Good day everyone and welcome to the Mercury Systems First Quarter Fiscal 2014 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, Mary, and good afternoon, everyone, and thank you for joining 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 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 as well as 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 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…

Thanks, Kevin. Good afternoon, everyone, and thanks 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. Despite continued industry headwinds, Mercury performed well in the first quarter. We delivered results at or above the high end of our guidance across all of our key metrics. Total revenue for the quarter was $54 million versus our guidance of $48 million to $54 million. Our GAAP loss from continuing operations was $0.07 per share versus our guidance of a loss of $0.14 to $0.08. Adjusted EBITDA was 7% consistent with last quarter and above the high end of our guidance and we continued to generate positive cash flow. In addition, we made good progress in our most important programs and we continued to see good growth in the value of our design wins. Looking specifically at our defense business, total defense revenues were down 7% sequentially from Q4 to $46.4 million, but were up 4% versus the first quarter last year. Total defense bookings were down 25% sequentially to $43.6 million, but increased 19% year-over-year. The sequential decline in bookings was primarily due to the exceptionally strong bookings performance we delivered in Q4. The increase year-over-year was largely due to the continued recovery in our MCE core compute business. In the first quarter, MCE core compute defense bookings in 12 months backlog grew 54% and 42% respectively versus the same period last year. In total, including Micronetics, MCE defense bookings grew 8%, defense revenues 16% and 12-month backlog 34% versus Q1 last year. This evidence suggests to us that our strategy of managing the MCE business differently in this challenging industry environment is working well. Our total book-to-bill increased to 0.87 from 0.83 in…

Thank you, Mark, and good afternoon again, everyone. Turning to our financial results. Revenue for the first quarter of fiscal 2014 of $53.9 million was $4.5 million or 9% higher than revenue of $49.4 million for the first quarter of last year and was at the upper end of our stated guidance of $48 to $54 million. The company incurred a GAAP net loss of $0.07 per share in this year’s first quarter, which was substantially smaller than the GAAP net loss of $0.24 per share in the first quarter of fiscal 2013. Last year’s first quarter net loss included a significant restructuring charge and Micronetics related acquisition costs that together contributed $0.12 per share to the reported net loss. Adjusted EBITDA for the first quarter of fiscal 2014 of $3.6 million was $2 million higher than the adjusted EBITDA of $1.6 million for the first quarter of last year and exceeded our stated guidance of $100,000 to $3.2 million. The company generated free cash flow of $1.1 million in the first quarter and ended the quarter with $40.1 million of cash and cash equivalents and with no debt. Reviewing first quarter performance in greater detail, total revenue for our largest segment, Mercury Commercial Electronics or MCE, was $44.6 million, which was $7.8 million or 21% higher than the $36.8 million of MCE revenue generated in last year’s first quarter. The year-over-year increase in first quarter revenue was driven mainly by higher Patriot, SEWIP, and B-1 bomber program revenue that was partially offset by lower Joint Strike Fighter program revenue. Revenue from the company’s Mercury Defense and Intelligence Systems or MDIS operating segment for the first quarter was $11.1 million, which was $4.7 million lower than the $15.8 million of MDIS revenue for the first quarter of fiscal 2013. The…

Thanks. (Operator Instructions) Our first question comes from Tyler Hojo from Sidoti & Company. Your line is open. Tyler E. Hojo – Sidoti & Co. LLC: Yes. Hi. Good evening everyone.

Hi, Tyler. Tyler E. Hojo – Sidoti & Co. LLC: Hi. So just firstly, when we look at the top line guidance, I guess you’re kind of looking for things to be kind of where they were in Q1. I’m just wondering, is there any sort of swing factor to get you to the high end of the range, any sort of program that needs to both book and ship or something that you don’t have in hand today to get there?

