Mercury Computer Systems (ticker: MRCY, exchange: NASDAQ Global Select Market (.O))
News Release -
26-Oct-2006
Mercury Computer Systems Reports First Quarter Revenues of $48.9 Million GAAP Losses per Share of $0.55
Non-GAAP Losses per Share of $0.17
CHELMSFORD, Mass., Oct. 26 /PRNewswire-FirstCall/ -- Mercury Computer
Systems, Inc. (NASDAQ: MRCY) reported results for its first quarter ended
September 30, 2006.
First quarter revenues were $48.9 million, a decrease of 27% from the
prior year's first quarter. Cash flows from operating activities were a net
outflow of $5.4 million in the first quarter. Cash, cash equivalents, and
marketable securities as of September 30, 2006 were $152.7 million.
First quarter GAAP operating losses were $13.7 million. First quarter GAAP
net losses were $11.7 million. GAAP diluted losses per share were $0.55 for
the first quarter. GAAP net losses include $7.8 million in charges, consisting
of $2.2 million in stock-based compensation costs, $1.8 million in
amortization of acquired intangible assets, $3.1 million of in-process
research and development charges, and $0.7 million in restructuring costs.
Excluding the impact of these charges, first quarter non-GAAP operating losses
were $5.9 million. First quarter non-GAAP net losses were $3.5 million.
Non-GAAP diluted losses per share were $0.17 for the first quarter.
"Several months ago, in response to changing market dynamics, we made
major changes in leadership, business strategy, organizational structure, and
cost structure," said Jay Bertelli, President and Chief Executive Officer of
Mercury Computer Systems, Inc. "The impact of these changes is moving us in
the right direction; however, returning us to our historical operating profit
levels will require patience."
Mr. Bertelli continued, "We are experiencing early-stage successes from
the investments we have been making in FPGA, GPU, and Cell Broadband
Engine(TM) (BE) processors; and in data conversion and software technologies
from our acquisitions across our business units. The cycle from evaluation to
production ramp for OEMs and Primes is typically 12 to 24 months. We are in
the early stages of multiple new opportunities which are expected to return us
to our profit goal."
Backlog
The Company's total backlog at the end of the first quarter was $96.8
million, a $4.7 million increase over the same quarter last year. Of the
current total backlog, $83.2 million represents shipments scheduled over the
next 12 months. The book-to-bill ratio was 0.82 for the quarter.
Defense
Revenues for the quarter from Defense were $22.3 million, representing 46%
of the Company's total revenues. Revenues in the defense business unit were
adversely affected by the shift in government funding from procurement of
intelligence, surveillance and reconnaissance (ISR) systems to more immediate
and tactical requirements.
Commercial Imaging and Visualization
Revenues for the quarter from Commercial Imaging and Visualization were
$10.2 million, representing 21% of the Company's total revenues. The decline
in the 2D reconstruction legacy business was partially offset by growth in the
3D visualization business.
Advanced Solutions
Revenues for the quarter from Advanced Solutions were $12.8 million,
representing 26% of the Company's total revenues. Advanced Solutions
experienced strength in its traditional semiconductor business.
Modular Products and Services
Revenues for the quarter from Modular Products and Services were $3.6
million, representing 7% of the Company's total revenues.
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 ranges and 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 anticipate revenues to be in
the range of $235 million to $245 million, representing approximately 2%
growth from the prior year at the midpoint of the range.
At the midpoint of the revenue range, the Company currently expects fiscal
year 2007 GAAP losses per share to be approximately $0.50. The decline from
the previously guided fiscal year 2007 loss of $0.37 is the result of purchase
accounting associated with two small acquisitions which closed in the first
quarter, and a change in the calculated tax benefit rate. Excluding the impact
of stock-based compensation costs, amortization of acquired intangible assets,
restructuring costs, and in-process research and development charges, the
Company continues to expect fiscal year 2007 non-GAAP earnings per share to be
approximately $0.29.
