MERCURY SYSTEMS, INC. 
By Operating cash flow of
GAAP losses per share of
Non-GAAP earnings per share of
The results of Mercury's Visage Imaging business, which Mercury announced today has been sold to Pro Medicus Limited, are included in continuing operations as of
Second quarter revenues were
Second quarter GAAP net losses were
Second quarter GAAP operating losses were
Cash flows from operating activities were a net inflow of
"Mercury performed well in the second quarter," said
"We also made progress toward our goal of divesting our unprofitable and non-core businesses by the end of this fiscal year," Aslett said. "As announced earlier this afternoon, today we signed and closed on the sale of Mercury's Visage Imaging business to Pro Medicus Limited, an Australian company in the healthcare and life sciences space. This removes the business that has been generating Mercury's most significant operating losses and advances us toward completing our portfolio rationalization activities. Looking forward, we are confident that Mercury will conclude the fiscal year as a more focused and profitable enterprise with a strong and growing defense business."
Backlog
The Company's total backlog at the end of the second quarter was
Revenues by Operating Unit
Advanced Computing Solutions (ACS) -- Revenues for the quarter from ACS were
Visage Imaging (Visage) -- Revenues for the quarter from Visage were
Visualization Sciences Group (VSG) -- Revenues for the quarter from VSG were
Emerging Businesses -- The results for this segment primarily consist of Mercury's wholly-owned subsidiary Mercury Federal Systems, Inc. (MFS). During the second quarter, MFS secured
The revenues by operating unit do not include adjustments to eliminate any inter-segment revenues.
Business Outlook
This section presents our current expectations and estimates, given current visibility, on our business outlook for the upcoming fiscal quarter. It is possible that actual performance will differ materially from the estimates given ? either on the upside or on the downside. Investors should consider all of the risks, including those listed in the Safe Harbor Statement below, with respect to these estimates, and make themselves aware of the risk factors that may impact the Company's actual performance.
The following business outlook expectations exclude the results of Mercury's Visage Imaging business unit, which was sold in
For the third quarter of fiscal year 2009, revenues are currently expected to be in the range of approximately
Recent Highlights
October - Mercury announced it was awarded a contract from a leading provider of military and homeland security products, to enable product and technology leverage in the customer's current and next-generation airborne surveillance products. These products are focused on the ISR (Intelligence, Surveillance and Reconnaissance) initiatives approved by Defense Secretary
October - Mercury released configuration and performance details on the PowerBlock(R) 50 real-time computing system. Measuring approximately 4" x 5" x 6" and weighing less than 7 pounds, the PowerBlock 50 establishes a new class of rugged embedded computing capability, putting up to 172 GFLOPS of processing power next to the sensor in space-constrained platforms such as unmanned vehicles. The PowerBlock 50 chassis is designed throughout to isolate its internal electronics from all external environmental and physical conditions, allowing deployments in harsh environments. It can be tailored to meet the needs of virtually any high-performance signal processing application.
October - Mercury announced availability of the newest member of the Ensemble(TM) product family, the MXI-205 Xilinx V5 FPGA AMC (advanced mezzanine card). The MXI-205 AMC is a powerful FPGA-based processor and I/O module that combines a Virtex-5 FPGA compute node (CN) with switch fabric flexibility and multiple FMC (FPGA mezzanine card)-based I/O options to address a variety of complex, high-bandwidth, low-latency computing challenges. With access cutting-edge FPGA processing, customers can also easily integrate a wide range of proprietary and standard interfaces, leveraging the versatile FMC modules from Mercury or other suppliers.
October - Mercury announced the election of
November - Mercury unveiled its multi-GPU development platform at MILCOM 2008 in
November - Mercury announced the election of William K. O'Brien to its Board of Directors. Mr. O'Brien was Chairman and CEO of Enterasys Networks from
November - Mercury announced a
November - Mercury announced the availability of the RACE++(R) Series PowerPC(R) 7448 Multicomputer. The RACE++ Series PowerPC 7448 Multicomputer is a high-performance, drop-in product upgrade that adds significant improvements in processor speed and L2 cache size, resulting in a 20-30% increase in application performance, with no application software changes required. The Mercury RACE++ Series interconnect fabric represents the most robust and proven approach for multicomputer digital signal processing, with products deployed in more than 1,000 programs worldwide.
December - Mercury announced availability of its initial offering of the new Echotek(R) Series family of high-performance, Virtex(TM)-5-based digital receivers. The Echotek Series DCM-V5-XMC digital receiver features the latest in A/D and D/A technology, allowing for high-speed/high-resolution data conversion while still preserving the quality of the original signal. The new product is especially well suited for beamforming and direction-finding, as required by many radar, signals intelligence, electronics intelligence, and communications applications.
