Good day everyone and welcome to the Mercury Systems Third Quarter Fiscal 2013 Earnings Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the call over to the company’s Senior Vice President and Chief Financial Officer, Kevin Bisson. Please go ahead, sir.

Thanks Kate and good afternoon and thank you for joining all of us. With me today is our President and Chief Executive Officer, Mark Aslett. If you have not received a copy of the earnings press release, we issued earlier this afternoon, you can find it on our website at www.mrcy.com. We’d like to remind you that remarks that we may 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, 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 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 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 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…

Thanks Kevin. Good afternoon, everyone, and thank you for joining us. I’ll begin today’s call with a business update, Kevin will review the financials and guidance and then we’ll open it up for your questions. We made very good progress this quarter and the team executed well. We recorded the first low rates initial production revenue for SEWIP Block 2 that we anticipated and we delivered results above the high end of our guidance across all our key metrics. Total revenue for the quarter was up 9% sequentially to $54 million versus guidance of $44 million to $50 million. Our capital earnings from continuing operations improved to $800,000 from a $4.8 million loss in the second quarter. Earnings were $0.03 per share versus our guidance or loss of $0.02 to $0.08 per share. Adjusted EBITDA was up five fold from Q2 to approximately 10% and significantly above the high end of our guidance. In addition, we continue to generate positive cash flow in the quarter. The only downsize were low bookings and few design wins and I will speak to those metrics in a moment. Despite the macros there was most stability in the business in the third quarter, although conditions in the defense industry remain very challenging, the approval in March of the defense budget for the government’s fiscal 2013 was a step in the right direction. Sequestration did ultimately take effect leading to ongoing uncertainties around budget shortfalls and the pending reprogramming of bonds as the government fiscal year progresses, but the part of our business hit hardest by the defense slowdown early in our FY13. The MCE core business performed well. This business delivered improved results on a sequential basis for the second consecutive quarter, excluding Micronetics, defense bookings were up 5% sequentially and defense revenues were…

Thank you, Mark and good afternoon again everyone. Now turning to our financial results, revenue for the third quarter of fiscal 2013 of $54.1 million was 9% higher sequentially and revenue of $49.8 million for the second quarter this year and exceeded our stated guidance of $44 million to $50 million. The company generated GAAP EPS of $0.03 per diluted share in this year’s third quarter compared to a GAAP loss of $0.16 per share in this year’s second quarter. This quarter’s GAAP EPS exceeded the company’s guidance of a net loss of $0.02 to $0.08 per share for the quarter. Third quarter EPS benefited from the retroactive reinstatement of the Federal R&D tax credit, which was included in our third quarter guidance. This benefit contributed approximately $0.05 per share in earnings for the quarter. Adjusted EBITDA for the third quarter of fiscal 2013 of $5.2 million or 10% revenue was higher than the $1 million of adjusted EBITDA for the second quarter this year and exceeded our stated guidance of negative $2.5 million to positive $1 million. The company generated free cash flow of $1.2 million in this year’s third quarter and ended the third quarter with $35.1 million of cash and cash equivalents and with no debt. Before going into greater debt on our third quarter financial results, I wanted to reiterate both Mark’s and our earnings release that beginning this quarter the company will be reporting its segment results under two new reporting segments; Mercury Commercial Electronics or MCE and Mercury Defense and Intelligence Systems or MDIS. These new segments replace the company’s previous segments, Advanced Computing Solutions or ACS and Mercury Federal Systems or MFS. Select historical financial information presented in the new segment format can be found in our earnings press release issued earlier today.…

(Operator Instructions) I’m showing our first question comes from the line of Tyler Hojo with Sidoti & Company. Your line is open. Tyler Hojo – Sidoti & Company: Yeah, hi good evening guys.

Hi Tyler

Hi Tyler Hojo – Sidoti & Company: I was hoping we could dig in a little bit more on Micronetics, I think you said in the prepared remarks that I was tracking or quoting the plan, what I’m little bit uncertain about is the commentary regards to bookings I think you said if you excluded Micronetics bookings would have been up, is there is something going on with booking trends within that acquisitions?

No, if you look at the first two quarters since we acquired them Tyler, we had very, very significant book-to-bill I think it was 1.2 in the first quarter and was over 1.3 in the second quarter. So it’s a lumpy business there is nothing going on we think the business is performing at or above our initial expectations. Tyler Hojo – Sidoti & Company: So would you expect to see kind of snapback in their bookings and in Q4?

