Q4 2024 Mercury Systems Inc Earnings Call

For opening remarks, and introductions I'd like to turn the call over to the company's executive Vice President and Chief Financial Officer, Dave firms, where please go ahead Mr firms worth.

Dave Firms: Good afternoon, and thank you for joining US with me today is our chairman and Chief Executive Officer, Bill Ball House. If you have not received a copy of the earnings press release, we issued earlier. This afternoon, you can find it on our website at <unk> Dot com.

Speaker Change: The slide presentation that bill and I will be referring to is posted on the Investor Relations section of the website under events and presentations.

Speaker Change: Turning to slide two in the presentation I would like to remind you that today's presentation includes forward looking statements, including information regarding Mercury's financial outlook future plans objectives business prospects and anticipated financial performance. These forward looking statements are subject to future risks and uncertainties.

Speaker Change: That could cause our actual results or performance to differ materially all forward looking statements should be considered in conjunction with the cautionary statements on slide two in the earnings press release and the risk factors included in Mercury's SEC filings.

Speaker Change: I'd also like to mention that in addition to reporting financial results in accordance with generally accepted accounting principles or GAAP. During our call. We will also discuss several non-GAAP financial measures specifically adjusted income adjusted earnings per share adjusted EBITDA and free cash flow.

Speaker Change: A reconciliation of these non-GAAP metrics is included as an appendix to today's slide presentation and in the earnings press release.

Speaker Change: I'll now turn the call over to Mercury's Chairman and CEO Bill Ball House, Please turn to slide three thanks, Dave.

Speaker Change: Afternoon. Thank you for joining our Q4 and fiscal year 2024 earnings call.

Speaker Change: We exited FY 'twenty four with positive momentum delivering results in line with or ahead of expectations and I look forward to that momentum continuing as we enter into FY 'twenty five today I'd like to talk through three topics first some introductory comments on our business and results as we closed FY 'twenty.

Speaker Change: For second a progress update in each of our four priority areas established just over a year ago, delivering predictable performance building, a thriving growth engine expanding margins and driving improved free cash flow and third expectations for our performance as we enter FY 'twenty five and longer term.

Speaker Change: And then I'll turn it over to Dave who will walk through our financial results before jumping in I'd like to thank our customers for their collaborative partnership and the trust they put in Mercury to support their most critical programs and our mercury team for their dedication and commitment to delivering mission critical processing it.

Speaker Change: One other note I'd like to thank Nelson Erickson for his contributions to mercury over the years I know many of you have interacted with Nelson on the Investor Relations front Nelson has elected to pursue a new opportunity outside of Mercury and we wish him well in his future endeavors. Please turn to slide four.

Speaker Change: In FY 'twenty four we made considerable progress addressing transient challenges in the business as.

Speaker Change: As we enter FY 'twenty five I'm optimistic about our strategic positioning as a leader in mission critical processing at the edge and our expectations on delivering predictable organic growth with expanding margins and robust free cash flow.

Speaker Change: Our Q4 and full year results were in line with or ahead of our expectations Q4 bookings of $284 million and $1 2 billion for the full year in line with our guidance of a $1 billion and representing FY 'twenty four book to Bill of one <unk> to Q4 revenue of 200.

Speaker Change: $49 million and $835 million for the full year above the midpoint of our guidance Q4, adjusted EBITDA of $31 million up 42% year over year.

Speaker Change: And Q4 free cash flow of $61 million and $26 million for the full year, keeping with or exceeding our guidance of free cash flow positive for the fiscal year.

Speaker Change: Q4 free cash flow was up $58 million year over year and represents the highest quarterly free cash flow in our company's history.

Speaker Change: We ended the fourth quarter with $181 million of cash on hand, after paying down $25 million of debt.

Speaker Change: These Q4 results reflect solid progress in each of our four priority focus areas with highlights that include.

Speaker Change: Retiring risk across our remaining challenge programs, most notably executing to plan on a return to initial pilot production on our common processing architecture area.

Speaker Change: Expanding our record backlog to over $1 3 billion up 16% year over year.

Speaker Change: Additional streamlining of our operations, enabling increased positive operating leverage as we returned to organic growth and reversing the multiyear trend of growth in working capital with networking capital down 15% year over year and sequential reductions in inventory and Unbilled receivables.

Speaker Change: With this progress in FY 'twenty four we're entering FY 'twenty five with a clear path towards delivering predictable organic growth expanding margins and improve free cash flow.

Please turn to slide five.

Speaker Change: Following those introductory comments I'd like to spend time on each of our four focus areas starting with our first focus area delivering predictable performance.

Speaker Change: In the fourth quarter, we delivered improved operating performance and we are able to more effectively mitigate what we believed to be the transitory challenges that have obscure the underlying performance of the business.

William Farnsworth, William Ballhaus

Speaker Change: In Q4, we recognized approximately $16 2 million of items that we believe are transitory down from $39 million in Q3, including $9 7 million of net EAC change impact across our portfolio.

With this progress in FY24, we are entering FY25 with a clear path toward delivering predictable organic growth, expanding margins, and improved free cash flow.

Speaker Change: Please turn to slide 5. Following those introductory comments, I'd like to spend time on each of our four focus areas, starting with our first focus area, delivering predictable performance.

Speaker Change: $2 9 million of inventory reserves, and scrap and $3 6 million associated with contract settlement reserves.

Speaker Change: These items impacted Q4 revenue by approximately $9 7 million gross margin by approximately $12 $6 million with the remainder impacting operating expenses. The approximately $9 7 million of net EAC change impact is a 38% reduction from what we experienced last.

Speaker Change: In the fourth quarter, we delivered improved operating performance and were able to more effectively mitigate what we believe to be the transitory challenges that have obscured the underlying performance of the business.

Speaker Change: In Q4, we recognized approximately 16.2 million of items that we believe are transitory, down from 39 million in Q3, including 9.7 million of net EAC change impact across our portfolio.

Speaker Change: Quarter.

Speaker Change: And consisted of approximately $4 4 million from our challenge programs and approximately $5 3 million spread across the remaining programs in our portfolio.

Speaker Change: $2.9 million of inventory reserves and scrap and $3.6 million associated with contract settlement reserves.

Speaker Change: Although still greater than we would like to see the magnitude of these items is the lowest in four quarters and reflects the progress we are making in driving toward predictable execution and steady growth.

Speaker Change: These items impacted Q4 revenue by approximately $9.7 million, gross margin by approximately $12.6 million, with the remainder impacting operating expenses.

Speaker Change: As shown on slide six with respect to the challenge programs.

Speaker Change: Since the end of the third quarter, we progressed by completing exiting or retiring risk on three additional of the original 19 programs. We believe we have now retired risk on 13 of the original 19 challenge programs that have materially contributed to earnings volatility in recent quarters for the six rigs.

Speaker Change: The approximately 9.7 million of net EAC change impact is a 38% reduction from what we experienced last quarter.

Speaker Change: and consisted of approximately 4.4 million from our challenge programs and approximately 5.3 million spread across the remaining programs in our portfolio.

Speaker Change: Meaning programs two are nearing completion and represent ordinary course risk going forward.

Speaker Change: Although still greater than we would like to see, the magnitude of these items is the lowest in four quarters and reflects the progress we are making in driving toward predictable execution and steady growth.

Speaker Change: The other four remaining programs are associated with a common processing architecture as I mentioned, we have successfully executed on our return to initial pilot production in our common processing architecture area.

Speaker Change: As shown on slide six, with respect to the challenge programs, since the end of the third quarter, we progressed by completing, exiting, or retiring risk on three additional of the original 19 programs.

Speaker Change: We're in the final phases of reliability testing with significant risk retired and are on a deliberate path to ramp up toward full rate production in the first half of the fiscal year, leveraging additional capital equipment and trained resources that we have in place.

Speaker Change: We believe we have now retired risk on 13 of the original 19 challenge programs that have materially contributed to earnings volatility in recent quarters. For the six remaining programs, two are nearing completion and represent ordinary course risk going forward.

Speaker Change: Given the progress in FY 'twenty, four we will no longer separately address the challenge programs going forward, but we will keep you informed with regard to progress on our common processing architecture. Please.

Speaker Change: The other four remaining programs are associated with the Common Processing Architecture. As I mentioned, we have successfully executed on our return to initial pilot production in our Common Processing Architecture area.

Speaker Change: Please turn to slide seven.

Speaker Change: Turning now to the second focus area driving organic growth.

Speaker Change: Bookings for the quarter were $284 million, resulting in a one four book to Bill.

Speaker Change: We're in the final phases of reliability testing with significant risk retired and are on a deliberate path to ramp up toward full rate production in the first half of the fiscal year, leveraging additional capital equipment and trained resources that we have in place.

Speaker Change: Our backlog now at a record $1 3 billion is up 16% year over year, notably when we look at FY 'twenty four bookings approximately 80% of our firm fixed price bookings our production in nature, which we believe is a good leading indicator that the mix shift toward production.

Speaker Change: Given the progress in FY24, we will no longer separately address the challenge programs going forward, but we will keep you informed with regard to progress on our common processing architecture. Please turn to slide 7.

Speaker Change: Progressing in our firm fixed price portfolio.

Speaker Change: Some wins in the quarter worth noting.

Speaker Change: A large production order from a prime contractor for Mercury processing solutions to be integrated on a key U S Air Force program of record.

Speaker Change: Turning now to the second focus area, driving organic growth.

Speaker Change: Bookings for the quarter were $284 million, resulting in a $1.14 book-to-bill.

Speaker Change: Multiple large production orders for processing solutions employed and air and missile defense systems for U S and international customers, including some which are actively engaged in Ukraine, and others, which will provide critical capability in support of NATO ongoing operations in Europe and elsewhere multiple.

Speaker Change: Our backlog, now at a record 1.3 billion, is up 16% year over year.

