Mercury Computer Systems (ticker: MRCY, exchange: NASDAQ Global Select Market (.O))
News Release -
24-Oct-2007
Mercury Computer Systems Reports First Quarter Revenues of $49.2 Million
Operating Cash Flow of $4.0 Million
GAAP Losses per Share of $0.15
Non-GAAP Earnings per Share of $0.09
CHELMSFORD, Mass., Oct. 24 /PRNewswire-FirstCall/ -- Mercury Computer
Systems, Inc. (NASDAQ: MRCY) reported results for its first quarter of fiscal
2008, ended September 30, 2007.
First quarter revenues were $49.2 million, roughly flat with the prior
year's first quarter. Cash flows from operating activities were a net inflow
of $4.0 million in the first quarter. Cash, cash equivalents, and marketable
securities as of September 30, 2007 were $158.6 million.
First quarter GAAP operating losses were $3.3 million. First quarter GAAP
net losses were $3.3 million. GAAP diluted losses per share were $0.15 for the
first quarter. GAAP net losses include $4.5 million in charges, consisting of
$2.7 million in stock-based compensation costs and $1.8 million in
amortization of acquired intangible assets. Excluding the impact of these
charges, first quarter non-GAAP operating income was $1.3 million. First
quarter non-GAAP net income was $2.0 million. Non-GAAP diluted earnings per
share were $0.09 for the first quarter.
"The results for the first quarter are very encouraging," said Jay
Bertelli, President and Chief Executive Officer of Mercury Computer Systems,
Inc. "They demonstrate that the operational effectiveness initiatives we began
implementing several quarters ago in conjunction with the restructuring of the
organization, cost reduction initiatives and personnel changes are beginning
to show the desired results."
Mr. Bertelli continued: "The positive book-to-bill is also very
encouraging, with indications that the acquisition strategy we executed on a
few years ago is beginning to produce results, moving us into new markets with
new products."
Backlog
The Company's total backlog at the end of the first quarter was
$84.2 million, a $5.6 million sequential increase from the fourth quarter of
last fiscal year, and a $12.6 million decline from the same quarter last year.
Of the current total backlog, $63.4 million represents shipments scheduled
over the next 12 months. The book-to-bill ratio was 1.11 for the quarter.
Revenues by Operating Unit
Effective July 1, 2007, the Company restructured operations to achieve
greater efficiencies and productivity. For fiscal 2008, the Company is
organized into four operating units as follows:
Advanced Computing Solutions (ACS) -- The former Defense business,
Advanced Solutions business, Modular Products and Services, and elements of
Commercial Imaging and Visualization were consolidated into ACS to focus on
specialized, high-performance computing solutions. Key market segments will
remain aerospace and defense, semiconductor, telecommunications, and life
sciences imaging. Revenues for the quarter from ACS were $42.2 million,
representing 86% of the Company's total revenues. Approximately 67% of ACS's
revenue related to defense. For the total Company, approximately 57% of the
Company's first quarter revenue related to defense compared to 45% in the same
quarter last year.
Visage Imaging (Visage) -- Visage Imaging is focused on the development
and distribution of visualization and PACS (picture archive and communications
system) solutions, as well as other three-dimensional (3D) software solutions
for the life sciences market. Revenues for the quarter from Visage were $3.9
million, roughly flat with the same quarter last year.
Visualization Sciences Group (VSG) -- VSG is focused on the development
and distribution of software developer toolkits and application software for
geosciences, engineering and manufacturing, material sciences, and other
industrial and scientific domains. Revenues for the quarter from VSG were $2.6
million.
Emerging Businesses -- Mercury's emerging businesses are focused on
cultivating new opportunities that benefit from Mercury's capabilities across
markets. Current areas of focus include high-performance computing and
visualization in biotech and aircraft navigation. Revenues for the quarter
from these businesses were $0.5 million.
Business Outlook
This section presents our current expectations and estimates, given
current visibility, on our business outlook. 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.
For the full year, the Company continues to expect revenues to approximate
$225 million, with acceleration in the second half of the year.
The Company currently expects fiscal year 2008 GAAP losses per share to
approximate $0.54, an improvement from the previously guided loss of $0.63.
The improvement is attributable to a stronger gross margin, resulting from a
more favorable product mix and lower excess and obsolete inventory reserve
expense. The lower inventory expense is the result of improvements in supply
chain processes. Excluding the impact of stock-based compensation costs and
amortization of acquired intangible assets, fiscal year 2008 non-GAAP earnings
per share are currently expected to approximate $0.33, an increase from the
previously guided earnings of $0.17.
