Protection’s existing Helmets & Armor business will create a global leader in Military and First Responder helmets with a broader product portfolio and stronger capabilities and routes to market.

o Team Wendy adds leading helmet liner and retention systems used by the U.S. Department of Defense (the “DoD”) and established positions in Rest of World Military and First Responder helmet markets to Helmets & Armor which is focussed on next generation ballistic helmets and body armor for the DoD.

o The enlarged helmet business will be better positioned for investment in next generation products.

o Establishes a broader platform into which other technologies can be incorporated.

o The Enlarged Group will have better scale and an enhanced route to market, with Team Wendy’s complementary customer base and well-established global footprint expected to provide significant business development opportunities over the medium-term.

  • The Directors believe that the Acquisition will enhance shareholder value, meeting all of the Group’s strategic and financial criteria, and represents an immediate and compelling use of proceeds from the sale of milkrite | InterPuls (the “Dairy Disposal”) through the redeployment of capital into a highly complementary business with higher growth and margins and at a lower EBITDA multiple than obtained for milkrite | InterPuls.
  • The acquisition price represents a multiple of 9.7x Team Wendy’s 2019 EBITDA. The Directors believe that the Acquisition is financially attractive and is in line with Avon Rubber’s stated financial performance criteria for value-enhancing acquisitions, as set out below.

o The Acquisition will be earnings accretive in the first full financial year after Completion, both on a standalone basis and after completion of the Dairy Disposal, before the delivery of revenue or cost synergies.

o Team Wendy has a track record of strong organic revenue and profit growth, high-recurring EBITDA margins and strong cash conversion.

o Avon Rubber will retain a strong balance sheet, with an anticipated net cash position following completion of the Acquisition and the Dairy Disposal.

  • Team Wendy’s key strengths are closely aligned to those of Avon Protection – the Directors believe that Team Wendy is well positioned in its core markets; it has a track record of profitable revenue growth and an attractive product portfolio supported by proprietary technology.

o Diversified customer base of Military and First Responder users, both in the U.S. and internationally, with customers in over 50 countries ensuring it is not reliant on any single customer or contract.

o Strong R&D capabilities with leading helmet liner and retention system technologies and a focus on impact protection capabilities. Team Wendy has developed advanced proprietary technology relating to helmet liner and retention systems.

o The Team Wendy brand name is well respected and widely recognised internationally for its high-quality products, commitment to safety and advanced technological capabilities.

o Revenue in the year ended 31 December 2019 of US$44.2m and EBITDA of US$13.4m resulting in an EBITDA margin of 30.3%.

Strong and longstanding management team who will transfer with Team Wendy following completion.

The Business currently operates from a single facility in Cleveland, Ohio, employing approximately 130 people. Team Wendy will continue to operate from its Cleveland base, benefiting from the wider Avon Rubber infrastructure and management support.

Transaction Overview

  • The cash consideration of US$130m on a cash-free and debt-free basis, which is subject to closing and customary adjustments, is payable on Completion.
  • The Acquisition constitutes a Class 1 transaction under the FCA Listing Rules and accordingly is conditional upon, inter alia, the approval of Shareholders at a General Meeting.
  • The Acquisition is expected to close in the first quarter of the Group’s 2021 financial year, subject to U.S. regulatory approvals and customary closing conditions.
  • Financing and Structure

o The consideration will be fully satisfied in cash. In the event that Completion occurs prior to completion of the Dairy Disposal, the consideration will be financed by drawing on a new US$200 m RCF facility with an initial term of three years, with two options to extend by an additional 365 days (“New RCF”), which will be repaid following completion of the Dairy Disposal. Following completion of the Acquisition and the Dairy Disposal it is intended that the New RCF will be used to support Avon Rubber’s medium-term growth objectives, including financing potential future acquisitions in line with Avon Rubber’s growth strategy.

o The facility made available under the New RCF is a US$200m multicurrency revolving credit facility, subject to the satisfaction of certain conditions precedent. The New RCF is available for drawing in U.S. dollars, sterling, euro and other currencies (subject to certain conditions).

o The milkrite | InterPuls divestment, as announced on 2 July 2020, is subject to customary closing conditions and regulatory approvals, with completion expected to take place in the first quarter of the Group’s financial year. Avon Rubber expects to receive net proceeds before customary adjustments of circa £160 m post the completion of the Dairy Disposal. Avon Rubber has agreed with the trustees of its U.K. pension scheme to make a one-time contribution of £20m to strengthen the scheme’s funding position following completion of the divestment. In the event that completion of the divestment occurs prior to the completion of the Acquisition, Avon Rubber will use the net remaining proceeds to finance the Acquisition.