Speaker Change: Notably, when we look at FY24 bookings, approximately 80% of our firm fixed price bookings are production in nature, which we believe is a good leading indicator that the mixed shift toward production is progressing in our firm fixed price portfolio.

Speaker Change: <unk> orders for F 35 related electronics content cutting across various subsystems in both our processing technologies and signal technologies business units.

Speaker Change: Some wins in the quarter worth noting. A large production order from a prime contractor for mercury processing solutions to be integrated on a key U.S. Air Force program of record.

Speaker Change: And a $13 2 million cost plus development award from the office of Naval research to advance sensor processing technologies, which will enable radar and EW capabilities to be designed on much shorter timelines by increasing the modularity of components at the chip level and leveraging the latest commercial.

William Ballhaus: David Farnsworth, David Farnsworth, [inaudible]

William Ballhaus: Multiple large production orders for processing solutions employed in air and missile defense systems for U.S. and international customers.

William Ballhaus: including some which are actively engaged in Ukraine and others which will provide critical capability and support of NATO ongoing operations in Europe and elsewhere.

Speaker Change: Chips for a major semiconductor providers within a smaller and lighter footprint.

Speaker Change: These awards are important not only because of their value and impact on our growth trajectory, but also because they reflect our customers' trust and mercury to support their most critical franchise programs.

William Ballhaus: Multiple production orders for F-35 related electronics content cutting across various subsystems in both our processing technologies and signal technologies business units.

Speaker Change: We know from engagements with our customers that are unique capabilities, providing mission critical processing at the edge.

William Ballhaus: and a $13.2 million Cost Plus Development Award from the Office of Naval Research.

Speaker Change: Well with our customers' priorities and strong demand in growth markets, including sensors, and effectors electronic warfare avionics and see for I.

William Ballhaus: to advance sensor processing technologies which will enable radar and EW capabilities to be designed on much shorter timelines.

William Ballhaus: by increasing the modularity of components at the chip level and leveraging the latest commercial chips from major semiconductor providers within a smaller and lighter footprint.

Speaker Change: Please turn to slide eight.

Speaker Change: Now turning to our third priority focus area expanding margins.

Speaker Change: We believe FY 'twenty four was an unusual transitory year, where we delivered margins well beneath our targets.

Speaker Change: These awards are important not only because of their value and impact on our growth trajectory, but also because they reflect our customers' trust in Mercury to support their most critical franchise programs.

Speaker Change: These shortfalls were primarily driven by the previously discussed impacts that we view as transitory and negative operating leverage from relatively low production volume largely tied to development program delays looking forward to achieve our adjusted EBITDA margin targets. We are focused on the following.

Speaker Change: We know from engagements with our customers that our unique capabilities providing mission-critical processing at the edge align well with our customers priorities and strong demand in growth markets including sensors and effectors, electronic warfare, avionics, and C4I.

Speaker Change: <unk> levers.

Executing on our development programs in minimizing cost growth impacts getting back toward a more historical 2080 mix of development to production programs.

Speaker Change: Please turn to slide 8.

Speaker Change: Now turning to our third priority focus area, expanding margins.

Speaker Change: Driving organic growth to generate positive operating leverage and achieving cost efficiencies.

Speaker Change: We believe FY24 was an unusual transitory year where we delivered margins well beneath our targets.

Speaker Change: Discussed on this call our program execution and cost growth containment efforts, along with our organic growth efforts regarding cost efficiencies as mentioned in prior calls we implemented a series of cost reduction actions during FY 'twenty four as we streamlined and realigned our organization structure.

Speaker Change: These shortfalls were primarily driven by the previously discussed impacts that we view as transitory, and negative operating leverage from relatively low production volume largely tied to development program delays.

Speaker Change: Looking forward, to achieve our adjusted EBITDA margin targets, we are focused on the following levers. Executing on our development programs and minimizing cost growth impacts. Getting back toward a more historical 2080 mix of development to production programs.

Speaker Change: Resulting in significant cost savings previously announced.

Speaker Change: In Q4, we completed top to bottom leadership selection for the corporate reorganization initially announced in January organizing our U S based business units into two product business units and an integrated processing solutions business unit and centralizing, our engineering operations and mission assurance functions.

Speaker Change: Driving organic growth to generate positive operating leverage and achieving cost efficiencies.

Speaker Change: I've discussed on this call our program execution and cost growth containment efforts along with our organic growth efforts.

Speaker Change: Additionally, we stood up an advanced concepts group, that's focused on advanced technologies innovation and strategic growth pursuits.

Speaker Change: Regarding cost efficiencies, as mentioned in prior calls, we implemented a series of cost reduction actions during FY24 as we streamlined and realigned our organization structure, resulting in significant cost savings previously announced.

Speaker Change: With this significant effort behind us we exited FY 'twenty four with a streamlined cost structure and integrated organizational construct and a strong leadership team that is well poised to build on our momentum coming out of FY 'twenty, four and drive improved performance toward our targeted business profile.

Speaker Change: In Q4, we completed top-to-bottom leadership selection for the corporate reorganization initially announced in January, organizing our U.S.-based business units into two product business units and an integrated processing solutions business unit.

Speaker Change: Please turn to slide nine.

Speaker Change: Finally, turning to our fourth priority focus area improved free cash flow.

Speaker Change: and centralizing our engineering, operations, and mission assurance functions.

Speaker Change: We continue to make progress in reducing net working capital, which is down $93 3 million year over year after years of expansion.

Speaker Change: Additionally, we stood up an advanced concepts group that's focused on advanced technologies, innovation, and strategic growth pursuits.

Speaker Change: Inventory is down sequentially by $8 million from $343 million in Q3 to $335 million in Q4.

Speaker Change: William Farnsworth, William Ballhaus

Speaker Change: With this significant effort behind us...

Speaker Change: We exited FY24 with a streamlined cost structure.

Speaker Change: Notably while inventory is flat year over year with is up 44% year over year from $82 million to $118 million, reflecting an increased mix of the inventory progress towards delivery.

Speaker Change: an integrated organizational construct and a strong leadership team that is well poised to build on our momentum coming out of FY24 and drive improved performance toward our targeted business profile. Please turn to slide 9.

Speaker Change: Unbilled receivables are down year over year $79 million or 21% driven by Q2, Q3, and Q4 billings, which were the three highest billing quarters on overtime revenue contracts in the company's history.

Speaker Change: Finally, turning to our fourth priority focus area, improve free cash flow. We continue to make progress in reducing net working capital, which is down 93.3 million year over year after years of expansion.

Speaker Change: This record level of billings reflects our relentless focus on progressing our programs in order to deliver for our customers and in turn invoice and collect cash leading to the free cash flow record performance in Q4.

Speaker Change: Inventory is down sequentially by $8 million from $343 million in Q3 to $335 million in Q4.

Speaker Change: Notably, while inventory is flat year over year, WIP is up 44% year over year from $82 million to $118 million, reflecting an increased mix of the inventory progressed toward delivery.

Speaker Change: We believe the operational process rigor, we've implemented in FY 'twenty four related to program execution and hardware delivery just in time material and appropriately time payment terms will lead to continued reduction in working capital and improve free cash flow performance going forward.

Speaker Change: Unbilled receivables are down year-over-year 79 million or 21% driven by Q2, Q3 and Q4 billings which were the three highest billing quarters on overtime revenue contracts in the company's history.

Speaker Change: Please turn to slide 10.

Speaker Change: Entering FY 'twenty five I have high confidence in our team our leadership position in delivering mission critical processing at the edge and our expected ability over time to deliver results in line with our target profile of above market topline growth adjusted EBITA margins in the low to mid 20%.

Speaker Change: This record level of billings reflects our relentless focus on progressing our programs in order to deliver for our customers and in turn invoice and collect cash leading to the free cash flow record performance in Q4.

Speaker Change: We believe the operational process rigor we've implemented in FY24 related to program execution and hardware delivery, just-in-time material, and appropriately timed payment terms will lead to continued reduction in working capital and improved free cash flow performance going forward.

Speaker Change: Range and free cash flow conversion of 50%.

Speaker Change: Although we will not be providing specific guidance. This early in the year for FY 'twenty five I will provide the following color.

Speaker Change: In FY 'twenty five we expect to make further progress on the two primary challenges we have been tackling over the last year, specifically high working capital and a high mix of development programs, which we expect to see reflected in our FY 'twenty five financials in the following two ways.

Speaker Change: Please turn to slide 10.

Speaker Change: Entering FY25, I have high confidence in our team.

Speaker Change: our leadership position in delivering mission-critical processing at the edge.

Speaker Change: and our expected ability over time to deliver results in line with our target profile of above market top line growth, adjusted EBITDA margins in the low to mid 20% range and free cash flow conversion of 50%.

Speaker Change: First as we continue to focus on bringing down working capital, we expect to allocate meaningful operational capacity to advance programs with large unbilled receivable balances, which generates cash but relatively low revenue given that on many of these programs a large percentage of.

Speaker Change: Although we will not be providing specific guidance this early in the year for FY 25, I will provide the following color.

Speaker Change: <unk> has been previously recognized as a result, we expect our top line for FY 'twenty five to be relatively flat year over year with the first half in line with last year and an increase in run rate as we exit the fiscal year and begin to allocate more operational capacity away from legacy program.

Speaker Change: Thank you so much for watching this video, and if you enjoyed this video, please leave a like and share it with your friends and family.

Speaker Change: In FY25, we expect to make further progress on the two primary challenges we have been tackling over the last year.

Speaker Change: specifically, high working capital and a high mix of development programs.

Speaker Change: which we expect to see reflected in our FY25 financials in the following two ways.

Speaker Change: With high Unbilled balances toward production programs.

Speaker Change: First.

Speaker Change: as we continue to focus on bringing down working capital.

Speaker Change: While we have made significant progress on development programs across our portfolio. Our current backlog margin is lower than what we expect to see on a go forward basis, driven primarily by a small number of low margin development programs and programs that incurred adverse EAC adjustments in FY 'twenty.