For the second quarter of fiscal year 2008, revenues are currently
expected to approximate $51 million. The Company currently expects second
quarter fiscal 2008 GAAP losses per share to approximate $0.37. Excluding the
impact of stock-based compensation costs and amortization of acquired
intangible assets, second quarter fiscal year 2008 non-GAAP losses per share
are currently expected to approximate $0.05.
Recent Highlights
August -- Mercury announced the release of its MultiCore Plus(TM) Software
Development Kit for the Sony PLAYSTATION(R)3 (PS3) game console. The Base
Package enables application developers to unleash the power of the PS3 for
low-cost, high-speed computing in real-world applications. Using Mercury's
proven development environment, developers in research labs, universities,
gaming, financial services, oil & gas, electronic data automation, video
compression, biotech, and other areas can explore the highest performing
potential of Cell BE processor-based computing using PS3 devices.
August -- Mercury announced that it was selected by the Remote Sensing
Applications Center of the U.S.D.A. Forest Service to support two wildfire
monitoring and forest mapping projects in 2007 with the VistaNav(TM)-SSR
Unmanned Aircraft System (UAS). The VistaNav-SSR (Smart Surveillance and
Reconnaissance) system is a complete, high-performance UAS that includes a
ground control station integrated with 3D Synthetic Vision and a small
unmanned aerial vehicle (UAV). Unmanned aircraft systems can fly long
missions, survey wildfire sites at low altitude, and transmit critical data to
enable more informed decisions more quickly. Together with Mercury, the Forest
Service will employ the VistaNav-SSR UAS to help in providing precise imagery
and actionable intelligence to Incident Command Teams leading to significantly
safer tactics in fighting wildfires.
August -- Mercury announced the formation of Visage Imaging(TM), its
wholly owned subsidiary for the life sciences and medical businesses. As an
independent operating entity, Visage Imaging will be more effectively
positioned to deliver Mercury's distinct expertise in advanced visualization,
and its expanding portfolio of imaging and visualization products and
services, to a growing roster of international OEM and clinical partners.
September -- Mercury announced availability and pending shipment of its
newest Serial RapidIO-based AMC (Advanced Mezzanine Card) to a customer in the
telecom equipment market. The Ensemble(R) MPC-102 is a high-performance AMC
module that combines dual-core processing power, flexible I/O, and a choice of
RapidIO or PCI Express(R) connectivity for AdvancedTCA and MicroTCA(R)
platforms. These platforms are ideally suited for numerous applications that
include telecom, radar, sonar, and image inspection. The architecture
flexibility and strong development support have resulted in major telecom
equipment manufacturers around the world employing Ensemble platforms to trial
and demonstrate LTE, HSPA, PHS and other wireless standards. The addition of
the MPC-102 increases the processing density of Ensemble platforms and
supports the development of high-end MicroTCA systems.
September -- Mercury announced it was selected by BAE Systems to provide a
Synthetic Vision display for a rotorcraft brownout landing system. This
contract award follows one from BAE Systems Australia, announced in March
2007, also for a brownout landing system. Rotorcraft brownouts are intense,
blinding dust clouds that result from helicopter take-off and landings on dry,
dusty terrain. Mercury's Synthetic Vision will generate a computerized 3D
terrain map drawn from databases and sensor readings, allowing pilots to "see"
the surrounding terrain and obstacles whether or not they have visibility
outside their window.
Conference Call Information
Mercury will host a conference call Wednesday, October 24, 2007 at 5:00
p.m. EDT to discuss the first quarter 2008 results and review the financial
and business outlook for the remainder of the year.
To listen to the conference call, dial (888) 713-3590 in the USA and
Canada, and for international, dial (913) 981-5543. The conference code number
is 2924334. Please call five to ten minutes prior to the scheduled start time.
This call will also be broadcast live over the web at www.mc.com/investor
under Financial Events.
A replay of the call by telephone will be available from approximately
8:00 p.m. EDT on Wednesday, October 24 through midnight EDT on Friday,
November 2. To access the replay, dial (888) 203-1112 in the USA and Canada,
and for international, dial (719) 457-0820. Enter access code 2924334. A
replay of the webcast of the call will be available for an extended period of
time on the Financial Events page of the Company's website at
www.mc.com/investor.
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.
Forward-Looking Safe Harbor 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 2008 business performance and beyond. You
can identify these statements by our 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, and difficulties in retaining key customers. These risks and
uncertainties also include such additional risk factors as are discussed in
the Company's recent filings with the U.S. Securities and Exchange Commission,
including its Annual Report on Form 10-K for the year ended June 30, 2007. 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.
