Thank you so much for holding everyone, welcome to today’s Mercury Computer Systems Incorporated Third Quarter 2012 conference call. Just a quick reminder today's call is being recorded. And at this time, for opening remarks and introductions, I would like to turn the call over to the Senior Vice President and Chief Financial Officer, Mr. Kevin Bisson. Mr. Bisson, Please go ahead.

Thank you. Good afternoon and thank you everyone for joining us. With me today is our President and Chief Executive Officer, Mark Aslett. If you have not received the copy of the earnings press release we issued earlier this afternoon, you can find it on our website at www.mc.com. We'd like to remind you that remarks that we make during this call about future expectations, trends and plans for the company and its business constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of the words may, will, should, would, plans, expects, anticipates, continue, estimate, project, intend, believe and similar expressions. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. These risks 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 US 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 outsource components, inability to fully realize the expected benefits from acquisitions and divestitures or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies and difficulties in retaining key customers. Additional information regarding forward-looking statements and risk factors is included in the company's periodic reports filed with the SEC. We caution listeners of today's conference call not to place undue reliance upon any forward-looking statements which speak only as of the date of this call. We undertake no obligation to update any forward-looking statements. I'd also like to mention that in addition to reporting financial results in accordance with generally accepted accounting principles or GAAP, during our call we will discuss several non-GAAP financial measures, specifically adjusted EBITDA and free cash flow. Adjusted EBITDA excludes interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring expense, impairment of long-lived assets, acquisition costs and other related expenses, fair value adjustments from purchase accounting and stock-based compensation costs. Free cash flow excludes capital expenditures from cash flows from operating activities. A reconciliation of adjusted EBITDA to GAAP net income from continuing operations and our free cash flow to GAAP cash flows from operating activities are included in the press release we issued today With that, I will turn the call over to Mercury's President and CEO, Mark Aslett. Mark?

Thanks Kevin. Good afternoon everyone and thank you for joining us. First, our agenda for today. I will begin with the third quarter business update and some comments on the outlook for Q4. Kevin will review the financials and guidance, and then we’ll open it up for your questions. As a reminder, the operating results we reported today include KOR Electronics and Paragon Dynamics, which are included in continuing operations beginning in Q3. Driven by strong organic growth in our defense bookings and as well as bookings and revenue from the KOR, PDI and LMX acquisitions over the last year, Mercury once again delivered solid operational and financial results in the quarter. Total revenue for Q3 was near the high end of our guidance range. GAAP earnings per share and adjusted EBITDA both came in substantially above the high end of guidance and operating cash flow more than doubled from the third quarter of last year. For the third quarter of FY’12, total defense bookings revenues both increased 41% year-over-year. Although this growth primarily reflects the addition of KOR, excluding KOR’s contribution, Q3 defense bookings were up 12% and defense revenues were up 18%, which is strong organic growth in this environment. Our book-to-bill in defense for the third quarter was north 0.72 and our total book-to-bill was north 0.74. Our defense backlog exceeding Q3 is up 39% year-over-year. As we expected, our commercial bookings and revenue continue to decline following the drop in our semiconductor business. We continue to forecast total commercial revenue of $14 million to $15 million for the full year FY’12 compared with approximately $48 million in FY’11. And as I said last quarter, we believe the major fall off in commercial will be behind us as we close FY’12 with any potential further decline expected…