Paul McDonald, Avon Rubber, Chief Executive Officer, commented:

“The acquisition of Team Wendy is another important strategic step in the transformation of Avon Rubber into a leading provider of life critical personal protection systems.

We are delighted to have identified an opportunity that fits our clear commercial and financial criteria and enables us to immediately reinvest the milkrite | InterPuls proceeds to drive additional shareholder value.

Team Wendy is a high-quality business with complementary liner and retention system technologies and established positions in Rest of World Military and First Responder helmet markets. Bringing Team Wendy into the same family with our existing Helmets & Armor business establishes Avon Protection as a global leader in Military and First Responder helmets, with an enhanced and broader product portfolio with stronger capabilities and routes to market.

We look forward to welcoming Team Wendy into the Avon Rubber family and working together to further develop head protection systems that prevent traumatic brain injury and to improve the performance and capability of our customers.”

Jose Rizo-Patron, Team Wendy, LLC, Chief Executive Officer, added:

“Today’s announcement marks an exciting new chapter for Team Wendy that will usher in new opportunities for our employees, our customers and our business partners.

It was important for us to find the right owner for Team Wendy with a shared vision to save lives by providing the best for anyone wearing a helmet and who would continue to build on Team Wendy’s legacy.

Avon Rubber shares our vision for the growth and expansion of Team Wendy and, as such, we believe they are the right long-term partner for our customers, employees and other stakeholders.”


08 Sep 20. German defence supplier Hensoldt files for Frankfurt stock market listing. German defence supplier Hensoldt has filed for a Frankfurt stock market listing later this month, as the private equity-owned company seeks to raise funds for growth and to strengthen its balance sheet. The deal is expected to value the former Airbus AIR.PA unit, which buyout group KKR KKR.N bought in 2016, at 2.5-3bn euros ($3-3.5bn), including debt, people close to the matter said.

New and existing shares worth 20-30% of the company are expected to be listed on the stock exchange, the people said, while the company declined to comment on the size and valuation of the listing.

Reuters earlier reported the impending IPO.

Market turbulence at the beginning of the COVID-19 pandemic led to a delay in the offering, originally planned for spring, but stock markets have recovered and Germany’s blue-chip index .GDAXI is back at levels recorded in late 2019.

With COVID-19 related social distancing rules, KKR is using Hensoldt drones to show investors production sites at the defence supplier and at other portfolio companies, a person close to the matter said.

KKR bought Airbus’s defence electronics business for 1.1bn euros in 2016 and rebranded it Hensoldt, naming it after a 19th-century German maker of binoculars and telescopes.

The German government, which is one of the group’s major customers, holds a “golden share” in the company.

Hensoldt makes military sensors, electronic warfare equipment, avionics and optronics, with 16% of revenues coming from non-defence markets.

This year, Hensoldt expects to post adjusted earnings before interest, tax, depreciation and amortization of about 207m euros on revenues of 1.15bn.

Next year, Hensoldt expects revenues of 1.4-1.6bn euros. Its 2020 and 2021 adjusted EBITDA margin is expected to slightly decline to around 18% from 19.3% seen last year due to ramp-up costs in early stages of major projects, before recovering to 2019 levels, finance head Axel Salzmann said.

The company this year won contracts such as a 1.4bn euros order to jointly develop and produce a new active electronically scanned array for the German and Spanish Eurofighter fleet.

Hensoldt competes with groups such as Ultra Electronics ULE.L and Mercury Systems MRCY.O, which trade at 10.9 and 18.7 times their expected core earnings.

The company, which employs roughly 5,500 staff, had 762m euros in net debt as of end-2019.

Its high-tech cameras are used in products including Tornado fighter jets that fly surveillance missions over Syria and Iraq. It also supplies radar for Eurofighter jets and periscopes for submarines and Leopard and Puma tanks.

In addition, the company makes identification systems for combat jets, night vision devices, radar for civil air traffic control and systems for civil and military efforts to counter drones.