Speaker Change: We expect to allocate meaningful operational capacity to advance programs with large, unbilled receivable balances.

Speaker Change: which generates cash, but relatively low revenue given that on many of these programs a large percentage of revenue has been previously recognized.

Speaker Change: As a result, we expect our top line for FY25 to be relatively flat year-over-year.

Speaker Change: For <unk>.

Speaker Change: Given that a large percentage of our backlog converts over the next 12 months.

Speaker Change: with the first half in line with last year and an increase in run rate as we exit the fiscal year and begin to allocate more operational capacity away from legacy programs with high unbilled balances toward production programs.

Speaker Change: Although we expect low double digit adjusted EBITDA margins overall for FY 'twenty five.

Speaker Change: We expect adjusted EBITDA margins to start off in the high single digits for the first half of the year and then expand in the second half as we complete these lower margin development efforts and continue to shift our mix toward production.

Speaker Change: Second, while we have made significant progress on development programs across our portfolio,

Speaker Change: Our current backlog margin is lower than what we expect to see on a go-forward basis, driven primarily by a small number of low-margin development programs and programs that incurred adverse EAC adjustments in FY24.

Finally, given our recent strong free cash flow performance in Q4.

Speaker Change: We're expecting to be cash flow positive again in FY 'twenty five with second half free cash flow higher than the first half.

Speaker Change: In summary, given the operational improvements over the last 12 months and our momentum coming out of Q4, I expect that our performance in FY 'twenty five in particular, our exit run rate will represent a positive step toward our target profile as we progressed through the first half of the year I look forward to providing.

Speaker Change: Given that a large percentage of our backlog converts over the next 12 months...

Speaker Change: Although we expect low double-digit adjusted EBITDA margins overall for FY25,

Speaker Change: We expect adjusted EBITDA margins to start off in the high single digits for the first half of the year and then expand in the second half as we complete these lower margin development efforts and continue to shift our mix toward production.

Speaker Change: Additional insights relative to our expectations for second half and full year performance with that I'll turn it over to Dave to walk through the financial results for the fourth quarter and fiscal year 2024, and I look forward to your questions. Dave. Thank you Bill our performance in Q4 was in line with our expectations.

Speaker Change: Finally, given our recent strong free cash flow performance in Q4, we're expecting to be cash flow positive again in FY25 with second half free cash flow higher than the first half.

Dave Firms: <unk> and I will echo Bill's comments that the actions we've taken throughout the year have supported the improved performance that we delivered during the fourth quarter and highlights. The initial progress that we've made given our objective to transition the business toward delivering predictable performance building, a thriving growth engine expanding margins and driving improved.

Speaker Change: In summary, given the operational improvements over the last 12 months and our momentum coming out of Q4, I expect that our performance in FY25, in particular our exit run rate, will represent a positive step toward our target profile.

Speaker Change: As we progress through the first half of the year, I look forward to providing additional insights relative to our expectations for second half and full year performance.

Cash flow, we continue to expect the resource shift toward follow on production awards that in turn we believe will begin to rebalance our portfolio more heavily toward higher margin predictable production programs as well as consumed further existing inventories were also making strides in releasing working capital, especially <unk>.

Dave: With that, I'll turn it over to Dave to walk through the financial results for the fourth quarter and fiscal year 2024, and I look forward to your questions.

Dave: Dave?

Dave: Thank you, Bill. Our performance in Q4 was in line with our expectations, and I will echo Bill's comments that the actions we've taken throughout the year have supported the improved performance that we delivered during the fourth quarter, and highlights the initial progress that we've made given our objective to transition the business toward delivering predictable performance,

Dave Firms: Related to Unbilled receivables, we expect to see these transitions become more apparent in our financial results during fiscal year 2025.

Speaker Change: Progress in our four priority focus areas is highlighted by a few key milestones that we achieved during the quarter. These milestones included our ability to retire risk across the majority of our remaining challenge programs.

Dave: building a thriving growth engine, expanding margins, and driving improved cash flow.

Dave: We continue to expect a resource shift toward follow-on production awards that in turn, we believe, will begin to rebalance our portfolio more heavily toward higher margin, predictable production programs, as well as consume further existing inventories.

Expanding on our record backlog to over $1 3 billion.

Speaker Change: <unk> to streamline our operations to drive margin expansion and reversing the multiyear trend of growth in working capital.

Speaker Change: With that please turn to slide 11, which details our fourth quarter results.

Dave: We are also making strides in releasing working capital, especially related to unbilled receivables. We expect to see these transitions become more apparent in our financial results during fiscal year 2025.

Speaker Change: Our bookings for the quarter were $284 million with a book to Bill of 114, yielding a backlog of $1 3 billion up $186 million or 16% year over year.

Dave: Progress in our four priority focus areas is highlighted by a few key milestones that we achieved during the quarter. These milestones included our ability to retire risk across the majority of our remaining challenge programs

Speaker Change: Revenues for the fourth quarter were $249 million down $5 million or 2% compared to the prior year a $253 million.

Speaker Change: This represents an improvement over our earlier outlook that we described during our third quarter earnings call driven by material receipts scheduled for Q1, arriving in Q4.

Dave: expanding our record backlog to over 1.3 billion continuing to streamline our operations to drive margin expansion and reversing the multi-year trend of growth in working capital.

Speaker Change: As you May recall, we maintain a wide range in guidance there were uncertainties from the fourth quarter that could have resulted in adverse impacts driving our performance to the lower end of our range and.

Dave: With that, please turn to slide 11 which details our fourth quarter results.

Dave: Our bookings for the quarter were $284 million with a book-to-bill of $1.14 yielding a backlog of $1.3 billion up $186 million or 16% year-over-year.

Speaker Change: And Conversely, the timing of material receipts planned in the first quarter of fiscal 2025, we drive our results to the higher end of our range.

Dave: Revenues for the fourth quarter were $249 million, down $5 million, or 2% compared to the prior year of $253 million.

Speaker Change: As Bill noted, we experienced approximately $10 million of net EAC change impacts affecting revenue in the quarter as compared to approximately $16 million in the third quarter of fiscal 2000 and for the $10 million, which was the lowest net EAC change impact in the last five quarters was comprised of approximately 4 million.

Dave: This represents an improvement over our earlier outlook that we described during our third quarter earnings call driven by material receipts scheduled for Q1 arriving in Q4.

Dave: As you may recall, we maintained a wide range in guidance as there were uncertainties in the fourth quarter that could have resulted in adverse impacts driving our performance to the lower end of our range.

Speaker Change: Related to our challenge programs, and nearly 6 million spread across multiple other development and production programs.

Speaker Change: 4 million net EAC change impact related to our challenge programs was largely tied to the four programs associated with the common processing architecture, representing approximately 65% of the impact.

Dave: And conversely, the timing of material receipts planned in the first quarter of fiscal 2025 would drive our results to the higher end of our range.

Speaker Change: As Bill stated we believe we have successfully executed on our return to initial pilot production. We are in the final phases of reliability testing and we've retired significant risk in this area as we progress toward full rate production.

Dave: As Bill noted, we experienced approximately $10 million of net EAC change impacts affecting revenue in the quarter as compared to approximately $16 million in the third quarter of fiscal 24.

Speaker Change: The $10 million, which was the lowest net EAC change impact in the last five quarters, was comprised of approximately $4 million related to our challenge programs and nearly $6 million spread across multiple other development and production programs.

Speaker Change: Of the nearly $6 million of net EAC change impact related to the large number of other development and production programs, we realized ordinary course execution challenges across our program portfolio.

Speaker Change: The $4 million net EAC change impact related to our challenge programs was largely tied to the four programs associated with the Common Processing Architecture, representing approximately 65% of the impact.

Speaker Change: Gross margin for the fourth quarter increased to 29, 5% from 26, 6% in the prior year gross margin grew during the quarter, primarily due to lower net EAC change impact of approximately $19 million as compared to the prior year.

Speaker Change: As Bill stated, we believe we have successfully executed on a return to initial pilot production. We're in the final phases of reliability testing and we've retarded significant risk in this area as we progress toward full rate production.

Speaker Change: Operating expenses increased approximately $5 million year over year, primarily due to higher SG&A expenses of approximately $11 million and increased restructuring and other charges of $6 million as compared to the prior year.

Speaker Change: Of the nearly six million of net EAC change impact related to the large number of other development and production programs, we realized ordinary course execution challenges across the program portfolio.

Speaker Change: These increases were partially offset by lower R&D expense of approximately $8 million driven by our workforce reduction the increase in SG&A was primarily driven by higher stock based compensation expense of approximately $8 million in the current quarter as compared to the prior year.

Speaker Change: Gross margin for the fourth quarter increased to 29.5 percent from 26.6 percent in the prior year. Gross margin grew during the quarter primarily due to lower net EAC change impact of approximately 19 million as compared to the prior year.

Speaker Change: In the fourth quarter of the prior year, there were forfeitures of nearly $7 million from our former Ceos stock based compensation.

Speaker Change: The fourth quarter of fiscal 'twenty. Four also included $3 6 million of contract settlement reserve.

Speaker Change: Operating expenses increased approximately 5 million year-over-year primarily due to higher ST&A expenses of approximately 11 million and increased restructuring and other charges of 6 million as compared to the prior year.

Speaker Change: The increase in restructuring and other charges was driven by the previously announced workforce reduction that eliminated approximately 100 positions, resulting in restructuring and other charges of approximately $7 million in the current quarter.

Speaker Change: These increases were partially offset by lower R&D expense of approximately $8 million, driven by our workforce reductions. The increase in SG&A was primarily driven by higher stock-based compensation expense of approximately $8 million in the current quarter as compared to the prior year.

Speaker Change: The head count savings combined with other non head count savings, including discretionary and third party spend primarily within R&D and cost of revenues are expected to yield annualized savings of approximately $15 million a portion of which is expected to be reinvested in the business with the remainder supporting improved profitability.