For the second quarter of fiscal year 2007, revenues are currently
expected to be in the range of $52 million to $54 million.
The Company currently expects second quarter fiscal 2007 GAAP losses per
share to be in the range of a loss of $0.48 to a loss of $0.43. Excluding the
impact of stock-based compensation costs and amortization of acquired
intangible assets, second quarter fiscal year 2007 non-GAAP losses per share
are currently expected to be in the range of a loss of $0.23 to a loss of
$0.19.
Recent Highlights
In the first quarter of fiscal 2007, the Company reported industry firsts
for product releases and shipments of new technology/capabilities; as well as
new design wins and partnerships. As processor technologies grow more complex,
suppliers and users of specialized applications across industries increasingly
look to Mercury for help selecting and enabling the best technologies for
their unique computation needs (Cell BE processors, FPGAs, GPUs, etc.).
Mercury reported a significant level of activity around our Cell BE
processor-based offerings. The Mercury Cell Accelerator Board (CAB), announced
in July, is the first product with Cell Technology to enable
supercomputer-like performance in a PC workstation architecture, which is
ideal for rendering, imaging, and other compute-intensive applications. Also,
early-access Cell Technology-based development systems and associated software
were shipped to customers, and professional services were delivered across a
number of diverse industries. Production release systems began shipping in
September, at which time Mercury announced the MultiCore Plus(TM) SDK
(Software Development Kit) for programming multicore processors including the
Cell BE processor. This complete, intuitive programming environment empowers
users with programming ease and maximizes application performance for Cell BE
processor-based solutions from Mercury and IBM. In addition, Mercury reported
on results from customer engagements to validate performance enhancements
using the Cell BE processor, with gains of greater than an order of magnitude,
and projections of up to 100X for actual customer applications.
More recently, Mercury announced the collaboration with Barco Federal
Systems to design and develop a forward-deployable system based on the Cell BE
processor for real-time intelligence, for predictive analysis and decision
support in counter intelligence and human intelligence applications. Initial
concepts of the sensor visualization and data fusion system have been
completed in conjunction with the Battle Command Battle Lab at Fort Huachuca,
Arizona.
Mercury's leadership in the embedded defense market was recognized by two
industry research firms, the findings of which were announced in August.
Venture Development Corporation (VDC) released its report on vendors and
defense contractors and subcontractors in the COTS (commercial off-the-shelf)
market. Mercury is the board-level VME COTS market leader, with more than 25%
of the board-level VME COTS shipments. Electronic Trend Publications (ETP)
findings, which covered a variety of embedded technologies and multiple
applications segments, showed Mercury's lead position with 22% market share of
the military/aerospace applications market.
Also in the defense area, Mercury introduced two performance-leading COTS
computing systems for sensor-based applications, rounding out the most
comprehensive set of RapidIO- and Power Architecture microprocessor-based
computers of any vendor in the COTS industry. The PowerStream(R) 6600,
announced in August, will enable sensor computing on the move, and raises the
performance bar for conduction-cooled, COTS computer systems. The performance
density and rugged mechanical design of the PowerStream 6600 allows manned and
unmanned vehicles to support C4ISR (Command, Control, Communication,
Computers, Information, Surveillance and Reconnaissance) multimode missions
for air, sea, and land deployment.
The PowerStream 7000 FCN (FPGA Compute Node) is a reconfigurable computing
variant of the PowerStream 7000 multicomputer that enables twice the
processing performance in the same system footprint, and is designed to solve
some of the toughest signal and image processing challenges in high-end
intelligence, surveillance, and reconnaissance applications. Mercury delivered
the PowerStream 7000 FCN to Lockheed Martin for use with the Aegis Weapon
System that Lockheed developed for the U.S. Navy.
In July, Mercury also announced one of the highest performing signal
processing platforms in existence, with the communications platform specially
designed for an industry leader in broadband satellite network deployment.