Thank you, Mark and good afternoon again everyone. As Mark noted in his remarks, Mercury generated solid financial performance in this year’s third quarter in spite of significant industry headwinds that we anticipated when we spoke at last quarter’s earnings call. Turning to the numbers, revenue for the third quarter was $67 million, was $7.1 million or 12% higher and revenue was $59.9 million for the third quarter of last year. This year’s third quarter revenue was within our stated guidance of $65 million to $68 million. GAAP earnings from continued operations of $0.17 per share were $0.03 per share lower than comparable EPS of $0.20 per share in last year’s third quarter. However, it should be noted that the increase number of shares issued in connection with the February 2011 follow-on stock offering reduced this quarter’s GAAP EPS by $0.02 per share compared with GAAP EPS reported for the third quarter of last year. Our third quarter GAAP EPS included $0.02 per share related to the amortization of acquired intangibles which is comparable to the impact in last year’s third quarter EPS. Third quarter EPS of $0.17 per share significantly exceeded the company’s stated guidance of $0.09 to $0.11 per share for the quarter was driven by better than expected gross margins and lower operating expenses. Adjusted EBITDA for the third quarter of fiscal 2012 of $12 million was $700,000 higher than adjusted EBITDA of $11.3 million for the third quarter of last year. Adjusted EBITDA for this year’s third quarter comfortably exceeded the company’s guidance of $9.1 million to $10.1 million. Adjusted EBITDA as a percentage of revenue of 18% for the third quarter was within our target business model of 17% to 18%. Now reviewing third quarter performance in more detail, total revenue for our largest operating…

[Operator Instructions]. And we’ll go first this afternoon to Mr. Peter Arment at Sterne Agee.

Mark, maybe just to highlight some of your bigger drivers, you did mention the SEWIP in the PO. I guess between Aegis and Patriot, SEWIP, Gorgon Stare, you’ve highlighted a couple of the big drivers going forward. How do we think about those in this budget environment? Could you talk about the funding levels?

Yes. We feel pretty good about the programs that we mentioned. The big one this quarter as Kevin outlined were Patriot, Aegis and Gorgon Stare as well as various programs with General Atomics. We think we’re pretty well positioned with those going forward and they’re going to be significant drivers of continued performance in our defense business.

Okay. And then you did mention regarding JCREW. What’s the latest there? Are we just not expecting any long lead awards until officially we get into the government fiscal year ’13?

Yes. It’s a little murky right now to be quite honest. I think we had been anticipating getting the PO for the long lead time materials in Q4. It’s now looking like that’s not going to happen due to a government or a potential government program re-planning. We don’t necessarily know what that means. However, I think we still feel pretty good about the program. I was down at Exelis kind of midpoint in the quarter and they still feel really good about the program itself in terms of its capabilities. We know it’s the program of record and the funding in the FY13 budget was pretty robust. So I think we’re just going to need to wait and see how things develop over the next quarter or so.

Okay. And what is the typical lead time though for you before you begin to ship?

It depends upon the technology because we’re actually both on the RF side of things as well as on the processing. But it’s on the order of quarters.

Okay. So within a six month period?

Yes.

Okay. And then just quickly on the fourth quarter, is it just the higher mix of the RF? Is that the reason that we could see EPS - a wider range on the EPS front that you’ve given us which is I guess $0.06 to $0.12 if you exclude the $0.02 of amortization?

I think vis-à-vis what we’ve done in the past, I think we have widened slightly the guidance on the top line just based upon some of the slowdown in the activity that we’ve seen. So it’s largely just falling through, Peter.

Okay. And just one more on the - you mentioned the M&A and you targeted - you said that the RF category continues to be an area that you’re focused on. Is there something in particular there that you want to continue to build out externally there? It seems like you have some good internal capabilities already in the RF.

We do, but we think that there’s still opportunity for us to continue to pick up more capability, more program access and more scale in that part of our business. It’s particularly important in the - as we see the growth in the electronic warfare and signals intelligence part of the market as well as the shift from radars moving from mechanically rotating type radars to ISAR type radars which have also got a high RF content. So I think we see the potential for upgrades and more opportunity on the RF side and it’s an area that we’re going to continue to focus on.

We’ll go next now to Michael Lewis at Lazard Capital Markets.

Two quick questions for Kevin and Mark a quick follow up from Peter’s question on JCREW. But Kevin, can you give us the EBIT results for ACS and MFS in Q3? And while you’re digging for that, you had $21 million five year value on design wins. Was that for the eight wins or is that for the defense’s six wins? Can you break that out for us?

Yes. So the five year total value in total, $13 was in defense and $8 million was in commercial this quarter, Mike.

Okay. And then Mark if I can follow up on Peter’s question about the long lead. I think the expectation out there in the investment community is a Q1 ’13 start for production and if you were to get, say the order early in your fiscal year Q1 ’13, would you be able to ship product by the end of that quarter?