Conference Call Information
Mercury will host a conference call on
To listen to the conference call, dial (888) 609-5696 in the
A replay of the call by telephone will be available from approximately
Use of Non-GAAP (Generally Accepted Accounting Principles) Financial Measures
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides non-GAAP financial measures adjusted to exclude certain non-cash and other specified charges, which the Company believes are useful to help investors better understand its past financial performance and prospects for the future. However, the presentation of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. Management believes these non-GAAP financial measures assist in providing a more complete understanding of the Company's underlying operational results and trends, and management uses these measures along with their corresponding GAAP financial measures to manage the Company's business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals. A reconciliation of GAAP to non-GAAP financial results discussed in this press release is contained in the attached exhibits.
Mercury Computer Systems, Inc. - Where Challenges Drive Innovation(TM)
Mercury Computer Systems (www.mc.com, NASDAQ: MRCY) provides embedded computing systems and software that combine image, signal, and sensor processing with information management for data-intensive applications. With deep expertise in optimizing algorithms and software and in leveraging industry-standard technologies, we work closely with customers to architect comprehensive, purpose-built solutions that capture, process, and present data for defense electronics, homeland security, and other computationally challenging commercial markets. Our dedication to performance excellence and collaborative innovation continues a 25-year history in enabling customers to gain the competitive advantage they need to stay at the forefront of the markets they serve.
Mercury is based in
Forward-Looking SafeHarbor Statement
This press release contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including those relating to fiscal 2009 business performance and beyond and the Company's plans for growth and improvement in profitability and cash flow. You can identify these statements by the use of the words "may," "will," "should," "plans," "expects," "anticipates," "continue," "estimate," "project," "intend," and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, general economic and business conditions, including unforeseen weakness in the Company's markets, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, continued funding of defense programs, the timing of such funding, changes in the U.S. Government's interpretation of federal procurement rules and regulations, market acceptance of the Company's products, shortages in components, production delays due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, timing and costs associated with disposing of businesses, and difficulties in retaining key customers. These risks and uncertainties also include such additional risk factors as are discussed in the Company's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended
Contact:
Robert Hult, CFO, Mercury Computer Systems, Inc.
978-967-1990
Challenges Drive Innovation, Converged Sensor Network, CSN, and Ensemble are trademarks; Echotek, PowerBlock, RACE++, Visage, and Visage Imaging are registered trademarks of Mercury Computer Systems, Inc. Other product and company names mentioned may be trademarks and/or registered trademarks of their respective holders.
MERCURY COMPUTER SYSTEMS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands) December 31, June 30,
2008 2008
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Assets
Current assets:
Cash and cash equivalents $37,958 $59,045
Marketable securities 117,882 60,205
Accounts receivable, net 25,841 33,109
Inventory 21,319 24,694
Prepaid expenses and other current assets 4,932 8,752
Current assets of discontinued operations - 38
Total current assets 207,932 185,843
Marketable securities 42,098 47,231
Option to sell auction rate securities at par 8,003 -
Property and equipment, net 9,927 11,054
Goodwill 65,295 80,956
Acquired intangible assets, net 4,050 7,488
Other non-current assets 4,514 5,818
Non-current assets of discontinued operations - 160
Total assets $341,819 $338,550
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $10,078 $15,112
Accrued expenses 7,543 9,817
Accrued compensation 12,159 11,781
Notes payable, borrowings under line of
credit and current capital lease obligation 156,707 125,301
Income taxes payable 973 1,383
Deferred revenues and customer advances 11,611 16,240
Current liabilities of discontinued
operations 2 124
Total current liabilities 199,073 179,758
Notes payable and non-current capital lease
obligations 11 18
Accrued compensation - 1,709
Deferred tax liabilities, net 285 285
Deferred gain on sale-leaseback 8,448 9,027
Other long-term liabilities 1,073 1,241
Total liabilities 208,890 192,038
Shareholders' equity:
Common stock 222 220
Additional paid-in capital 104,365 100,268
Retained earnings 22,207 40,575
Accumulated other comprehensive income 6,135 5,449
Total shareholders' equity 132,929 146,512
Total liabilities and shareholders'
equity $341,819 $338,550
MERCURY COMPUTER SYSTEMS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
