Good day everyone and welcome to the Mercury Computer Systems Incorporated First Quarter Fiscal 2009 Earnings Results 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 Senior Vice President and Chief Financial Officer, Mr. Bob Hult.

Good afternoon and thank you for joining us. With me today are our President and Chief Executive Officer, Mark Aslett, and our Vice President and Controller, Karl Noone. If you have not received the copy of the earnings release, you can find it on our website at www.mc.com. We’d like to remind you that remarks we may make during this call about future expectations, trends and plans for the company and its business constitute forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Additional information regarding forward-looking statements and risk factors is included in the press release we issued this afternoon reporting the company’s first quarter results and 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. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, we will also be discussing non-GAAP financial measures adjusted to exclude certain charges which we will specifically identify. Management believes that these non-GAAP financial measures assist in providing a more complete understanding of the company’s underlying operational results and trends and management uses these measures along with their corresponding GAAP financial measures to manage the company’s business, to evaluate its performance compared to prior periods in the marketplace, and to establish operational goals. However, they are not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. A reconciliation of GAAP to non-GAAP financial results discussed in today’s conference call is contained in the press release we issued this afternoon. I am now pleased to turn the call over to Mercury’s CEO, Mark Aslett.

Thanks, Bob. Good afternoon everyone and thank you for joining us. I’ll begin with an update on the business. Bob will then review the financials and discuss our guidance for the second quarter. And at that point we’ll open it up for your questions. We set out to make fiscal 2009 a pivotal transition year for Mercury, by becoming a much more focused business, improving our profitability, increasing our cash flow and positioning ourselves for renewed growth in fiscal 2010 and beyond. The first quarter was a strong start to the year in all these respects. We met or exceeded our internal targets for the majority of our key financial and operational metrics, including our first quarter guidance. We made progress toward our goals in divesting all of our unprofitable and non-call businesses by the end of the fiscal year, while strengthening and growing our core defense business. And our Mercury Federal business delivered their first significant bookings. This is an important step forward in our strategy to expand Mercury’s addressable defense market, increasing the demand of revenue coming from software and services and assist in the transition of our corporate defense business. Summarizing our financial results, we continue to see the levels of revenue and profitability we expected in our core ACS Defense business. As in prior quarters, these results were partially offset by the continuing revenue decline in the Commercial business within ACS and by losses in Visage Imaging. Starting with the top line, Mercury’s total revenue for the first quarter was $49.1 million. This compares with $55.2 million in the sequential fourth quarter and $48 million in the first quarter of fiscal ‘08. Our book-to-build for the first quarter improved from north 0.8 times in the fourth quarter to 1.01, largely driven by improved bookings in ACS…

Thank you, Mark. I will review revenue for the first quarter of fiscal 2009, including details by business unit, discuss company operating performance, balance sheet and cash flow results, and then finish with a discussion regarding the outlook for the second quarter of fiscal 2009. I’ll discuss the numbers on both a GAAP and non-GAAP basis. In the first quarter, Mercury sold the assets and intellectual property of its subsidiary, SolMap Pharmaceuticals per FORMA Therapeutics. All historical statements have been adjusted to reflect this discontinued operation. First quarter revenues were $49.1 million, at the top end of our guidance range of approximately $47-49 million and represents a $1.1 million increase year over year. The GAAP net loss from continuing operations for the first quarter was $1 million, resulting in a loss per share of $0.05. The GAAP operating loss of $1.3 million includes stock-based compensation expense of $1.4 million, amortization of acquired intangibles of $1.4 million and $600,000 in restructuring costs. On a non-GAAP basis for the first quarter, operating income was $2 million. Non-GAAP operating income excludes stock-based compensation expense, amortization of acquired intangibles and restructuring charges. We used a non-GAAP tax rate of 34%. The non-GAAP diluted earnings per share for the first quarter was $0.07. This was above our guidance range, primarily due to lower operating expenses. The non-GAAP gross margin for the quarter was 57.7%, slightly below our guidance range of approximately 58-59%. Gross margins were adversely impacted by lower-than-planned revenues in our Visage Imaging business. Our non-GAAP operating expenses for the quarter were $26.3 million, below our guidance of approximately $30 million, due to engineering program spending shifts to the December quarter and general cost controls. The book-to-build ratio for the quarter was 1.01. Backlog including deferred revenue was $87.8 million, an increase of $3.6…

Thank you very much, sir. Our first question comes from Jonathan Ho with William Blair. Jonathan Ho - William Blair & Co.: Morning, guys. Great results. Can you talk a little bit about the gross margins and whether there was any impact to that line given that you have higher Defense revenue and sort of our expectations for 59% in the second quarter? Just give us a little bit of color on that.