We’re not going to forecast specifically in an operating unit level, but we are anticipating stronger bookings in the fourth quarter overall. Tyler Hojo – Sidoti & Company: Okay, that’s great and maybe just moving something else, when we look at the guidance for Q4, I was hoping that maybe you could talk a bit about expectations on a program level, looks like your expecting patriot to kind of kick in a little bit in that quarter. Are there any other programs and I’m also curious about what sort of expectations you have in there for orders that both need to be booked and shipped? Thanks a lot Mark.

Yeah. So from a book ship perspective I think as we said in prior quarters we are taking a much more conservative approach in terms of the amount of revenues that we need to deliver from book ship in a specific quarter. The major program that I think we are anticipating good strong revenues for in the fourth quarter. Aegis is certainly one and SEWIP is another one, pretty much recreating what we did in Q3.

We would expect Gorgon Stare also to be a sizeable contributor in the quarter as well Tyler. Tyler Hojo – Sidoti & Company: Okay, what about patriot.

Patriot, I don’t think we are actually anticipating really any bookings or revenue at this point in time, but clearly I think based upon what Bill said on the Raytheon earnings call, there’s still a lot of opportunity in the Middle East and beyond. I think the challenge that Raytheon has had is that foreign military sales are notoriously difficult to predict and as you know as we said on the last call we’ve essentially booked zero, both zero dollars and recognize zero patriot revenue through the first three course of fiscal 2013, just to kind of reiterate, I think some of the things that Bill said on the call, I think right down did expect to receive a decision on QA in that Q1, but that didn’t happen and they are now expecting that in the later half of that Q2 or early Q3. This may actually get the paperwork that supposedly has been signed by Q8 resulting in an order for that, that will be positive. I think beyond Q8 Qatar is probably the next one that is up and that could be late called a 2013, and then I think as Bill said again I think they are expecting news on Turkey, which has been delayed for several quarters largely due to the fact that they borrowed systems from NATO. Getting close to the home yeah, I think we were pretty encouraged to see that is the Patriot missile defense system really took center stage in the Army’s fiscal year 2014 missile defense budget request. It’s clearly selected Patriot as its primary surface-to-air missile program, particularly given the recent constellation of (Inaudible), so I think overall we are really not expecting much from Patriot this fiscal year, but we believe that we should start to see a pick up in Patriot as we are heading into our FY 2014. Tyler Hojo – Sidoti & Company: Okay, that’s great color and I guess maybe I can just squeak one more in there, it looks like there was some press out on the JCREW program earlier today, Northrop was awarded another $14 million in development funding. I mean what is the expectation on that now is that pretty much dead in the water for you all how should we think about that?

Yeah, it’s a little unclear Tyler to be honest I mean I think here we saw the award late this evening that basically said that in north of between granted or awarded $14 million to complete the development of the JCREW A1/B program, in that sense the award for now see, and it’s funding them to get through the final phase of development in demonstration in preparation for milestone C. If we kind of then shift over to the budget in the FY14 budget request in JCREW A1/B1 funding was actually reduced. And on top of that and as you probably aware, you will not see on behalf of the [Rainco] an RFI later last year that’s really known JCREW bridge in the industry. That’s actually seeking non-developmental crew systems that can be failed it quickly to address sale urgent and compelling operational requirements that the marine co has, and in some initiatives proceed that could lead to a contract for a 1,000 production units both in Navy and in the marine core. So we’re a little confused I thinking of today in our existing efforts with A1/B1 with XL as effectively on hold and we have been pursuing this bridge over (inaudible) with another of our existing customers in line with requirements outlined in that RFI so its unclear as to the official linkage if any between today’s JCREW A1/B1 announcement and the JCREW bridge RFI that I mentioned earlier so give in the uncertainty and as we’ve mentioned previously we face it removed all the JCREW A1/B1 bookings in revenue form our plant largely as a result of the repeated program and funding delays. Tyler Hojo – Sidoti & Company: Okay great. I’ll let somebody els ask the question thanks a lot Mark.

Our next question comes from the line of Peter Arment with Sterne Agee. Your line is open. Peter Arment – Sterne Agee: Yeah good afternoon, Mark and Kevin.

Hi Peter.