Based on the Mercury Ensemble(TM) application platform and FPGA computation
technologies, the system will provide the signal processing resources and
high-speed communications infrastructure to support the massive computing
requirements for deployment of Ancillary Terrestrial Component (ATC) services,
which enable satellites to work together with terrestrial communications
systems to provide improved coverage and capacity for voice and data
communications. In its full configuration, the system will interconnect more
than 100 latest generation FPGAs and is expected to deliver 20 TeraOPS of
computing performance. The system is one of the first in the world that will
be deployed to address the challenge of spectrum reuse.
Also in August, Mercury announced the shipment of the industry's first
COTS wideband remote transceiver. The Echotek(TM) Series ECV4-RFT is a
mixed-signal module with unique capability to coordinate data streams to and
from sets of spatially distributed sensors. With the Echotek ECV4-RFT,
telecommunications antenna designers now have new choices for both fixed-base
and portable phased-array antennas.
Also based on Echotek technology, the Visage(TM) MR, introduced in
September, is an advanced digital MRI (magnetic resonance imaging) receiver
with increased signal-to-noise levels that delivers stunning MRI image
quality, shorter scan times, and higher patient throughput. The module,
specifically developed for medical imaging, has four times the resolution of
current-generation MRI receivers coupled with an extremely high sampling rate.
In clinical trials, Visage MR has shown a significant improvement in image
quality and reduced scan times -- the two primary drivers of MR imaging.
Mercury combined Echotek's unique expertise in extracting clear signals from
electronic clutter with MR-specific signal processing and noise-reduction
technology, to create the Visage MR product.
Mercury's expanding Visage product line and growing roster of partners and
vendors have helped to solidify a leading position in medical image
distribution. In July, Mercury announced strategic agreements with three PACS
(picture archiving and communication systems) partners -- FPS in France, Color
Printer Systems (CPS) in Germany, and Medical Imaging PACS Pty Ltd in
Australia. Mercury and its PACS partners provide hospitals with highly
integrated solutions that span the diagnostic workflow and significantly
accelerate the processing of ever-larger amounts of medical imaging data.
These agreements expand Mercury's cooperation with leading medical OEMs, and
its PACS installation base to more than 1,000 sites worldwide.
Moving deeper into the medical imaging realm, Mercury's amira(R)
visualization software, based on Version 6.0 of Open Inventor(TM) by Mercury
Computer Systems, forms the basis for Pfizer's computational biochemistry
MoViT software, which is currently being used to design compounds to help
battle malaria. In July, Mercury announced an agreement for no-cost software
licensing to Dr. David Matthews, for use in the support of the Medicines for
Malaria Venture (MMV), a nonprofit organization committed to discovering,
developing, and delivering affordable antimalarial drugs. Dr. Matthews,
retired from Pfizer, is providing pro-bono services to MMV. Using Mercury's
technology and Pfizer's software, the project has made significant advances
over the past 18 months, helping to further MMV's mission.
Going into the new quarter, Mercury announced the election of Vincent
Vitto to the board of directors. Mr. Vitto recently retired after serving as
President and Chief Executive Officer of The Charles Stark Draper Laboratory,
Inc. since 1997. Prior to that, he spent 32 years of increasing responsibility
at MIT Lincoln Laboratory, rising to Assistant Director for Surface
Surveillance and Communications. Mr. Vitto received honors from both the
Department of Navy and Air Force for public service in 1992, 1998, and 2004.
He brings a deep background in aerospace and defense, including radar imaging,
satellite communications, and air traffic control, to Mercury's board. With
the addition of Mr. Vitto, Mercury Computer Systems' board now has nine
members.
Conference Call Information
Mercury will host a conference call Thursday, October 26, 2006 at 5:00
p.m. ET to discuss the first quarter 2007 results and review the financial and
business outlook for the remainder of the year.
