Mercury Computer Systems Reports First Quarter Fiscal 2009 Revenues of $49.1 Million

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22 October 2008

Financial News

Mercury Computer Systems Reports First Quarter Fiscal 2009 Revenues of $49.1 Million

Mercury Computer Systems, Inc. reported results for its first quarter of fiscal 2009, which ended September 30, 2008.

In the first quarter, Mercury sold the assets and intellectual property (IP) of its subsidiary, SolMap Pharmaceuticals, formerly referred to as Mercury's Biotech Group, to FORMA Therapeutics. In addition, during the fourth quarter of fiscal 2008, Mercury's subsidiary Visage Imaging sold its Embedded Systems and Professional Services (ES/PS) business. All historical financial statements have been adjusted to reflect these businesses as discontinued operations.

First quarter revenues were $49.1 million, an increase of $1.1 million from the prior year's first quarter.

First quarter GAAP operating losses were $(1.3) million, a $1.6 million improvement as compared to a GAAP operating loss of $(2.9) million in the first quarter of fiscal 2008. First quarter GAAP net losses from continuing operations were $(1.0) million. GAAP diluted losses per share from continuing operations were $(0.05) for the first quarter. First quarter GAAP operating losses include $3.4 million in charges, consisting of $1.4 million in stock-based compensation costs, $1.4 million in amortization of acquired intangible assets, and $0.6 million in restructuring expenses. Excluding the impact of these charges, first quarter non-GAAP operating income was $2.0 million. First quarter non-GAAP net income from continuing operations was $1.5 million. Non-GAAP diluted earnings per share from continuing operations were $0.07 for the first quarter.

Cash flows from operating activities were a net inflow of $2.6 million in the first quarter. Cash, cash equivalents, and marketable securities as of September 30, 2008 were $167.0 million, an increase of $0.5 million from June 30, 2008.

"We have set out to make fiscal 2009 a pivotal transition year for Mercury, and the first quarter was a strong start," said Mark Aslett, President and CEO of Mercury Computer Systems, Inc. "Mercury met or exceeded the majority of our internal financial and operational targets, including our first quarter guidance. Our efforts to improve the underlying operations of the business enhanced our profitability and increased our cash flow. At the same time, we made further progress in strengthening our core ACS defense business and divesting unprofitable and non-core businesses. These achievements give us confidence that Mercury will exit fiscal 2009 as a more focused and profitable business, and an enterprise with broader opportunities for growth."

Backlog

The Company's total backlog at the end of the first quarter was $87.8 million, a $0.7 million sequential increase from the fourth quarter of last fiscal year, and a $3.6 million increase from the same quarter last year as reported. Of the current total backlog, $72.5 million represents shipments scheduled over the next 12 months. The book-to-bill ratio was 1.01 for the quarter.

Revenues by Operating Unit

Advanced Computing Solutions (ACS) -- Revenues for the quarter from ACS were $44.6 million, representing 91% of the Company's total revenues. Approximately 74% of ACS's revenue for the quarter related to defense business as compared to approximately 64% in the same quarter last year.

Visage Imaging (Visage) -- Revenues for the quarter from Visage were $2.0 million.

Visualization Sciences Group (VSG) -- Revenues for the quarter from VSG were $2.3 million.

Emerging Businesses -- The results of this segment primarily consist of Mercury's wholly-owned subsidiary Mercury Federal Systems, Inc. (MFS). During the first quarter, MFS secured $4.0 million in bookings and recorded $0.3 million in revenues.

Business Outlook

This section presents our current expectations and estimates, given current visibility, on our business outlook for the upcoming fiscal quarter. 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 second quarter of fiscal year 2009, revenues are currently expected to be in the range of approximately $47 million to $49 million. At this range, GAAP losses per share are currently expected to be in the range of a loss of $(0.22) to a loss of $(0.14). Excluding the impact of stock-based compensation costs, amortization of acquired intangible assets and the difference between expected GAAP and non-GAAP tax rates, second quarter fiscal year 2009 non-GAAP earnings (losses) per share are currently expected to range from a loss of $(0.05) to breakeven.