Sure, be happy to Jonathan. I will stay with our guidance for the second quarter. So, I think I made that clear what the expectations are for guidance in Q2, which is approximately our long-term business model. You ask specifically about our ACS business and its Defense portion inside of it, I think simply I would state that it performed according to our plan. Ties very nicely into the race that we’ve been performing in that 59% range. We were only hurting in Q1 by the revenue shortfall in our Visage Imaging business which is software-based; comes with very high gross margins. So, the simple math on why we didn’t hit 59% in Q1 is we missed the revenue target for VI in Q1. ACS performed right on plan. Jonathan Ho - William Blair & Co.: Great. And just getting into VI a little bit. Can you talk about your expectations there for sort of the rest of the year? And if VI has been sequentially declining so far in the past couple of quarters and just wanted to get a sense of whether you see that trend reversing or the pipeline conversion? Has that been pushed out or it’s just a situation where we’ve persist a little bit?

Hi Jonathan. It’s Mark. If you look at, I think, last quarter, the revenues in VI were actually up sequentially. The challenge this quarter is, I think, we have seen a somewhat of a deterioration in the market resulting in longer sales cycles. We believe that that’s really due to the overall economy. So, we don’t expect that that’s going to rebound anytime soon. Jonathan Ho - William Blair & Co.: Okay. My last question is on SG&A. Can you kind of break out sort of the components of that decline between the prior quarter and this quarter in terms of the SG&A?

We don’t normally do that, Jonathan. We only give you an Op Ex number in terms of forward guidance. Jonathan Ho - William Blair & Co.: Just in terms of between Q4 of last year and Q1 of this year, there’s a pretty big sequential drop. Can you just break that out for us in terms of where that comes from?

Well, generally speaking, we took costs out at the end of last year. We did have a restructuring action. Is that what you’re getting at? Jonathan Ho - William Blair & Co.: Yes, just trying to get a sense of how that breaks out in terms of the recurring piece of it.

You see expense, it is going to go up in Q2 from Q1 and the only driver there, major driver, is the shifting of engineering programs from the first quarter into the second quarter. We’ve got a number of new products. I want to say 15, Mark?

Correct.

About 15 new boards nearing completion with associated program spending. So, with the big driver being on the R&D line and that’s accounting for the step up. I think you can kind of maintain a consistency on the other line, SG&A, quarter to quarter. Jonathan Ho - William Blair & Co.: Okay, thank you guys.

And our next question will come from Tyler Hojo with Sidoti & Company. Tyler Hojo - Sidoti & Company, LLC: Hi, good evening, guys. I guess just to clarify, did you say that ACS Commercial came in kind of where you were thinking or just ACS Defense? Just the second in general.

So if you look at year over year, Tyler, is ACS Defense business was up approximately 23% in a revenue perspective. The Commercial business was down 24% year over year. So, Q1 of ‘09 over Q1 of ‘08. I think we landed around about where we thought, what we thought was going to happen in the quarter. Tyler Hojo - Sidoti & Company, LLC: All right. Well, I know you just want to stick to the quarterly guidance but I think it might be helpful if you could maybe just generically talk about where you see the Commercial side of ACS going? I mean is it flattening out from here or do you still expect it kind of another stair step down?

Yes, I think you’ve got to look at the big picture and kind of what’s also happening in the marketplace. If you look at the bookings on a year over year basis ‘08 over the prior year, excluding the Legacy Medical bookings, we saw basically bookings flat year over year, which was a substantial improvement where we’ve been over the prior years. So the rate of decline in bookings overall has slowed. What I think we saw in Commercial this quarter was that we actually saw bookings increase sequentially but we continue to face some headwinds in the Commercial business. And I think it’s largely in the semiconductor space because I think that market looks like it’s getting slightly worse. So, I think the way in which we’re thinking about it is that we’ve signaled that we expect to get it towards a 80/20 Defense versus Commercial. And we’re kind of heading down that path but I’m not suggesting that we’re going to get in excess. It’s going to migrate down towards those levels. Tyler Hojo - Sidoti & Company, LLC: Okay, that sounds good. I appreciate that and you talked briefly about the Merc Fed bookings, which I thought were really impressive. Could you maybe just talk about the backlog on that business? Is it similar to ACS Defense where it’s the majority of your backlog is consumed within, say, a 12-month period?

Yes, it’s going to be a multi-quarter period to recognize the revenues associated with those bookings.

But they don’t stretch out over multiple years if that’s what you’re getting at, Tyler. Tyler Hojo - Sidoti & Company, LLC: Yes, that’s what I’m getting at. All right. Great. And, I guess, just another kind of macro question. Just in light of some of the recent developments, and I think you touched on it a little bit on the divestitures, but generally speaking, how do you think that the Defense business is positioned in light of basically their being a bit more of a strain on Defense spending? Any comment there would be helpful.

Yes, I mean I think we feel good about where we’re at in Defense. Clearly, the business is performing well. As you know, the revenue in Defense was up 17% year over year. The bookings in Defense was up 33% year over year. And our revenue performance in the first quarter, which was up 23% year on year. It was pretty good. So, we feel good about where we’re at. I think if you look at the longer term trends, our focus in the ACS Defense business around the broader military electronics market, and coupling that with Merc Fed, we think we’ve got the opportunity for sustaining profitable growth. Clearly with the election, there could be some delays or some slowdowns. We don’t think that that’s going to happen but I think overall we feel good about where we’re at and it’s the right place for Mercury to be. And a great place for Mercury to be given in this macroeconomic environment. Tyler Hojo - Sidoti & Company, LLC: I appreciate that. Thank you very much.

