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Mercury Systems, Inc. (MRCY)
Q4 2014 Earnings Conference Call
August 5, 2014 5:00 PM
Kevin Bisson - SVP, CFO and Treasurer
Mark Aslett - President and CEO
Sheila Kahyaoglu - Jefferies
Mark Jordan - Noble Financial
Tyler Hojo - Sidoti and Company
Kevin Ciabattoni - KeyBanc Capital Markets
Brian Ruttenbur - CRT Capital
Previous Statements by MRCY
» Mercury Systems (MRCY) Q4 2014 Results - Earnings Call Webcast
» Mercury Systems' CEO Discusses F3Q 2014 Results - Earnings Call Transcript
» Mercury Systems (MRCY) Q3 2014 Results Results - Earnings Call Webcast
» Mercury Systems' CEO Discusses F2Q 2014 Results - Earnings Call Transcript
Thanks Nicole. Good afternoon 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 web site 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 the timing of such funding, general economic and business conditions, including unforeseen weaknesses 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 and technological advances in 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 the following from net income from continuing operations, 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 will turn the call over to Mercury's President and CEO, Mark Aslett. Mark?
Thanks Kevin, good afternoon everyone and thank you for joining us. I will begin today's call with the business update. Kevin will review the financials and guidance, and then we will open it up for your questions.
Mercury closed fiscal 2014 with strong momentum, delivering record defense bookings and backlog for the second consecutive quarter. Before we discuss our results in continuing operations however, I'd like to start out by toughing briefly on the decision to seek a divestiture of Military Intelligence Systems. We determined that MIS, which last year produced $9.4 million of revenue, and a pre-tax operating loss of $1.1 million, excluding one time charges, is not aligned with Mercury's current strategic priorities.
MIS provides extremely valuable services to our nation's intelligence community, and we believe, the best way to unlock this value for Mercury and our shareholders, is to explore a divestiture. As a result, for accounting purposes, beginning in Q4, we are showing MIS as a discontinued operation on our financial statements, as we begin to search for a strategic buyer, who can more roughly realize its full potential.
We recorded a $6.7 million goodwill impairment charge, related to MIS in the fourth quarter. We will continue to focus our efforts and prioritize investments on the core of the business.
In terms of fiscal 2014 as a whole, our results from continued operations were significantly stronger year-over-year. Bookings and backlog reached record levels, growing 18% and 28% respectively. We returned the company to growth, as revenue increased 7%, while total adjusted EBITDA more than doubled to 11% of revenue, and we continue to generate positive cash flow from operations.