Press Releases

Fourth quarter operating results from continuing operations include:

Record defense bookings
Book to Bill ratio of 1.5
Adjusted EBITDA doubled year-over-year
Backlog increased 28% year-over-year

Company expects to achieve target business model for fiscal 2015

CHELMSFORD, Mass., August 5, 2014 (GLOBE NEWSWIRE) -- Mercury Systems, Inc. (Nasdaq:MRCY) (www.mrcy.com), a leading provider of affordable, commercially developed, open sensor processing systems and services for critical commercial, defense and intelligence applications, reported operating results for its fourth quarter and fiscal 2014 which ended June 30, 2014.

During the fourth quarter of fiscal 2014, the Company initiated a plan to divest its Mercury Intelligence Systems (MIS) subsidiary based on Mercury's strategic direction and investment priorities that are focused on its core business. As a result, MIS's financial results have been classified as discontinued operations beginning in the fourth quarter and for all prior periods presented in this release, and are excluded from the Company's financial results from continuing operations.

Fourth Quarter Fiscal 2014 Results

Fourth quarter fiscal 2014 revenues were $53.7 million, an increase of $1.9 million, or 4%, compared to the fourth quarter of fiscal 2013, as revenues from defense customers increased $4.6 million and revenues from commercial customers decreased $2.7 million. 

GAAP loss from continuing operations for the fourth quarter of fiscal 2014 was $0.7 million, or $0.02 per share, compared to GAAP loss from continuing operations of $2.0 million, or $0.06 per share, for the prior year's fourth quarter. Fourth quarter fiscal 2014 GAAP loss per share from continuing operations included $0.04 of restructuring charges and $0.04 for amortization of acquired intangible assets. Fourth quarter fiscal 2013 GAAP loss per share from continuing operations included $0.03 of restructuring charges and $0.05 for amortization of intangible assets.  

Fourth quarter fiscal 2014 GAAP loss from continuing operations included approximately $0.7 million in tax expense, $1.8 million in depreciation expense, $1.8 million in amortization of acquired intangible assets, $1.9 million in restructuring charges and $1.7 million in stock-based compensation costs. Fourth quarter fiscal 2014 adjusted EBITDA (income from continuing operations before interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition costs and other related expenses, fair value adjustments from purchase accounting, and stock-based compensation costs) was $7.2 million, compared to $3.5 million for the prior year's fourth quarter. 

GAAP net loss from discontinued operations for the fourth quarter of fiscal 2014 was $6.8 million, or $0.22 per share, compared to GAAP net loss from discontinued operations of $0.1 million, or $0.01 per share, for the prior year's fourth quarter. Fourth quarter fiscal 2014 GAAP net loss from discontinued operations included a $6.7 million, or $0.21 per share, goodwill impairment charge related to MIS.

The total GAAP net loss for the fourth quarter of fiscal 2014 was $7.5 million, or $0.24 per share, compared to total net loss of $2.0 million, or a loss of $0.07 per share, for the prior year's fourth quarter.

Cash flows from operating activities were a net inflow of $2.5 million in the fourth quarter of fiscal 2014, compared to a net inflow of $4.8 million in the fourth quarter of fiscal 2013. Free cash flow, defined as cash flow from operating activities less capital expenditures, was a net inflow of $0.9 million in the fourth quarter of fiscal 2014, compared to a net inflow of $3.2 million in the fourth quarter of fiscal 2013. Cash and cash equivalents as of June 30, 2014 were $47.3 million, an increase of $1.6 million from March 31, 2014.

Full Year Fiscal 2014 Results

For fiscal 2014, revenues were $208.7 million, a $14.5 million, or 7%, increase from fiscal 2013. Revenues from defense customers increased by $16.9 million, or 10%, over the prior year and revenues from commercial customers decreased by $2.4 million, or 12%, from the previous year.

GAAP loss from continuing operations for fiscal 2014 was $4.1 million, or $0.13 per share, compared to GAAP loss from continuing operations of $13.8 million, or $0.46 per share, for fiscal 2013. Fiscal 2014 GAAP loss from continuing operations of $4.1 million included approximately $1.8 million in tax benefits, $7.6 million in depreciation expense, $7.3 million in amortization of acquired intangible assets, $9.0 million in stock-based compensation costs, and $5.4 million in restructuring charges. Excluding the impact of these items, fiscal 2014 adjusted EBITDA was $23.5 million, compared to $9.9 million for the prior year.

