COVID19 - Reigniting the Defense

Reigniting the Defense Innovation Base for a New Industry Paradigm

Our industry finds itself at a critical juncture.

In recent months, the global pandemic COVID-19 has spread rapidly around the world, infecting and killing tens of thousands of people, with few signs of slowing. The global supply chain and many regional economies have ground to a halt as countries seek to mitigate the impacts of the virus. Like many other essential businesses, our industry has had to quickly assess the impact of COVID-19 and maintain continuity of mission-critical business operations, all while focusing on the health and safety of our employees.

However, even before the threat of a global crisis, companies have been operating within a new geopolitical paradigm, and the U.S. government has faced an entirely new generation of potential threats. In recent years, the global landscape has continued – if not accelerated – its shift to a multipolar structure led by a handful of primary adversarial powers. In parallel, the threats for which these powers are preparing are undergoing rapid and foundational change. From electronic warfare to space superiority, international governments are grappling with an increased set of unfamiliar risks and new battlespaces that necessitate a fundamental shift in their approach to national security.

The future remains uncertain, in large part due to this global crisis, and once we emerge from the pandemic, we must take a close look at the changes needed throughout the defense contracting industry to ensure its future success. 

A Robust Industry – With a Need for Change

A paradox is manifesting itself in the defense contracting industry. Defined by historically consistent returns, our sector has traditionally been a healthy vertical overall. Defense companies have a distinct financial advantage – particularly compared to our commercially focused counterparts – because the DoD funds much of the upfront capital, R&D expenditure and production working capital for any given project. The DoD then purchases products at higher margins for many years as programs shift to production. Coupled with infrequent – albeit relatively expensive – upgrades, high-margin international sales and the fact that incumbents hold a distinct advantage in the industry, many defense contractors find themselves operating in a business-friendly environment.

Nevertheless, we are facing several new and growing potential vulnerabilities that require an evolved approach. In addition to the unknown future impacts of COVID-19, a growing national debt, historically low interest rates and increases in non-defense discretionary spending are potential headwinds in defense spending overall. Across the industry, we have continued to witness consolidation that winnows both the volume and diversity of technology providers. From Northrop Grumman’s acquisition of Orbital ATK, to the industry-altering mergers between Raytheon and United Technologies Corp. and Harris Corp. and L3, respectively, the number of innovative public-sector specialists has shrunk considerably in just the past few years.

Moreover, from a research and development standpoint, we’ve collectively settled for IR&D and capital expenditure rates of 2–3 percent as an acceptable status quo. However, we should not and cannot settle for rates that are inadequate for the goals we define for ourselves. For example, our high-tech counterparts on the commercial side regularly invest upwards of 10 percent of revenue on IR&D. With federal IR&D rates that pale in comparison, and acknowledging that the public sector is often too small and complex for high-tech commercial companies to penetrate, the defense industry finds itself at a distinct disadvantage for readily accessing the foremost technologies for mission-critical and national security needs.

A Long-Term Framework for Success

As new, emerging threats become more prevalent and require dedicated attention, contractors must make substantive investment in new technologies and innovations a strategic priority.

Complicating matters, the continued global spread of COVID-19 has posed an unprecedented acute threat to the vitality of our business and presents an issue we will need to collectively address. In its wake, we must evaluate the industry overall and must especially consider material and fundamental changes to our approach in order to ensure our long-term success, including: 

  1. Evolving defense procurement and acquisition policies. Whether due to bureaucratic red tape, cumbersome regulatory policies or the complex nature of defense technology, there is a lack of defense industry participation among high-tech commercial companies. By creating ease of entry into the public sector, the addition of more high-end commercial expertise will challenge industry incumbents to innovate and deliver, driving the industry forward as a whole.
  2. Reestablishing and fostering a healthy, innovative mid-tier base. In some respects, industry consolidation has been a boon to the sector, increasing the scale of solutions that we’re able to provide to our customers. But what we’ve gained in scale we’ve lost in diversity and entrepreneurial spirit. In order to foster continued innovation, we must recognize the importance of and reestablish a robust mid-tier base.
  3. Making a greater effort to attract and retain talent by focusing on both innovation and purpose. Companies are only as successful as the people within them. We must not only undertake a dedicated effort to attract the foremost talent in technology, but also foster a culture of both purpose and innovation in order to retain and develop that expertise for years to come.
  4. Fostering partnerships with peers. Whether with traditional or non-traditional partners, as an industry, we must make every effort to collaborate with others – including commercial, government and academic entities – in a way that unlocks new efficiencies and increased investment to drive the industry forward.

Our industry finds itself with a steady track record of success but also a need to evolve to realize our collective potential.

Getting there will not be easy. It will require shifting priorities, making difficult decisions, forging new relationships and transforming our approach to the industry as we currently understand it.