Well, I think, we will have some book ship revenue. What we’ve been trying to focus on is, reduce the amount of book ship revenue that we – we’ve seen any particular quarter and that’s been tied to our focus on growing backlog. So we will have some book ship. however, I think overall, we feel right now, Tyler, that the risk level this quarter is actually probably less than what we anticipated last quarter. Probably, the biggest deal that we have in Q2 is related to Aegis, so which we feel is in pretty good shape right now. Tyler E. Hojo – Sidoti & Co. LLC: Okay, great. and just some regards to R&D, it was up; I think about 24%-25% sequentially in the quarter. Anything to call out there and maybe, if could just, I know you’re not giving full-year guidance, but maybe you could just directionally talk about expectations for that line item.

Yes, Tyler, the increase sequentially is largely due to the fact that our level of customer funded development dropped in Q1 compared to the prior quarters and that’s largely due to the wind down of the Gorgan Stare development efforts that, as you know, the company has undertaken over the last several years. In terms of moving forward, I think our expectation is that over the course of the next several quarters, we have plenty of design wins that we have announced both this quarter and in prior quarters that we expect will be start – will start up that will absorb some of the lack of customer funding that we saw in Q1 and our expectation is that that will move forward in terms of absorbing that incremental cost. Tyler E. Hojo – Sidoti & Co. LLC: Okay, great. And just maybe lastly from me, a question on AMDR, so I guess, we all know kind of where you were positioned, but if we look at Raytheon, is there any opportunity to perhaps gain a position on their team, my understanding is that they were using a proprietary offering, but just wondering what your perspective was?

Yes, I think it’s – I think the answer is yes, potentially, Tyler, probably more on the RF and the microwave side of things, but that said, it’s still very early days. So I think we’re clearly going to pursue it and we’ll see how the things evolve Tyler E. Hojo – Sidoti & Co. LLC: Wonderful. I’ll hop back in the queue. Thanks a lot.

Okay.

Thank you. Our next question comes from Peter Arment from Sterne Agee. Your line is open. Peter J. Arment – Sterne, Agee & Leach, Inc.: Yes, good afternoon, Mark, Kevin.

Hi, Peter.

Hi, Peter. Peter J. Arment – Sterne, Agee & Leach, Inc.: Mark, I appreciate the design win color you gave [indiscernible] defense. Given your kind of commentary talking about that 2014 looks like it’s going to be a kind of a mirror image of 2013 from a budget standpoint, when do you think the primes are going to act more aggressively on kind of the outsourcing, because it seems like that we’re not really seeing any sort of movement at least from this front or maybe you could just give us some color that maybe you are seeing some signs that you’re well positioned?

No, I think we are, Peter, in particular, if you look at say SEWIP Block 2, which is probably the largest program that we have in production right now, we see substantial opportunities associated with more outsourcing on that program, so basically, picking up more content per shipped set and basically taking over work on derivatives of the program. So I think there’s actually two levels of outsourcing going on simultaneously; one is in the, our traditional business, where the primes are outsourcing more of the development type work for the compute associated with sensor processing subsystems, but the other area that we’re actually seeing increased activity is in the RF and the microwave dimension and that’s one of the major reasons that we’re investing in the new Advanced Microelectronics Center in New Hampshire. Peter J. Arment – Sterne, Agee & Leach, Inc.: Okay. And do you view that opportunity set in the RF to be bigger than the traditional development business?

I think right now, it’s going to be the fastest growing part of our business as we see it based upon either the expansion opportunities on the programs that we’ve won or new potential pursuits and I think it’s directly tied to what I said in my prepared remarks, which is in my mind the RF and microelectronics industry structure is somewhat broken and our customers or the primes, they’re looking for better alternative and the investments that we’ve made in terms of engineering resources, as well as this new MCE is actually. they seemed very excited about it and they’re looking for opportunities to outsource more work to a company like Mercury as a direct result of that. So I think it’s probably going to be the largest area of growth for us going forward. Peter J. Arment – Sterne, Agee & Leach, Inc.: Okay. and then just lastly I guess where is your desire on obviously managing the business for break-even and to kind of preserve backlog and build that when you can, but still you want to take the manage of – these M&A opportunities, how are you viewing with that given a year forward from where we were last year?

