Good day and welcome everyone to the Mercury Computer Systems Incorporated Second Quarter Fiscal 2009 Earnings Conference Call. Today's call is being recorded. And at this time for opening remarks and introduction, I would like to turn the program over to the Senior Vice President and Chief Financial Officer, Mr. Bob Hult. Please go ahead sir.

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 would 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 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 second 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 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 third quarter, and at that point we'll open it up for your questions. Mercury performed well in the second quarter. We continue to execute on our plan to focus the business improve our profitability increase our cash flow and position ourselves for renewed growth. Overall the business produced solid financial results Mercury's total revenue and non-GAAP earnings exceeded the high end of our guidance range. Reflecting both our settlement with UBS, as well as strong cash flow we ended the quarter with a cash balance of $198 million compared with $167 million at the end of Q1. This obviously puts us in a good position to meet the put on our convertible debenture that we expect to occur in May of '09. We also continue to improve the underlying operations of the business. Inventory was down, we reduced our receivables, lowed our DSO sequential and year-over-year and we were able to increase our cash flow. Overall, I think these results were indicative of the operational improvements we've made in the business over the last 12 months, and these areas will remain a focus for us going forward. This is a design win led business, and winning new designs to grow revenues requires new products. Consequently, the progress we've made in operations is timely, because we are in the midst of a significant new product development cycle. We are literally seeing a bio wave of new products move to engineering as we speak. Although it it's particularly important for us to be launching new products, it's equally important for us to improve our R&D leverage at the same time. The…

Thank you, Mark. I will review Mercury's financial results for the second quarter of fiscal 2009, discussing company operating performance, balance sheet and cash flow results, and then finish with a discussion regarding the outlook for the third quarter of fiscal 2009. I will discuss the numbers on both the GAAP and non-GAAP basis. As Mark mentioned earlier today, we closed on the sale of our Visage Imaging business. The results of the Visage Imaging business are included in the operating results for the second quarter that we are discussing today. However, when we announce the result for the third quarter, Visage Imaging through the DataCell will be reported as discontinued operations. Second quarter revenues were $50.7 million, above the top end of our guidance range of approximately $47 million to $49 million. The GAAP net loss for the second quarter was $17.1 million resulting in a loss per share of $0.77. Included in this GAAP loss per share were goodwill and long-lived asset impairment charges related for our Visage Imaging business totaling $14.6 million, or $0.66 per share. The GAAP operating loss of $16.6 million includes goodwill and other long-lived asset impairment charges of $14.6 billion associated with our Visage Imaging business. Stock-based compensation expense of $2.6 million, amortization of acquired intangibles of $0.8 million, and a $0.3 million restructuring charge. On a non-GAAP basis for the second quarter, operating income was $1.5 million. This compares with $2 million in the first quarter of this fiscal year, $0.1 million for the second quarter of last year. Non-GAAP operating income excludes goodwill and long-lived asset impairment, stock-based compensation expense, amortization of acquired intangible assets and restructuring charges. We used a non-GAAP tax rate of 34%. The non-GAAP diluted earnings per share for the second quarter were $0.03. This was above…

Thank you. (Operator Instructions). We will take our first question this afternoon from Mark Jordan with Noble Financial.

Good afternoon gentlemen, I have three questions if I may. First; what was the operating loss at Visage in the second quarter?

Yeah, on the non-GAAP basis, Mark, we noted that could be $2.1 million.

Okay. Secondly, looking at as Mark said, obviously, you have seen some very attractive growth and you had decent bookings there. Could you give us an idea of what might be a reasonable ramp in terms of revenue that Mark said moving forward? And where would you place the revenue breakeven threshold for Mark said on a quarterly basis?

Mark, we haven't broken down specifically revenues and bookings by business unit from a guidance perspective. We do expect that bookings and revenues will grow from this point forward. In terms of the breakeven, again. Well where the breakeven is on revenue?

Yes.

The range.

Yes.

Three to four per quarter, that was your question Mark?

Yes, I think that’s probably where it is somewhere around near three to four, but I will try to be do exact.

Yes, I think it depends upon how much work we subcontract out versus the mix of resources that we have internally. But as Bob said that’s not about number.