As we look to the future and continue to function at the service of the public sector, these are vital decisions that will determine the success of our industry, and the defense industry’s capabilities, for decades to come.

national security covid-19

The Importance of Maintaining our National Security in Times of Crisis

The United States currently finds itself in an unprecedented human health crisis that will test the collective resolve of both the U.S. government and the American public. In just a few short weeks, we’ve transitioned from a historically robust economy to one in which there is a dedicated focus on essential goods and the health of Americans. At Mercury, we’re committed to doing our part to help ensure the health and financial safety of all of our employees.

But in this time of crisis, we cannot lose sight of critical strategic priorities, including the United States’ national security. Safeguarding our nation requires continued persistence in the face of challenges. The president recently issued updated Coronavirus Guidance for America. This guidance states that:   

“If you work in a critical infrastructure industry, as defined by the Department of Homeland Security…you have a special responsibility to maintain your normal work schedule.”   

However, this is just guidance, not law. While our experience, thus far, has been state-level recognition of the importance of “critical infrastructure industry” businesses like ours, making exceptions to “stay-at-home” orders, it is still our nation’s defense being decided at the state level. We need legislation that reinforces the importance of these industries and keeps them operational and stabilized in times of crisis.

While continuing to comply with global and local health authorities’ guidance and protecting our employees remains our top priority, we must continue our work on critical programs that help ensure our collective safety and security. These are trying times, but I have as much confidence as ever in America’s ability to rally around a common goal in service of our country’s success. For our part, Mercury is committed to continuing the advancement of Innovation That Matters in support of the aerospace and defense industry, which will play a key role in America’s national security for decades to come.

coronavirus update from CEO

Message From the President & CEO – Coronavirus Update 

The COVID-19 pandemic continues to impact people and countries around the world. This is a time of extraordinary circumstances and uncertainty. It’s also a time when the work we’re doing in support of strategic national priorities is recognized as critical.

At Mercury, we remain laser-focused on four goals we established: To protect the health, safety and livelihoods of our people; to mitigate or reduce operational and financial risks to the business; to continue to deliver on our commitments to customers and shareholders; and to continue the mission-critical work Mercury does every day to support the ongoing security of our nation, our brave men and women in uniform, and the communities in which we all live. We are also increasingly focused on “leading from the front,” communicating as frequently and openly as possible to help keep all stakeholders informed of the latest developments here, which are occurring at a very rapid pace.

I’d like to lead off by saying we have no confirmed COVID employee cases and our collective goal is to do our very best to keep it that way. Even before COVID-19 was declared a pandemic, we recognized the need to take advantage of early windows of opportunity, to develop plans to possibly prevent or at least minimize the impact of an incident to employees and the business, and to have continued decisive, proactive responses to a constantly developing situation that are in keeping with our purpose, our commitment to corporate stewardship as well as our culture and values. I’d like to share the things we are doing to accomplish company goals established many weeks ago.

Teams and Communications

To best keep our company informed as a whole, from an overarching leadership perspective we have:

  • Involved our executive board, creating a steering team that meets multiple times each week;
  • Created a COVID-19 FAQ document for employees, which is updated daily to include the most recent company information as well as that of local, state and federal authorities; and,
  • Established a weekly call with all managers to discuss business continuity information, which is then disseminated across the company.

Health and Wellness

At Mercury, our number one priority is to protect the health, safety and livelihoods of our employees. As such, we have:

  • Instituted a policy of 120 hours additional sick leave for employees for Coronavirus-related circumstances to incent unwell people to stay home;
  • Increased pay for all overtime to two times the regular rate from March 28–April 13 (or beyond if we need to extend our current work-from-home timeline);
  • Established a relief fund, starting at $1M, to assist eligible Mercury employees, including temporary agency employees, experiencing unexpected financial burdens as a result of this crisis;
  • Committed to covering our employees’ base pay during the time a facility may be shut down;
  • Waived the telemedicine co-pay for employees;
  • Announced an Uber Eats account for employees to have access to company-paid meals;
  • Set up a work-from-home program, moving more than 900 employees off sites until April 13;
  • Expanded network capacity for work and home;
  • Moved to virtual interviewing and onboarding where possible;
  • Created information packets and curated online resources for managers and employees to maximize productivity;
  • Put in place segregation areas and other social distancing requirements at all of our facilities in adherence to recommended guidelines; and,
  • Placed a hold on all international and domestic travel, requiring 14 days of self-isolation after any business and/or personal travel.

Facility Protocols

Because much of the critical work we do cannot be done from home, we have implemented the following preventive measures at all of our facilities and are working every day to improve upon these measures.

  • Limited non-essential site visits by internal and external visitors;
  • Limited essential site visits to specific conference rooms/areas;
  • Implemented environmental cleaning and disinfection protocols based on CDC and other recommendations;
  • Instituted a no-physical-greeting policy, i.e., handshakes, etc.;
  • Ordered masks and sanitizers for all on-site employees;
  • Posted COVID-19 CDC information sheets throughout all facilities; and,
  • Created plans and protocols for confirmed-case and site-shutdown scenarios.

