Good day and welcome everyone to the Mercury Computer Systems Incorporated first quarter fiscal 2010 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 the Company's Senior Vice President and Chief Financial Officer, Bob Hult. 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 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 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 first quarter fiscal year 2010 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. I’d also like to mention that, in addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP during our call, we will discuss a non-GAAP financial measure, specifically adjusted EBITDA. Adjusted EBITDA excludes interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, stock based compensation cost, and restructuring expense. A reconciliation of adjusted EBITDA to GAAP net income from continuing operations is included in the press release we issued this afternoon. I am now pleased to turn the call over to Mercury's President and CEO, Mark Aslett.

Thanks, Bob. Good afternoon, everyone, and thank you for joining us. I will begin with an update on our business for the first quarter of fiscal 2010. Bob will review the financials and discuss our guidance for the second quarter, and then we’ll open it up for your questions. Our priority for fiscal 2010 is driving the growth and profitability in the business, and the first was an excellent start in that direction. On a continuing operations basis, revenue and GAAP earnings both exceeded the high-end of our guidance range, coming in at $47.4 million and $0.19 per share respectively. Total defense revenue in the first quarter including ACS and Mercury Federal grew 2% sequentially and by 22% year-over-year to $40.8 million. We’re also continuing to demonstrate the operating leverage we have in the business with adjusted EBITDA margin coming in at 16% for the quarter, against a longer term pro forma target business model of 17% to 18%. Inventory was down again both sequentially and year-over-year and Mercury is continuing to generate positive free cash flow. Total bookings for the first quarter increased 4.8% from Q1 of fiscal 2009 to 48.6 million. Bookings declined sequentially by 24.5% from the fourth quarter of fiscal ’09 reflecting the typical seasonality we see in Q1. Including both Mercury Federal and ACS, defense bookings were up 11% year-over-year to $37.9 million. We closed the first quarter with a book-to-bill in defense of 0.93 down from 1.49 in sequential fourth quarter and 1.02 in Q1 of last year. If you look at the past three fiscal years bookings and revenue in our defense business, including both ACS and Mercury Federal have grown at a compounded annual rate of 28% and 14% respectively. This growth reflects the work we’ve done to strengthen our core defense…

Thank you, Mark. As a reminder, I’ll be discussing our first quarter fiscal year 2010 results on a GAAP basis. Please note that commencing with FY 2010, our non-GAAP measure for reporting financial performance as adjusted EBITDA. We believe that GAAP combined with adjusted EBITDA is consistent with the practices in the defense industry. In addition, now that we have divested all of our non-core businesses and treated them as discontinued operations, the numbers I will be discussing relate only to continuing operations. Starting on the top line, total revenue for the first quarter of fiscal 2010 was $47.4 million, well above the high-end of our guidance range of $43 million to $45 million. This compares with $44.8 million in revenue for the first quarter of fiscal 2009. Please note that in Q1, FY ’10, Mercury elected to adopt the new EITF 08-1, revenue arrangements with multiple deliverables. Although Mercury was not required to adopt this guidance until Q1 FY ’11, we elected to early adopt as the company feels that this guidance allows for the recognition of revenue for an arrangement with multiple elements, multiple deliverables to more closely mirror the economics of the arrangement. As a result of the implementation, Mercury recognized $1.9 million that would have been deferred under the previous guidance EITF 00-21 for multiple element arrangements. GAAP income from continuing operations for the first quarter of fiscal 2010 was $4.4 million or $0.19 per diluted share. This was also above the top end of our guidance range, which was $0.03 to $0.08 per share. For the first quarter last year, Mercury reported GAAP income from continuing operations of $1.4 million or $0.06 per diluted share. Looking at our revenues by operating unit, revenue in ACS including both defense and commercial for the first quarter of…

(Operator Instructions). We’ll go first to Steve Levenson with Stifel.

A question about contract timing, have you seen anything either directly or through the primes being held up or slowed down? I know you spoke about the radar contract, I don’t know if that was exclusive or if there is more?

Today, that's really the only one that we’ve seen, Steve. We do believe it is just a matter of timing, our customers have spoken to the governments and we believe it is going to happen next quarter and the program itself is rock solid. So we think it's just a government first quarter timing delay.

And this is one where you are the sole source for the embedded computers are taken?