Fiscal 2014 GAAP net loss from discontinued operations was $7.4 million, or $0.24 per share, compared to GAAP net earnings from discontinued operations of $0.6 million, or $0.02 per share, for fiscal 2013.

Fiscal 2014 total GAAP net loss was $11.4 million, or $0.37 per share, compared to a total net loss of $13.2 million, or $0.44 per share, for fiscal 2013.

Management Comments

"Mercury closed fiscal 2014 with strong momentum, delivering record defense bookings for the second consecutive quarter," said Mark Aslett, President and CEO, Mercury Systems. "For fiscal 2014 as a whole, our results from continuing 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%, adjusted EBITDA more than doubled, and we generated solid positive cash flow from operations."

"Mercury's double-digit bookings growth is a testament to the strategy we have pursued and the resultant technology we have developed, the capabilities we have acquired and the programs we have won as a result. Operationally, we are continuing to make rapid progress on the final phase of our acquisition integration plan, which is scheduled for completion by the end of the second quarter of fiscal 2015.  With our record opening backlog and strong bookings momentum, the operating leverage we are building in our business positions us well to achieve our goal of double-digit top-line growth, even stronger growth in adjusted EBITDA, and the achievement of our target business model for fiscal 2015," Aslett concluded.

Backlog

Mercury's total backlog at June 30, 2014 was $174.1 million, a $38.0 million increase from June 30, 2013. Of the June 30, 2014 total backlog, $144.0 million represents orders expected to be shipped over the next 12 months. The defense backlog at June 30, 2014 was $160.8 million, a $47.9 million increase from June 30, 2013. Bookings for the fourth quarter of fiscal 2014 were $80.2 million, a 25% increase compared to $64.3 million for the fourth quarter of fiscal 2013. The total book-to-bill ratio was 1.5 for the fourth quarter of fiscal 2014, compared to 1.2 for the fourth quarter of fiscal 2013.

Revenues by Reporting Segment

Mercury Commercial Electronics (MCE) — Revenues for the fourth quarter of fiscal 2014 from MCE were $47.5 million, representing an increase of $2.4 million, or 5%, from the fourth quarter of fiscal 2013. The increase in revenues compared to last year's fourth quarter related primarily to higher Patriot program revenue along with increased revenue from a signals intelligence program with Boeing. Approximately 93% of MCE revenues for the fourth quarter of fiscal 2014 related to defense business, as compared to approximately 87% in the fourth quarter of fiscal 2013. 

Mercury Defense Systems (MDS)— Revenues for the fourth quarter of fiscal 2014 from MDS were $9.0 million, a decrease of $0.5 million from the fourth quarter of fiscal 2013.

The revenues by reporting segment do not include adjustments to eliminate $2.8 million of inter-company revenues included in those reporting segments in the fourth quarter of both fiscal 2014 and fiscal 2013.

Business Outlook

This section presents our current expectations and estimates, given current visibility, on our business outlook for the current fiscal quarter and fiscal year 2015. 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 with respect to these estimates, including those listed in the Safe Harbor Statement below and in our periodic filings with the U.S. Securities and Exchange Commission, and make themselves aware of how these risks may impact our actual performance.

For the first quarter of fiscal 2015, revenues are currently forecasted to be in the range of $50 million to $55 million. At this range, GAAP loss per share from continuing operations is expected to be in the range of $0.01 to $0.06 per share. Projected GAAP loss per share from continuing operations includes $0.02 per share of restructuring charges and $0.04 per share for forecasted amortization of acquired intangible assets.

Adjusted EBITDA for the first quarter of fiscal 2015 is expected to be in the range of $4.2 million to $7.0 million. 

Revenues for fiscal 2015 are projected to be in the range of $224 million to $236 million, representing 7% to 13% revenue growth relative to fiscal 2014. At this range, GAAP earnings per share from continuing operations are projected to be in the range of $0.21 to $0.32 per share. Projected GAAP earnings per share from continuing operations includes $0.06 per share of restructuring charges and $0.13 per share for amortization of acquired intangible assets.

Adjusted EBITDA for fiscal 2015 is expected to be in the range of $37 million to $43 million.

Recent Highlights

June - Mercury Systems announced it received $3.4 million in orders from a leading defense prime contractor for integrated microwave assemblies for an airborne electronic warfare application. The orders are expected to be shipped by the end of Mercury's fiscal 2015 third quarter.

