Good afternoon, and thank you for joining us. With me today is our Chairman and Chief Executive Officer, Bill Ballhaus. If you've not received a copy of the earnings press release we issued earlier this afternoon, you can find it on our website at mrcy.com. 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. Turning to Slide 2 in the presentation, I'd 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 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 2, in the earnings press release and the risk factors included in Mercury's SEC filings. 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, free cash flow, organic revenue and acquired revenue. A reconciliation of these non-GAAP metrics is included as an appendix to today's slide presentation and in the earnings press release. I'll now turn the call over to Mercury's Chairman and CEO, Bill Ballhaus, please turn to Slide 3.

Thanks, Dave. Good afternoon. Thank you for joining our Q3 FY '24 earnings call. Today, I'd like to talk through three topics. First, some introductory comments on our business and results. Second, an update on the progress we are making in each of our four priority areas: delivering predictable performance, building a thriving growth engine, expanding margins and driving improved free cash flow. And third, expectations for our performance both for the balance of FY '24 and longer term. Then I'll turn it over to Dave, who will walk through our financial results and guidance. 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 at the edge. Please turn to Slide 4. As I've said in the past, while we believe FY '24 is a transitional year, I'm optimistic about our strategic positioning as a leader in mission-critical processing at the edge and our ability to deliver predictable organic growth with expanding margins and robust free cash flow. Our Q3 results similar to Q1 and Q2 reflect progress we are making in addressing what we believe to be transitory challenges associated with a multiyear increase of working capital and a high mix of firm fixed price development programs. We are executing on and transitioning these programs towards low and then full rate production and expect them to be a driver of our near- and medium-term organic growth. Additionally, in Q2, we paused the transition of our common processing architecture toward full rate production in order to retire risk and validate a highly producible, scalable design. This pause in production activity, combined with the investments we are making in this technology…

Thank you, Bill. I'll start with our third quarter fiscal '24 results and then move to our Q4 and fiscal '24 outlook. As expected, our financial performance in the third quarter was below that of the prior year across all P&L metrics. As discussed in our prior earnings calls, we believe that fiscal '24 is a transition year. Where the organization is seeking to execute on both our challenged and development programs and then progress toward the follow-on production awards. Through that transition, we expect to recognize the small proportion of remaining revenues on the challenged program contracts, but more importantly, we expect to move towards releasing significant working capital balances especially related to unbilled receivables. We then anticipate shifting our resources to execute on the follow-on production awards, which we believe will begin to rebalance our program portfolio more heavily toward higher margin predictable production programs as well as consume existing inventories. We continue to expect this transition to occur in Q4 and into fiscal '25. In Q3, as Bill discussed, we made progress towards this rebalance with a continued focus on our four priorities. We made progress completing exiting our otherwise retiring risk on our challenge programs, we expanded our record backlog to nearly $1.3 billion, we further reduced our cost structure to drive margin expansion, and we continue to work towards reversing the multiyear trend in working capital growth. With that, please turn to Slide 11, which details the Q3 results. Our bookings for the quarter were $220 million with a book-to-bill of 1.06 million yielding backlog of $1.3 billion, up over $190 million or 17% year-over-year and $12 million or 1% sequentially. As Bill discussed, we feel good about the mix in our backlog with approximately 80% of our firm fixed price bookings this year being…

Thanks, Dave. With that, operator, please proceed with the Q&A.

[Operator Instructions]. We'll take the first question from Pete Skibitski, Alembic Global.

So, I guess if all goes well, you're going to be at four challenged programs remaining as you head into fiscal '25. I'm wondering how deep do you think you have to go in fiscal '25 to retire the remaining risk on those programs? I just -- I guess I'm trying to get a sense of, assuming they're all common processing architecture related I'm trying to get a feel for how much technical risk remains on those programs?