Okay. A final question, you had press release couple of days ago on your PowerStream 7,000 that you had delivered to Lockheed Martin and apparently we have seen some significant success. Could you contrast the performance enhancement to 7,000 had versus the entire VME product that used by Lockheed in the FUY Aegis radars? And is this significant enough that it could be a catalyst for a major refresh cycle?

Okay. So, the PowerStream 7100 product is the next generation of the previous generation that Lockheed was using. The 7100 product is the product that would likely be deployed as part of the Aegis Ballistic Missile Defense Program when it hits production, probably likely sometime in our non-financial year '10. In terms of the performance upgrades, it gives increased [Pro] Digital single processing capability. And given the sensitivity, we are not really in a position to be able to expand too much upon in terms of the performance improvements.

Do you believe though that it gears a potential for a significant upgrade market in the install base and Aegis radar that are deployed?

Yes. I said I think if you look at it, Mark, we are expecting that the Aegis BMD systems will upgrades, will likely start in FY '10. That’s where we are expecting production revenues to occur and the product that we just announced the other day, will be the product that forms the basis of those upgrades. So, clearly, I think, as we said, historically, Aegis is a pretty important program for us in terms of driving growth in radar as well as in the naval sector. So, it is clearly a good opportunity for us.

Thank you.

And we will take our next question from Steve Levenson with Stifel.

Thanks, good afternoon.

Hi Steve.

Hi, good to see the progress that you are making.

Thank you.

Back to that Lockheed radar that's S4R radar that right now I guess is suppose to be for, DDG 1000 Destroyers. And I guess that's a program that is certainly questionable. Do you think if the DDG 1000 isn't made that this will be an upgrade for DDG 51's or is that not necessarily a possibility?

I think our expectations at this point is based on all indications that we have got is that the aegis upgrade are likely to occur as planned starting in FY10. And I think the scheduling of the ships, are taking place as we speak. So, I think we feel at this point that the programs and the revenues associated with those seem to be in pretty good shape.

Okay. Thank you. There are number of airborne intelligence platforms and ground based intelligence platform that are coming up, including things like the project Liberty plans Aerial Common Sensor, and ground-to-profit. Do you see opportunities there for your boards or is that something that uses something not as sophisticated?

Yes, I think so, when ACS came around the first time we were certainly bidding on that opportunity and felt that we were well positioned. We also feel good this time around and given our position in certain of the large wide bodied airborne seeking platforms. So we think that EW seeking platforms going forward in the airborne space, it's certainly in the area of growth for us. And certainly thinks that we are going to be pursuing.

Okay thanks. Your headcount, the headcount that, Bob, just gave of 631, does that include the Visage people.

Yes it does.

So this will do down by the 60 odd, did you mention.

Correct.

Okay thanks. Have you received any royalties from Honeywell on Synthetic Vision arrangement?

When we sold the AUSG.

No, since.

Since, yes, but I mean since we’ve sold the AUSG. No nothing of significance.

Okay. And last item you talked about capturing share, a sizable market. How higher are you aiming here?

Well we haven’t these specifics in terms of the longer term growth targets. But I think if you look at kind of big picture, what's driven Mercury's growth historically, has really been in the radar space. I think over the last couple of years or so and specifically in '08 I think we've made great progress in the EW side of things. And then going forward we believe that the EO market and sort of the thrust around system surveillance, it looks that both video and command areas where we see significant opportunities. So I think there’s huge potential growth opportunities for us, and we are going to go after it.

And is that one or two specific partners or across the board.

Yeah, I think it's across the board. I mean we are going to continue to work with the large primes like we do today and clearly Merc Fed takes us into a direct prime contract model from a services perspective. So that is also an area have good potential growth and I think we've seen that in the first half of 2009.

Great thanks very much.

Thank you, Su.

And we will take our next question from Jonathan Ho with William Blair.

Good afternoon. Good afternoon guys, just a couple of quick questions on the Converged Sensor Network platform. Can you talk a little bit about some of the examples or some of the potential opportunities there are for this application. That you guys are seeing right now.