Bank of America BAC.N, JP Morgan JPM.N, Deutsche Bank DBKGn.DE and KKR Capital Markets are organising the flotation with the help of CitigroupC.N, CommerzbankCBKG.DE, UniCredit CRDI.MIand Crédit AgricoleCAGR.PA. (Source: Google/Reuters)


08 Sep 20. SRT charters highly profitable waters. Aim-traded SRT Marine Systems (SRT:37p), a global leader in AIS, an advanced identification communications technology used to track and monitor maritime vessels, has reported a small annual underlying cash loss of £0.3m on revenue down 8 per cent to £18.9m. This was due to Covid-19 enforced delays which prevented work being carried out on major contracts as I pointed out (‘Deep value plays’, 13 July 2020).

Of more importance is that SRT has restarted work on its £31m flagship Philippines project that involves the installation of monitoring systems, coast stations, vessel transceivers and satellite data feeds. When fully commissioned in 2021, it will be the most sophisticated national fisheries monitoring and management system in the world. SRT’s validated sales opportunity pipeline encompasses 17 systems projects valued at £550m, highlighting the opportunity for its technology.

I am also encouraged that three awards with customers in The Middle East, worth £62m in revenue over a two-year implementation period, are now progressing towards contract, having been delayed due to the Covid-19 shutdown. One contract with a Middle East Coast Guard for the supply of a monitoring system and transceivers will result in £3.9m of work on an existing contract being bundled into a new one worth £11m. Accounting niceties led to an impairment on the existing contract, but there are no cash implications. Importantly, SRT is funded to deliver on all these projects, having received £8.5m on the Philippine contract and raised £1.8m in a placing since the March year-end. Net debt is currently around £3m, well within SRT’s banking facilities of £12.5m.

House broker finnCap notes that SRT could generate revenue of £50m in the 12 months to 31 March 2021 to deliver pre-tax profit north of £10m, a reflection of the high gross margin (40 per cent) on system projects and operational gearing once fixed overheads of £7m are covered. It also highlights the undervaluation of the £60m market capitalisation company. Buy. (Source: Investors Chronicle)


08 Sep 20. Meggitt flies into the red amid pandemic storm. As trading figures from Melrose(MRO) and Rolls-Royce(RR.) have already demonstrated, the collapse in global air travel due to Covid-19 has reverberated down the entire civil aerospace supply chain. As demand for new aircraft weakened and plane makers cut production rates, engineering group Meggitt (MGGT) saw revenue from civil aerospace plunge by more than a quarter in the six months to 30 June, to £432m. This more than offset the 4 per cent increase in revenue from its defence activities.

More than half the group’s civil aerospace revenue comes from its aftermarket business, which provides ‘maintenance, repair and overhaul’ (MRO) services and spare parts. As customers deferred orders, aftermarket sales dropped by a quarter. Since these are higher margin activities, this contributed to Meggitt’s overall underlying operating margin contracting by 3.9 percentage points to 11.1 per cent. Underlying operating profit therefore dropped by more than a third to £102m.

On a statutory basis, the group swung to a £349m operating loss – versus a £91m profit a year earlier – weighed down by more than £400m of exceptional costs. These include £373m of impairment losses and asset write-downs reflecting the uncertain aerospace outlook, and £13m of Covid-19-related expenses.

While the group did secure new contracts during the first half, these were largely defence related. Overall orders dropped by more than a quarter to £882m, with the book-to-bill ratio – the ratio of orders received to those invoiced – coming in at 0.9. In response to the new civil aerospace environment, Meggitt is resizing its business having cut almost a fifth of its global workforce. It is aiming to deliver £400m-£450m of cash savings this year.

Net debt has climbed by a tenth from the December year-end position to £1bn. Equivalent to 1.8 times cash profits, this is well within the group’s covenant multiple of 3.5. Due to increased capital expenditure and higher working capital, Meggitt saw a £122m free cash outflow in the first half which was partially offset by the £110m sale of its Training Systems business. The group is hoping to be free cash flow neutral for the full year by reducing its inventory. Shifting its stock is taking longer than expected as customers work through their own reserves first. The 2019 final dividend was cancelled in March and now there is no interim payout either.

The consensus forecast places full year underlying operating profit of £215m – down from £403m in 2019 – rising to £274m in 2021.

