Good day, everyone. And welcome to the Mercury Computer Systems Incorporated Fourth Quarter 2012 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 Senior Vice President and Chief Financial Officer, Mr. Kevin Bisson. 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 press 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 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, should, would, plans, expects, anticipates, continue, estimate, project, forecast, intend, believe and similar expressions. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. These risks include but are not limited to 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, continued funding of defense programs, the timing of such funding, changes in 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 outsource components, inability to fully realize the expected benefits from acquisitions and divestitures or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies and difficulties in retaining key customers. Additional information regarding forward-looking statements and risk factors is included in the company's periodic reports filed with the SEC. We caution listeners on today's conference call not to place undue reliance on any forward-looking statement 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 several non-GAAP financial measures, specifically adjusted EBITDA and free cash flow. Adjusted EBITDA excludes interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring expense, impairment of long-lived assets, acquisition costs and other related expenses, fair value adjustments from purchase accounting and stock-based compensation costs. Free cash flow excludes capital expenditures from cash flows from operating activities. A reconciliation of adjusted EBITDA to GAAP net income from continuing operations and our free cash flow to GAAP cash flows from operating activities are included in the press release we issued this afternoon. I’m now pleased to turn the call over to Mercury's President and CEO, Mark Aslett. Mark?

Thanks, Kevin. Good afternoon, everyone, and thanks for joining us. I’ll begin with the review of our accomplishments in our fiscal year ’12 followed by a fourth quarter update and finally, a perspective on our business outlook. Kevin will then review the financials and guidance, and then we’ll open it up for your questions. During FY ’12, we delivered total company bookings and revenue growth of 14% and 7%, respectively, year-over-year. Strong organic revenue growth in defense and the addition of KOR more than offset a $33 million decline in our commercial business. We delivered record defense revenues in FY ’12. Defense revenues grew 27% year-over-year including KOR and on an organic basis we grew defense revenues 16%. Defense bookings and backlog also exhibited very strong growth, at 24% and 25%, respectively. We grew operating income 21% for the year as a whole and our adjusted EBITDA grew 20%. The 20% of total revenue our adjusted EBITDA ended 200 basis points above the high-end of our current target model. Given this over achievement, Kevin will discuss improvements to our long-term target model, which now seeks to deliver 18% to 22% on an adjusted EBITDA basis over the coming years. Obviously, this assumes that the industry returns to a more normal funding and contracting environment. Fiscal 2012 was a strong year for our Mercury Federal Systems business, driven by Gorgon Stare and the addition of PDI, MFS revenues were up a 150% year-over-year and bookings were up 315%. Excluding PDI, bookings and revenue were up 201% and 82%, respectively. As we expected, MFS went from operating loss in FY ’11 to a significant operating profit for FY ’12. At the market segment levels for FY ’12, revenues in our radar business were up 14% year-over-year and electronic warfare revenues were up…

Thank you, Mark, and good afternoon again everyone. Turning to the financial results, revenue for the fourth quarter of $60.9 million was essentially flat with revenue of $61.2 million for the fourth quarter of last year and was within our stated guidance of $60 million to $66 million. GAAP earnings from continuing operations of $0.19 per share were $0.05 per share higher than $0.14 per share in last year’s fourth quarter, and significantly exceeded company’s stated EPS guidance of $0.04 to $0.10 per share. However, GAAP earnings for fiscal 2012’s fourth quarter benefited from the reversal of an earn-out liability related to the LNX acquisition, which was partially offset by incremental expenses related to restructuring actions initiated in the fourth quarter and Micronetics related transaction costs. On a combined basis, these items contributed a net $0.09 per share in earnings for the fourth quarter, which placed the company's fourth quarter EPS, absent these items at the high-end of our quarterly guidance. I will discuss these items in more depth later in my remarks. Adjusted EBITDA for the fourth quarter of fiscal 2012 of $9.3 million was $800,000 lower than the adjusted EBITDA of $10.1 million for the fourth quarter of last year and was at the high end of the company’s stated guidance of $7 million to $9.5 million. The company ended the fourth quarter and fiscal year with $116 million of cash and investments, and with no debt, and generated $1.2 million of free cash flow in this year’s fourth quarter. Reviewing fourth quarter performance in more detail, total revenue for our largest operating segment, Advanced Computing Solutions or ACS was $54.3 million, which was $6.1 million lower than the $60.4 million of ACS revenues generated in last year's fourth quarter. The year-over-year decrease was due to a $3.8…

[Operator Instructions] Now, we’ll go first to Peter Arment with Sterne Agee.

A first question I guess Mark, is on the -- on whatever you can discuss regarding the first quarter guidance range. And I guess I’m just particularly talking about the defense portion, I guess the 92% kind of what you’ve outlined within that $51 million to $57 million guidance. What are the kind of the puts and takes there or what are you seeing given what you have in backlog and what you need to close to kind of fill out that range?