Speaker Change: In the fourth quarter of the prior year, there were forfeitures of nearly $7 million from our former CEO's stock-based compensation.

Speaker Change: And operating leverage for our 2025 fiscal year.

Speaker Change: The fourth quarter of fiscal 24 also included $3.6 million of contract settlement reserves.

Speaker Change: GAAP net loss and loss per share in the fourth quarter were $10 8 million in 19.

Speaker Change: The increase in restructuring and other charges was driven by the previously announced workforce reduction that eliminated approximately 100 positions, resulting in restructuring and other charges of approximately $7 million in the current quarter.

Speaker Change: Respectively, as compared to GAAP net loss and loss per share of $8 2 million at <unk>.

Speaker Change: Respectively in the prior year.

Speaker Change: The decrease in year over year earnings is primarily result of higher operating expenses of $5 million driven by SG&A restructuring and other charges. The decrease was also impacted by higher nonoperating expenses, including net incremental other expense of approximately $2 7 million.

Speaker Change: The headcount savings, combined with other non-headcount savings.

Speaker Change: including discretionary and third-party spend primarily within R&D and cost of revenues.

Speaker Change: are expected to yield annualized savings of approximately $15 million, a portion of which is expected to be reinvested in the business with the remainder supporting improved profitability and operating leverage for our 2025 fiscal year.

Speaker Change: And interest expense of $2 million.

Speaker Change: These decreases were partially offset by higher gross margin of approximately $6 million driven primarily by lower net EAC change impacts during the quarter as compared to prior year.

Speaker Change: Gap net loss and loss per share in the fourth quarter were 10.8 million and 19 cents respectively as compared to gap net loss and loss per share of 8.2 million and 15 cents respectively in the prior year.

Speaker Change: Adjusted EBITDA for the fourth quarter was $31 2 million compared to $21 9 million in the prior year adjusted earnings per share was 23.

Speaker Change: The decrease in year-over-year earnings is primarily a result of higher operating expenses of $5 million, driven by SG&A, restructuring, and other charges.

Speaker Change: Compared to adjusted earnings per share of <unk> 11 in the prior year the year over year increase was primarily related to lower loss from operations in the current year as compared to the prior year free cash flow in the fourth quarter was an inflow of $61 4 million as compared to an inflow of $3 8 million in the prior year.

Speaker Change: The decrease was also impacted by higher non-operating expenses, including net incremental other expense of approximately $2.7 million and interest expense of $2 million.

Speaker Change: These decreases were partially offset by higher gross margin of approximately $6 million, driven primarily by lower net EAC change impacts during the quarter as compared to prior year.

Speaker Change: The increased free cash flow was primarily driven by incremental cash provided by operations of $59 million in the current year as compared to the prior year.

Speaker Change: Turning to our full year results on slide 12.

Speaker Change: Adjusted EBITDA for the fourth quarter was $31.2 million compared to $21.9 million in the prior year. Adjusted earnings per share was $0.23 as compared to adjusted earnings per share of $0.11 in the prior year.

Speaker Change: Fiscal year 2024 was another solid year for bookings our book to Bill was one <unk> compared to one <unk> in fiscal year 2023, yielding a backlog of over $1 3 billion.

Speaker Change: The year-over-year increase was primarily related to lower loss from operations in the current year as compared to the prior year

Fiscal year, 2024 revenues were $835 million down 14% compared to the prior year or fiscal year revenue decline was largely the result of net EAC change impact of $73 million and the deliberate pause on common processing architecture production.

Speaker Change: Free cash flow in the fourth quarter was an inflow of $61.4 million as compared to an inflow of $3.8 million in the prior year.

Speaker Change: The increased free cash flow was primarily driven by incremental cash provided by operations of $59 million in the current year as compared to the prior year.

Speaker Change: Gross margin for the fiscal year 2024 decreased to 23, 5% from 32, 5% in the prior year.

Speaker Change: Turning to our full year results on slide 12. Fiscal year 2024 was another solid year for bookings. Our book-to-bill was 1.22 compared to 1.10 in fiscal year 2023, yielding a backlog of over 1.3 billion.

Speaker Change: Gross margin contracted by approximately 900 basis points, primarily as a result of net EAC change impacts and incremental manufacturing adjustments, especially as related to inventory reserves warranty expense and scrap.

Speaker Change: Fiscal year 2024 revenues were $835 million, down 14% compared to the prior year.

Speaker Change: Operating expenses for the fiscal year increased approximately $5 million compared to the prior fiscal year, primarily due to higher restructuring and other charges as well as higher SG&A expenses as compared to the prior year.

Speaker Change: Our fiscal year revenue decline was largely the result of net EAC change impact of $73 million and the deliberate pause on common processing architecture production.

Speaker Change: These increases were partially offset by decreases in R&D and amortization expenses as compared to the prior year.

Speaker Change: Gross margin for the fiscal year 2024 decreased to 23.5% from 32.5% in the prior year.

Speaker Change: GAAP net loss and loss per share in fiscal 'twenty four were $137 6 million.

Speaker Change: Gross margin contracted by approximately 900 basis points primarily as a result of net EAC change impacts and incremental manufacturing adjustments especially as related to inventory reserve, warranty expense, and scrap.

Speaker Change: And $2 38, respectively, as compared to GAAP net loss and loss per share of $28 3 million and 50 <unk> respectively in the prior year.

Speaker Change: The year over year decrease was the result of approximately $73 million of net EAC change impact.

Speaker Change: Operating expenses for the fiscal year increased approximately $5 million compared to the prior fiscal year, primarily due to higher restructuring and other charges, as well as higher SG&A expenses as compared to the prior year.

Speaker Change: Additional manufacturing adjustments and contract settlement reserves.

Speaker Change: GAAP net loss was also impacted by the temporary volume shift in revenues as we align our operating cadence with prudent working capital management.

Speaker Change: These increases were partially offset by decreases in R&D and amortization expenses as compared to the prior year.

Speaker Change: These factors were partially offset by the incremental tax benefit year over year.

Speaker Change: Gap net loss and loss per share in fiscal 24 were $137.6 million and $2.38 cents respectively as compared to gap net loss and loss per share of $28.3 million and $0.50 cents respectively in the prior year.

Speaker Change: Adjusted EBITDA for fiscal year, 2024 was $9 4 million compared with $132 3 million in the prior year.

Speaker Change: The decrease was primarily related to lower gross margin and reduced operating leverage.

Speaker Change: Free cash flow for the fiscal year was an inflow of approximately $26 1 million compared to an outflow of $60 1 million in the prior year. The increase in the current year was primarily driven by the progress we've made in converting our unbilled and trade receivables to cash.

Speaker Change: The year-over-year decrease was a result of approximately $73 million of net EAC change impact, additional manufacturing adjustments, and contract settlement reserves.

Speaker Change: Gap net loss was also impacted by the temporary volume shift in revenues as we align our operating cadence with prudent working capital management.

Speaker Change: Slide 13 presents Mercury's balance sheet for the last five quarters.

Speaker Change: These factors were partially offset by the incremental tax benefit year over year.

Speaker Change: We ended the fourth quarter with cash and cash equivalents of approximately $181 million after making a $25 million payment against our revolver we.

Speaker Change: Adjusted EBITDA for fiscal year 2024 was $9.4 million compared with $132.3 million in the prior year. The decrease was primarily related to lower gross margin and reduced operating leverage.

Speaker Change: We have $592 million of funded debt under our revolver.

Speaker Change: Bills receivables increased approximately 20 million sequentially due to the timing of invoicing collections in the quarter and $10 $5 million reduction to our receivables factoring in the period.

Speaker Change: Free cash flow for the fiscal year was an inflow of approximately $26.1 million compared to an outflow of $60.1 million in the prior year. The increase in the current year was primarily driven by the progress we've made in converting our unbilled and trade receivables to cash.

Speaker Change: Unbilled receivables decreased sequentially approximately $21 million due in part to continued successful execution in billings across the program portfolio.

Speaker Change: Inventory decreased sequentially 8 million, primarily as a result of the increased throughput across a number of programs.

Speaker Change: Slide 13 presents Mercury's balance sheet for the last five quarters.

Speaker Change: We ended the fourth quarter with cash and cash equivalents of approximately $181 million after making a $25 million payment against our revolver.

Speaker Change: Notably while inventory decreased approximately $2 million year over year with is up approximately 44% from our prior fiscal year end, reflecting an increased mix of inventory that has progressed towards delivery.

Speaker Change: We have $592 million of funded debt under our revolver.

Speaker Change: Those receivables increased approximately $20 million sequentially due to the timing of invoicing collections in the quarter, and $10.5 million reduction to our receivables factoring in the period.

Speaker Change: Prepaid expenses and other current assets decreased sequentially approximately $26 million, primarily from the income tax refunds during the quarter of $24 million.

Speaker Change: Unbilled receivables decreased sequentially approximately 21 million due in part to continued successful execution and billings across the program portfolio.

Speaker Change: Accrued expenses increased during the fourth quarter, primarily due to $20 million of accrued compensation costs related to our incentive compensation plans and payroll expense.

Speaker Change: Inventory decreased sequentially 8 million primarily as a result of the increased throughput across a number of programs.

Speaker Change: Deferred revenues increased approximately $3 million in the quarter as a result of additional milestone billing events achieved during the fourth quarter.

Speaker Change: Notably, while inventory decreased approximately 2 million year-over-year, WIP is up approximately 44% from our prior fiscal year-end, reflecting an increased mix of inventory that has progressed toward delivery.

Speaker Change: Working capital decreased approximately $62 million or 10% in the fourth quarter, and approximately $93 million or 15% year over year.

Speaker Change: These decreases evidenced of the progress we've made in reversing the multiyear trend of growth in working capital with sequential reductions in inventory and Unbilled receivables.

Speaker Change: Prepaid expenses and other current assets decreased sequentially approximately $26 million primarily from the income tax refunds during the quarter of $24 million.

