Mercury Computer Systems reported operating results for its first quarter of fiscal 2013 ended September 30, 2012.
First Quarter Fiscal 2013 Results
First quarter fiscal 2013 revenues were $49.4 million, an increase of $0.3 million from the first quarter of the prior fiscal year. Revenues from commercial customers increased by $0.8 million, while revenues from defense customers decreased by $0.5 million, as compared with the prior year's first quarter.
GAAP net loss from operations for the first quarter of fiscal 2013 was $7.2 million, or $0.24 per share, compared to GAAP net income from operations of $2.7 million, or $0.09 per diluted share, for the prior year's first quarter. First quarter fiscal 2013 GAAP net loss per share includes $0.11 for restructuring charges, $0.04 associated with the amortization of acquired intangible assets, and $0.01 for acquisition costs related to the Micronetics, Inc. acquisition. First quarter fiscal 2012 GAAP net earnings per share include $0.02 associated with the amortization of acquired intangible assets.
First quarter fiscal 2013 GAAP net loss from operations includes approximately $3.7 million in tax benefits, $2.2 million in depreciation expense, $2.3 million in stock-based compensation costs, $1.8 million in amortization of acquired intangible assets, $5.0 million in restructuring charges, $0.9 million in fair value adjustments from purchase accounting, and $0.2 million of acquisition costs and other related expenses. First quarter fiscal 2013 adjusted EBITDA (earnings from continuing operations before interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring, impairment of long-lived assets, acquisition costs and other related expenses, fair value adjustments from purchase accounting, and stock-based compensation costs) was $1.6 million, compared to $8.7 million for the prior year's first quarter.
Cash flow from operating activities was a net outflow of $9.9 million in the first quarter of fiscal 2013, compared to a net inflow of $4.2 million in the first quarter of fiscal 2012. Free cash flow, defined as cash flow from operating activities less capital expenditures, was a net outflow of $10.9 million in the first quarter of fiscal 2013, compared to a net inflow of $2.6 million in the first quarter of fiscal 2012. Cash and cash equivalents as of September 30, 2012 were $30.6 million, a decrease of $85.4 million from June 30, 2012, largely due to $74.3 million of cash used to purchase Micronetics (net of cash acquired and including the payoff of assumed debt from Micronetics), and cash used in operating activities.
"Mercury's financial results for the first quarter reflected the increasingly challenging conditions in the defense industry," said Mark Aslett, President and CEO, Mercury Computer Systems. "Current constraints on U.S. defense spending and uncertainties surrounding the future defense budget have led the industry to operate in what appears to be a soft sequestration environment. The resulting slowdowns in funding and contracting activity had a more significant impact on our first-quarter business than we initially anticipated - primarily due to delayed orders associated with the Navy's Surface Electronic Warfare Improvement Program (SEWIP) Block 2."
"During the first quarter we proactively responded to this difficult industry environment by implementing aggressive expense reduction actions that included reducing the size of our workforce by 142 positions," Aslett said. "We expect this restructuring and other cost control measures completed during the quarter to result in approximately $20 million of annualized savings beginning in the current second quarter of fiscal 2013. This is in addition to the $5 million of estimated annualized savings associated with the restructuring that took place in the fourth quarter of fiscal 2012."
"We have been careful to retain key engineering and middle management talent - and hence Mercury's unique capabilities and differentiation - during this process in order to preserve the intrinsic value of the business while also increasing its operating leverage," Aslett said. "At the same time, we have ensured that we have sufficient liquidity and financial flexibility, not only to manage the ongoing needs of the business, but also for future M&A purposes when end-market conditions become more favorable. As a result, we believe that Mercury will not only quickly recover when the defense industry returns to a more normal procurement environment, but also be positioned for accelerated growth and improved profitability for the long term."
Mercury's total backlog at September 30, 2012 was $120.2 million, a $15.6 million sequential increase from June 30, 2012, and an $18.4 million increase from September 30, 2011. Of the September 30, 2012 total backlog, $102.7 million represents orders scheduled to be shipped over the next 12 months. The defense backlog at September 30, 2012 was $107.9 million, a $6.5 million sequential increase from June 30, 2012, and a $10.1 million increase from September 30, 2011. The total book-to-bill ratio was 0.8 for the first quarter of fiscal 2013 compared to 1.3 for the first quarter of fiscal 2012 and 1.0 for the fourth quarter of fiscal 2012.