June - Mercury announced that its Mercury Commercial Electronics facility in Manteca, California, received a Superior security rating in a recent vulnerability assessment conducted by the Defense Security Service (DSS). This Superior rating, the highest level awarded to cleared defense contractors by DSS, is the company's sixth Superior rating overall and a significant milestone for this facility, which previously had earned a Commendable rating.

June - Mercury announced that its Mercury Defense Systems subsidiary received a $1.5 million order from the U.S. Navy for advanced Digital RF Memory jammers to support both U.S. Navy and U.S. Air Force requirements. The order is part of the firm-fixed-price, indefinite delivery/indefinite quantity (IDIQ) time and material contract award worth up to $56.7 million. The IDIQ was originally received by KOR Electronics (now Mercury Defense Systems) in March 2010 and increased in 2013.

May - Mercury announced it received a $2.7 million follow-on order from a leading defense prime contractor for digital signal processing modules for a manned airborne multi-mode surveillance radar application. The order is expected to be shipped by the end of Mercury's fiscal 2015 first quarter.

May - Mercury announced that both its headquarters facility in Chelmsford, Massachusetts and its newly opened Advanced Microelectronics Center in Hudson, New Hampshire, part of Mercury's Commercial Electronics business unit, received "Superior" security ratings in recent vulnerability assessments conducted by the U.S. Department of Defense's DSS. This is the second consecutive "Superior" rating, the highest level awarded to cleared defense contractors by DSS, received by each facility.

April - Mercury celebrated the grand opening of its new Advanced Microelectronics Center in Hudson, New Hampshire on Friday, April 18, 2014. New Hampshire Governor Maggie Hassan and representatives from the offices of United States Senators Kelly Ayotte (R) and Jeanne Shaheen (D) attended the ribbon cutting ceremony hosted by Mercury President and CEO Mark Aslett, along with other senior Mercury executives.

April - Mercury announced it received a $3.2 million follow-on order from a leading defense prime contractor for high-performance digital signal processing modules for un-manned airborne synthetic aperture radar application. The order was booked in the Company's fiscal 2014 third quarter and is expected to be shipped by its fiscal 2015 third quarter.

April - Mercury announced it received $8.8 million in follow-on orders from a leading defense prime contractor for high performance signal processing subsystems for a ship-borne radar application. The orders were booked in the Company's fiscal 2014 third quarter and are expected to be shipped over the next several quarters.

Conference Call Information

Mercury will host a conference call and simultaneous webcast on Tuesday, August 5, 2014, at 5:00 p.m. ET to discuss the fourth quarter fiscal 2014 results and review its financial and business outlook going forward.

To join the conference call, dial (877) 303-6977 in the USA and Canada, or (760) 298-5079 in all other countries. Please call five to ten minutes prior to the scheduled start time. The live audio webcast can be accessed from the 'Events and Presentations' page of Mercury's website at www.mrcy.com/investor.

A replay of the webcast will be available two hours after the call and archived on the same web page for 6 months.

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 adjusted EBITDA and free cash flow, which are non-GAAP financial measures. Adjusted EBITDA excludes certain non-cash and other specified charges. Free cash flow is defined as cash flow from operating activities less capital expenditures. The Company believes these non-GAAP financial measures are useful to help investors understand its past financial performance and prospects for the future. However, the presentation of adjusted EBITDA and free cash flow is not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. Management believes the adjusted EBITDA and free cash flow 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 the 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.

Mercury Systems - Innovation That Matters^™

Mercury Systems (Nasdaq:MRCY) is a leading provider of affordable, commercially developed, open sensor processing systems and services for critical commercial, defense and intelligence applications. These capabilities make us the first commercially based defense electronics company built to meet rapidly evolving next generation defense challenges. Mercury Systems has worked on over 300 programs, including Aegis, Patriot, SEWIP, Gorgon Stare and Predator/Reaper. We are based in Chelmsford, Massachusetts with additional advanced manufacturing and other key facilities across the USA. To learn more, visit www.mrcy.com.

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 2014 business performance and beyond and the Company's plans for growth and improvement in profitability and cash flow. 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, 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, or in the U.S. Government's interpretation of, federal export control or 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, divestitures 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.

Mercury Systems and Innovation That Matters are trademarks of Mercury Systems, Inc. Other product and company names mentioned may be trademarks and/or registered trademarks of their respective holders.

CONTACT: Kevin Bisson, CFO

         Mercury Systems, Inc.

         978-967-1990