Sure. I think it hasn’t really changed. We have clearly finished Phase I of our M&A agenda and we built we believe a very, very unique outset. With the only commercialized company that we know well in the defense electronics industry that’s truly got the end-to-end capabilities to build the next generation of sensor processing subsystems. What we don’t believe would be the right thing for us to do right now, although we have the facility in place is to lever up in our financial risk on top of industry risk. So we have really focused on integrating the businesses that we have acquired and gaining the efficiencies as a result of that integration and we see additional opportunities for efficiencies going forward, particularly as we bring the new AMC online and start to merge different facilities together. So we’re really focused on integrating what we have and we’ve prepared for the next phase, but we don’t think in this industry environment period, it makes sense to kind of lever up. Peter J. Arment – Sterne, Agee & Leach, Inc.: Okay, thank you.

Thank you. our next question comes from Sheila Kahyaoglu from Jeffries. Your line is open. Sheila Kahyaoglu – Jeffries LLC: Thank you. good afternoon, everyone.

Hi, Sheila.

Hi, Sheila. Sheila Kahyaoglu – Jeffries LLC: Could you comment on what organic revenue growth was in the quarter?

Yeah Sheila, I think we – as you know, Micronetics was acquired in the first quarter of last year. Sheila Kahyaoglu – Jeffries LLC: Yeah.

So we’ve effectively – included it as in total with MCE and frankly, it’s not that meaningful given the fact that we had Micronetics for most of the first quarter of last year. so for all kinds of purposes, it’s not really a meaningful number. Sheila Kahyaoglu – Jeffries LLC: Okay. so you’ve turned the corner at about 9% organic growth rate and I mean going back to, I think Peter’s question in terms of a break-even, it seems that I mean what will keep you from going to a break-even at this point? is it just the higher R&D this quarter or was there anything else, because now that – I guess you had a $55 million run rate, what else do we – what are the next steps from here?

So I would say, Sheila, that we are committed to achieving our target business model over time. and I think we can get there on a number of different ways, depending upon the assumptions that we make regarding kind of the budget environment, the performance of ongoing programs, some of the content – the opportunities for growth around content expansion combined with some of the efficiencies related to the ongoing integration activities that I’ve just spoken about. So we do believe, we can get back to profitability. We do believe we can get back to significant levels of growth, but given the industry backdrop, it could take sometime, but we’re committed to achieving the target model. Sheila Kahyaoglu – Jeffries LLC: Okay. I understand and maybe, can you comment about what’s there is in maintenance activity look like in the quarter just to get a sense of the shorter cycle activity?

It was consistent with what we’ve seen in prior quarters. Sheila Kahyaoglu – Jeffries LLC: That was up 20% last quarter?

So, roughly flat. Sheila Kahyaoglu – Jeffries LLC: Okay, got it. And I – can you just give me a sense of what headcount was that for the quarter?

Yes, came in it at 752, which was down 1%. Sheila Kahyaoglu – Jeffries LLC: Yes, yes. Got it, okay. Thank you very much.

Yes.

Thank you. Our next question comes from Brian Ruttenbur from CRT Capital. Your line is open. Brian W. Ruttenbur – CRT Capital Group LLC: Great, thank you very much. Can you first of all go over the logic that you used on switching teams from Raytheon to Lockheed on AMDR, I know that didn’t pan out in other time, I’m sure it has, but just kind of go through the logic with us on why you did switch and would you redo it now in hindsight or was it a good decision, I’m just trying to understand the logic behind it?

So we didn’t switch Brian, I think we were partnered with Lockheed on obviously, Aegis as well as the bidden proposal for AMDR. Clearly, they weren’t successful and the protest at the award and we’ll see what happened to the result of that. I think the question that I got asked is, is there opportunities potentially going forward working with Raytheon, and I don’t think to say, we’ve seen opportunity in the area that we’re working with Lockheed, which is largely in the traditional compute part of our business. but maybe there’s some opportunity going forward on the RF and microwave side of things, although as I say, it’s very, very early stages and there’s a lot of water that’s going to pass under the bridge between now and then. So hopefully, that cleared out your question. Brian W. Ruttenbur – CRT Capital Group LLC: Okay. And then final question, I think it’s been asked from a couple of different angles, but you mentioned that target business model and you talk about being a target business model, what is that target business model, is it $55 million in revenue and break-even, I just don’t recall it?