That is correct

Okay, thanks. Second, did you have any 10% customers during the quarter and are you expecting any?

Through this current fiscal year.

We did see. We actually had four, 10% or better customers this quarter.

Are they somebody that you name in the 10-Q or that you name were --

They are usual suspects. Yes.

Therein actually nine of them, but it’s three of the big ones and one of the tier-two primes.

And you expect that to continue through the year?

That’s actually a large number in a given quarter. We always seem to have two or three.

Okay, and you talked about new chips driving the business on semiconductor side. Is that new chip design new geometries or just --?

Yes.

May be you can explain it better than I can ask it?

No, I think it is basically customers looking to migrate to high technology levels meaning reduce line widths to improve technology in mobile phones, DVDs and Video games.

We will go next to Mark Jordan with Noble Financial.

Good afternoon, everyone. First, I’d like to just go back and review the model that you just talked about in terms of adjusted EBITDA margins of 17% to 18%. If you were to look at that on a GAAP basis back out, could you say what would be generically on a percentage basis, what stock comp would run and also what DNA would run? Because I have to get kind an off margin?

Sure. So we believe our model was targeting 17% to 18% adjusted EBITDA, where you’ve got a range for depreciation in there of 2% to 3% and a range for stock comp also of 2% to 3%. So if you work that a bit, Mark, you will find a GAAP model of 12% to 13%.

Okay. Next, if you could just discuss the Aegis program in aggregate rather than just talking about potential shorter term contracts. If you were to look at Aegis as an aggregate, what is that in terms of percentage of total revs, what it might be this year and what, how does that grow over the next two to three years as you’ll both would have, I will assume both new ship installations and then I think starting what in 2011 you would have next generation retrofit available and how would that kick in?

Yeah. So I think overall Aegis is probably our largest program. It's probably the only 10% program that we have. We expect that is likely to going to continue, if not grow is, we start to hit production and the retrofits of the ships that you mentioned. We haven’t been specific in terms of what we expect to occur in years ‘11 and beyond because we’re not in the business of giving long-term guidance, but it is an important program. It’s a 10% plus type program and we expect it to continue in that regard.

Well not asking obviously for longer term, forecast per se, but in talking with Lockheed. What do they share with you with regards to how this program could grow given the fact that we have you know since cancelled one of the major competitive forces on missile defense, which was the ground based program that would have been developed for Europe and we're going to depend much more heavily on Aegis. How does that impact this program over the next couple of years and I guess related to that, Lockheed got $1 billion five-year development program. How does that play into your opportunity also?

Yes. So, I think if you look at the big picture, as I mentioned in the prepared remarks we believe that missile defense is going to be an important growth driver going forward. If you step back to the Secretary Gates budget reprioritization, I think the DDG-1000 lost out in the budget and the Aegis Class Cruiser on the BMD perceptive definitely saw additional funds. So, we think that there is going to be an up lift there. If you step back and look at the overall theater of missile defense and with what Gates and Obama did, originally they were going to have a fixed missile defense site over in Czechoslovakia. That I think changed to putting more Aegis Class Cruisers in the North Atlantic as well as actually increasing the number of mobile ground based missile defense systems of which we're also a part. So, I think we feel that we're well positioned whether it be from a naval BMD perspective or whether from a ground based missile defense with the major booking that we showed in the fourth quarter of 2009. So clearly we're going to see more money flow into the space with everything that is going on in Korea, in Iran et cetera.

One final off the wall question. Do you know how many ships that you have to have in aggregate to support one ship on station?

How many? I'm not sure I understand the question.

Well, if you're going to have an Aegis ship say off Israel, kind of all time. Do you need three or do you need four?

I'm not sure of the answer to that to be honest. It's certainly something that I could ask Lockheed though. To go back to, actually I didn't answer the second part of your question, which is on the billion dollar contract that was announced by Lockheed on the 26th. This is the regular contract for the engineering services integration tests and support for the Aegis BMD program. So this was certainly expected from our perspective and not out of line with the current book of business that we anticipate.

We will go next to Jonathan Ho with William Blair.

So, in terms of the ACS commercial business, can you give us a little bit of additional color in terms of what you are seeing there and sort of, do you have orders in hand at this point? Like how do we think about sort of a visibility and the projections that are out there?

