Good day, everyone and welcome to the Mercury Systems' Third Quarter Fiscal 2015 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Company's Executive Vice President and Chief Financial Officer, Gerry Haines. Please go ahead, sir.

Good afternoon 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 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 other 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 weaknesses 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 product service or system integration…

Thanks Gerry. Good afternoon, everyone and thank you for joining us. I will begin today's call with a business update. Gerry will review the financials and guidance and then we will open it up to your questions. Mercury continued to deliver strong results in the third quarter of fiscal 2015. Revenue was up 12% from Q3 last year, near the top end of our guidance. We also delivered strong results on the bottom line, reflecting the operating leverage we built in the business adjusted EBITDA increased by $3.7 million or 48% year-over-year to $11.5 million on only $6.2 million of incremental revenue. Adjusted EBITDA was at the high end of our guidance and at 19% of revenue approaching the midpoint of our target business model. Mercury remained GAAP profitable and our cash flow from operations continued to strengthen as anticipated. We completed the sale of our MIS business in early Q3 as we had expected. The transaction has a positive but modest impact on cash net of transaction costs. Looking to our Q3 growth metrics in detail. Total bookings were $57 million up 30% from the sequential second quarter but down 23% year-over-year. Our total book-to-bill was approximately 1.0 compared with approximately 1.4 in Q3 last year. Including our strong bookings in Q1 however total bookings for the first nine-months of fiscal 2015 are up 12% year-over-year with a 1.1 book-to-bill. We currently anticipate a book-to-bill of above 1.0 to FY2015 as a whole. Our largest programs this quarter from a bookings perspective were F-35, Patriot, F-16 SABR and Predator, Reaper. We talked about SABR sometime ago our customer Northrop Grumman recently won the F-16 radar moderation for Taiwan. Northrop is pursuing all the foreign military sales as well as upgrades with the U.S. F-16, which could provide additional potential…

Thank you, Mark and good afternoon again everyone. Before we go through the financial results I would like to remind all of you that in the fourth quarter of fiscal 2014 we decided to explore a sale of Mercury Intelligent System or MIS and began reporting its financial results as discontinued operations at that time. As previously disclosed in our 10-Q for the second quarter of fiscal 2015 the sale of MIS was concluded in January of this year yielding approximately $900,000 of cash net of transaction related expenses. Please note that I will be discussing the Company’s financial results comparisons to prior periods and guidance on a continuing operations basis, excluding MIS unless otherwise noted. However in accordance with GAAP our statement of cash flows is inclusive of MIS. Turning to Q3, Mercury again delivered strong financial results highlighted by double digit revenue growth and adjusted EBITDA exceeding 19% of revenue, approaching the midpoint of our target business model. The operating leverage we have gained from our restructuring and integration efforts continues to translate our above market revenue growth into even stronger earnings growth. Total revenues for the quarter grew $6.2 million or 12% year-over-year to $59.6 million versus our guidance of $56 million to $60 million. Revenues from defense customers for the third quarter increased $5 million or 10% year-over-year, while revenues from commercial customers increased $1.2 million or 26%. In our largest reporting segment, Mercury Commercial Electronics or MCE, revenues increased $7.5 million or 16% year-over-year to $55.1 million. In our Mercury Defense Systems, or MDS reporting segment, revenues were $6.7 million down 2.2% or 24% from the third quarter of last year. These segment results exclude adjustments to eliminate $3.1 million of intercompany revenues in Q3 of fiscal 2014 and $2.2 million in Q3 of fiscal…

[Operator Instructions] Our first question comes from the line of Peter Arment from Sterne Agee CRT.

Yes, good afternoon Mark, Gerry.

Hi Peter, how are you?

Good, very well. Mark, could you give us an update on just your latest thoughts on SEWIP obviously in the quarter there was a award of the development work to the Northrop. Could you just give us your latest thoughts on how you kind of envision that program, I know it’s quite stable for you right now with was over up to?

Sure, so as you know there are really three different parts of SEWIP is Block 2 where continued content expansion over time is basically grown the estimated lifetime body of the program while reducing the overall range. Today, the SEWIP Block 2 bookings were actually up more than 27% year-over-year to close the $13 million and we anticipate as you just mentioned that SEWIP Block 2 should move into full rate production sometime early in fiscal 2016. As it relates to Block 3, obviously we were disappointed that Lockheed was not awarded the Block 3 contract. From what we can gather it appears that Northrop had a pretty innovative solution and we assume that’s the particular capabilities that they were providing is likely more affordable than the competition. Now that good thing from our perspective I think is that we’ve actually developed an extremely strong relationship with Northrop and our goal as we’ve done in the past basically will be to recapture the SEWIP Block 3 program over time. So that’s what we are focused on, but to be clear given the timing of the program, the loss doesn’t affect our financials in the current planning period. So at a high levels, we are clearly disappointed with the Block 3 loss that we are going to go to seek to recapture it and meantime SEWIP Block 2 will begin to ramp.

Right, okay. And then maybe just give us your latest thoughts on M&A, you continue to have a kind of very robust balance sheet, any updates there and what you are seeing right now?