Yes. Pete, thanks for the question. It's Bill. I'll take that. You're right that our expectation is as we get to the end of this year, we'll have four challenge programs left. They're all related to this common processing architecture that you've heard us talk about. Where we are with respect to the common processing architecture is we believe that we've gotten to root cause. In understanding what was keeping us from getting to a very specific physical integrity that we need to get to in order for our technology to work as intended. And it's based on our understanding of the material science. And based on that understanding of the material science, we've been able to implement a change in the manufacturing process that allows us to get to the physical integrity that we need. Now we're ramping up production. We've moved to initial production after we've done a ton of testing, a lot of analysis, seen our analysis and the empirical data all match up. So in the fourth quarter, we've done initial builds. We are currently in -- what we're calling pilot production, which will go through the end of the fourth quarter. And as we exit the fourth quarter, we expect to have pretty solid validation of our corrective action, which will then give us the ability and the indications that we need in order to ramp up to full scale production. So I would expect that as we're exiting the fourth quarter moving into the first quarter of FY '25, we should have the validation that we need to make that assessment.

Okay. Okay. So at some point in the first quarter, you'll have a sense whether you can ramp into full production on those programs. Is that a good way to think about it?

Correct. And really, this is all about getting to a sample size that we think is statistically significant. I mean the units that we've built, all the testing that we've done during the quarter all indicate that the corrective action we put in place gets us to where we need to be from a physical integrity standpoint. We want to see that over a much larger sample size to increase our confidence in the corrective action.

Okay. I think I got it. Just one follow-up for me. As you guys thinking about kind of going forward in the '25 and '26, how are you thinking about on ramping new development programs, right, just given -- we've heard about the challenged programs, but I also feel like maybe there's some other development programs that have had some issues, but aren't part of the challenge programs. So how are you thinking about taking on new development programs? And how should we think about the technical risk associated with that going forward?

Yes. It's a great question. And you've heard us talk in the past about our historical mix being around 20%, 80% development to production. We've recently been in this dense space of 40% development, 60% in production. Our goal over time, at least in order to hit our targeted EBITDA margins that we've talked about in prior calls is to see that mix move back towards 20/80. But the mix isn't the only driver. The makeup of the development programs is a big driver. So for instance, the challenge programs that you've heard us talk about, they're all firm fixed price development. While we won some large development awards this year that we feel great about that are cost plus. And so the risk profile on those is very different than firm fixed price development. If you look at our bookings so far this year, we feel like the makeup of those bookings are taking us toward that target of 80/20 and specifically of our firm fixed price bookings this year, 80% are production and 20% are development. And then one other thing I'd point you to is, the level of rigor that we are putting into our bid and proposal activities. And then our program baseline activities once we win a contract and implement it is much more mature than it has been historically. And I think one piece of evidence of that is one of our largest development contracts the integrated baseline review that we went through this quarter and received very good grades from our customer and the highest incentive fee that we could earn on our program is a good indication of the maturing of not only our bidding, but also our program baselining activities.

We'll take the next question from Sheila Kahyaoglu, Jefferies.

Just wanted to maybe ask on the top line. With one quarter left to go, you guys do have a wide range in the fourth quarter. Backlog and book-to-bill is starting to turn. But how do we think about that wide range and your visibility into fiscal '25? Any indications you could provide on that front, especially given a fairly easy comp this year? And production mix being 80% of bookings.

Yes, Sheila, this is Dave. I would say the first part of the question, yes, it is a wide range as we approach Q4. And there's -- when you look at the midpoint of the range, we feel that's the right midpoint of the range. As we think towards -- additional -- could there be additional cost actions that happen between now and the end of the year. And that's what gives us confidence in the lower end of the range. And on the upper end of the range, it really is about timing. And are there -- largely, for us, at this stage, it would be material that staged for the very end of the year. And if it comes in the very end of the year versus the beginning of fiscal '25 would be the difference. So those are really the drivers. We're not at a point where we're thinking about guidance today for FY '25. So we're not putting anything ahead of us right now.