Speaker Change: Turning to cash flow on slide 14 free cash flow for the fourth quarter was $61 4 million as compared to $3 8 million in the prior year.

Speaker Change: Accrued expenses increased during the fourth quarter primarily due to $20 million of accrued compensation costs related to our incentive compensation plans and payroll expense.

Speaker Change: As Bill noted this marks the highest quarterly free cash flow in the company's history.

Speaker Change: Deferred revenues increased approximately 3 million in the quarter as a result of additional milestone building events achieved during the fourth quarter.

Speaker Change: As Bill had outlined in his earlier comments, we will not be providing detailed guidance for FY 'twenty five at this time, but I would point you to slide 10 for some qualitative comments.

Speaker Change: Working capital decreased approximately 62 million or 10 percent in the fourth quarter and approximately 93 million or 15 percent year-over-year.

Speaker Change: In closing, we believe continuing to execute on our four priority focus areas will not only enable a return to historical revenue growth and profitability, but will also drive further margin expansion and cash conversion demonstrating the long term value creation potential of our business with that I'll now turn the call.

Speaker Change: These decreases evidence the progress we've made in reversing the multi-year trend of growth in working capital, with sequential reductions in inventory and unbilled receivables.

Speaker Change: Turning to cash flow on slide 14. Free cash flow for the fourth quarter was $61.4 million as compared to $3.8 million in the prior year. As Bill noted, this marks the highest quarterly free cash flow in the company's history.

Bill: Back over to Bill.

Bill: Thanks, Dave with that operator. Please proceed with the Q&A.

Speaker Change: Thank you we will now begin the Q&A session. If you would like to ask a question. Please press star one on your telephone keypad, you raise your hand and join the queue and if you'd like to withdraw that question again press star one.

Speaker Change: As Bill had outlined in his earlier comments, we will not be providing detailed guidance for FY25 at this time, but I would point you to slide 10 for some qualitative comments.

Speaker Change: In closing, we believe continuing to execute on our four priority focus areas will not only enable a return to historical revenue growth and profitability,

Speaker Change: Also ask that you limit yourself to one question and for any additional questions. Please re queue.

Peks Skibinski: Your first question comes from the line of peaks Skibinski with Alembic Global. Please go ahead.

Speaker Change: but will also drive further margin expansion and cash conversion, demonstrating the long-term value creation potential of our business. With that, I'll now turn the call back over to Bill. Thanks, Dave. With that, Operator, please proceed with the Q&A.

Peaks Skibinski: Hey, good evening guys.

Peks Skibinski: Nice quarter.

Peks Skibinski: Okay.

Speaker Change: Maybe we could start off talking about the CPA area and the four challenged programs there.

Speaker Change: Seem pretty confident that it's going to.

Speaker Change: Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1.

Speaker Change: The full rate production I don't know if we should think at the end of the first quarter or the end of the second quarter, but.

Speaker Change: Maybe go into more detail about the reliability testing in and why you're confident that we'll complete and what it does complete or are those four programs not going to generate a meaningful amount of revenue. This year is that the.

Speaker Change: We also ask that you limit yourself to one question and for any additional questions, please recue Your first question comes from the line of Pete Skibinski with Olympic Global. Please go ahead

Speaker Change: A right way to think about it thanks.

Speaker Change: Yes, thanks, Pete So just to reiterate where we are.

Speaker Change: We've gone through root cause corrective action.

Pete Skibinski: Hey, good evening, guys.

Pete Skibinski: Nice quarter.

Speaker Change: Put in place the manufacturing process changes based on our understanding of the root cause and the material science have been very deliberate in ramping up the production line with a lot of in process testing, along the way and really pressure testing.

Pete Skibinski: Maybe we could start out talking about the CPA area and the four challenge programs there. You seem pretty confident that it's going to...

Speaker Change: shift to the foray production. I don't know if we should think the end of the first quarter or the end of the second quarter.

Speaker Change: But, you know, maybe you can go into more detail about the reliability testing and why you're confident that will complete. And when it does complete, are those four programs not going to generate a meaningful amount of revenue this year? Is that the right way to think about it?

Speaker Change: The corrective actions that we put in place.

Speaker Change: All of that has been going to plan.

Speaker Change: Feel really good about the progress to date and how things are progressing we have plans to ramp up to full rate production in the first half of the year and as I mentioned.

Speaker Change: Yeah, thanks Pete. So just to reiterate where we are, you know, we've gone through root cause corrective action.

Speaker Change: The critical path to ramping up is really behind us we have the capital equipment in place we have the additional people trained that we need in order to ramp up to full rate production. So I feel pretty confident about the path we're on.

Speaker Change: put in place the manufacturing process changes based on our understanding of the root cause and the material science.

Speaker Change: have been very deliberate in ramping up the production line with a lot of in-process testing along the way and really pressure testing the corrective actions that we put in place.

Speaker Change: Ramping up and so we have a backlog that we need to deliver on I think there is a.

Speaker Change: Combination of programs, where the majority of the record revenue has been recognized.

Speaker Change: All of that has been going to plan.

Speaker Change: And our backlog, where we will recognize revenue and we'll work out how we allocate the.

Speaker Change: So I feel really good about the progress to date and how things are progressing.

Speaker Change: We have plans to ramp up to full rate production in the first half of the year and as I mentioned You know the the critical path to ramping up is really behind us. We have the capital equipment in place

Speaker Change: The production across the capacity as we ramp that up and so that will play out over time as we work our way through the first half, but I'm I'm anticipating that as we work our way through the first half we will get up to full rate production will work through the unbilled and the backlog associated with those programs.

Speaker Change: We have the additional people trained that we need in order to ramp up to full rate production, so I feel pretty confident.

Speaker Change: We're holding the four programs open really through the ramp up of production, but as I said everything seems to be going to plan and then as we said before as we ramp this production up and we make progress on delivering to our customers. There are follow on opportunities.

Speaker Change: about the path we're on.

Speaker Change: to ramping up.

Speaker Change: And so we have a backlog that we need to deliver on.

Speaker Change: I think there is a combination of programs where the majority of the revenue has been recognized.

Speaker Change: and backlog where we will recognize revenue and we'll work out how we allocate the

Speaker Change: Is that we're expecting to see so.

Speaker Change: the production across the capacity as we ramp that up and so that will play out over time as we work our way through.

Speaker Change: I'm pretty optimistic about where we are right now.

Speaker Change: Very pleased with the progress that the team has made and look forward to working our way through the first half, which I think will give us much better visibility into the second half based on the progress so we actually make.

Speaker Change: The first half, but I'm anticipating that as we work our way through the first half, we will get up to full rate production. We'll work through the unbilled and the backlog associated with those programs.

Speaker Change: Hopefully that's helpful.

Speaker Change: We're holding the floor

Speaker Change: Your next question comes from the line of Jonathan Ho with William Blair. Please go ahead.

Speaker Change: programs open.

Speaker Change: really through the ramp of production, but as I said, everything seems to be

Jonathan Ho: Hi, Good afternoon, and let me Echo my congratulations on the strong quarter.

Speaker Change: Going to plan

Speaker Change: And then, as we said before, as we ramp this production up...

Jonathan Ho: Just wanted to understand when we look at your <unk>.

Speaker Change: and we make progress on delivering to our customers, there are follow-on opportunities that we're expecting to see. So.

Jonathan Ho: I guess, there isn't a formal guidance, but when we look at 20 to 25, what are the levers that could swing in your results either more positively or negatively as we book towards the future and it does seem like you have stronger visibility. So what is sort of maybe keeping you from getting back out giving that guidance. Thank you.

Speaker Change: I'm pretty optimistic about where we are right now. I feel very pleased with the progress that the team has made and look forward to working our way through the first half, which I think will give us much better visibility into the second half based on the progress that we actually make.

Speaker Change: Yes. So first let me just speak to the visibility you know a year ago, we were talking about the path toward our targeted profile and in particular our margin profile.

Speaker Change: Hopefully that's helpful.

Speaker Change: Your next question comes from the line of Jonathan Ho with William Blair. Please go ahead.

Jonathan Ho: And we had a number of factors that would bridge us from current level of performance to that targeted.

Jonathan Ho: Hi, good afternoon, and let me echo my congratulations on the strong quarter.

Jonathan Ho: Margin profile and it was things like first reducing the volatility that we had seen in the business is tied to <unk> inventory write downs contract matters.

Jonathan Ho: Just wanted to understand, you know, when we look at your, I guess there isn't formal guidance, but when we look at 2025, you know, what are the levers that could swing your results either more positively or negatively, you know, as we look towards the future? And it does seem like you have stronger visibility, so, you know, what is sort of, you know, maybe keeping you from giving that guidance? Thank you.

Jonathan Ho: RMA reserves et cetera.

Jonathan Ho: Second making progress on our cost structure, we built this business through 15 acquisitions over nine years, and so you know really needing to integrate the business and drive efficiency into our cost structure, we talked about a mix shift toward production and the margin uplift that would come with that and then the rest of the bridge.

Speaker Change: Yeah, so first let me just speak to the visibility. You know, a year ago we were talking about the path toward our targeted profile and in particular our margin profile.

Jonathan Ho: Toward our target margins was really around other efficiencies and operating leverage that we would see primarily driven by the volume increases associated with development programs transition into production over the next couple of years. So you fast forward to today and your comment on visibility.

Speaker Change: and we had a number of factors that would bridge us from current level of performance to that targeted

Speaker Change: margin profile and it was things like first reducing the volatility that we had seen in the business tied to EACs, inventory write-downs, contract matters.

Speaker Change: RMA reserves, etc. Second, making progress on our cost structure. We built this business through 15 acquisitions over nine years and so, you know, really needing to integrate the business and drive efficiency into our cost structure.

Jonathan Ho: Our backlogs at record high and that provides a certain level of visibility. We have also made great progress over the last 12 months and a couple of those areas in the bridge first reducing the volatility and you can clearly see the trends as we've worked our way through the year and then.