Yes. I don’t think that there’s an issue on our end, Mike. I think it’s going to come down to, when is the program going to start in light of what it appears to be a re-planning effort. But we don’t’ have any details, so it’s very hard for us to give you a perspective of when, how things are changing. We just don’t have that detail right now.

Okay. Do you have any update on where the army still is positioning themselves? Do you think that they will add on to the program or are they still trying to define their end requirement?

I think that our customer remains in discussion with the army. I think as you probably know that at some point in the future the army is going to pick up the CID activities from the Navy as the executive agent. When that occurs I don’t think anyone quite knows right now, but that is expected to occur. I think the army from what we can gather appears to be impressed with some of the capabilities on I1B1, but I think it’s just too early to posit a guess or hazard a guess as to if they’re going to pick it up and when.

Got it. And Kevin, would you happen to have those EBIT numbers?

Yes, Mike. For the breakout of adjusted EBITDA, we reported $12 million. Of that, about $10.5 million is ACS and about $1.5 million is MFS.

We‘ll go next now to Tyler Hojo at Sidoti & Company.

Just to go to the booking side of the equation here. You talked about some expectations in Q4 on a program level, but just curious. In aggregate, would you expect your book to bill to be north of one in Q4?

I’ll look. So book to bill, yes we currently anticipate that book to bill will be above one for the quarter and clearly it will be above one in our defense business if things hold the way in which we currently anticipate. And that does not include the bookings that - any bookings from JCREW.

Which are now expected to slip, right?

Right.

Okay, got it. And just in regards to SSI revenues, I’m not sure if you spoke to them but if you did I didn’t catch it. So could you maybe talk about how those tracked in the quarter and maybe come up with the expectation?

Sure, Tyler. We have actually had a good quarter. SSI revenues were up 160% on the year-over-year basis. We did $7.2 million of revenue in our SSI business in Q3.

Okay. And what about expectations over the next, call it four quarters?

Well, we’re in the one quarter at a time guidance business right now.

Okay, that’s fair. Okay. Well it’s nice to see the improvement there. And just kind of lastly, a week or so ago you announced what seemed like a pretty nice win with AAI, I guess related to the Shadow. Could you talk a little bit about maybe the outlook on that?

Yes. So we’re pretty excited about it. KOR Electronics which is the division that’s based in Cypress, California is obviously very strong in the Durbin technology which is a pretty key capability required as part of modern electronic warfare applications. But based upon their expertise, they’ve also been working on putting together a next generation SIGINT capability. And so the announcement that we made was actually an alliance with Textron’s AAI business unit that obviously as you know produced the Shadow and we’re working to pull together a multi-mission tailored capability that’s plug and play in the first instance with the Shadow. And it’s all about shortening the time to actionable intelligence, being able to actually combine SIGINT information with imagery to be able to give you a better perspective on what’s going on. So we’re still in the engineering phase. The work that we’re doing initially is with PM-UAS which is the army’s executive agent or executive office for all unmanned aerial vehicle activities and the work that we’re doing with AAI is really around integrating that capability onto the Shadow. So -- and as you probably know, there are a lot of Shadows that are out there. So it’s hard to project at this point just how big that could be, but it’s a pretty exciting new capability we think.

Okay. And just for clarification, was that included in the five year probable value on the design win side?

It actually was not. No.

We’ll go next now to Mark Jordan at Noble Financial.

Question relative to SEWIP. Could you talk about how consistent that program will be quarter on quarter and how variable it might occur? And is the rollout for that new platform going on to new combatants and or what is the plan relative to the retrofit of surface combatant fleet inventory?