To listen to the conference call, dial (800) 406-5345 in the USA and
Canada, and for international, dial (913) 981-5571. The conference code number
is 2746374. 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. ET on Thursday, October 26 through midnight ET on Friday, November
3. To access the replay, dial (888) 203-1112 in the USA and Canada, and for
international, dial (719) 457-0820. Enter access code 2746374. 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 2007 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, 2006. 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 23-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
amira is a registered trademark of Konrad-Zuse-Zentrum fur
Informationstechnik Berlin (ZIB). Cell Broadband Engine is a trademark of Sony
Computer Entertainment Inc. Open Inventor is a trademark of Silicon Graphics,
Inc. in the U.S. and other countries worldwide, used under license from
Silicon Graphics, Inc. Echotek, Ensemble, MultiCore Plus, and Visage are
trademarks, and PowerSteam 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,
2006 2006
Assets
Current assets:
Cash and cash equivalents $19,340 $22,983
Marketable securities 96,357 113,057
Accounts receivable, net 31,174 34,518
Inventory 22,883 19,870
Deferred tax assets, net 6,496 6,495
Prepaid expenses and other current
assets 6,032 4,226
Total current assets 182,282 201,149
Marketable securities 36,973 26,162
Property and equipment, net 31,982 32,091
Goodwill 92,808 91,850
Acquired intangible assets, net 21,512 22,876
Deferred tax assets, net 8,068 7,535
Other non-current assets 4,680 4,783
Total assets $378,305 $386,446
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $13,013 $14,196
Accrued expenses 11,136 8,236
Accrued compensation 10,858 9,146
Notes payable and current capital
lease obligation 9,856 10,067
Income taxes payable - 3,247
Deferred revenues and customer
advances 13,619 12,844
Total current liabilities 58,482 57,736
Notes payable and non-current capital
lease obligation 125,049 125,627
Accrued compensation 1,616 1,564
Deferred tax liabilities, net 8,174 8,732
Other long-term liabilities 912 798
Total liabilities 194,233 194,457
Shareholders' equity:
Common stock 212 210
Additional paid-in capital 80,694 77,999
Retained earnings 102,155 113,808
Accumulated other comprehensive
income (loss) 1,011 (28)
Total shareholders' equity 184,072 191,989
Total liabilities and
shareholders' equity $378,305 $386,446
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended
September 30,
2006 2005
Net revenues $48,947 $66,901
Cost of revenues 21,947 24,519
Gross profit 27,000 42,382
Operating expenses:
Selling, general and
administrative 20,684 20,159
Research and development 14,453 15,874
Amortization of acquired
intangible assets 1,773 1,520
In-process research and
development 3,060 548
Restructuring and impairment of
long-lived assets 768 -
Total operating expenses 40,738 38,101
(Loss) income from operations (13,738) 4,281
Interest income 1,798 1,569
Interest expense (954) (1,036)
Other income (expense), net 17 (5)
(Loss) income before income taxes (12,877) 4,809
Income tax (benefit) provision (1,224) 1,737
Net (loss) income $(11,653) $3,072
Net (loss) income per share:
Basic $(0.55) $0.15
Diluted $(0.55) $0.14
Weighted average shares outstanding:
Basic 21,126 20,963
Diluted (1) 21,126 25,648
ABOVE PREPARED IN ACCORDANCE WITH GAAP
ADDITIONAL SUPPLEMENTAL INFORMATION:
UNAUDITED NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended
September 30,
2006 2005
Net revenues $48,947 $66,901
Cost of revenues (a) 22,018 24,373
Gross profit 26,929 42,528
Operating expenses:
Selling, general and
administrative 18,928 18,782
Research and development 13,915 15,313
Total operating expenses (a) (b) (c) (d) 32,843 34,095
(Loss) income from operations (a) (b) (c) (d) (5,914) 8,433
Interest income 1,798 1,569
Interest expense (954) (1,036)
Other income (expense), net 17 (5)
(Loss) income before income
taxes (a) (b) (c) (d) (5,053) 8,961