Speaker Change: We talked about a mixed shift toward production and the margin uplift that would come with that. And then the rest of the bridge toward our target margins was really around other efficiencies and operating leverage that we would see.

Jonathan Ho: How we were able to work our way and manage that volatility in Q4.

Jonathan Ho: We made very significant progress on our cost structure and driving efficiency through the cost structure and you saw the progression through the year and the run rate savings that we've talked through.

Speaker Change: primarily driven by the volume increases associated with development programs transitioning to production over the next couple of years.

Jonathan Ho: So now as we think about going forward the things that I'm, keeping an eye on that will really dictate the speed to which we move towards our target profile that's above.

Speaker Change: So you fast forward to today and your comment on visibility. Our backlog is at a record high and that provides a certain level of visibility. We've also made great progress over the last 12 months in a couple of those areas in the bridge.

Jonathan Ho: Industry growth rates.

Jonathan Ho: EBITDA margins in the low to mid Twenty's and its free cash flow conversion.

Speaker Change: first in reducing the volatility, and you can clearly see the trends as we've worked our way through the year, and then how we were able to work our way and manage that volatility in Q4.

Jonathan Ho: At 50%, so the speed with which we will move towards that targeted profile will be dictated by some things that happen in 'twenty five and some things that happen outside of <unk> 25 in 25 in the first half we're focused on development program execution, because that really drives how quickly production programs will ramp up.

Speaker Change: We made very significant progress on our cost structure and driving efficiency through the cost structure, and you saw the progression through the year and the run rate savings that we've talked through.

Jonathan Ho: In particular, the ramp up of our common processing architecture, because as I just mentioned, there's unbilled and cash there's revenue tied to backlog and then there are follow on production awards that will come with that.

Speaker Change: So now as we think about

Speaker Change: going forward, the things that I'm keeping an eye on that will really dictate the speed to which we move towards our target profile. That's above industry growth rates.

Speaker Change: It's EBITDA margins in the low to mid-20s and it's free cash flow conversion.

Jonathan Ho: And then we have other follow on production.

Jonathan Ho: <unk> tied to two development programs that we've been executing on we've recently completed and we plan to complete.

Speaker Change: at 50%.

Speaker Change: So the speed with which we'll move toward that targeted profile will be dictated by some things that happen in 25 and some things that happen outside of 25.

Jonathan Ho: And then we also have our operational capacity, which as we said in our prepared remarks in the near term, we're allocating the programs with high Unbilled balances, which will free up a lot of cash, but there won't be much revenue associated with that.

Speaker Change: In 25, in the first half, you know, we're focused on development program execution because that really drives how quickly production programs will ramp up.

Speaker Change: In particular, the ramp-up of our common processing architecture, because as I just mentioned, there's unbilled and cash, there's revenue tied to backlog, and then there are follow-on production awards that will come with that.

Jonathan Ho: So that's what our qualitative commentary is all based on so to your question of what would lead things to impact our financials faster I.

Jonathan Ho: I think it would be our completion of development programs the success and the ramp up of our common processing architecture production line how.

Speaker Change: And then we have other follow-on production bookings tied to development programs that we've been executing on, we've recently completed, and we plan to complete.

Jonathan Ho: How fast are development programs are transitioning to production and when we see those production bookings and how quickly we're able to burn down the unbilled balances. So we can free up the operational capacity and put it back toward backlog with revenue. So those are the factors those are the things that we're focused on.

Speaker Change: And then we also have our operational capacity, which, as we said in our prepared remarks, in the near term, we're allocating to programs with high unbilled balances, which will free up a lot of cash, but there won't be much revenue associated with that.

Jonathan Ho: And and my expectation is as we work our way through the first half of the year, we'll get really good insight obviously into our progress in each of those areas, but then the implications on our outlook for the second half of the year and our full year. So those are the things that we're thinking about what I think we can point to as to what will.

Speaker Change: So that's what our, you know, qualitative commentary is all based on. So to your question of you know, what would

Speaker Change: lead things to impact our financials faster. I think it would be our completion of development programs, the success in the ramp-up of our common processing architecture production line,

Jonathan Ho: Drive the second half and whether things happen quicker or not so I know Jonathan a long answer to your question, but hopefully that rounds out the picture.

Speaker Change: how fast our development programs are transitioning to production and when we see those production bookings and how quickly we're able to burn down the unbilled balances so we can free up the operational capacity and put it back toward backlog with revenue. So those are the factors, those are the things that we're focused on.

Speaker Change: Your next question comes from the line of Ken Herbert with RBC capital markets. Please go ahead.

Speaker Change: Yeah.

Ken Herbert: Yes, Hey, good afternoon, thanks for taking the question.

Speaker Change: And my expectation is, as we work our way through the first half of the year, we'll get really good insight, obviously, into our progress.

Ken Herbert: I just wanted to ask as you look at the sort of a push towards continued risk reduction and getting obviously the 2080 split you talked about in terms of development and production programs.

Speaker Change: in each of those areas, but then the implications on our outlook for the second half of the year and the full year. So those are the things that we're thinking about and what I think we can point to as to what will drive the second half and whether things, you know, happen quicker or not.

Speaker Change: Do you expect to sort of cross the threshold and then as part of that they're.

Ken Herbert: There seems to be significant sort of new business opportunities today, just when you look at the growth in.

Speaker Change: So, I know Jonathan, a long answer to your question, but hopefully that rounds out the picture.

Speaker Change: Sort of spending in all these today and a lot of what's happening in defense markets around missile missile defense and other areas. What is your appetite for sort of new business. These days are you able to participate in.

Speaker Change: Your next question comes from the line of Ken Herbert with RBC Capital Markets. Please go ahead.

Ken Herbert: Yeah, hey, good afternoon. Thanks for taking the question. I just wanted to ask, as you look at the

Speaker Change: Some of the sort of some of the opportunities today as you continue to drive down the risk profile.

Speaker Change: Yeah, Ken Great question. Thanks. Thanks for the question look I think we feel very good about the market the tailings are positioning.

Ken Herbert: sort of the push towards, you know, continued risk reduction and getting obviously to the 20-80 split, you know, you talked about in terms of development production programs.

Ken Herbert: When do you expect to sort of cross that threshold and then as part of that

Speaker Change: And I think that's evidenced by what we're seeing in our bookings at one point to two for the year our book to Bill.

Speaker Change: There seems to be, you know, significant sort of new business opportunities today just when you look at the growth in

Speaker Change: And our record backlog.

Speaker Change: Well, we've been really focused on based on what we've seen in the business over the last several quarters is managing the volatility in the business and specifically what we bring into the backlog so.

Speaker Change: in sort of spending and outlays today and a lot of what's happening in defense markets around.

Speaker Change: Missile, Missile Defense, and other areas.

Speaker Change: What is your appetite for sort of new business these days and are you able to participate in some of the sort of some of the opportunities today as you continue to drive down the risk profile?

Speaker Change: This last year in FY 'twenty four we brought in a number of development programs, but many of them were cost plus in nature, which we think is much more aligned toward.

Speaker Change: Yeah, Ken, great question. Thanks for the question.

Speaker Change: Well, look, I think we feel very good about the market, the tailwinds, our positioning, and I think that's evidenced by what we're seeing in our bookings at, you know, 1.22 for the year, our book-to-bill, and our record backlog.

Speaker Change: US working on next generation products, introducing innovation getting new platform positions, but having a set of contract terms that are more commensurate with the risk than what we've seen looking backwards, where we felt like we had a high concentration of firm fixed price development programs.

Speaker Change: David Farnsworth, David Farnsworth,

Speaker Change: What we've been really focused on based on what we've seen in the business over the last several quarters is managing the volatility in the business and specifically what we bring into the backlog.

Speaker Change: So we feel like we're striking the right balance pursuing new opportunities take advantage of the opportunities in the market and our positioning but doing it in a much more.

Speaker Change: This last year in FY24, we brought in a number of development programs.

Speaker Change: Appropriately risk adjusted manner with the cost plus nature of the contracts.

Speaker Change: But many of them were cost-plus in nature, which we think is much more aligned toward

Speaker Change: He knows aside getting to your mix question when we look at our firm fixed price bookings over the last year, we've seen about 80% of our firm fixed price bookings as production bookings versus development. So I think that's a leading indicator of the mix shift moving in the right direction.

Speaker Change: us working on

Speaker Change: next-generation products, introducing innovation, getting new platform positions, but having a set of contract terms that are more commensurate with the risk than what we've seen looking backwards where we felt like we had a high concentration of firm fixed price development programs.

Speaker Change: And then in addition to that over the next 12 months in such a high percentage of our backlog converts to revenue over a 12 month period, the margin dynamic that I referred to where our margin today and our backlog is slightly lower than what we would expect to see going forward driven by a small number of legacy development program.

Speaker Change: So, we feel like we're striking the right balance of pursuing new opportunities, taking advantage of the opportunities in the market and our positioning, but doing it in a much more

Speaker Change: appropriately risk-adjusted manner with the cost-plus nature of the contracts.

Speaker Change: They were either impacted by eac's or have very low margin or where we're investing because we think the.

Speaker Change: Pulling those aside, getting to your next question.

Speaker Change: When we look at our firm fixed price bookings over the last year, we've seen about 80% of our firm fixed price bookings as production bookings versus development. So I think that's a leading indicator of the mix shift moving in the right direction.

Speaker Change: The return warrants the investment I think that should all transition over the next year and be replaced by higher margin bookings and we already started to see that in FY 'twenty four.

Speaker Change: And so have a good feel there will be transitioning that backlog margin out over the next 12 months and see the improvements that we expect to see so anyways I think that transitioning to the mix should should continue to happen over the next 12 months and we don't think that we're.

Speaker Change: In addition to that, over the next 12 months, since such a high percentage of our backlog converts to revenue over a 12-month period,

Speaker Change: The margin dynamic that I referred to where our margin today in our backlog is slightly lower than what we would expect to see going forward, driven by a small number of legacy development programs that were either impacted by EACs or have very low margin or where we're investing because we think the

Speaker Change: Passing on any market opportunities because of some new approach to risk. We think we are pursuing those opportunities, but with the right contract terms around them.