*Includes £2.1bn in intangible assets or 276p a share

IC View

Meggitt’s shares have yet to recover from the ‘Corona crunch’ and analysts do not envisage earnings rebounding to pre-pandemic levels even by 2023. With a poor multi-year outlook for civil aerospace, it will be a long road back. Still, the group’s defence exposure, £856m of headroom on its committed borrowing facilities and focus on sole-source contracts should offer some resilience. Hold. Last IC View: Hold, 329p, 02 Jul 2020. (Source: Investors Chronicle)


08 Sep 20. Meggitt PLC 2020 Interim results. Defence Robust as Group Responds To Civil Aerospace Downturn. Meggitt PLC (“Meggitt” or “the Group”), a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and selected energy markets, today announces unaudited interim results for the six months ended 30 June 2020.

Tony Wood, Chief Executive, commented: “The Meggitt team remains focused on protecting the safety of our people, serving our customers and communities, and building on our strengths, and I want to thank all of my colleagues for their hard work and dedication over the last few months. We had a very challenging second quarter in which we acted fast, executed well operationally and took action to position the Group for the recovery in civil aerospace. Our first half performance was impacted by the ongoing effects of COVID-19 in our civil aerospace business driven by the unprecedented reduction in global air traffic activity. Our defence business continued to perform strongly and represented 43% of the Group’s revenue in the period. Overall, we made very good progress on those elements within our control, including our targeted cost and cash preservation actions as well as resizing the Group as we look ahead to 2021. Despite the disruption caused by COVID-19, we have continued to execute against our strategic priorities and these remain our focus for the second half. We are still working through a difficult and uncertain COVID-19 environment, and while it’s too early to precisely predict the trajectory of the return to prior levels of activity in civil aerospace, we continue to focus on ensuring that the business is well positioned to benefit from the recovery. Based on the effective actions we’ve taken to strengthen liquidity and the resilience of the Group, underpinned by our diverse end market exposure and strong market positions, we believe we are well placed to benefit from the recovery and to continue the transformation of Meggitt to deliver long-term, profitable growth.”


  • Performance of the Group reflects the unprecedented impact of COVID-19 on the civil aerospace sector, with revenue slightly ahead of our guidance in our 2 July trading update
  • Group organic revenue down 13% with a robust performance in Defence, where revenues grew 7%, more than offset by significantly lower revenues in Civil Aerospace and Energy where revenue was 27% and 6% lower respectively
  • Underlying operating profit was 37% lower at £102m (H1 2019: £161m)
  • Statutory operating loss of £349m (H1 2019: profit of £91m) largely as a result of non-cash impairment of intangible assets and other asset write downs
  • Rapid and decisive action taken by the Group on areas within its control to reduce cost, protect cash and resize the Group’s cost base; on track to deliver cash savings of £400m to £450m for the full year
  • Free cash outflow of £122m (H1 2019: inflow of £49m) largely offset by cash inflow of £110m from the sale of Training Systems
  • Net debt of £1,000m (FY 2019: £911m) including adverse foreign exchange movement of £65m
  • Robust liquidity position with headroom of £856m on committed facilities; access to additional liquidity via Bank of England’s and HM Treasury’s CCFF (total funds available up to £600m); extended maturity of our debt with a forward start on our RCF to September 2022; ratios of net debt:EBITDA of 1.8x and interest cover of 14.1x, well within covenant limits
  • Continued progress on key strategic initiatives including sale of Training Systems, new customer contract wins and further consolidation of our global footprint
  • The Board recognises the importance of the dividend to its shareholders, but has taken the prudent decision not to pay an interim dividend in order to retain cash within the Group, manage net debt levels and preserve flexibility
  • The recovery in civil aerospace remains sensitive to spikes in COVID-19 cases, creating near term uncertainty about the pace and shape of a recovery. As a result, and recognising that there could be a range of outcomes in our civil business in the last four months of the year, our guidance for the Group for the full year remains suspended. For cash, as a result of a proportion of inventory reduction moving into 2021, we now expect to be broadly free cash flow neutral for the full year.