Recent Highlights

July -- Mercury announced that the Mercury PowerBlock™ 50 received the Editor's Choice Award from Military Embedded Systems magazine for its "maximum horsepower in a minimum-sized system envelope." The PowerBlock 50 is an ultra-compact, ruggedized computer optimized for real-time image, sensor, and signal processing for small platforms in the 6- to 10-pound range. The PowerBlock 50 was selected from hundreds of new product introductions that ranged from hardware and software to connectors and cable assemblies.

July -- Mercury announced it received the coveted STAR Supplier Award from Lockheed Martin. The Company was recognized for exceptional quality and performance in the Electronic Systems Business Area. The award, which signifies exemplary performance in providing goods or services that contribute to the success of the Lockheed Martin mission, marks a decade in the ongoing alliance between Lockheed and Mercury to deliver advanced computing solutions to the embedded defense systems market.

July -- Mercury announced the retirement of James "Jay" R. Bertelli as a Mercury employee and its Executive Chairman of the Board. Mr. Bertelli has assumed the role of Non-Executive Chairman of the Board until the Company's 2008 annual shareholder meeting to be held later this year, after which he will retire from the Board of Directors. Mr. Bertelli has agreed to enter into a non-compete agreement and to provide consulting services to Mercury.

July -- Mercury announced that the Echotek® Series advanced RF and mixed-signal solutions deliver unsurpassed tuning speeds and best-in-class signal integrity for a growing range of network-centric applications. The Echotek Series RF and mixed-signal solutions enable a comprehensive range of narrowband, wideband, and ultra-wideband tuning and receiving capabilities for the most challenging communications intelligence (COMINT), electronic intelligence (ELINT), electronic warfare (EW), radar, and other sensor-based applications.

August -- Mercury announced it received a comprehensive design win from a top-tier defense prime contractor for a homeland security application. The contract calls for extensive algorithm optimization and acceleration, Cell Broadband Engine™ (BE) processor-based products, and services that include system engineering mapping, application development training, and installation and configuration support. Mercury was chosen because of the unique ability to optimize a full spectrum of processor architectures in order to provide the highest performance and best value for the customer's technology investment.

September -- Mercury introduced the Converged Sensor Network™ (CSN™) Architecture and the SigmaNET™ VXS-based sensor networking solution for the next-generation battlefield. By combining the agility of cluster computing with sensors at the tactical edge, the CSN Architecture supports a more robust sensor computing and networking environment, providing the flexibility to get information quickly to authorized users via industry-standard networking. The SigmaNET solution of hardware and software enhancements, which enables sensor networking and converged management in existing embedded systems, was delivered to a leading defense customer for the processing and dissemination of sensor data including electronic imaging, video, and weapons systems.

September -- Visage Imaging® announced it has partnered with the American College of Radiology to provide its Visage® CS Thin Client Server, which will be used for interactive radiology education on Coronary CT Angiography and the Dartmouth PET/CT Course. The Visage CS (Client Server) system provides true thin client, 3D-based image interpretation, post-processing, and image distribution for CT, MR, PET, PET-CT, SPECT, and SPECT-CT imaging, enabling virtually "instant" access to all data anytime, anywhere inside or outside the hospital or imaging center.

October -- Mercury announced that it closed SolMap Pharmaceuticals, its biotech venture, and sold the assets and IP to FORMA Therapeutics of Cambridge, Massachusetts. FORMA Therapeutics was recently funded by the Novartis Option Fund, a venture capital arm of Novartis AG, one of the world's largest pharmaceutical firms. FORMA will integrate SolMap's assets and IP into its transformative chemistry and biology platforms to unlock the best targets and pathways that genomic medicine has revealed. The transaction was completed on September 30, 2008.

Conference Call Information

Mercury will host a conference call on Wednesday, October 22, 2008 at 5:00 p.m. EDT to discuss the first quarter 2009 results and review the financial and business outlook for the remainder of the year.

A replay of the call by telephone will be available from approximately 8:00 p.m. EDT on Wednesday, October 22 through 12:00 a.m. EDT on Friday, October 31. To access the replay, dial (888) 203-1112 in the USA and Canada, and (719) 457-0820 for all other countries. Enter access code 3495048. 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 http://www.mc.com/investor.

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