2008 2007 2008 2007
Net revenues $50,725 $51,301 $99,824 $99,309
Cost of revenues (1) 20,479 20,110 41,296 36,900
Gross profit 30,246 31,191 58,528 62,409
Operating expenses:
Selling, general and
administrative (1) 18,178 21,726 33,988 40,835
Research and development (1) 13,122 12,979 25,005 26,110
Amortization of acquired
intangible assets 774 1,827 2,148 3,626
Impairment of goodwill and
long-lived assets (2) 14,555 - 14,555 -
Restructuring 253 192 811 247
Total operating expenses 46,882 36,724 76,507 70,818
Loss from operations (16,636) (5,533) (17,979) (8,409)
Interest income 689 2,116 1,686 4,224
Interest expense (952) (840) (1,790) (1,685)
Other (expense) income, net (181) 124 (29) 410
Loss from continuing operations
before income taxes (17,080) (4,133) (18,112) (5,460)
Income tax expense - 1,833 - 3,673
Net loss from continuing
operations (17,080) (5,966) (18,112) (9,133)
Loss from discontinued
operations, net of tax - (121) (743) (262)
Gain on disposal of discontinued
operations, net of tax 16 - 487 -
Net loss $(17,064) $(6,087) $(18,368) $(9,395)
Basic (loss) income per share:
Net loss from continuing
operations $(0.77) $(0.27) $(0.82) $(0.43)
Loss from discontinued
operations - (0.01) (0.03) (0.01)
Gain on disposal of discontinued
operations - - 0.02 -
Net loss per share $(0.77) $(0.28) $(0.83) $(0.44)
Diluted (loss) income per share:
Net loss from continuing
operations $(0.77) $(0.27) $(0.82) $(0.43)
Loss from discontinued
operations - (0.01) (0.03) (0.01)
Gain on disposal of discontinued
operations - - 0.02 -
Net loss per share $(0.77) $(0.28) $(0.83) $(0.44)
Weighted average shares outstanding:
Basic 22,121 21,607 22,065 21,541
Diluted 22,121 21,607 22,065 21,541
(1) Includes stock-based
compensation expense, which
was allocated as follows:
Cost of revenues $145 $185 $214 $283
Selling, general and
administrative $1,942 $2,658 $2,875 $4,550
Research and development $473 $730 $895 $1,374
(2) Impairment of goodwill
and long-lived assets
consists of:
Impairment of goodwill $13,016 $- $13,016 $-
Impairment of completed and
licensed technology $19 $- $19 $-
Impairment of customer
relationships $1,520 $- $1,520 $-
MERCURY COMPUTER SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended Six months ended
December 31, December 31,
2008 2007 2008 2007
Cash flows from operating activities:
Net loss $(17,064) $(6,087) $(18,368) $(9,395)
Depreciation and amortization 2,393 3,891 5,419 7,878
Impairment of goodwill and
long-lived assets 14,555 - 14,555 -
Other and non-cash items, net 2,430 5,532 3,061 7,970
Changes in operating assets and
liabilities 420 (5,627) 703 (4,782)
Net cash provided by (used in)
operating activities 2,734 (2,291) 5,370 1,671
Cash flows from investing activities:
Sales (Purchases) of marketable
securities, net (57,737) 23,312 (57,628) 21,948
Purchases of property and
equipment, net (1,108) (968) (2,219) (1,734)
Proceeds from liquidation of
insurance policies 831 324 831 324
Acquisitions, net of cash
acquired, and acquired
intangible assets - - - (2,400)
Net cash (used in) provided by
investing activities (58,014) 22,668 (59,016) 18,138
Cash flows from financing activities:
Proceeds from employee stock
option and purchase plans 247 700 413 1,145
Repurchases of common stock (58) (71) (297) (349)
Borrowings under line of
credit 31,410 - 31,410 -
Payments of principal under notes
payable and capital leases (93) (31) (135) (61)
Gross tax windfall from
stock-based compensation 92 3 450 226
Net cash provided by financing
activities 31,598 601 31,841 961
Effect of exchange rate changes
on cash and cash equivalents 714 161 718 321
Net (decrease) increase in cash
and cash equivalents (22,968) 21,139 (21,087) 21,091
Cash and cash equivalents at
beginning of period 60,926 51,245 59,045 51,293
Cash and cash equivalents at end
of period $37,958 $72,384 $37,958 $72,384
UNAUDITED SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP MEASURES
The Company provides non-GAAP operating income (losses), non-GAAP net income (losses) from continuing operations, and non-GAAP basic and diluted earnings (losses) from continuing operations per share as supplemental measures to GAAP regarding the Company's operational performance. These financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. The adjustments to these non-GAAP financial measures, and the basis for such adjustments, are outlined below:
Stock-based compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of revenues, selling, general and administrative expense and research and development expense. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of the Company's shares, risk-free interest rates and the expected term and forfeiture rates of the awards. In accordance with SFAS No. 123R, stock-based compensation expense is calculated as of the grant date of each stock-based award, and generally cannot be changed or influenced by management after the grant date. Management believes that exclusion of these expenses allows comparisons of operating results that are consistent with periods prior to the Company's adoption of SFAS No. 123R, and allows comparisons of the Company's operating results to those of other companies, both public, private or foreign, that either are not required to adopt SFAS No. 123R, or disclose non-GAAP financial measures that exclude stock-based compensation.
