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Mercury Systems, Inc. (MRCY)
F1Q 2014 Earnings Conference Call
October 29, 2013 5:00 PM ET
Kevin M. Bisson – Senior Vice President, Chief Financial Officer and Treasurer
Mark Aslett – President and Chief Executive Officer
Tyler E. Hojo – Sidoti & Co. LLC
Peter J. Arment – Sterne, Agee & Leach, Inc.
Sheila Kahyaoglu – Jeffries LLC
Brian W. Ruttenbur – CRT Capital Group LLC
Jonathan F. Ho – William Blair & Co. LLC
Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.
Previous Statements by MRCY
» Mercury Systems' CEO Discusses F4Q13 Results - Earnings Call Transcript
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» Mercury Computer Systems CEO Discusses F1Q2011 Results - Earnings Call Transcript
Kevin M. Bisson
Thanks, Mary, and good afternoon, everyone, and thank you for joining us. With me today is our President and Chief Executive Officer, Mark Aslett. 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 www.mrcy.com.
We’d like to remind you that remarks that we make during this call about future expectations, trends and plans for the company and its business constitute forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of the words; may, will, could, should, would, plans, expects, anticipates, continue, estimate, project, intend, likely, forecast, probable, potential 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, continued funding of defense programs as well as the timing and amounts of such funding, 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, 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 and restructurings or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, changes to export regulations, increases in tax rates, changes to Generally Accepted Accounting Principles, difficulties in retaining key employees and customers, unanticipated costs under fixed price service and system integration engagements, and various other factors beyond our control.
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 fiscal year ended June 30, 2013. The company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
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 discuss several non-GAAP financial measures, specifically adjusted EBITDA and free cash flow.
Adjusted EBITDA excludes interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring expense, impairment of long-lived assets, acquisition costs and other related expenses, fair-value adjustments from purchase accounting and stock-based compensation costs. Free cash flow excludes capital expenditures from cash flows from operating activities. Reconciliation of adjusted EBITDA to GAAP net income and free cash flow to GAAP cash flows from operations are included in the press release we issued this afternoon.
With that, I’ll turn the call over to Mercury’s President and CEO, Mark Aslett. Mark?
Thanks, Kevin. Good afternoon, everyone, and thanks for joining us. I’ll begin today’s call with a business update. Kevin will review the financials and guidance and then we’ll open it up for your questions. Despite continued industry headwinds, Mercury performed well in the first quarter. We delivered results at or above the high end of our guidance across all of our key metrics.
Total revenue for the quarter was $54 million versus our guidance of $48 million to $54 million. Our GAAP loss from continuing operations was $0.07 per share versus our guidance of a loss of $0.14 to $0.08. Adjusted EBITDA was 7% consistent with last quarter and above the high end of our guidance and we continued to generate positive cash flow. In addition, we made good progress in our most important programs and we continued to see good growth in the value of our design wins.
Looking specifically at our defense business, total defense revenues were down 7% sequentially from Q4 to $46.4 million, but were up 4% versus the first quarter last year. Total defense bookings were down 25% sequentially to $43.6 million, but increased 19% year-over-year. The sequential decline in bookings was primarily due to the exceptionally strong bookings performance we delivered in Q4. The increase year-over-year was largely due to the continued recovery in our MCE core compute business.
In the first quarter, MCE core compute defense bookings in 12 months backlog grew 54% and 42% respectively versus the same period last year. In total, including Micronetics, MCE defense bookings grew 8%, defense revenues 16% and 12-month backlog 34% versus Q1 last year. This evidence suggests to us that our strategy of managing the MCE business differently in this challenging industry environment is working well.