Hi Peter. Peter Arment – Sterne Agee: Mark you mentioned a couple of times about the kind of the reprogramming risks and certainly we get that, have you been able to kind of just flush-out or identify, quantify, what is that risk when you look at some of the program basically that you will have, is there any kind of color you could give us on that?

No I think there is really no detail at this point in time, because I think (inaudible) is completing its strategic review. And I think it’s our understanding that it’s not strategic review that will define which programs are ultimately going to be the winners or the losers. If you look at the budget itself, I think we were – we were overall, I think we were pleased with the funding requests in both the FY13 defense appropriations bill, as well as the FY14 budget submissions for the programs that we’re involved with. And if you like, I could kind of give you a perspective on some of those because we think that there was some pretty good news in that. Peter Arment – Sterne Agee: Okay that will be helpful. Thank you.

Okay. So I think for the major program perspective Peter, features Ballistic Missile Defense, SEWIP Block 2 – all appear to be well supported. And I think importantly, when you look at what’s really going to drive the intrinsic volume or the enterprise volume in the business going forward, its many of the programs that we discussed in our Investor Day back in November. And so from a naval perspective AMDR was fully funded as with SEWIP Block 3, E2D Hawkeye received full rate production approval and the Navy requested significant funds for additional sensor upgrades that were part of the P8 and the lower rate initial production of the Navy effectively received the full appropriation taking into account recent program delays. I mentioned Patriot, clearly that’s taking center stage in the Army’s missile defense budget submission and they clearly have selected Patriot as the program that they are banking on going forward. And there was significant funds requested and we believe it’s going to be important just the U.S. Army looks to actually upgrade their existing systems potentially next year. Turning to the Air Force, I think the Air Force requested funding to begin upgrades of the F16 fleet to unease the radar that’s an program to us as we’ve discussed historically as well funding is requested to purchased the final two global hawk RQ-4 Block 40 and to complete the development of the radar technology insertion that were actually involved with. I think finally, I think from an Air Force perspective, they also requested pretty significant funding for both radar as well as signal intelligent systems upgrades with the MQ-9 Reaper. So I think overall when we kind of step back and we look at the FY’13 appropriation as well as the FY’14 funding request, we were pretty pleased with how our major programs and pursuits faired. Clearly is the way in which you kind of sort it out of the question, however, there is definitely still uncertainty surrounding not only how it is that the budget will end up given the disparities of various budget scenarios, but also due to the lack of specificity at this time regarding (inaudible) review and the potential for reprogramming of funds. Peter Arment – Sterne Agee: Yeah, okay, that’s very color. I guess part of the question I guess is, you know you said the company up to be preferred outsourcing partner, and lot of this what you picked off there is either new programs or upgrades or evolving programs and it’s seems like you would benefit from the demand there from that standpoint, what are you seeing regarding kind of movement among your prime customers.

So, I think you know overall the outsourcing trend in my opinion is live and doing very, very well. We had a significant win this quarter where one of our existing customers for the first time outsourced at the subsystem level and this is customer that literally when I joined all they wanted to do is buy ports from Mercury. So I think up to a testament to the investments that we’ve made from technology as well as kind of moving up the hierarchy as we’ve acquired companies along the sensor processing chain. So I think it’s happening I mean if you look at these new design wins and pursuits that we’re involved with many of those are also great examples of the outsourcing activity occurring data. So it’s a alive and well Peter Arment – Sterne Agee: Okay, thank you.

Our next question comes from the line of Michael Ciarmoli with Keybanc Capital Markets. Your line is open Michael F. Ciarmoli – Keybanc Capital Market. : Hey, good evening guys thanks for taking my questions.

Hey Mike it’s Palm. Michael F. Ciarmoli – Keybanc Capital Market. : Hey how are you guys. Just I guess this might be the toughest one to answer but you know a lot of these key programs, especially the ones you’ve outlined, but you just said in the investor day, well supported, these kind of weathered the first nine months here with obviously zero patriot participation and key just a peer note kicking online. Did you guys still like the business is kind of hit bottom at this run rate. I mean obviously there is still lot of uncertainty and reprogramming risk, but it seems that some of these bigger programs coming back online you should get some tailwind, just not really looking for guidance, but I mean, internally, how are you guys feeling about the quarter-to-quarter pace of business?