Amortization of acquired intangible assets. The Company incurs amortization of intangibles related to various acquisitions it has made in recent years. These intangible assets are valued at the time of acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Management believes that exclusion of these expenses allows comparisons of operating results that are consistent over time for both our newly-acquired and long-held businesses.
Impairment of goodwill and long-lived assets. The Company incurs impairment charges for goodwill and long-lived assets based on events that may or may not be within the control of management. Management believes that these charges are outside the normal operations of the Company's business and are not indicative of ongoing operating results, and that exclusion of these expenses allows comparisons of operating results that are consistent across past, present and future periods.
Restructuring. The Company incurs restructuring charges in connection with management's decisions to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain Company facilities, businesses and product lines. Management believes this item is outside the normal operations of the Company's business and is not indicative of ongoing operating results, and that exclusion of this expense allows comparisons of operating results that are consistent across past, present and future periods.
Tax valuation allowance. The Company records a tax valuation allowance as an expense item when it is "more likely than not" per FAS 109 criteria that the Company will not reap the benefits of the deferred tax assets (future deductible amounts derived from temporary differences between book and taxable income). Management believes these allowances are not indicative of ongoing operating results, and that exclusion of this expense item allows comparisons of operating results that are consistent across past, present and future periods.
Adjustments for related tax impact. Finally, for purposes of calculating non-GAAP net income (losses) from continuing operations and non-GAAP basic and diluted earnings (losses) from continuing operations per share, management adjusts the (benefit) provision for income taxes to tax effect the non-GAAP adjustments described above as they have a significant impact on the Company's income tax (benefit) provision.
Management excludes the above-described items and their related tax impact from its internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to the Company's board of directors, determining the portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in the Company's operations, and allocating resources to various initiatives and operational requirements. The Company believes that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making.
These non-GAAP financial measures have not been prepared in accordance with GAAP, and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. The Company expects to continue to incur expenses similar to the non-GAAP financial adjustments described above, and investors should not infer from the Company's presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring.
The following tables reconcile the non-GAAP financial measures to their most directly comparable GAAP financial measures.
(in thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
2008 2007 2008 2007
Loss from operations $(16,636) $(5,533) $(17,979) $(8,409)
Stock-based compensation 2,560 3,573 3,984 6,207
Amortization of acquired
intangible assets 774 1,827 2,148 3,626
Impairment of goodwill 13,016 - 13,016 -
Impairment of customer
relationships 1,520 - 1,520 -
Impairment of completed and
licensed technology 19 - 19 -
Restructuring 253 192 811 247
Non-GAAP income from operations $1,506 $59 $3,519 $1,671
Three months ended Six months ended
December 31, December 31,
2008 2007 2008 2007
Net loss from continuing
operations $(17,080) $(5,966) $(18,112) $(9,133)
Stock-based compensation 2,560 3,573 3,984 6,207
Amortization of acquired
intangible assets 774 1,827 2,148 3,626
Impairment of goodwill 13,016 - 13,016 -
Impairment of customer
relationships 1,520 - 1,520 -
Impairment of completed and
licensed technology 19 - 19 -
Restructuring 253 192 811 247
Tax valuation allowance and tax
impact of excluding the above
items (361) 1,395 (1,151) 2,287
Non-GAAP net income from
continuing operations $701 $1,021 $2,235 $3,234
Non-GAAP net income from continuing
operations per share:
Basic $0.03 $0.05 $0.10 $0.15
Diluted $0.03 $0.05 $0.10 $0.15
Non-GAAP weighted average shares
outstanding:
Basic 22,121 21,607 22,065 21,541
Diluted 22,353 22,043 22,318 21,903
MERCURY COMPUTER SYSTEMS, INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE RANGE
Quarter ending March 31, 2009
RANGE
Income (Loss) Income (Loss)
Per Share Per Share
- Diluted - Diluted
GAAP expectation $(0.02) $0.03
Adjustment to exclude stock-based
compensation 0.07 0.07
Adjustment to exclude amortization of
acquired intangible assets 0.03 0.03
Adjustment for tax impact (0.03) (0.04)
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Non-GAAP expectation $0.05 $0.09
SOURCE Mercury Computer Systems, Inc.