Sure. So I think in the first instance, Mark, it’s probably going to be relatively lumpy largely because right now the bookings and the revenue that we’re anticipating is largely to do with funding for long lead time materials. The LRIP doesn’t occur until FY13 and production in FY14. So that’s when we start to get some predictability in terms of the number of ships that’s going to be upgraded on an annual basis. When it hits production we’re anticipating something like 14 ships will be upgraded annually. So it’s pretty well funded. We’re obviously a part of block one as well as block two today. I think as we said on the call last quarter, I think the fact that Lockheed are partnering with Raytheon to compete for block three could bode well for us getting additional content on that program should they be done selected as part of that competition. So it was our top bookings program this quarter. We anticipate it being our top bookings program next quarter and we’re going to start to see some early revenues from it flowing shortly.

Okay. Could you give us some range as to what is your content with SEWIP per ship?

Not at this stage.

Okay. With the JCREW program, I think in aggregate you quantified your potential full program exposure. Do you see that there is any change in terms of the aggregate program size or do you have any visibility on that? Or do you think there -- it’s logical to assume that where you have set a five year opportunity that the dollars are the same but you might be talking a longer period of time?

From what we know right now, I think we feel pretty good about the numbers still. As you look at the FY13 budget, the aggregate number of units, what is in effect the first phase of LRIP looks to be very healthy in terms of both unit volume as well as translation into actual dollars. So we still feel good about the program itself in terms of the order of magnitude. I think the timing - or the question right now is the timing of when that program will move into that LRIP phase and that’s the thing that we need additional clarification on.

We’ll go next now to Michael Ciarmoli at KeyBanc Capital Markets.

Mark, maybe just to stay on that topic more I’m thinking of it. Can JCREW actually start if we go into a continuing resolution on the fiscal ’13 budget which will probably be the case ahead of the election? Do you guys envision a scenario which gets further pushed out?

Well, I think we believe the answer is yes because if you look at it from an LRIP perspective, the early LRIP funding was actually in the FY12 budget, not the FY13 budget. But we do anticipate I think, given everything that’s going on in Washington, another continuing resolution in our FY13.

Okay. And then if I were to just maybe parse through your comments in the relief about you’re targeting that mid-teens percentage growth on average. What are you baking in on JCREW when you’re looking at that long term on average growth?

So I think what we said last quarter is that it did include some revenues associated with LRIP, but it obviously didn’t include the program going in full production which would have inflected that growth rate northwards from the kind of mid-teens number.

Okay. So then I can assume it’s more on the conservative side which is the LRIP in there then?

That’s correct.

Okay. And then just on the - if my math is right and I’m looking at your fourth quarter here, you’ve obviously got the addition of KOR. It seems like from an organic standpoint, the defense revenue growth is going to really take a hit. The comps get I guess a little easier in terms of the commercial revenue declines. But is that just a function of the challenging environment right now?

Yes, largely. We’re still expecting - looking at Q4, we’re still expecting growth in our defense business on an organic business.

Okay. And then the last one, what if - if sequestration does go into effect, how do you think that impacts your revenue streams?

It’s very hard to predict, Mike. I think we’re going to try and pull together a budget scenario and we’re kind of in the middle of planning our FY13 right now. So it would be hard to give you an exact number. But I think you know the numbers as well as I do. If 125 goes down to something in the 470 range which is a $50 billion reduction which is going - sorry, $50 million reduction which equates approximately a 9% reduction. So at the highest level you can say well, it could be 9%. But we don’t know how that’s going to flow through from a programmatic perspective. So that’s what we’re going to try and model in this next quarter. Hard to tell.

We’ll go next now to Brian Ruttenbur with CRT.

A couple of questions. First of all on assuming delays with JCREW, where can you cut your expenses to? Just to try and understand your model, how flexible are you on your SG&A expense, R&D expenses? Can you cut that by 10%, 20%, 30%? Where do you get to the boat on those?

So we’ve been managing our expenses very, very carefully. I think the fact that JCREW could potentially move out on us based on what’s happening with this long lead time PO doesn’t necessarily require us to address our cost structure. That’s something that we would normally do as part of our annual budgeting cycle, but I wouldn’t connect the two, Brian.

Okay. And let’s just say that JCREW gets delayed indefinitely or more than two years. Your contingency plan on SG&A, R&D, is there room to cut? I’m trying to figure out how much is already built in there because you had to have some build up in advance of JCREW thinking that you’re going to be getting JCREW in the next six months or so, right?