Okay, so let’s, kind of let’s break it down into what’s happening in commercial overall. It really, just trying to dig into a little bit in the semiconductor space which is what we believe is going to drive the growth looking forward and then how do we feel in an overall level. So I think if you look at what happened in Q1, it really did play out very much as we anticipated. The last quarter when we had the call we basically said that the signs of improvement were pretty inconsistent. Since then things seem to be getting better and there's more evidence appearing of a turn around in the SEMI as well as the telecom space, but I think if you look at the growth that may occur it’s definitely to be a H2 phenomenon. Stepping through the SEMI market, SEMI has really seen a pretty continuous revenue decline on a sequential revenue basis throughout 2009. Q1 was actually the first positive book-to-bill that we've had in semiconductor since the fourth quarter of 2008 on a financial year basis. So, that’s a good sign. In terms of the performance of SEMI in the quarter, we saw that, our revenues in SEMI increased by 29% sequentially and that the bookings in semiconductors were up over 48%, again on a sequential basis. However, if you step back and look at it on a year-over-year basis, the SEMI business is still down pretty substantially. So at this point, we do expect sequential bookings growth in semiconductor and we expect the revenues to be relatively stable, and as I say, we’re expecting overall that the growth in H2 will be driven by the increases both KLA, as well as ASML where we received our first production orders during the quarter. So we certainly feel a little bit better in terms of where the business is today versus where it’s coming from, but one quarter it doesn’t make a trend and we need to see how this thing plays out.

Great. Can you talk a little bit about sort of the faster product development cycles that you guys have been able to implement and may be how that’s factoring into some of the design wins and some of the activities that you guys are seeing?

Yeah, we think that increased product velocity is really, really important for our business. The reason being is that if we can get more products to market, more rapidly and more cost effectively, we’re able to go after a broader range of design wins and wining new design to the defense business can enable us to actually grow our bookings and hence grow our revenue. I think the evidence of the success that we've had to date on that is that, if you go back in ‘09 and looking at the growth of the probable value of our defense design wins, just as an example, the value of those were up 51% year-over-year, much of that was driven by the fact that we’ve been bringing new products to market as part of our product refresh cycle. So, I think we did a really good job fixing the hardware design leverage and reused during financial year 2009. What we are now focused on is improving our software design leverage, which is obviously the other part of the model. So I think the guys in engineering have done a great job. We have got a lot of new products sitting in the market, you may have seen just this past week, the announcement of a whole new range of products, around the OpenVPX standard that Mercury basically held to write, and that is the new standard for the embedded defense electronics industry. So, we should be first-to-market with products against that new standard.

(Operator Instructions). We’ll go next to Tyler Hojo with Sidoti & Company. Tyler Hojo - Sidoti & Company: A couple of quick questions here. In regards to the Merc Fed business, I know you guys don't break out the operating margins, but could you just tell us if it was profitable in the quarter?

It was round about break-even for the quarter Tyler Hojo - Sidoti & Company: Okay, and, I mean obviously a nice improvement on the revenue front. What are your expectations for that business as we kind of moved through the rest of the year, understanding that, you don’t want to give quarterly guidance, but I mean is it going to be a little bit bumpy or do you just see a pretty nice trajectory up from here?

It could be a little bit of both, right? We do expect growth overall. I think we’re relatively well-positioned there. We have one big program which is the Gorgon Stare program that I think we are executing very well against that contract. We expect that to continue going forward. So, we do expect growth, I think we’ve seen a pretty substantial increase here in this past quarter in terms of both backlog on a year-over-year basis, as well as revenue and the team is doing pretty well. Tyler Hojo - Sidoti & Company: Okay, and in terms of finding a permanent replacement for the business sides there? Any comments?

Yes. We are out in the market place searching for a successive (inaudible). I think on an interim basis you probably saw that we appointed Rear Admiral Mike Johnson, who is also the former CEO of Recon Optical. Mike was actually our guest speaker at Invest Day last year. He has pretty much touched every form of ISR and is actually been on the Board of Merc Fed pretty much since its inception. So he is a great interim leader, but we are obviously in the marketplace looking to find a suitable replacement Tyler Hojo - Sidoti & Company: Very good and just lastly, I just want to go back to the delay for the radar contract that you thought you were going to get in the second quarter, but now it’s third quarter. If you could may be just give us a little bit of an understanding of how much confidence you have that will actually be realized in the third quarter or is there a possibility that could become a 4Q event and perhaps other contracts that you’re seeing starting to slip to the [right], or is this really kind of a one-time thing? I know that’s an mouthful there.

