Mercury Systems, Inc. (NASDAQ:MRCY) Q2 2023 Earnings Call Transcript

Seth Seifman: All right. Okay. Thanks. And then, just as a follow up, when we look at the data that comes out in the filing, about the sales breakdown between different types of products, different customers, is there anything there that offers a little bit more insight into the gross margin, compression that we’ve seen, whether it’s I mean, last quarter, kind of, we only have it as of the, I guess, as of the September quarter so far but fewer sales into radar applications I guess, fewer sales into components more sales to lock it, as we look through these different categories, is there anything about the mix that’s changing, that we can be aware of in terms of thinking about the gross margin and the profitability of different types of sales?

Mark Aslett: Not specifically the macro levels Seth. I think, if anything, what we are seeing is just the cumulative effects of operating under the pandemic and the delays that we’ve seen on programs and resulting inefficiencies. So things are taking longer. We’ve seen cost growth, and that clearly, is what is impacting the margin. As we look forward as we’ve said, is more of these programs kind of get out of the development phase and into production we’ll start to see some mix shifts and some margin improvements there, coupled with some probably better efficiencies and supply chain. So less of a headwind, and then continued balance from impact is really what’s going to drive the margins as we go forward. So I don’t know, Mike, if you’d like to add anything to that?

Mike Ruppert: No, I mean, that you’ll see the detail when the cue comes out in terms of subsystems components modules, I think what Mark said is correct, it’s going to be not going to see anything there significant that’s going to stand out as the driver of the margin degradation. It really is, these new programs starts that we’ve talked about, as the development programs transition over time to production, they’re just taking a little longer in this environment. And then we expect that to transition in fiscal ’24. So nothing’s specifically going to in the cue, more just around the trend. Is that we’re expecting in Q4 and in fiscal ’24.

Michael Ruppert: Obviously Seth the FMS program that moved. That was pretty high margin based upon the capabilities that we’re providing that includes IP licenses and royalties. And we do see a pickup of that as we’re going into the second half as well. So the mix here in terms of capabilities, and the programs really do matter. And it’s unfortunate that the customer has this funding delay that move the $20 million in revenue and $14 million out of the year.

Seth Seifman: Okay, thank you very much.

Operator: Your next question comes from the line of Ken Herbert with RBC. Your line is now open.

Ken Herbert: Hey Mark and Mike. I wanted to ask Mark on the free cash flow guidance I’m sorry, if I missed it. But as you think about sort of breakeven, a slightly positive call it $60 million in the second half of the year. How does that split between the third and fourth quarter? Or what’s the guidance implied for the cadence of cash in the second half of the year?