We certainly feel better in the second half of FY13 than what we did in the first half and you can kind of see that numbers when you just do the H2 over H1 comparison. You are right when you kind of look at some of programs that you described when I went through the patriot example, we basically had zero bookings in revenue, but it does seem like there is more activity just listening to Radeon and obviously in discussions with our customers around Kuwait, around Qatar, around potentially Turkey, and obviously with the funding request for the U.S. army. If you look at Aegis, we had in Q2, we reported the bookings were up 3.5 times or $5 million sequentially and up 2.5 million year-over-year. In Q3, we actually had an even stronger quarter and bookings were up 11% sequentially to $7.8 million that was actually up 11 times year-over-year and when we look forward to Q4, now that we’ve actually got a defense appropriations bills and I think some of that uncertainty has gone away, we think that there is actually an opportunity to substantially increase bookings in the fourth quarter. That’s probably as a result of the budget itself, but also as a result of the recent geopolitical instability and the fact that this increased foreign military interest in the Aegis ballistic missile defense system by some of our foreign allies. SEWIP, I think is also a program that has just started to produce for us, as you know and as we discussed in probably the last four quarters. We’ve seen significant delays. But during Q3, Lockheed received the first long lead-time material contracts, which allowed us to ship certain revenues during this quarter, but we also received our low rate initial production award as well for the first LRIP revenues, which we believe is going to lead to additional SEWIP revenues for us in Q4. So I would say that right now it certainly seems like there is a break in the cloud. And we were pretty pleased with the way in which the business performed on a top line and we saw great gross margin improvement and clearly we increased our EBITDA by 5 folds. So overall, we clearly feel better than what we have in prior quarters. Michael F. Ciarmoli – Keybanc Capital Market.: Okay, perfect. That’s helpful. And just you just mentioned the gross margins. I think you’ve mentioned roughly a $101 million shippable from you current your backlog over the next 12-months. I mean you guys have pretty good visibility, I would assume so but shippable into the margin profile of that business. I mean are you expecting mix headwinds or tailwinds over the next 12-months just what kind of those visible revenue…

So we’re not going to get kind of beyond the one quarter to time guidance. I think the approach that we’ve been taken in managing the business, seeking to fill backlog not take undue risk in terms of the amount of book shipped in the quarter has actually helped in terms of the visibility that we’ve got certainly in the next quarter or to. And we absolutely believe that in [time] site the decisions that we made to ship to that mode of operation substantially reduced our operating expenses and to kind of focus on building backlog was the right thing to do Mike. Michael F. Ciarmoli – Keybanc Capital Market.: Okay. And then last one for me and I’ll jump off here.

Sure. Michael F. Ciarmoli – Keybanc Capital Market: Any major program losses that you guys are seeing, or you’ve got fewer design wins? Any you likely would have seen increased competition on some these programs that are out there?

Yeah, maybe I got to say that, competition is really not top of list in terms of things that keep me up at night. I mean, it’s largely still the macros. If you look at, although we got a defense appropriations bill, we’re very thankful for that. You still got this reprogramming bill that’s going to get out of the congress, probably sometime in May due to [Eagle] strategic review. And then, although we’ve got three budget submissions on the table, there’s still big gaps between them and I think, we’ll see whether or not be are able to come to a conclusion as they start to discuss the debt ceiling increase in May through July, if not we’re probably going to end up with another continuing resolution for FY2014. So, for me the competition is less of an issue then really just continue to deal with the macros. We don’t feel like we’re losing programs with anything. I think certain of the programs that we have been focused on, such as the AMDR, which could be awarded during Q2 according Lockheed CEO. We think that there is going to be downslope on the F-16 upgrades in August. We think that the Patriot U.S. Army is probably going to have it in FY14. So lot of things that we’ve been talking about and focused on are actually coming into view in the not too distant future. We feel better about that. Michael F. Ciarmoli – Keybanc Capital Market: Okay, perfect, that’s helpful. Thanks a lot, guys.

Our next question comes from the line of Brian Ruttenbur with CRT Capital. Your line is open. Brian Ruttenbur – CRT Capital Group LLC: Thank you very much, Mark and Kevin for taking my questions. Just talking about the potential forecasts within your own firm, is there a plan for further SG&A and R&D cuts in the near-term as you are sitting here waiting with uncertain times?

We believe that with further – with the cost reduction activities based upon kind of what we see going forward Brian. Brian Ruttenbur – CRT Capital Group LLC: Okay. And what would cause you to change that view, would it be the CR for 14, could you change your mind within the next 90 days, can you give us some kind of perspective on what is the catalyst that would make your mind changes either ramping up expenses or ramping down expenses.