Yeah so I think the applications fall into couple of different scenarios. Clearly there is an opportunity of upgrades to existing sensor platforms where we are looking to upgrade the onboard processing and provide from digital signal perspective but then also provide more capabilities around image exploitation onboard the platform. In addition from a new platform perspective we are seeing more opportunities around unmanned platforms and specifically around the persistent surveillance space. So, the two examples that I mentioned in the prepared comments. One was to provide the onboard processing the entire onboard processing and storage sub systems for an image exploitation platform for one of the large primes over in the UK. And then the other which we think is kind of going to be the driver as the growth model going forward which was where Merc Fed won a prime contract position to work on providing the entire signal processing. We kind of see that being the model going forward. And again that's in the airborne persistent surveillance space. So the good thing is I think the opportunities that we are seeing in the ISO market kind of play to where Mercury's historic strengths are from an install base perspective and clearly the new capabilities that that we are bringing to market provides us opportunities for continued growth.

Okay, just taking a look a bit at your book-to-bill ratio. Can you talk a little bit about why we saw the drop off this quarter? And is there something that's more of a I guess, a timing issue and should we look forward sort of a strengthening like you said offsetting your comments.

Yeah, so I think if I take the two businesses in ACS separately, and I think overall we expected that the first half of the year was going to be slightly slower than the back half, and that's the way in which things kind of played out in the first half of '09. Defense, it's largely a timing issue. As we said in the prepared remarks, we are conceiving some good some growth opportunities in the back half of the year from a bookings and from a revenue perspective. Commercial was slightly weaker than we anticipated in a largely due to the macroeconomic environment that we find ourselves in along with everyone else. And we expect those headwinds to continue going forward in the second half. So overall I think from a first half perspective, it's kind of lining up the way in which we though other than in commercial, which is weaker than anticipated.

Great. And my last question is on sort of this new product cycle that you guys had referenced in your comments. Can you talk a little bit more; give us a little bit more color on the timing of when these products are going to come out, what the potential maybe impact to the top line would be, and what do you sort of expect as these things start to roll out?

Yeah, so we've got a lot of new boards and now products in both the multi-computing and the signal processing demand coming out really over the next 12 months. That already started is an example, we've delivered, early deliverables of the PowerStream 7100 product as we had previously mentioned as part of the Aegis program. Now, we've got a whole range of other products that will continue to be delivered throughout the next 12-month period. And those products, we expect to drive growth not only in terms of upgrades for existing programs and platforms, but as well as allowing us to go after new markets that Mercury has not participated in historically such as the EO market, around Video Persistent Surveillance.

Great, thank you.

(Operator Instructions). We’ll move next to [Jim McIlree] with Neuberger.

Hey, Mark, Bob. Just one quick question and I apologize if you already covered it. We know the sales run rate for the first six months at Visage looked like $4.5 million. Did you indicate what the loss at the EBIT line had been?

In the operating income non-GAAP.

Right.

Operating loss, Jim in Q2 was $2.1 million.

Okay.

And it was around about the same in Q1.

Right, right. Thank you and very great work on that, keep it up.

Thank you, yeah. That was a good result for us, we think.

We will take a follow-up question from Mark Jordan with Noble Financial. Mark Jordan – Noble Financial: Yeah. Thank you, just a quick question, VSG had a strong quarter, could you just a talk about why that thing the pop-up for the revenue standpoint and what given the movement in oil prices, do you see that as sustainable or declining back to where we were a couple quarters ago?

I think they are largely just due to the timing of some larger customer contracts. I think overall that business has been growing and we expect it to continue growing going forward, so there nothing really out of the ordinary going on their market, it's just the way and which are the quarter unfolded. From a oil price perspective, at this point we haven't seen any major impact in terms of the fluctuations in the oil price in terms of the way which our customers are purchasing from us.

Thank you.

And at this time, we have no other questions standing by. I would like to turn the program back to our speakers for any additional or closing comments.

Okay. Well, thanks very much to everyone for listening. We look forward to speaking with you again in next quarter. Operator, this concludes our call.

Thank you everyone for your participation in today's conference. And you may disconnect at this time.