Revenues by Operating Segment
Advanced Computing Solutions (ACS) — Revenues for the first quarter of fiscal 2013 from ACS were $42.7 million, including KOR Electronics and Micronetics, Inc., representing a decrease of $4.6 million from the first quarter of fiscal 2012, as a result of a decrease of $5.4 million in defense and an increase of $0.8 million in commercial. Approximately 89% of ACS revenues for the first quarter of fiscal 2013 related to defense business, as compared to approximately 91% in the first quarter of fiscal 2012.
Mercury Federal Systems (MFS)— Revenues for the first quarter of fiscal 2013 from MFS were $9.9 million, including Paragon Dynamics, representing an increase of $5.8 million from the first quarter of fiscal 2012.
The revenues by operating segment do not include adjustments to eliminate $3.2 million of inter-company revenues included in those operating segments in the first quarter of fiscal 2013.
This section presents our current expectations and estimates, given current visibility, on our business outlook for the current 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 and in our periodic filings with the U.S. Securities and Exchange Commission, with respect to these estimates, and make themselves aware of the risk factors that may impact our actual performance.
For the second quarter of fiscal 2013, revenues are currently forecasted to be in the range of $43 million to $49 million. At this range, GAAP net loss per share is expected to be in the range of a net loss of $0.17 to $0.24 per share. Projected GAAP net loss per share includes $0.06 per share associated with forecasted amortization of acquired intangible assets and previously announced restructuring expense.
Adjusted EBITDA for the second quarter of fiscal 2013 is expected to be in the range of ($2.1) million to $0.7 million.
October - Mercury announced that it had entered into a credit agreement with a syndicate of commercial banks, with KeyBank National Association acting as the administrative agent. The credit agreement provides for a $200.0 million senior unsecured revolving line of credit (the "Revolver"). The Revolver is available for working capital, acquisitions, and general corporate purposes of Mercury and its subsidiaries. The Revolver is available for borrowing during a five year period, with interest payable periodically during such period as provided in the credit agreement and principal due at the maturity of the Revolver. Mercury has not borrowed under the credit agreement to date. In connection with entering into the credit agreement, Mercury terminated its prior revolving line of credit with Silicon Valley Bank.
October - Mercury announced that its KOR Electronics subsidiary received a five year sole source basic ordering agreement (BOA) from the U.S. Navy. This BOA supports the continued development of state-of-the-art techniques and target generation capabilities in conjunction with the advanced Digital RF Memory (DRFM) architecture developed by KOR Electronics. The BOA provides for research and development, production, engineering services and ongoing support and is valued at up to $58 million.
October - Mercury Computer Systems announced it had received a $2.2 million purchase order relating to an airborne radar application for fighter aircraft.
September - Mercury announced a groundbreaking 6U OpenVPX fiber I/O module: the Echotek Series SCFE-V6-4QSFP-OVPX. This industry-leading module is the only one to combine 16 channels of high-speed fiber with three of the most powerful Xilinx Virtex-6 Field Programmable Gate Array (FPGA) processors available today.
August - Mercury announced the closing of its previously announced acquisition of Micronetics, a leading designer and manufacturer of microwave and radio frequency (RF) subsystems and components for defense and commercial customers. The closing follows the satisfaction of all conditions to the closing of the transaction, including approval of the transaction by Micronetics' stockholders.
August - Mercury announced it received an initial order from a leading defense prime contractor to design an optimized high performance processing subsystem based on commercially developed OpenVPX Intel-server class building blocks. The new design, based on open industry standards, will support an advanced target tracking application for use on unmanned aerial vehicles. Projected revenues to Mercury for this program are in excess of $5 million over the next five years.
July - Mercury announced it received $5.2 million in follow-on orders from a leading defense prime contractor for rugged high performance digital signal and image processing modules for multiple airborne radar applications.
Conference Call Information
Mercury will host a conference call on Tuesday, October 23, 2012, at 5:00 p.m. EDT to discuss the first quarter fiscal 2013 results and review its financial and business outlook going forward.
To listen to the conference call, dial (888) 599-4879 in the U.S.A. and Canada, and (913) 312-0419 in all other countries. The conference code number is 9340984. 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 Tuesday, October 23, 2012, through 8:00 p.m. EDT on Sunday, November 4, 2012. To access the replay, dial (888) 203-1112 in the U.S.A. and Canada, and (719) 457-0820 in all other countries. Enter access code 9340984. 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 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 provide an enhanced understanding of 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 an enhanced 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 measures to the corresponding non-GAAP financial measures included in this press release is contained in the attached exhibits.