I’d like to offer my most sincere gratitude to the people working on the frontline of this crisis who put their health at risk every day. Their selfless acts serve as inspiration. For our part, we will continue to lean forward and continue to take care of our employees and customers, but in keeping with our culture and values, we ask that you continue to help those in your communities who are in most need during this crisis. There are many people and companies in our communities who will be impacted more severely than we have been thus far. And it is in times like these that we so often see the best in people. Let’s work together to be agents of good.

Mercury Commitment - COVID-19

Our Commitment to Combating COVID-19

As the world – especially government and business leaders – continues to respond to the novel coronavirus taking center stage on the global agenda, we recognize that these uncertain times require an even greater responsibility to our people, customers and partners.

As ever, we remain focused on the health and safety of our teams – and supporting them through myriad ways in keeping with our culture and values as well as our purpose.

From promoting social distancing through flexible work from home arrangements and suspending nonessential travel, to establishing a cadence of regular communication and conducting deep cleaning at all of our facilities, we have taken immediate action to help ensure our workforce’s safety.

Our continued support also means removing undue burdens from our employees that are outside of their control – especially those that are financial in nature.

As a step in that direction, we have established the Mercury Employee COVID-19 Relief Fund, an employee reserve of up to $1 million USD, to support those in most need. This includes an immediate relief payment for hourly employees who are not able to work from home. It also includes discretionary funds to be allocated to those hourly employees struggling with severe financial challenges brought about by COVID-19. While there may be more to do in the coming days and weeks, our hope is that this financial relief fund will help mitigate impacts of the virus on our most valuable stakeholders – our team members.

These are trying times and uncharted territory for businesses around the world. The days ahead will be challenging, but now more than ever, I am proud to represent an organization defined by a collective spirit of compassion and steadfast resolve in face of adversity. As One Mercury we are working hand-in-hand – both internally and with our customers – to ensure our continued success. Thank you for your continued support.

RES-AI

Delivering Trusted and Game-Changing Technology and Answering Industry Demands: Observations From AUSA 2019

On the Main Stage

Mercury Systems recently joined some of the foremost defense and technology companies in the world at the Association of the United States Army’s (AUSA) Annual Meeting in Washington, D.C. The annual gathering is one of the most prominent events for companies operating in or with the public sector, and brings private sector innovation together with some of the senior-most military officials in the world, all in the name of supporting and protecting the warfighter.

This year’s meeting was particularly special for us here at Mercury Systems as we announced a $15M USD investment in our secure microelectronics capabilities, the latest step in an ongoing effort to enhance our capabilities in the space dating back to our 2016 acquisition of Microsemi’s custom microelectronics business. As a company working hand-in-hand with some of the most prominent names in silicon technology, and with a proud legacy of partnership with the public sector, we are uniquely positioned to transfer private-side innovation to the defense industry. 

An Exciting Time for Our Industry

From in-person meetings with our peers, to broader industry buzz on the show floor, to our own events on-site, this year’s event revealed some key insights that remind us of the challenges ahead, and give us confidence that we’re on the right path.

Silicon Manufacturing Is Moving Just as Fast as We Thought

It’s no secret that silicon manufacturing is moving at breakneck speed – made even more apparent during a fireside conversation between our new Chief Technology Officer Dr. William (Bill) Conley, our VP and GM Tom Smelker and Bryan Clark, Senior Fellow at the Center for Strategic and Budgetary Assessments. Their discussion focused on the state of play in secure microelectronics and reaffirmed the need for innovation that matters in the public sector.

Private Sector Investment Is an Absolute Imperative

Conversations at the event not only underscored the speed with which the industry is moving, but also made clear the need for private sector investment in order for the defense community to keep pace with the latest technologies. Silicon technologies are advancing at a rate that simply cannot be met by the defense community alone, so it is critical that public sector entities with mission-critical needs have access to innovation via a trusted private sector conduit. At Mercury, we’re packaging the foremost advances in silicon technology at DMEA-accredited facilities, transferring private sector innovation over into the defense community in a secure manner.

Trust is Key

This month’s event also further highlighted the eagerness in the industry for a bridge from the public to private sector that will advance the U.S.’s national security interests and protect its warfighters, and I’m especially proud that we are helping to transform the intersection of technology and defense, making leading-edge ‘defense-ready’ processing capabilities profoundly more accessible. While we drive innovation, the Department of Defense must ensure military technology is being manufactured in a secure, trusted environment. Mercury is uniquely equipped to resolve these immense impediments by transferring breakthrough advances in technology to the defense industry affordably and with a proven history of making trusted and secure high-tech solutions.

Full Speed Ahead

The defense community wants and needs a trusted partner not afraid of the pace of change in the private sector. We’re proud to serve that role, making trusted, secure mission-critical technologies profoundly more accessible. Our path is clear, and we have the right industry-leading team to deliver innovation that matters. We look forward to sharing more in the coming months as our recent investment becomes a reality.