08 Aug 20. Aerospace supplier Meggitt swings to loss as pandemic bites. Customers Airbus and Boeing slash aircraft deliveries. Meggitt’s chief executive said it had been a challenging quarter for the group. Meggitt signalled the depth of the aviation crisis with a swing to a first-half loss as the UK aerospace and defence supplier took charges and writedowns. The group on Tuesday reported a pre-tax loss of £368.4m for the first six months against a profit of £72.6m a year earlier, as orders fell by close to a third amid a virtual halt in global air travel prompted by the pandemic. The company said Airbus and Boeing, the world’s two largest aircraft makers and big Meggitt customers, had cut aircraft deliveries by 50 per cent and 71 per cent respectively. Revenues were down 14 per cent to £917m. Excluding one-off charges, underlying profit fell 41 per cent to £85.5m, with underlying earnings per share down a similar level to 8.7p. However, they were above market expectations. Tony Wood, chief executive, said it had been a challenging quarter for the group. Meggitt said its defence business, accounting for 43 per cent of revenue, had been more resilient and helped to offset the impact of the coronavirus crisis on the civil aerospace division. It said it was ahead of target on job cuts, expecting to deliver a reduction of 18 per cent by the end of this year against plans for 15 per cent. This would help to offset a slower than expected reduction in inventory. “Overall, we made very good progress on those elements within our control, including our targeted cost and cash preservation actions as well as resizing the group as we look ahead to 2021,” Mr Wood said. “Despite the disruption caused by Covid-19, we have continued to execute against our strategic priorities and these remain our focus for the second half.” (Source: Google/FT.com)


08 Aug 20. Meggitt Plc (MGGT LN), BUY, 299.70p PT: 375.00p. With a 1H20 FCF outflow of £122m largely offset by disposal proceeds of £102m, the balance sheet remains healthy enough, in our view. FCF is now guided neutral in FY20, but that too is satisfactory. In the battle against COVID, we believe Meggitt is currently well ahead on points.


1H20 results in brief. The 2 July Trading Update was thorough on sales, less so on EBIT and FCF. There is no clear consensus as best we can tell. Group sales fell organically by 13% from £1,070.9m to £916.8m (JEFe £913.5m), with 2Q20 Civil OE down 53% and Civil AM down 47% (Large jets -48%, Regional -57%, Business -30%). The Trading Update guided for a 15% organic decline in sales, with both Civil OE and Civil AM down around 30%. Group EBIT fell from £161.1m to £102.2m (JEFe £85.4m). Group FCF was an outflow of £122m, substantially offset by the £102m of Training Systems disposal proceeds. End 1H20 net debt was £1,000.2m (end FY19 £911.2m). Nonetheless, end 1H20 net debt/EBITDA for covenant purposes was 1.8x (not more than 3.5x) and interest cover was 14.1x (not less than 3x). Order intake fell from £1,193m to £882m, but was still surprisingly robust.

Outlook for FY20/FY21. The reduction in the workforce is substantially complete (down 18%). Costs savings are still expected to be higher than originally planned. Due to some inventory reduction moving into FY21, FCF is expected to be neutral for FY20 rather than an inflow (JEFe inflow £42.8m). Meggitt’s downside case sees a further 15% reduction in Civil Aerospace revenues in FY21, partly offset by modest growth on Defence and further mitigating actions. As a result, the Group still has sufficient financing to meets its covenants.

As it says on the tin. We find it comforting when a business performs roughly as expected. The organic decline in 1H20 sales was around £139m. Applying JEFe FY20 gross margin of 35.9% to that decline implies a fall in EBIT of around £50m, all else equal. The reported decline was £58.9m., but we were braced for more significant negative operational gearing. EBIT in Services & Support proved more robust than we anticipated. Based on the committed facilities and the headroom disclosed through 1H20, simple arithmetic says net debt, excluding leases, tracked from £758m at end FY19, to £1,003m end 1Q20, to £968m end May 2020, then to £845m at end 1H20. Why the latter estimate differs from the reported £1,000.2m is something we cannot immediately square away.

Well ahead on points. We regard the inventory reduction slipping into FY21 largely as a matter of timing. A possible long-term negative is a potential increase in pension deficit funding, but we regard this as a modest factor relative to the pace of recovery from COVID. With financial headroom of £700m at end 1H20 and with access to the UK CCFF facility through May 2021 (for a year), the balance sheet has weathered the storm, in our view. We continue to believe COVID may be an ill wind that ultimately allows Meggitt to strengthen its market position and to secure incremental business. That may ultimately place some demands on the balance sheet, but given the more positive backdrop, we believe that bridge can be successfully crossed in due course.


04 Aug 20. Mercury Systems Reports Fourth Quarter and Fiscal Year 2020 Results.

Fourth Quarter Highlights Include:

Record bookings of $279m increased 15% over prior year

Record revenue increased 23% over prior year with 17% organic growth

Record net income, adjusted EBITDA, EPS and adjusted EPS

Record backlog increased 33% over prior year.

Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported operating results for the fourth quarter and fiscal year ended July 3, 2020.

Management Comments

“Our strong performance in the fourth quarter of fiscal year 2020 culminates a record fiscal year for the business,” said Mark Aslett, Mercury’s President and Chief Executive Officer.  “We achieved our highest ever bookings of $279m, yielding a book-to-bill ratio of 1.28 as well as record revenues, net income, adjusted EBITDA, EPS and adjusted EPS.  Our people and our business have remained resilient in light of the COVID-19 pandemic.  As we enter fiscal year 2021, we will continue to focus on the mission-critical work we do to support our customers and the ongoing security of our nation while also protecting the safety and livelihoods of our employees.  With record backlog, design wins and a strong balance sheet, we are well-positioned for continued growth and profitability,” said Aslett.

Fourth Quarter Fiscal 2020 Results

Total Company fourth quarter fiscal 2020 revenues were $217.4m, compared to $177.0m in the fourth quarter of fiscal 2019. The fourth quarter fiscal 2020 results included an aggregate of approximately $11.9m of revenue attributable to The Athena Group, Syntonic Microwave and American Panel Corporation acquired businesses.

Total Company GAAP net income for the fourth quarter of fiscal 2020 was $27.2m, or $0.49 per share, compared to $12.8m, or $0.25 per share, for the fourth quarter of fiscal 2019.  Adjusted earnings per share (“adjusted EPS”) was $0.72 per share for the fourth quarter of fiscal 2020, compared to $0.48 per share in the fourth quarter of fiscal 2019.

Fourth quarter fiscal 2020 adjusted EBITDA for the total Company was $49.6m, compared to $37.9m for the fourth quarter of fiscal 2019.

Cash flows from operating activities in the fourth quarter of fiscal 2020 were $28.7m, compared to $26.0m in the fourth quarter of fiscal 2019. Free cash flow, defined as cash flows from operating activities less capital expenditures for property and equipment, was $17.2m for the fourth quarter of fiscal 2020 and $17.1m for the fourth quarter of fiscal 2019.

All per share information is presented on a fully diluted basis

Full Year Fiscal 2020 Results

Full year fiscal 2020 revenues were $796.6m, compared to $654.7m for full year fiscal 2019, an increase of 22% from fiscal 2019. The full year fiscal 2020 results include organic revenue of $732.6m, an increase of 14% from fiscal 2019. Organic revenue represents total company revenue excluding net revenue from acquisitions for the first four full quarters since the entity’s’ acquisition date (which excludes any intercompany transactions). After the completion of four full fiscal quarters, acquired businesses are treated as organic for current and comparable historical periods.

Total Company GAAP net income for fiscal 2020 was $85.7m, or $1.56 per share, compared to $46.8m, or $0.96 per share, for fiscal 2019. Adjusted earnings per share was $2.30 for fiscal 2020, compared to $1.84 for fiscal 2019. Fiscal 2020 adjusted EBITDA for the total Company was $176.2m, compared to $145.3m for fiscal 2019. Cash flows from operating activities for fiscal 2020 were $115.2m, compared to $97.5m for fiscal 2019.

Bookings and Backlog

Total bookings for the fourth quarter of fiscal 2020 were $278.6m, yielding a book-to-bill ratio of 1.28 for the quarter.

Mercury’s total backlog at July 3, 2020 was $831.1m, a $205.7m increase from a year ago. Of the July 3, 2020 total backlog, $567.7m represents orders expected to be shipped within the next 12 months.

Business Outlook

This section presents our current expectations and estimates, given current visibility, on our business outlook for the current fiscal quarter and fiscal year 2021. It is possible that actual performance will differ materially from the estimates given, either on the upside or on the downside. Investors should consider all of the risks with respect to these estimates, including those listed in the Safe Harbor Statement below and in the Fourth Quarter and Fiscal 2020 Earnings Presentation and in our periodic filings with the U.S. Securities and Exchange Commission, and make themselves aware of how these risks may impact our actual performance. Effective as of July 1, 2019, the Company’s fiscal year has changed to the 52-week or 53-week period ending on the Friday closest to the last day in June. All references in this press release to the fourth quarter and full fiscal 2020 are to the 53-week period ended July 3, 2020, and to the first quarter of fiscal 2021 and full fiscal 2021 are to the quarter ending October 2, 2020 and 52-week period ending July 2, 2021.