Yes. No, no, I mean, you’re asking multiple questions. That’s fine. First of all I don’t think we are seeing multiple program slip to the right, It seems to be a one-off. Clearly the defense industry, right, I think which we talked about before is lumpy right, and a deal either side of the quarterly boundary can make the difference between an up quarter and a down quarter. Unfortunately this quarter was on the wrong side of that line. The program itself we believe is absolutely rock solid. It’s a very important program, I think from a government perspective. It did see increased funding during the Gates re-prioritization and so we’d really truly do believe that it’s simply a matter of timing. Our customer, the prime did actually go and speak to the government themselves and the responses they got back is that they believe that this is a Q3 funding event. So at this point we do believe it’s just simply a matter of timing. Tyler Hojo - Sidoti & Company: Okay. All right great and just again, the follow-up on, gosh I can’t remember who asked the question on the commercial side but I mean you talked about all these opportunities. If I’ve done my math right here, Commercial ACS is about $6.8 million this quarter. I mean order of magnitude, I mean where can we get in the back half in terms of a quarterly run rate if everything kind of goes perfectly here?

Yes. Well, again we are not doing multi-quarter guidance. I kind of laid out what we are seeing in the semiconductor space which we really what we think is going to drive the growth in the second half. So I think we’re going to have to wait and see, Tyler, but we are hopeful that that part of our business is going to see some rebound. There’s definitely some positive signs there.

You have done pretty good math the Q1 though Tyler.

Yes. Tyler Hojo - Sidoti & Company: Yes all right. Great.

We gave all the numbers.

Your model is working. Tyler Hojo - Sidoti & Company: Yes, it wasn't that difficult.

Hope your model is working.

And we will go next [Ryan Rhyton] with Barrow, Hanley.

Good evening, I'm curious that if you guys can elaborate on the counter-IED opportunity and I guess firstly do you have content on the currently fielded versions and in terms of the next competition is, I mean any brackets around the type of opportunity that is and are you tied to one specify competitor or do you have content on multiple versions?

Okay, so we currently don't have content on the crew program. We've been doing some small research type contracts within Mercury Federal. The opportunity that I referenced in the prepared remarks is largely around [J crew 3.3], which will be a spiral upgrades to the capabilities that’s there, but that's in the field today, but providing what we think to be some pretty significant new capabilities. We are positioned with multiple primes and so we feel that if that program comes to pass then it will be an important player there.

So, I mean any ballpark on full funding, what type of longer-term revenue opportunity that could be for you all?

Not at this stage, I think the government did award I think a couple of contracts recently to Primes to investigate and prove out the system and so I think it's going to play out here in the longer-term which is basically what I previously mentioned, however if you step back the counter-IED issue is probably one of the most substantial issues that the military is facing in both Iraq and Afghanistan, and it isn’t going away. I read some statistics recently that said, that probably finding 5% of the number of IEDs that are being planted and so continuous improvement of the technology around counteracting these devices is important and we’ve recognized that early on and we invested in from an R&D perspective and we expected to be an important growth area for us going forward.

Great and my second question is just along the lines of international military sales you have seen a lot of activity on that front as it relates to foreign sales and miscellaneous products, but the volumes really start to ramp up in next few years, just curious if you can put any brackets around that opportunity for year.

Yes, we clearly think that’s an important area. I think one of the more important programs that we have in that regard is around the ground-based mobile or mobile ground-based missile defense. So, we announced a pretty major program or booking in fourth quarter of ‘09. Well, we are providing the radar processing sub-system for one of those platforms. The growth in that particular program is all being driven over the next five years by foreign military sales. The $18 million that we booked in Q1, $6 million of which was for the first country and over the next how many years we expect multiple countries to fall again for a foreign military sales perspective. So, that’s clearly going to drive a growth around that category.

It appears we have no further questions at this time I’d like to turn it back over to management for any additional or closing remarks.

Okay, thanks Leena and thanks to everyone for listening here today. We look forward to speaking with you again next quarter or if you are attending our investor conference in New York, November 10th, we will see you then. Thank you very much.

That concludes today's conference. Thank you for your participation.