Okay. so we haven’t updated the target business model. It’s the prior model that we’ve had as probably over a year now and it’s calling for an adjusted EBITDA in the 18% to 22% and if you recall we achieved in fiscal year 2012 during more normal industry conditions at 20% adjusted EBITDA. So we do believe there is some of the more traditional programs start to come – kick into gear and if the industry conditions improve and if some of the larger programs that were involved with start to move into production. We can get back to the levels that we were previously. Brian W. Ruttenbur – CRT Capital Group LLC: Great. Thank you very much.

Okay. Thanks, Brian.

Thank you. Our next question comes from Jonathan Ho from William Blair. Your line is open. Jonathan F. Ho – William Blair & Co. LLC: Good afternoon, guys.

Hi, Jonathan.

Hi, Jonathan. Jonathan F. Ho – William Blair & Co. LLC: So just wanted to start out on, did you guys see any unusual activity around the end of the September budget flush in terms of maybe programs that you expected to come in, but you look to sit out or I mean any sort of surprises around the budget flush activity?

I don’t think there was much of a budget flush actually this year or in – I think as we’ve said in prior years, Jonathan, given our position in the industry, we typically don’t see that as the time that other companies, prime contractors that are operating at a higher level than we typically see. So I don’t think we saw anything unusual. I think the government towards the back-end of 2013, it’s continued into 2014, is spending at a lower rate, largely because I think they don’t want to repeat that what they saw during government fiscal 2013, where they were spending in the first part of the year at a rate that was consistent with the budget submissions, but due to the Budget Control Act, less money was available, and the Army, in particular, saw some shortfalls. I don’t think they’re going to repeat that this year, and so I think they’re taking a more measured approach. But for us, we haven’t really noticed a material difference in the overall environment. I think it’s very similar to what we’ve been operating under in the past three or four quarters and we feel that we actually have learned a lot how to operate effectively in this environment. Jonathan F. Ho – William Blair & Co. LLC: Got it. And just relative to AMDR and your expectations, I mean, with that program, maybe diminishing value or maybe no longer available, can you give us a sense, does that impact your perspective in terms of your ability to grow at 10% or better on the top line or is it something that you can definitely sort of power through with other activity overtime?

Sure, it’s a good question. If you look at the timing on AMDR, the LRIP wasn’t expected to go into – the program wasn’t expected to go into LRIP until government 2016, with full production until 2020. So it’s a fair amount of time away in terms of its ability to impact the growth of Mercury kind of in the short-term. I think there are other opportunities that we feel very significant in terms of our ability to continue to grow the top line, and in particular, I think we see a lot of opportunity in SEWIP Block 2. It’s largely as a result of the acquisition of Micronetics that we did and largely as a result of the investments that we’re making in the new Advanced Microelectronics Center and we’ll talk about the opportunity that we see there at our Investor Day in November. But that’s a very important program for us, and as you know, it’s really just moved into the low rate initial production phase, it hasn’t even yet hit production. So we do feel that we’re going to grow and not only with SEWIP Block 2 and Block 3, but as you know, this quarter, we also won the F-16 SABR award with Northrop Grumman. So we’ve got a portfolio of programs. Yes, I’m disappointed that we didn’t win AMDR, but it’s a number of programs – it’s one of the number of programs that we’re involved within at the ceiling. Jonathan F. Ho – William Blair & Co. LLC: Great, thank you.

Thank you. (Operator Instructions) Our next question comes from Michael Ciarmoli from KeyBanc. Your line is open. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: Hey. Good evening, guys. Thanks for taking my questions.

Hi, Mike.

Hi, Mike. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: How are you guys?

Great. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: Just to follow-up on the other side of Tyler’s question with the guidance for next quarter. We’re one month into this quarter, it sounds like you’re managing through it quite well. The impacts of the shutdown, I guess, didn’t have too much of an influence. So help me understand what would drive a sequential 11% decline in the coming quarter to get you down to that low end of the guidance?