Income tax (benefit) provision (e) (1,516) 2,688
Net (loss) income $(3,537) $6,273
Net (loss) income per share:
Basic $(0.17) $0.30
Diluted $(0.17) $0.27
Weighted average shares outstanding:
Basic 21,126 20,963
Diluted (1) 21,126 25,648
A reconciliation between net (loss) income on a GAAP
basis and non-GAAP net (loss) income is as follows:
Three months ended
September 30,
2006 2005
GAAP net (loss) income $(11,653) $3,072
(a) Stock-based compensation:
Cost of revenues (71) 146
Selling, general and
administrative 1,756 1,377
Research and development 538 561
(b) Amortization of acquired
intangible assets 1,773 1,520
(c) In-process research and
development 3,060 548
(d) Restructuring and impairment of
long-lived assets 768 -
(e) Income tax effect 292 (951)
Non-GAAP net (loss) income $(3,537) $6,273
(1) Under GAAP, when calculating diluted earnings per share, convertible
debt must be assumed to have converted if the effect on EPS would be
dilutive. For Mercury, dilution occurs when net income is $3.9
million per quarter (using a September 30, 2006 10% GAAP effective tax
rate), $2.7 million per quarter (using a September 30, 2005 36% GAAP
effective tax rate) or $3.0 million per quarter on a non-GAAP basis
(using a 30% non-GAAP effective tax rate). Accordingly, for net
income for the three months ended September 30, 2006, diluted shares
exclude the conversion of the convertible debt as the effect would be
anti-dilutive. For the three months ended September 30, 2005, diluted
shares assume the conversion of the convertible debt as the effect
would be dilutive. Accordingly, for the three months ended September
30, 2005, 4.1 million shares have been included in diluted shares and
$0.5 million of net interest expense and deferred financing costs have
been added back to net income for the diluted earnings per share
calculation. On a non-GAAP basis for the three months ended September
30, 2006, diluted shares exclude the conversion of the convertible
debt as the effect would be anti-dilutive. On a non-GAAP basis for the
three months ended September 30, 2005, diluted shares assume the
conversion of the convertible debt as the effect would be dilutive.
Accordingly, on a non-GAAP basis for the three months ended September
30, 2005, 4.1 million shares have been included in diluted shares and
$0.6 million of net interest expense and deferred financing costs have
been added back to net income for the diluted earnings per share
calculation.
MERCURY COMPUTER SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
September 30,
2006 2005
Cash flows from operating activities:
Net (loss) income $(11,653) $3,072
Depreciation and amortization 4,406 3,790
In-process research and
development acquired in
acquisitions 3,060 550
Other and non-cash items, net 1,468 1,038
Changes in operating assets and
liabilities (2,719) 9,250
Net cash (used in) provided by
operating activities (5,438) 17,700
Cash flows from investing activities:
Sales (purchases) of marketable
securities, net 6,265 40,832
Purchases of property and
equipment (2,531) (2,557)
Acquisitions, net of cash acquired (1,497) (67,440)
Net cash provided by (used in)
investing activities 2,237 (29,165)
Cash flows from financing activities:
Proceeds from employee stock
option and purchase plans 472 1,452
Repurchases of common stock (19) (6,255)
Payments of principal under notes
payable and capital leases, net (846) (208)
Gross tax windfall from stock-
based compensation 21 83
Net cash used in financing
activities (372) (4,928)
Effect of exchange rate changes on
cash and cash equivalents (70) (141)
Net decrease in cash and cash
equivalents (3,643) (16,534)
Cash and cash equivalents at
beginning of period 22,983 43,143
Cash and cash equivalents at end of
period $19,340 $26,609
SOURCE Mercury Computer Systems, Inc.
CONTACT: Robert Hult, SVP, Chief Financial Officer of Mercury Computer
Systems, Inc., +1-978-967-1990, rhult@mc.com
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Mercury Computer Systems