For the first quarter of fiscal 2021, revenues are forecasted to be in the range of $190.0m to $205.0m. GAAP net income for the first quarter is expected to be approximately $10.1 m to $12.3m, or $0.18 to $0.22 per share, assuming no incremental restructuring, acquisition, other non-operating adjustments, non-recurring financing in the period, an effective tax rate, excluding discrete items, of approximately 26% and approximately 55.4m weighted average diluted shares outstanding. Adjusted EBITDA for the first quarter of fiscal 2021 is expected to be in the range of $38.0m to $41.0m. Adjusted EPS is expected to be in the range of $0.43 to $0.47 per share.

For the full fiscal year 2021, we currently expect revenue of $860.0 m to $885.0m, and GAAP net income of $68.5m to $74.4m, or $1.23 to $1.34 per share, assuming no incremental restructuring, acquisition, other non-operating adjustments, non-recurring financing in the period, an effective tax rate, excluding discrete items, of approximately 26% for the year and approximately 55.5m weighted average diluted shares outstanding. Adjusted EBITDA for the full fiscal year is expected to be approximately $188.0m to $196.0m, and adjusted EPS for the full fiscal year is expected to be approximately $2.15 to $2.26 per share.

Recent Highlights

June – Mercury announced it received a $25m follow-on order from a leading defense prime contractor for integrated radio frequency and digital subsystems for an advanced naval electronic support application. The order was booked in the Company’s fiscal 2020 fourth quarter and is expected to be shipped over the next several quarters.

June – Mercury announced it received a $3.9m multi-phase contract award from a leading defense prime contractor for the development of a high-density system-in-package solution for radar systems utilizing its novel 2.5D chip-scale integration technology. The award has an 18-month planned performance and shipment period.

June – Mercury announced volume production of its newest, high-density secure memory device, with the most capacity in the smallest form factor available. Mercury takes data-intensive processing applications to the edge by embedding 4GB of double data rate third-generation (DDR3) synchronous dynamic random-access memory in a compact, ruggedized package for optimal data center-grade performance in harsh environments.

June – Mercury announced that it has received a $49m order from a leading defense prime contractor for high-performance signal processing and radio frequency solutions for a missile defense program. The order was received in the Company’s fiscal 2020 fourth quarter and is expected to be shipped over the next several quarters.

June – Mercury announced the new GSC6204 OpenVPX™ NVIDIA® Turing® architecture-based GPU co-processing engine, providing accelerated high-performance computing capabilities to commercial aerospace and defense applications.

April – Mercury announced the SpectrumSeries™ RFM3103s ultra-wideband dual upconverter, designed to align with the emerging sensor open systems architecture technical standard for demanding electronic warfare environments. By creating a common architecture that streamlines system integration, the rugged, compact upconverter pioneers system interoperability and upgradeability, supporting an increased and more diverse range of unmanned systems on various platforms including ground, airborne, and subsurface.

April – Mercury announced it received a $30m multi-year award from a leading defense prime contractor to provide video display technology for integration into mobile ground vehicles. The award has a 36-month planned performance and shipment period.

April – Mercury announced it received a $4.7m order from a leading defense prime contractor to provide artificial intelligence processing technology for integration into an advanced airborne electro-optic system. The order was booked in the Company’s fiscal 2020 third quarter and is expected to be shipped over the next several quarters.

About Mercury Systems – Innovation That Matters®

Mercury Systems is the leader in making trusted, secure mission-critical technologies profoundly more accessible to aerospace and defense. Our innovative solutions power more than 300 aerospace, commercial aviation, defense, security and intelligence programs, configured and optimized for mission success in some of the most challenging and demanding environments. Headquartered in Andover, Mass., with manufacturing and design facilities around the world, Mercury specializes in engineering, adapting and manufacturing new solutions purpose-built to meet current and emerging high-tech needs. Our products and solutions have been successfully deployed with over 25 different defense prime contractors, a testament to our deep domain expertise and our commitment to Innovation that Matters®. To learn more, visit www.mrcy.com, or follow us on Twitter.

Investors and others should note that we announce material financial information using our website (www.mrcy.com), SEC filings, press releases, public conference calls, webcasts, and social media, including Twitter (twitter.com/mrcy and twitter.com/mrcy_CEO) and LinkedIn (www.linkedin.com/company/mercury-systems). Therefore, we encourage investors and others interested in Mercury to review the information we post on the social media and other communication channels listed on our website.

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