So I think overall, just the timing of deals, is it enough to kind of [indiscernible], I think that is the difference between the high end and the low end. It’s not like last quarter specifically, where we said the difference between the top end of the range and the bottom end of the range was the specific Aegis shipment that we’re expecting that we haven’t yet locked down the dates with the customers. So I think we’re just trying to be conservative, Mike, to make sure that we can deliver our numbers as we’re guiding them, so… Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: Yes, totally appreciate that work. What about – on the topic of the target model and given this environment, I mean, they are grumblings out there that we might stay in the sort of continuing resolutions, sequestration type environment through potentially the 2014 elections or maybe even the 2016 presidential election. I mean, what would you guys have to change? It sounds like you guys have gotten ahead of this to some extent, it sounds like you’re getting your lags with this over the last couple of quarters. I mean, would that create incremental kind of headwinds for you guys or would it just be kind of more of this similar operating environment?

I think we took a very conservative approach to the way in which we plan fiscal 2014, and I think it’s a direct result of what we experienced during fiscal 2013. I think, as you know, we were probably one of the first to see the impact of kind of the – our customers preparing for the potential of sequestration and did have a material impact on the business. To us, I think we figured out how to operate in this environment. I think we figured out also how to plan more effectively in this environment, and so I don’t see a material change to the business. I think we’re operating it very effectively. Most of the planning that we’re doing and what we’re planning from a growth perspective is basically around programs that’s either or already in production or have transitioned into production and that we’ve already won. And so we feel pretty good about our position and our ability to be able to manage through things given the turbulence that we see down in DC. I think if anything I would kind of summarize to say that right now we feel there’s more upside opportunity than what there is downside risk in the business. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: Could you, and I’m not asking for longer-term guidance, but if this environment persists, given the portfolio of programs you have and what’s going to be ramping, can you get into the target EBITDA range in this current environment if it persists through, let’s say, worst case scenario, the 2016 presidential election?

I think the answer to that we believe is, yes, and it’s clearly based on a lot of assumptions regarding what happens with the budget environment, what happens to our existing programs, our ability to capture additional content on some of the programs that we’re already involved with, but we’re pursuing new design wins as well as our ability to capture the synergies associated with the ongoing integration as the businesses that we’ve acquired. But as I said on the call, we are committed to achieving our target business model and we believe that under a realistic set of assumptions, we can get there in a reasonable period of time. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: Fair enough. And if I’ll just sneak one more in here and I’ll jump out of the way.

Sure, Mike. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: I think you mentioned on SEWIP, you’ve got the opportunity to pick up or increase your shipped set content taking on more work, what’s driving that or is that just primes outsourcing more to you, are you displacing some other suppliers, can you maybe just elaborate there?

Sure. I think, first of all, we’ve got a lot more capability to offer the direct result of the acquisition of Micronetics. So we were involved in the program previously and as we’re going through the due diligence with Micronetics, we were pretty excited about the potential of taking some of their capabilities into our existing customer base. And this is probably the primary example and we see a lot of potential upside opportunities as the result of that acquisition. We also see that in the RF and the microwave domain, the industry structure we believe is somewhat broken and it’s kind of a hourglass shaped industry structure, where you’ve got a couple of companies at the top, one of which, in particular, is competing with our customers and many of them are trying to move away from that particular supplier. We’ve got other companies that are emphasizing defense less and more industrials and kind of scientific parts of their business, and we see opportunities of basically taking share from both of those companies. In the middle, you’ve got a number of or kind of a dearth of companies and we are kind of positioning ourselves as that federal alternative of that go to company and what characterizes that is not only the engineering development capability, but the ability to be able to manufacture in volume and that’s really where that AMC – the new AMC that we’re building comes into play and I think we are very well positioned there to basically pickup more work either with companies above us or companies that are below us that don’t have the ability to scale, and so we are pretty excited actually about the potential that we see in the RF and the microwave domain. Michael F. Ciarmoli – KeyBanc Capital Markets, Inc.: Okay. Great. Thanks a lot guys.

Okay.

Thanks, Mike.

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

Okay. Well, thank you all very much for listening and for joining the call here today. We hope to see you at our Investor Day in early November. Thanks very much. Bye-bye.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect at this time.