Yeah, I think right now we believe that more upside opportunities than we do downside risk in the business based upon the actions that we’ve previously taken and the way in which we’re currently managing the business. As I said I think we feel pretty good about the FY 2013 Defense Appropriations Bill, as well as the way in which the programs that were involved with as well as some of the new design wins pursued, as well as programs potentially found in the FY 2014 budget and I went through a number of those such as Aegis, SEWIP Block 2, Block 3, AMDR X16 patriot potentially. So, I don’t think at this point we feel that we need to take additional cost out of the business, so I think we did that pretty aggressively and decisively in Q4 and Q1. Brian Ruttenbur – CRT Capital Group LLC: Great. Thank you very much.

(Operator Instructions) Our next question comes from the line of Howard Rubel with Jefferies. Your line is open. Howard Alan Rubel – Jefferies & Co. Inc.: Good afternoon, thank you.

Hey, Howard. Howard Alan Rubel – Jefferies & Co. Inc.: Couple of things, Mark can you talk about AMDR are you on all of the platforms?

No, we’re not, we are actually working with Lockheed who as you know is the actual, the incumbent on the existing Aegis system so that’s where came to it Howard Rubel – Jefferies: And on that 16 year with Northrop Grumman saver?

That’s correct, yeah with the Northrop Grumman saver platform yeah Howard Alan Rubel – Jefferies & Co. Inc.: And if we look at the you just for a momentum, there’s not an infinite number of platforms, so as you look at the awards that you had to-day, how does that sort of stock with the kind of work orders and requirements to fit chips or refit chips in some case?

So if you look at last year Howard, we had pretty low bookings year of Aegis, I think if my memory says me correct it was actually less than 10 million, we are actually anticipating that we end up this year with two or three times of that level, so I think we’re heading into next fiscal year, we’re in a pretty good position on that specific program, some of it is do with the fact that defensive procreations built with improved and as you probably know there was a potential for a multi-year procurement the DDG-51 as well as Aegis system and we believe that will come to pass in the fourth quarter, beyond that I think as I mentioned in my prepared remarks there is also a increased interest with some of our foreign NOIs and I think it’s a – it’s in the public domain that Japan who owns the older Aegis system is looking for someone upgrades. So we still think there’s plenty of opportunity to continue to improve the performance, as well as for the sale of the Aegis overseas. Howard Alan Rubel – Jefferies & Co. Inc.: But if we look at sort of the business rather than the bookings, you’re sort of still in this $25 million to $30 million range?

Yeah we believe so, for Aegis on average over time, yeah, yeah. Howard Alan Rubel – Jefferies & Co. Inc.: And with respect to the head count, did that stabilize in the quarter and could you give that to us please?

It did, yeah. So head count in Q3…

About 770 employees, which was flat from Q2 to Q3 Howard. Howard Alan Rubel – Jefferies & Co. Inc.: That’s sort of, kind of points to the revenue number and the ability to sort of stabilize the business.

Yeah. Howard Alan Rubel – Jefferies & Co. Inc.: There were two design wins, how many did you compete for?

It’s actually not a metric that, we’ve disclosed, but I don’t believe that we are actually losing any specific opportunities. I think it was pretty quiet overall in the third quarter. Largely as a result of the CR and the prime is really ratcheting down their eye rod. During Q3, I think we did start to see things pick up and I think, we are anticipating currently a rebounding design win activity in the fourth quarter, Howard. Howard Alan Rubel – Jefferies & Co. Inc.: And finally, for this $50 odd million or so that you are looking for in the fourth quarter, how much of it do you think you’ve got in the bag, or done or spoken for or scheduled?

So I would say that, we are not going to give you the specific number. But we do think there’s probably a less book shift that we need in the fourth quarter than even more we had in the third quarter. And that’s being continually coming down. So backlog looks in pretty good shape. The visibility for the fourth quarter currently looks like it’s in pretty good shape as well. Howard Alan Rubel – Jefferies & Co. Inc.: Thank you both very much.

Okay.

Thanks.

Mr. Aslett, it appears that there are no further questions. Therefore, I’d like to turn the call back over to you for any closing remarks.

Okay. Well, thank you all very much for listening. We look forward to speaking to you again next quarter. Thank you.