Mercury Computer Systems, Inc. -- Where Challenges Drive Innovation
Mercury Computer Systems is the leading provider of computing systems and
software for data-intensive applications that include image processing, signal
processing, and visualization. With a strong commitment to innovation, our
expertise in algorithm optimization, systems development, and silicon design
is blended with software application knowledge and industry-standard
technologies to solve unique computing challenges. We work closely with our
customers to architect solutions that have a meaningful impact on everyday
life: detecting aneurysms; designing safer, more fuel-efficient aircraft;
identifying security threats; discovering oil; developing new drugs; and
visualizing virtually every aspect of scientific investigation.
Mercury's comprehensive, purpose-built solutions capture, process, and
present data for the world's largest medical imaging companies, 8 of the 10
top defense prime contractors, and other leading Fortune 500 and mid-market
companies in semiconductor, energy, telecommunications, and other industries.
Our dedication to performance excellence and collaborative innovation
continues a 24-year history in enabling customers to stay at the forefront of
the markets they serve.
Mercury is based in Chelmsford, Massachusetts and serves customers
worldwide through a broad network of direct sales offices, subsidiaries, and
distributors. We are listed on the Nasdaq National Market (NASDAQ: MRCY).
Visit Mercury at www.mc.com.
Contact:
Robert Hult, SVP, Chief Financial Officer
978-967-1990 / rhult@mc.com
Cell Broadband Engine is a trademark, and PLAYSTATION is a registered
trademark of Sony Computer Entertainment Inc. MultiCore Plus, Visage Imaging,
and VistaNav are trademarks, and Ensemble is a registered trademark 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) September 30, June 30,
2007 2007
Assets
Current assets:
Cash and cash equivalents $51,245 $51,293
Marketable securities 89,908 72,482
Accounts receivable, net 34,248 36,203
Inventory 23,640 22,410
Deferred tax assets, net 1,084 1,637
Prepaid expenses and other current assets 6,286 9,726
Total current assets 206,411 193,751
Marketable securities 17,397 33,350
Property and equipment, net 13,408 14,764
Goodwill 96,530 94,622
Acquired intangible assets, net 12,939 14,526
Deferred tax assets, net 2,215 2,085
Other non-current assets 7,069 7,167
Total assets $355,969 $360,265
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $9,949 $14,659
Accrued expenses 9,008 14,221
Accrued compensation 10,734 9,403
Notes payable and current capital lease
obligation 135 140
Income taxes payable 2,729 1,273
Deferred revenues and customer advances 14,858 13,375
Total current liabilities 47,413 53,071
Notes payable and non-current capital
lease obligation 125,059 125,083
Accrued compensation 1,983 1,918
Deferred tax liabilities 55 392
Deferred gain on sale-leaseback 9,895 10,184
Other long-term liabilities 1,044 960
Total liabilities 185,449 191,608
Shareholders' equity:
Common stock 216 214
Additional paid-in capital 92,155 89,332
Retained earnings 72,680 75,988
Accumulated other comprehensive income 5,469 3,123
Total shareholders' equity 170,520 168,657
Total liabilities and shareholders' equity $355,969 $360,265
MERCURY COMPUTER SYSTEMS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended
September 30,
2007 2006
Net revenues $49,181 $48,947
Cost of revenues (1) 17,700 21,947
Gross profit 31,481 27,000
Operating expenses:
Selling, general and administrative (1) 19,178 20,684
Research and development (1) 13,705 14,453
Amortization of acquired intangible assets 1,801 1,773
In-process research and development - 3,060
Impairment of long-lived assets (2) - 79
Restructuring 55 689
Total operating expenses 34,739 40,738
Loss from operations (3,258) (13,738)
Interest income 2,108 1,798
Interest expense (845) (954)
Other income (expense), net 303 17
Loss before income taxes (1,692) (12,877)
Income tax provision (benefit) 1,616 (1,224)
Net loss $(3,308) $(11,653)
Net loss per share:
Basic $(0.15) $(0.55)
Diluted $(0.15) $(0.55)
Weighted average shares outstanding:
Basic 21,474 21,126
Diluted 21,474 21,126
(1) Includes stock-based compensation expense,
which was allocated as follows:
Cost of revenues $99 $(71)
Selling, general and administrative $1,912 $1,756
Research and development $648 $538
(2) Impairment of long-lived assets consists of:
Impairment of non-compete agreement $- $79
MERCURY COMPUTER SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
September 30,
2007 2006
Cash flows from operating activities:
Net loss $(3,308) $(11,653)
Depreciation and amortization 3,987 4,406
In-process research and development - 3,060
Other and non-cash items, net 2,438 1,469