Partially, although we still believe that we can grow at a significant rate on the top line and still be in line with our target business model absent JCREW and that doesn’t require us to take a significant expense.

Okay. And a simple one here, tax rate. In the fourth quarter, where is it going to be? It was 31% which was lower than I anticipated this quarter.

We’re projecting for the full year about 34%. So the tax rate is going to be a tad higher in the fourth quarter. Okay. And your acquisitions that you’re talking about, are those going to be in the defense, your KOR defense electronics area? Or do you want to diversify like some other defense contractors out there looking to diversify? Or you want to stay in your KOR?

Our M&A strategy is largely focused as we have said in the past building our sensor processing chain capabilities. So we’re going to stick with that strategy.

[Operator Instructions]. We go next to Howard Rubel at Jefferies.

Mark, you talked a little bit about some of the challenges and there’s probably some opportunities. Any way for you to bracket FY13?

Not at this point. We’re still in the midst of our planning process.

Can you address maybe sort of the bidding proposal opportunities you’ve been seeing? How might you be able to characterize them year-on-year? Clearly your recent acquisition looks like it’s opened up the aperture a bit, Mark.

Yes. But I think the capabilities that KOR brings to the table, we definitely see opportunities in our customer base for that Durbin capability and we know just based on some of the activity level around EW that’s certainly an area that’s going to see increased investment. From a design win activity perspective this quarter, things were a little light compared to what we’ve seen historically, but we’re seeing very strong activity in Q4 with some really nice potential design wins. So we are expecting a pretty strong rebound here in the fourth quarter just based upon what we’re looking at right now.

So Kevin you’re allowing Mark to go on the road every day in order to win the business to push it forward?

He’s pushing me out the door.

Well, absolutely. You’ve got to make sure you’re the chief salesman and he’s allowing your expense account to go travel where you need to get the next opportunity, right?

And a backpack.

It’s true. I’m going to hit the road.

No, but in all seriousness, can you talk about the potential aperture that you’ve seen in terms of market size? Clearly there’s a few things that are new and different and you highlighted some of them in the release.

So I think we feel pretty good about obviously the programs that we’re involved with. Aegis is going to continue. SEWIP we built more potential, particularly with block three if Raytheon and Lockheed are successful. We’re pursuing with our customer Northrop Grumman the upgrades of the F-16 ISAR radars which we think could be an important opportunity for us. We know that just based on what is happening with mids, that the Patriot is probably going to be the chosen system for the US Army upgrades going forward and then Gorgon Stare continues to go from strength to strength and that’s even before we start to look at penetrating our customer base with the releasing capabilities that we have coming from KOR. So we feel pretty good right now in terms of just the things that we’re pursuing, the design win opportunities. The challenge a little bit is that nothing happens quickly in defense and unfortunately things are moving even more slowly in this environment than what we’ve seen in the past. We believe largely due to the potential now for a sequester as we get closer towards the back end of the year.

Just two final questions. One is on JCREW as you look at it. How would you characterize the performance of the system relative to customer expectations?

I think very positive. I think it’s - the capabilities that Exelis has pulled together clearly addresses some of the shortfall capabilities of prior generations and that’s what it was set out to do. So I think it’s working pretty well.

And then last, I would have never bet you would have gotten another commercial opportunity. What happened there and is there further light at the end of the tunnel that sort of stabilizes the business?

So I don’t think our commercial business is going to be much of a growth driver. I think it’s going to bob along around at the levels that we’re currently seeing in FY12. Could be up a little bit, could be down a little bit. But it’s not really where we’re focusing our time, energies and efforts because I think the growth is largely going to continue to come from the defense business.

And gentlemen, it appears we have no further questions this afternoon. Mr. Aslett, I’d like to hand the conference back to you for any closing comments, sir.

Okay. Well, thanks very much for joining the call today. We look forward to speaking to you again next quarter. Thank you.

Thank you, sir. Again ladies and gentlemen, that does conclude today’s conference call. We’d like to thank you for joining us and wish you all a great afternoon. Goodbye.