Okay. And then maybe on free cash flow usage, if you could just talk about that a little bit. It would be [the] $26 million in the quarter compared to your comments last time about being close to breakeven. So maybe you talked about working capital improvement. If you could just give us a little bit more detail there as we think about the improvement into fiscal Q4? And getting positive to breakeven free cash flow for the year?

Yes -- and so we feel good about the positive cash flow for the year. We see and Bill talked about the highest billings we've had the last two quarters. And so that has set us up well heading into the fourth quarter. The variance on the cash flow when we were looking towards breakeven, I talked about the industry-wide supplier issue we had, had in Q3, which pushed some of our billings that we expected to get out and collect Q3. They pushed them out towards the end. So that was -- more than half of that variance was driven by that. And this was nonconforming material that we had gotten -- we had to go and change out products. We're not the only ones that got it across the industry. Other people had the same thing. We had to change that out, take it out of product, put conforming material in and deliver those products before we could bill and collect. So that was the single biggest driver on the cash variance for the quarter. So we don't view that as anything that would recur. So that will be part of our Q4, obviously, our Q4 collection.

Your next question comes from Sam Strecker is Securities.

I was curious if you guys could maybe give a little bit more color on how you're thinking about the pipeline of future opportunities, just kind of looking at -- backlog is obviously really good, but it seems like there might be a bit of a decline in bookings from a year-over-year perspective, so from like new orders and things like that. How are you kind of looking at the long term about -- how do you feel about the pipeline long term in that regard?

Yes. This is Bill. I'll take that one. First, your comment on the backlog. Like we said, we feel really good about not only the size of the backlog, but the makeup of the backlog and in particular, this year's bookings and the mix associated with that. We did see some orders slip out of the quarter tied to the work that we're doing on the common processing architecture, which is understandable that customers would want to see us making progress, getting the production back up and running and then eventually getting back to full rate of production. So that did impact bookings somewhat in the quarter. But as we look forward at our pipeline, we feel good not only about the size but also the mix of that pipeline as well. And as we said before, just longer term, we feel like we're in a very strong part of the market, an attractive segment of the market with good growth rates, and I think our pipeline reflects that.

[Operator Instructions]. We'll take the next question from Jan Engelbert, Baird.

The first question, just if we take a step back on the sort of '19 challenge programs that were identified. Can you just give us a sense of -- of the 11 that's been resolved, sort of how many of those have transitioned to production contracts? Have you exited any? And how many do you expect to sort of transition to production in the coming quarters?

Yes, this is Bill. I'll take the question. As far as [exiting], there have been a couple that we have exited. The balance we have completed and generally are on a path toward production is how I would characterize those. And for the ones that are outstanding, we are on a path to close out half of them this quarter, which we expect to transition over time to production. And the four that are remaining are associated with the common processing architecture, all of which we expect to transition to production.

Perfect. Just a quick follow-up. Just -- if we just look at your recent wins in space with BlueHalo and then also on the Tranche2, and all the tailwinds that we're seeing in space with missile -- tracking and missile defense situational aware -- awareness. Should we expect Mercury to sort of more aggressively target space programs in the next couple of years. I mean if we just look at the SDA tracking layer and transport led, if you get with L3, if you can give sort of consistent awards on future tranches, I would think that, that would be a very attractive program as it will sort of almost roll over every two or three years as the [indiscernible] need to get replaced. And just any comments on space and Mercury in the longer term.

Well, we think it is a growth market for us. We're very pleased with the orders that we've received. And I also -- we're also pleased that it's a good mix, I think, of production contracts like BlueHalo as well as new development contracts that we've won that will be drivers of longer-term organic growth. So it's a market that we think is attractive we're well positioned and we're focused on. And back to my earlier comments, is why we're so focused on executing on the development contracts that we won.

And everyone, at this time, there are no further questions. I'll hand the call back to Mr. Bill Ballhaus for any additional or closing remarks.

Well, at this point, thank you. I appreciate the interest and the attendance at the call, and we look forward to updating everyone next quarter. Thank you very much.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.