Changes in operating assets and liabilities 845 (2,719)
Net cash provided by (used in) operating
activities 3,962 (5,437)
Cash flows from investing activities:
(Purchases) sales of marketable securities,
net (1,364) 6,265
Purchases of property and equipment, net (766) (2,531)
Acquisitions, net of cash acquired, and
acquired intangible assets (2,400) (1,497)
Net cash (used in) provided by investing
activities (4,530) 2,237
Cash flows from financing activities:
Proceeds from employee stock option and
purchase plans 445 472
Repurchases of common stock (278) (19)
Payments of principal under notes payable and
capital leases, net (30) (846)
Gross tax windfall from stock-based
compensation 223 21
Net cash provided by (used in) financing
activities 360 (372)
Effect of exchange rate changes on cash and
cash equivalents 160 (71)
Net decrease in cash and cash equivalents (48) (3,643)
Cash and cash equivalents at beginning of period 51,293 22,983
Cash and cash equivalents at end of period $51,245 $19,340
UNAUDITED SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
The Company provides non-GAAP operating income (losses), non-GAAP net
income (losses), and non-GAAP basic and diluted earnings (losses) 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.
In-process research and development. The Company incurs in-process
research and development expenses when technological feasibility for
acquired technology has not been established at the acquisition date and
no future alternative use for such technology exists. These costs do not
relate to the Company's ongoing operations and generally cannot be changed
or influenced by management at the time of or 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 acquired intangible assets in business combinations. The
Company incurs impairment charges of acquired intangible assets in
business combinations, such as a non-compete agreement, based on events
that may or may not be within the control of management. 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.
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. 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.
Adjustments for related tax impact. Finally, for purposes of calculating
non-GAAP net income (losses) and non-GAAP basic and diluted earnings
(losses) per share, management adjusts the provision (benefit) for income
taxes to tax effect the non-GAAP adjustments described above as they have
a significant impact on the Company's income tax provision (benefit).
Management excludes the above-described expenses 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
September 30,
2007 2006
Loss from operations $(3,258) $(13,738)
Stock-based compensation 2,659 2,223
Amortization of acquired intangible assets 1,801 1,773
In-process research and development - 3,060
Impairment of non-compete agreement - 79
Restructuring 55 689
Non-GAAP income (loss) from operations $1,257 $(5,914)
Three months ended
September 30,
2007 2006
Net loss $(3,308) $(11,653)
Stock-based compensation 2,659 2,223
Amortization of acquired intangible assets 1,801 1,773
In-process research and development - 3,060
Impairment of non-compete agreement - 79
Restructuring 55 689
Tax impact of excluding the above items 769 292
Non-GAAP net income (loss) $1,976 $(3,537)
Non-GAAP net income (loss) per share:
Basic $0.09 $(0.17)
Diluted $0.09 $(0.17)
Non-GAAP weighted average shares outstanding:
Basic 21,474 21,126
Diluted (1) 21,763 21,126
(1) When calculating diluted earnings per share, convertible debt must be
assumed to have converted if the effect on EPS would be dilutive.
Assuming a 30% tax rate, dilution occurs when net income is $3.0
million per quarter. Accordingly, for non-GAAP net income (loss) per
share for the three months ended September 30, 2007 and September 30,
2006, diluted shares exclude the conversion of the convertible debt as
the effect would be anti-dilutive.
MERCURY COMPUTER SYSTEMS, INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
Year ending June 30, 2008
(Loss) Income Per Share - Diluted
GAAP expectation $(0.54)
Adjustment to exclude stock-based compensation 0.52
Adjustment to exclude amortization of acquired
intangible assets 0.33
Adjustment for tax impact 0.02
Non-GAAP expectation $0.33
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
Quarter ending December 31, 2007
Loss Per Share - Diluted
GAAP expectation $(0.37)
Adjustment to exclude stock-based compensation 0.14
Adjustment to exclude amortization of acquired
intangible assets 0.08
Adjustment for tax impact 0.10
Non-GAAP expectation $(0.05)
SOURCE Mercury Computer Systems, Inc.
CONTACT:
Robert Hult
SVP, Chief Financial Officer of Mercury Computer Systems, Inc.
1-978-967-1990, rhult@mc.com
Web site: www.mc.com/ |
Mercury Computer Systems