Michael <unk>: Your next question comes from the line of Michael <unk> with the Truest Securities. Please go ahead.

Speaker Change: you know, the return warrants the investment.

Speaker Change: I think that should all transition over the next year and be replaced by higher margin bookings, and we already started to see that.

Speaker Change: Okay.

Speaker Change: in FY24, and so have a good feel that we'll be transitioning that backlog margin out over the next 12 months and see the improvements that we expect to see.

Speaker Change: Michael Please press star one again.

Speaker Change: So, anyways, I think that transitioning to the mix should continue to happen over the next 12 months, and we don't think that we're, you know, passing on any market opportunities because of some new approach to risk. We think we're pursuing those opportunities, but with the right contract terms around them.

Michael <unk>: Sorry can you guys hear me.

Michael <unk>: Oh, Yes, now we can hear you Michael Michael sorry about that sorry about that guys.

Speaker Change: Just first a.

Arthur: Clarification Arthur.

Speaker Change: Related programs are they going to be margin dilutive relative to normal historical fixed price.

Speaker Change: Programs once they do or relative to <unk>.

Speaker Change: Your next question comes from the line of Michael Ciaramoli with Truist Securities. Please go ahead.

Speaker Change: Production programs when they when they ramp up.

Speaker Change: I don't think so at all.

Speaker Change: Okay first of all there is nothing around the root cause corrective action that would.

Speaker Change: William Farnsworth, William Ballhaus

Speaker Change: Michael, please press star 1 again.

Speaker Change: Even incrementally affect our gross margin on those programs and I think this is an area where there is strong demand there is tailwind in the market, we have differentiation and really a unique capability to meet very stringent emission requirements that if anything I could see the Apis.

Speaker Change: William Farnsworth, William Ballhaus

Speaker Change: William Farnsworth, William Ballhaus

Speaker Change: William Farnsworth, William Ballhaus

Speaker Change: Sorry, can you guys hear me?

William Farnsworth: Oh yeah, now we can hear you. How's it going, Michael? Sorry about that. Good, good. Sorry about that, guys. Just first, a clarification.

Speaker Change: are the CPA related programs, are they going to be margin dilutive relative to normal historical fixed price programs once they do or relative to production programs when they ramp up?

Speaker Change: CIT effect and actually.

Speaker Change: Dean.

Speaker Change: Additive so no no concerns about them being dilutive to our margins.

Your next question comes from the line of Sheila <unk> with Jefferies. Please go ahead.

Speaker Change: I don't think so at all. I mean there's first of all there's nothing around the root cause corrective action that would

Sheila: Thank you guys, maybe just on that last point with EBITDA margins. They were better in Q4, but then step down just given the backlog dynamics <unk> talked about.

Speaker Change: Even incrementally affect our gross margin on those programs

Speaker Change: No.

Speaker Change: That just timing and we should expect low double digits to be said that the normalized level in 'twenty five and stepping up in 2006.

Speaker Change: And I think this is an area where there's strong demand, there's tailwinds in the market, we have differentiation and really a unique capability to meet.

Speaker Change: Well I think there's I think there's two impacts and I'll start and then Dave can Dave can chime in but I think the two impacts are both the the backlog margin dynamic that I pointed to and then just volume and so we're expecting to start off the first half of the year and high single digits, but as we.

Speaker Change: very stringent mission requirements that, if anything, I could see the opposite effect in actually being additive. So no concerns about them being diluted to our margins.

Speaker Change: Your next question comes from the line of Ashila Kaheglu with Jefferies. Please go ahead.

Speaker Change: Move to the back half of the year and we see the margin transition in the backlog and we also see the additional volume in this in the second half we expect to see an improvement in our margins tied to those effects of the transition to the backlog and the positive operating leverage but Dave Please add if there's no.

Ashila Kaheglu: Thank you guys. Maybe just on that last point, with EBITDA margins, they were better in Q4 but then stepped down just given the backlog dynamics you both talked about.

Speaker Change: So is that just timing and we should expect low double digits to be sort of the normalized level in 25 and stepping up in 26?

Sheila: That's right Sheila.

Dave Firms: It is.

Speaker Change: Well, I think there's I think there's two impacts and I'll start and then Dave can Dave can chime in but I think the two impacts are both the backlog margin dynamic that I pointed to and then just volume and so you know, we're expecting to start off the first half of the year in high single digits and

Dave Firms: Largely driven by the margin in the backlog.

Dave Firms: And so we expect that to increase as we go through the year and we're replacing new bookings for things that we're burning out of backlog and as we complete some of the contracts that we have some tail winds on.

Dave: But as we move to the back half of the year and we see the margin transition in the backlog And we also see the additional volume in this in the second half

Dave Firms: From the prior Eac's, but then it is the other side of it is exactly what Bill said, we've been a business that largely in the first half of the year has lower volume and then ramps up in the second half of the year and you saw that you saw that again in the in the fourth quarter and so that volume moved out.

Dave: We expect to see an improvement in our margins.

Dave: and the positive operating leverage. But Dave, please add if there's... Yeah, no, I think that's right, Sheila. I mean, it is...

Dave Firms: And really drive improved operating leverage and higher EBITDA in the back half of the year.

Speaker Change: William Farnsworth, William Ballhaus

Speaker Change: Your next question comes from the line of Jan of France, any fresh with Baird. Please go ahead.

Speaker Change: Hi, Good evening, Bill and Dave Congrats on solid results.

Dave: and as we complete some of the contracts that we have some tailwinds on.

Peter: Well Peter today.

Speaker Change: My first question.

Dave: You know from the prior EACs, but then it is the other side of it is exactly what Bill said You know, we've been a business that largely in the first half of the year has lower volume

A big focus in fiscal year 'twenty for focusing on retiring the technical risk.

Speaker Change: Outside of the carbon pricing architecture.

Speaker Change: We're very much on track with your prior messaging having so.

Bill: and then ramps up in the second half of the year, and you saw that again in the fourth quarter. And so that volume will definitely drive improved operating leverage and higher EBITDA in the back half of the year.

Speaker Change: 13 of these.

Speaker Change: There anything that youre tracking and Jamie in terms of Unbilled receivables there any metrical ratio that you wanted to achieve in fiscal year 2025 that we can sort of.

Jamie: Track over the next few quarters as you report.

Speaker Change: Your next question comes from the line of Jan Franz Ingebrigtsch with Baird. Please go ahead.

Jamie: Well.

Speaker Change: Look I think the API is are really consistent with driving toward that target profile that we've been very consistent in describing and thats above.

Speaker Change: Good evening Bill and Dave, congrats on the Senate results. I'm on for Peter today. My first question...

Speaker Change: Industry growth rates for the top line.

Speaker Change: You know, a big focus in fiscal year 24 was focusing on retiring the technical risk.

Speaker Change: EBITDA margins in the low to mid twenties and free cash flow conversion at 50%.

Speaker Change: Outside of the common processing architecture, you're very much on track with your prior messaging having solved.

Speaker Change: And addressing the transient primary transient challenges that we've seen in the business, which has a high mix of development programs and high working capital FY 'twenty four we made significant progress on the development programs and mitigating technical risk.

Speaker Change: 13 of these. But is there anything that you're tracking internally in terms of unbilled receivables or any metric or ratio that you want to achieve in fiscal year 2025 that we can sort of track over the next few quarters as you report?

Speaker Change: We also made considerable progress on the working capital and Thats. The Kpis that we continue to be focused on and expect to see that continue to come down in FY 'twenty five.

Speaker Change: Well, look, I think the KPIs are really consistent with driving toward the target profile that we've been very consistent in describing, and that's above industry growth rates for the top line.

Speaker Change: And also in FY 'twenty five see a step up in those kpis associated with our targeted profile. So a step up in our top line growth rate step up in our margins and again being free cash flow positive for the year. So I think it's just a continuation of the of the Kpis that you've heard us talk about for the <unk>.

Speaker Change: EBITDA margins in the low to mid-20s and free cash flow conversion of 50%.

Speaker Change: and I'm going to show you how to do this.

Speaker Change: and addressing the two primary transient challenges that we've seen in the business, which is a high mix of development programs and high working capital. FY24, we made significant progress on the development programs and mitigating technical risk.

Speaker Change: Last year, and certainly our focus for the last year and the four priorities that we put in place just over a year ago.

Speaker Change: Your next question comes from the line of Pete Skibinski with Alembic Global. Please go ahead.

Speaker Change: We also made considerable progress on the working capital, and that's a KPI that we continue to be focused on and expect to see that continue to come down in FY25.

Pete Skibinski: Yes, thanks, guys.

Pete Skibinski: Just wanted to understand something L. Tim.

Pete Skibinski: It's a big program opportunity for you I know and I just wanted to understand more on that front.

Speaker Change: and also in FY25 see a step-up.

Speaker Change: in those KPIs associated with our targeted profile. So, step up in our top-line growth rate, step up in our margins.

Pete Skibinski: Is it one of the CPA programs and I ask because I think Raytheon got a very large I think it's sort of an L. Rip order and so I would expect you guys to receive an order from them at some point I guess relatively soon and so we're just wondering if you could give some color on that for us if it's if it's one of the remaining issue program.

Speaker Change: and again being free cash flow positive for the year. So I think it's just a continuation of the KPIs that you've heard us talk about for the last year and certainly our focus for the last year and the four priorities that we put in place just over a year ago.

Speaker Change: And whether or not it is should we expect a large booking later this year related to that.

Speaker Change: Your next question comes from the line of Pete Skibinski with Olympic Global. Please go ahead.

Speaker Change: Yeah, Thanks, Pete and I'm sure you've seen the recent announcement from Raytheon about their funding and I won't comment on that.

Pete Skibinski: Yeah, thanks guys.