So, it feels like things are beginning to loosen up a little bit, we are seeing some potentially interesting opportunities, obviously I won’t go into what they are other than to say that they are inline with what we stated from a strategy perspective which is looking to scale both our processing as well as our RF and microwave business. It could be related to the fact that if you look at the GFY 2016 presidential budget submission. It looks like maybe that fiscal 2015 or government fiscal 2015 could represent the floor in terms of defense spending. So we’ll see. I mean there are things that starting to appear that could be somewhat attractive to us.

Okay, that’s helpful. And just lastly, and Gerry, the comments you made on 2016 guidance that you thought it would be similar in terms of probably more second half weighted than similar to 2015, but in 2015 you had about - it looks like you are going to have about 70% of your earnings in the back half of the year, that seems a little extreme when we are looking at 2016 is that fair?

Yes, I think it’s just, but I’d say it’s going to follow a similar step progression and frankly it follow a similar progression in 2014 as well there were two house of the year, 2015 was two house of the year and we think 2016 is going to represent the same kind of step function. We won’t comment yet, because we are not really through our planning process on what the relative proportions are, but again and we think it’s going to – if you just look that on a chart it’s going to look to follow that same kind of pattern.

Okay, thanks. I’ll jump back in the queue.

Thanks.

Thank you. And our next question comes from the line of Mark Jordan from Noble Financial.

Thank you. Question relative to 2016 are around taxes, obviously in the current fiscal year they bounced around a lot from 0% to 39%. Could you give us some kind of guidance as to what referring we should expect for 2016 from taxes?

Yes, so it’s quite likely to be overall similar, our effective tax rate is hovering around 39%, that’s been very consistent period-to-period. The difference is in discrete items, things like renewal of the R&D tax credit which they go through [individual] each year it is in whatever period they finally get the works done and that’s one of the items that has modulate us. There are been some other discrete items again the variation has been purely a matter of that as opposed to real changes in our tax planning or other tax related processes.

So plan at 39%?

Yes.

It would be happy when something happens. When you’ve talked earlier about the key part of your strategy is to grow relationships organically by moving up to the food chain. Could you talk a little bit and if you have an example or two where you are able to move from – it’s more of a component or a processor were based into a subsystem relationship and then increase the content.

Sure, so I think it happens in a couple of different ways Mark. I think what we’ve been very successful doing say on a program like SEWIP is starting out in one part of the architecture and expanding our content footprint to consume more of the RF and microwave contents that’s available that ultimately when you look step back and look at, it looks like a subsystem sale. So we are doing that pretty regularly across the number of different programs. We got a number of examples where own say newer programs where our customers are looking to gain more affordable capabilities where they are actually putting out to bid having worked with Mercury for a period of time a complete sense of processing solution that combines not only the RF and microwave, but the digital in the processing. And I am thinking right now on a next generation UAV radar program that we bid to one of our customers. We’ve got obviously the Gorgon Stare program where literally we are providing the full-up sensor processing subsystem that’s a very, very sophisticated processing solution. So we got a number, but net, net you can get to it in one of the two different ways. One just expanding your content over time on an existing program I think we’ve demonstrated our ability to do that and then on newer programs basically bidding for the whole thing.

Okay, final question from me relative to the F-35, in your corporate presentation you have the – what program table where you have your current status for major programs after the F-35, the processing RFM you have down as potential revenues starting in fiscal 2016 those are both under bid. When do you expect here something on those bids?

So, if you look at the F-35, right the work that we are currently doing on the program, we are seeing huge growth to date. So our bookings are actually up 300% or up more than $36 million year-over-year. And in fact F-35 is actually a largest single bookings program and second largest revenue program through the third quarter of fiscal 2015. What you were describing is and those bookings will continue to translate into revenue for us well into fiscal 2016. The opportunities that you are describing are both in the RF and microwave domain where is the programs are beginning to ramp moving from [low rate] into full rate production. We are seeing opportunities to pick up more work given the new AMC in Hudson to provide some of that capability. The processing one is slightly longer-term and that’s where I think they are going to look to provide new capabilities on the F-35, but if you look at the investments that we’ve made in our processing capabilities and the relationships that we’ve established with the companies that we believe are probably the best positioned. I think we’ve got a great opportunity to transition our existing business which is more of a licensing intellectual property into the sale of product meaning that the size of that opportunity could go up materially over time. So it’s hard to comment specifically in terms of just the timing of when these things are going to happen in terms of the new start, but we believe that the opportunities are substantial and we are pursuing them aggressively.

Okay, thank you.

Thank you. And our next question comes from the line of Sheila Kahyaoglu from Jefferies.

Hi, Mark, hi Gerry, good afternoon. Thanks for taking my questions.

Hi, Sheila, how are you?

Good, thanks. So just on the AMC facility I know we are there a few months ago, could you maybe provide an update of just the productivity within the facility maybe give us an idea of capacity utilization how many shift you are currently running?

