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Mercury Computer Systems, Inc. (MRCY)
F3Q09 Earnings Call
April 28, 2009, 5:00 pm ET
Bob Hult – Senior Vice President and CFO
Mark Aslett - President and CEO
Mark Jordan - Noble Financial
Tyler Hojo - Sidoti Company
Jonathan Ho - William Blair
Stephen Levenson - Stifel Nicolaus
Previous Statements by MRCY
» Mercury Computer Systems, Inc. F1Q10 (09/30/2009) Earnings Call Transcript
» Mercury Computer Systems, Inc. F4Q09 (Qtr End 08/04/09) Earnings Call Transcript
» Mercury Computer Systems, Inc., F2Q09 (Qtr End 12/31/08) Earnings Call Transcript
Good afternoon and thank you for joining us. With me today is our President and Chief Executive Officer, Mark Aslett, and our Vice President and Controller, Karl Noone.
If you have not received the copy of the earnings release, you can find it on our website at www.mc.com. We would like to remind you that remarks that we may make during this call about future expectations, trends, and plans for the company and its business constitute forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Additional information regarding forward-looking statements and risk factors is included in the press release we issued this afternoon reporting the company’s third quarter results and in the company’s periodic reports filed with the SEC.
We caution listeners of today’s conference call not to place undue reliance upon any forward-looking statements, which speak only as of the date of this call. We undertake no obligation to update any forward-looking statements.
In addition to reporting financial results, in accordance with generally accepted accounting principles or GAAP, we will also be discussing non-GAAP financial measures adjusted to exclude certain charges which we will specifically identify.
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 in the marketplace, and to establish operational goals; however, they are not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. A reconciliation of GAAP to non-GAAP financial results discussed in today's conference call is contained in the press release we issued this afternoon.
Finally, we will also briefly remark on our proposed option exchange program, which is described in our proxy statement dated April 13, 2009. We have not commenced the exchange program. If the exchange program is approved by shareholders, we will provide eligible participants with written materials explaining the full terms and conditions of the program and will also file these materials with the SEC.
When these materials become available, participants should read them carefully, because they will contain important information about the program. Once file, the materials will be available free of charge at www.sec.gov and by contacting our investor relations department at 978-256-1300.
I am now pleased to turn the call over to Mercury's President and CEO, Mark Aslett.
Thanks Bob. Good afternoon everyone and thanks for joining us.
I'll begin with an update on the business. Bob will review the financials and discuss our guidance for the fourth quarter, and then we'll open it up for your questions.
As part of our strategic turnaround, we’ve been working toward the goal of divesting Mercury’s unprofitable non-core businesses by the end of fiscal 09. In fiscal 2008, we shut down AUSG and sold the ESPS business.
Earlier this fiscal year, we sold the assets and IP have sold our pharmaceuticals. On our Q2 conference call, January 27, we announced the sale of our largest non-core business, VI, which generated the majority of our operating losses.
The sale of our last remaining non-core business, the Visualization Sciences Group, will conclude this process. We have moved VSG into discontinued operations this quarter and anticipation of the sale, which we currently expect to close by the end of this fiscal year.
This will be another milestone for Mercury as we work to focus the company and position ourselves for renewed growth.
We’ve also treated VI as a discontinued operation in this quarter’s financial statements. As a result, from a reporting standpoint, we have finally unmasked the true profitability we’ve been delivering in our core business.
Overall this was another successful quarter for Mercury. Our total revenue and non-GAAP earnings both exceeded the high end of our guidance range. From a revenue perspective, we guided $48 to $50 million for the quarter, which excluded VI, but included VSG. Excluding VSG would have adjusted our guidance to $45 to $47 million. Revenue, excluding discontinued operations came in at $50.6 million for the quarter, which was substantially above the high end of this adjusted guidance. Our non-GAAP earnings of $0.20 a share were also well above the high end of our range.
We continue to generate healthy levels of free cash flow in Q3 and have paid down all but $5 million of our $125 million convertible senior notes. We ended the quarter with a strong cash balance of $85.6 million and as we announced in March, we plan to redeem the remaining $5 million of the convert in May.
Returning the company back to profitability in the third quarter was a major achievement. When we put our divestitures fully behind us, we will have also successfully refocused the business in a very challenging M&A environment. Now, the priority is to grow the business. Our focus is clearly on defense where we’ve been making steady progress, not only in driving bookings and revenue, but also in terms of operating profit.