Our next question will come from Elizabeth De Freitas with Stifel.

Hi. Just wanted to ask, given about the $1.2 billion in ISR government budget funding for fiscal ‘09, do you expect to see some or any of that and any thoughts on timing or amounts perhaps?

Yes, we absolutely believe that we will see some of that. I think we’re already starting to see some potential from it in the short term, given some of the programs and the platforms that we’re on. I think longer term, if you look at the ISR space, the ISR space is back a $19 billion market today, growing to about a $24 billion market over a period of time. And it’s the area that we see great potential for Mercury going forward with the products and capabilities that we have. And in fact, this converged sense of networking architecture that I mentioned on today’s call is directly targeting the ISR space. And at this Mercury Federal. So, we think that it’s a very important market for us. It’s an area where we see great growth and it’s an area that really plays to Mercury’s strengths, Elizabeth.

Great. Okay, thank you very much.

We’ll go back to Tyler Hojo with Sidoti & Company. Tyler Hojo - Sidoti & Company, LLC: I don’t know if you guys are willing to do this but is it possible to provide the operating performance per segment?

It is. We’ve been trying to step into that even ahead of where our SEC segment reporting is. We still have the old segments, Tyler. Tyler Hojo - Sidoti & Company, LLC: Yes, right.

So, we’ve been passing ACS and Merc Fed. Try to give as much detail as possible there. Are you looking for something in particular that you’re not getting? Tyler Hojo - Sidoti & Company, LLC: Well, maybe I missed it on the press release but I was just looking for the EBITDA from ACS.

Yes, you see that when we file the Q. Tyler Hojo - Sidoti & Company, LLC: Right.

We view our segment reporting. Tyler Hojo - Sidoti & Company, LLC: No, I understand it will be in the Q. I was just wondering if you provide it or not.

I think if you look at it, Tyler, if you look at where ACS has been performing historically on a percent basis, we’re there for the first quarter. Tyler Hojo - Sidoti & Company, LLC: Okay, thank you.

And we’ll go next to Jim McIIree with Collins Stewart.

Thanks. Good evening. Just on kind of a rough order of magnitude, could you break out the Commercial revenues in ACS between the semi-medical and com markets.

We actually haven’t broken it down to that level, Jim, from a reporting perspective historically.

Okay. And then relative to the December quarter guidance, the Q to Q decline in the top line, that’s primarily from the sum of the Commercial businesses? That correct, Defense, I’m assuming is relatively stable or up quarter to quarter?

Yes, we believe that Defense is going to continue to do well and I think as I mentioned, we feel that we’re seeing some slight headwinds from a commercial perspective. I would say, though, that overall we feel that we’re somewhat inline with where we thought how the year was going to play out at this point in time as it relates to the guidance that we’ve given.

Right. Okay. And then you mentioned the put option on the convert. Any initial thoughts on how that’s going to play out?

We think it will be put to the company in May of 2009 because of the underlying conversion price being in excess of $30 per share. So our approach for some time now has been to ensure that we have the cash to meet the put. And I think that remains our approach, have the cash. And our sense is we’ll be able to do that readily.

Okay, but if you did that at least on today’s cash you would be down to--oh, I’m sorry. I’m not looking at the long-term marketable securities. And those auction rates are in the long-term or the short-term marketable securities.

Yes, they’re in the long-term. I think you’re a little new to the story, Jim, but I’ll help you a little bit. Those $50 million of ARS’s have been marked down mark-to-market to $46 million and they’re not accessible to us. So, if you took the balance sheet as we just reported it and work through our net cash position, subtracting out the $46 million since they’re frozen, we’d come up at about $120 million of available cash. And the put would be at $125 million. So, between here and May of ‘09, it’s important that we go after working capital; it’s important that our operations continue to improve in terms of bottom line results. And of course, there’s the portfolio rationalization agenda where we hope to have some proceeds from sales of future business units. The backstop to all of that is this margin loan facility that we now have with UBS as part of their final settlement with the SEC, which gives us at zero cost to us, borrowing capacity of $35 million.

So you net it out $35 million against the negative $5 that Bob described with the margin line. We’re in great shape in terms of being able to repay the convert right.

Okay, that was a very helpful discussion. Thank you.

And at this time, there appear to be no further questions. Mr. Aslett, I’ll turn the conference back over to you for any additional or closing remarks.

Thanks very much, Matt, and thanks to everyone for listening. We’d like to remind you that we are holding our Investor Day at the Langham Hotel in Downtown Boston this coming Wednesday, October 29th at which we’ll be actually laying out our future plans for Mercury. We’re looking forward to see many of you there and look forward to speaking with you all again next quarter.

: THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!