Pete Skibinski: Just want to understand something, because LTAMS, it's a big program opportunity for you, I know.

Speaker Change: But which we think is good news to answer your question directly it is not one of our challenge programs and it is separate from the six that I addressed the two that I think are just ordinary course risk and then the four that are tied to the CPA and it is a program where it represents a successor.

Pete Skibinski: and I just want to understand more on that front.

Pete Skibinski: Is it one of the four CPA programs, and I ask because I think Raytheon got a very large, I think it's sort of an LRIP order, and so I would expect you guys to receive an order from them at some point, I guess relatively soon.

Speaker Change: and so we're just wondering if you could give some color on that for us, if it's one of the remaining issue programs and whether or not it is, should we expect a large booking later this year related to that?

Speaker Change: We compete completing development program and then in FY 'twenty for getting a production award I also think it reflects our disciplined approach to execution and how we're approaching that program.

Speaker Change: Yeah, yeah, thanks Pete and I'm sure you've seen the recent announcement from Raytheon about their funding and I won't comment

Speaker Change: Meaning.

Speaker Change: Strong program management system engineering upfront being very disciplined in how we order material in stage it.

Speaker Change: on that, which we think is good news. To answer your question directly, it is not one of our challenge programs, and it is separate from the six that I addressed, the two that I think are just ordinary course risk, and then the four that are tied to the CPA.

Speaker Change: Consistent with our integrated master schedule and are executing on that program in a very deliberate manner right now so.

Speaker Change: and it is a program where it represents us successfully completing a development program.

Speaker Change: It's one of the programs we feel very good about we talked about in the past that we do expect that to be a driver of organic growth going forward and our expectations remain the same on that front.

Speaker Change: and then in FY 24, getting a production award. I also think it reflects our disciplined approach to execution and how we're approaching that program.

Speaker Change: Your next question comes from the line of Michael <unk> with <unk> Securities. Please go ahead.

Speaker Change: meaning

Speaker Change: Hey, guys. Thanks for taking the follow up I guess.

Speaker Change: Strong program management, system engineering up front, being very disciplined in how we order material and stage it.

Speaker Change: <unk>.

Speaker Change: You touted.

Speaker Change: The book to Bill being strong bookings are down two years in a row I mean are you.

Speaker Change: consistent with our integrated master schedule.

Speaker Change: Guys, losing share and can you talk can you talk to that and talk to whether or not the core underlying business is actually showing growth.

Speaker Change: and are executing on that program in a very deliberate manner right now. So, it's one of the programs we feel very good about. We talked about in the past that we do expect that to be a driver of organic growth going forward and our expectations remain the same on that front.

Speaker Change: I'd say, the one dynamic that we've seen relative to.

Speaker Change: Bookings in FY 'twenty four is that some of the challenges that we've had on development programs have led to delays.

Speaker Change: Your next question comes from the line of Michael Ciaramoli with Truist Securities. Please go ahead.

Speaker Change: Delays in bookings I wouldn't characterize them as loss bookings and I think a great example of that.

Michael Ciaramoli: Hey, guys, thanks for taking the follow-up. I guess, Bill...

Speaker Change: Follow on orders associated with our common processing architecture, where we deliberately stood down the line. So that we can put in place. The corrective actions were ramping it up and we expect to see follow on orders coming as we make deliveries to our customers and when I think about our pipeline.

Michael Ciaramoli: You know, you touted the book to bill, you know, being strong, you know, bookings are down two years in a row. I mean, are you guys losing share? And can you talk, can you talk to that and talk to whether or not the core underlying business is actually showing growth?

Speaker Change: Our conversion our conversion rates.

Speaker Change: I, you know, I'd say the one dynamic that we've seen relative to

Speaker Change: Don't see anything in our conversion that gives me concerns around.

Speaker Change: to bookings in FY24 is that some of the challenges that we've had on development programs have led to delays in bookings. I wouldn't characterize them as lost bookings, and I think a great example of that is

Competitive dynamics and losing market share so.

Speaker Change: We feel good about our book to Bill given where we are I think thats, a good leading indicator of where we're headed and if anything we've just seen some delays rather than losses tied to the development programs.

Speaker Change: are follow-on orders associated with our common processing architecture where we deliberately, you know, stood down the line so that we can put in place the corrective actions. We're ramping it up and we expect to see follow-on orders coming as we make deliveries to our customers.

Speaker Change: Your next question comes from the line of Noah <unk> with Goldman Sachs. Please go ahead.

Speaker Change: Yeah.

Speaker Change: Hey, everyone.

Speaker Change: Okay.

Speaker Change: And when I think about our pipeline, our conversion, our conversion rates...

Speaker Change: Thanks for the time.

Speaker Change: You referenced I think you referenced a few years.

Speaker Change: I don't see anything in our conversion that gives me concerns around

Speaker Change: The transition from development to production.

Speaker Change: competitive dynamics and losing market share so

Speaker Change: And the main programs that you're alluding to and that mixed transition.

Speaker Change: We feel good about our book to build given where we are. I think that's a good leading indicator of

Speaker Change: So is your fiscal 'twenty six look like.

Speaker Change: of where we're headed. And if anything, we've just seen some delays rather than losses tied to the development programs.

Liam term profile that you're referencing or should we be thinking of.

Speaker Change: More than just fiscal 'twenty five.

Speaker Change: I was kind of transition years.

Speaker Change: Your next question comes from the line of Noah Popenek with Goldman Sachs. Please go ahead.

Speaker Change: At that run rate profile and when do you when do you next to expect the business to have.

Noah Popenek: Hey, everyone.

Speaker Change: Positive GAAP net income on a full year basis.

Speaker Change: Oh may not.

Noah Popenek: Thanks for the time. I think you referenced a few years of transition from development to production in the main programs that you're alluding to in that mixed transition.

Speaker Change: I'll, let Dave take the last one.

Speaker Change: Yeah.

Dave Firms: Let's see on the on the transition.

Speaker Change: I think about again the bridge from where we are toward our target profile.

Speaker Change: Really the with the progress that we made in FY 'twenty four there are two pieces of the bridge that I'm. Most focused on one is the transition out of backlog of the remaining low margin development programs and the programs that have been impacted by the.

Speaker Change: Does your fiscal 26 look like the medium-term profile that you're referencing?

Speaker Change: Or should we be thinking of more than just fiscal 25 as kind of transition years to that run rate profile? And when do you next expect the business to have positive gap net income on a full year basis?

Speaker Change: The FY 'twenty four eac's, that's going to give us a step up towards our targeted EBITDA margins. The rest of this step primarily is going to come from the volume lift that we'll see from development programs that we have in house that we've executed on where.

Speaker Change: I'll let Dave take the last one.

Dave: On the transition, you know, as I think about, again, the bridge from where we are toward our target profile

We're awaiting the transition or working through the transition to production now there's a number of those programs, it's not one or two its a number of them and they each have their own profile.

Dave: Really, with the progress that we made in FY24, there are two pieces of the bridge that I'm most focused on.

Speaker Change: But to roll forward into revenue, but as I think about our organic growth over the next couple of years, it's going to be primarily driven by those development programs and their transition to production and they happen on different timelines, we talked about <unk> as more near term, but we have a number of other programs that will be further.

Dave: One is the transition out of backlog of the remaining low-margin development programs and the programs that have been impacted by the FY 24 EACs. That's going to give us a step up towards our targeted EBITDA margins.

Dave: The rest of this step primarily is going to come from the volume lift.

Speaker Change: Bring in as we exit 'twenty five as we work our way through 'twenty six.

Dave: that we'll see from development programs that we have in-house, that we've executed on, where we're awaiting the transition or working through the transition to production. Now, there's a number of those programs. It's not one or two, it's a number of them, and they each have their own profile.

Speaker Change: At full run rate benefit of those programs in the back half of 'twenty six 'twenty seven so there's a number of different programs, but as I think about our organic growth for the next couple of years I think we have good line of sight tied to the development programs that we've won executed on and are working our way through the transition from development to production.

Dave: but as to roll forward into revenue.

Dave: But as I think about our organic growth over the next couple of years, it's going to be primarily driven by those development programs and their transition to production, and they happen on different timelines. We talked about LTAMs,

Speaker Change: Yeah.

Speaker Change: Yes, and I think.

Speaker Change: I would point back to Bill's comments.

Speaker Change: Around the color, we're putting around FY 'twenty five.

Dave: as more near-term, but we have a number of other programs that we'll be feathering in as we exit 25, as we work our way through 26.

Bill: That's that we I'd point back to our adjusted EBITDA margins that we expect which is low double digit adjusted margins overall in fiscal 'twenty five.

Dave: and get full run rate benefit of those programs in the back half of 26 and 27. So there's a number of different programs, but as I think about our organic growth for the next couple of years, I think we have a good line of sight.

Speaker Change: Mr Ball House. It appears there are no further questions. Therefore, I would like to turn the call back over to you for any closing remarks.

Dave: tied to the development programs that we've, one, executed on and are working our way through the transition from development to production.

Speaker Change: Okay. Thanks, Thank you operator, and thanks, everyone for your interest and participation today, and we look forward to providing another update on Q1 FY 'twenty five in our next earnings call. Thanks very much. Thank you.

Bill: Yeah, and I think I would point back to, you know, Bill's comments and around the color we're putting around FY25, and that's that we, you know, I point back to our adjusted EBITDA margins that we expect, which is low double-digit adjusted margins overall in fiscal 25.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Bill: Mr. Ballhaus, it appears there are no further questions. Therefore, I would like to turn the call back over to you for any closing remarks.

Mr. Ballhaus: Okay, thanks. Thank you operator and thanks everyone for your interest and participation today and we look forward to providing another update on Q1 FY 25 in our next earnings call. Thanks very much. Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: William Farnsworth, William Ballhaus William Farnsworth, William Ballhaus

Speaker Change: William Farnsworth, William Ballhaus William Farnsworth, William Ballhaus