Sheila, well we haven’t really talked about the capacity utilization other than to say that, we believe that we’ve got a substantial opportunity to push more business through that facility. The interest remains very high to date since we’ve opened that we’ve got 60 customer visits. Yes, we see the potential of picking up more RF and microwave work, largely in the EW domain given that’s where we think the money is flowing. And that part of our business is going to continue to grow. We are still running one shift. I think as I mentioned in my prepared remarks and as Gerry alluded to in his we’ll continue to work on making both our engineering and manufacturing processes more efficient and hence the small restructuring charge that we took this quarter that will continue to play out in terms of improved profitability in fiscal 2016.

Thank you. That was very helpful Mark. And then just in terms of the Patriot awards that are upcoming in the international. How should we think about the timing of those and would there be any content differential for Mercury whether its South Korea or Poland or Qatar, should we think about - I guess could you comment on timing and content?

Sure. So let me step back a little bit because Patriot is clearly an important program, our bookings rebounded extremely strongly in fiscal 2014 after a pretty disappointing fiscal 2013, we booked close to $46 million last year related on Patriot and actually received our largest single program bookings ever in the fourth quarter $39 million. Most of those awards related to either upgrades for the U.S. Army or for SMS related sales for countries such as Kuwait covering Saudi. And then we are seeing the substantial benefit of those bookings translating to revenue for us during fiscal 2015. Through the first three quarters Patriot is actually our top revenue program with $32 million revenue, sorry up approximately $32 million of revenue and it’s up $27 million year-to-date. If you look at say Q3, we received $7 million of new orders this quarter and when you look at just some of the recent announcements by rate beyond we do anticipate additional follow on bookings probably in Q4 related to additional business for the U.S. Army and then other countries as well. Clearly the Raytheon selected by Poland which could translate into business for us during fiscal 2016. And they are in competition right now for Germany which again could be fiscal 2016 also. So net, net it’s really important program and I think not only Raytheon continue to win more opportunities, but we actually see the opportunity of expanding our content on the Patriot system both in terms of on the processing side as well as in the RF dimension longer-term. So it’s a great program, it’s going really well for us right now.

Great, thanks. And just one last one if I could step in, I was just curious I know you mentioned that in your prepared remarks your strategy to take shares, there are supply disruptions and at the Analyst Day you mentioned the sales of the IBM Blade business. Could maybe point to or disclose a specific example where Mercury has taken share?

Yes, so we actually had a brand new design win this quarter where we displaced an IBM BladeCentre for a naval application that I can’t go into in too much detail, but we see it’s happening, we’ve received our first order, we’ve delivered the first capability and we are pretty excited about the potential long-term.

Thank you very much.

Thank you.

[Operator Instructions] Our next question comes from the line of Michael Ciarmoli from KeyBanc Capital.

Good evening, guys thanks for taking my questions.

Hey, Mike how are you?

Hey Mike.

Good, good maybe on just Mark just stay on the Patriot topic. How should we think about Raytheon trying to introduce more of their gallium nitrate technology into future upgrade? Is that a risk I mean is that something where they could take some share back for you guys or just how do we think about it at some of their organic technology sort of involves made up to push that out to some other platforms.

Sure, it’s not a risk, it’s an opportunity Mike I think in the short-term is Tom Kennedy mentioned on the call, we’re going to look into - introduce a 360 degree is the radar using the gallium nitrate capabilities. And so that’s going to likely require great processing capabilities as well as we potential see the opportunity longer-term of providing some RF and microwave capability as part of that solution. So we actually view the enhancement opportunities so the introduction of new technologies on the Patriot program is actually an opportunity not a threat.

Okay perfect. And the just on the guidance for both the remainder of this year and even the preliminary guidance you’ve given for 2016. you’ve got fourth quarter revenues going up what’s driving down the earnings sequentially I mean just trying to get a sense of what the puts and takes are to the fourth quarter earnings numbers versus what you guys just did in the third quarter.

I think as you probably seeing historically Mike right I mean probably the one of the parts of their P&L move around a lot is gross margin right. And it’s very much driven by program mix. So I wouldn’t read too much into that in the short-term it literally depends on what products and capabilities tie to what programs we delivering.

Okay. And then may be I am sure this could be the answer for next year, but as we look at the preliminary guidance, what you guys have been run rating on the trailing three quarters in terms your EBITDA margins basically 19.5% or so I know the first quarter was pretty week this year, but next year doesn’t seem like there is too much EBIT margin expansion given you know all the integration work you know presumably you get better volumes in utilization at that AMC facility. I mean is this just the case of program mix and what you are just alluding to the gross margins, so you’re just bumping around.

Yes, I think that’s certainly a part of it I mean if you look at the preliminary outlook to fiscal 2016, 5% revenue growth just given the margin profile and expenses growing more slowly than the top line will result in adjusted EBITDA growing at twice of the rate. So we think that’s pretty healthy in this environment.

Yes, yes, no doubt, perfect. I’ll jump back in. Thanks guys.

Thanks Mike. End of Q&A

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

Okay. Well, thank you very much for taking the opportunity of listening to our third quarter results. We look forward to speaking to you again next quarter. Take care.