Sure. So, we did have some deals that basically moved out of Q4, a portion of which basically moved into Q1. Probably the most notable is SEWIP, where we didn’t actually receive the PO during Q4, and hence we didn’t recognize the revenues. We’re currently expecting to receive the PO later in Q1. And so we do anticipate some revenues from the program. So, there is number of puts and takes, but that’s probably that the important one. We are also expecting a certain level of book shipment as we do -- as we have seen in other quarters.

Peter, I also remind you too that historically, the first quarter has been one of the lighter quarters within the year and I think to that is probably true in terms of our assessment of the quarter this year as well.

Okay. And then question for Mark, are you just talking I guess and big picture on capital deployment but also your M&A strategy. So, you indicated and this, I guess this includes the Micronetics transaction that Phase I is essentially complete building out the end-to-end capabilities. So how do we think about Phase II. Is it just building a more critical mass or what kind of color can you give us there?

Yes. Sure. It’s a good question. So, we feel really good about the asset that we acquired in terms of the capabilities and that the work that we’ve done on integrating them and their performance today as well as their expected performance. Phase II for us is going to continue with the same around sense of their -- sense processing chain, but it’s really about scaling the platform here on out. So that’s really the goal going forward.

Okay. And just I guess against that as a capital deployment strategy, you’re currently when you look at your own valuation and what you have to out there in the M&A. You are still seeing some decent multiples. So, how do you weigh that against deploying that capital now in kind of the uncertainty versus when you look at your own valuation?

Yes. That’s a good question. We still think M&A is a really important part of the strategy. I think as we’ve looked at other downturns in the defense industry as well as other industries that have gone through a period of significant transition. The companies that continue to acquire and build scale, when the industry transition has ended have been the once that are basically have slingshot effect out of that. We do anticipate that as the industry goes through the transition period, the multiples are going to start to contract. And we hope, that this going to be some interesting assets that become available and hence as Kevin discussed, discussions with some of the banks in terms of putting in place a large revolving debt facility. So, we do think the prices are basically going to come down during this period.

Okay. And then just one last one, regarding the outsourcing, I think Kevin you mentioned, the 41 employees. Mark, what do you -- was that something that you have been looking at or just accelerated because of the weaker environment or are there other opportunities going forward?

So, it’s a little bit of both. As a primary driver with -- as I said in my prepared remarks, we do anticipate that FY '13, it’s going to be a tough year not only for Mercury, but also for the industry as a whole, largely due to what is very high likely heard of a continuing resolution as well as the potential to sequestration. So, we took the opportunity of basically lowering the capital intensity of the business. We outsourced a small digital manufacturing capability that we hired in our Huntsfield facility to our current contract manufacturing partner, who is Benchmark Electronics as well as taking out additional expenses across the business. So, I think in overall, we did a really good job at managing our expenses during FY '12 and we proactively took at cost at the end of the fourth quarter.

Okay. And then just on the last one, just regarding your adjusted EBITDA. You finished the year at $48 million, thinking through all the moving parts and the incremental impact from Micronetics, is your belief that you will be able to still grow adjusted EBITDA in fiscal '13?

So we’re actually in the one quarter at a guidance -- one quarter at a time guidance right now. So we didn’t knew the guidance for the first quarter. And as Kevin discussed in terms of the update to the new pro forma target business model, we do anticipate once we get back to a more normalized environment been able to actually expand our adjusted EBITDA over the long-term in the 18% to 22% range but that’s a longer term target model.

We’ll go next to Brian Ruttenbur with CRT Capital.

Yes. Thank you very much. Couple of questions, first of all, if I take your $4 to $5 million of revenue from acquisitions this quarter and that’s for 50% of the quarter roughly. Can I then annualize and say that’s about $35 million for this fiscal year? Is that the right way to look at it?

So, we’re not giving guidance again on an annualized basis, Brian. We, kind of, laid out what is our guidance for the first quarter.

Brian, we don’t even own the company. It would be not appropriate to even talk about what their forecast is, beyond just the color we gave for the quarter until we’ve closed this deal. It’s just inappropriate.

Okay. The other question I have then on -- you've mentioned, Mark, several times about the normalized environment. That normalized environment, you’re saying is what, that there is no sequestration and their core defense grows at 2% or 3% a year. Is that a normalized environment? What is a normalize environment?

So certainly not the environment that we’re currently in. If you look at, we believe that there is going to be a clearly a continuing resolution in FY ‘13. I think the expectation is probably a 6 month a year. We’ll see what happens with sequestration itself which obviously could have a pretty damaging impart on the defense industry and the defense industrial base. So I think we’re hoping that once the new administration is in, that we’re kind of move back to something that we’re seeing prior to say the last few years.

We’ll take our next question from Michael Ciarmoli with KeyBanc Capital Markets.

Mark, I know you’re not in the business. I guess, of providing an outlook for the full year but you’ve got this mid-teen growth target out there, combination organic and acquired, safe to say given this industry in transition, this does not apply to this current year?

So that growth rate and target that we talked about was really on average over time, and so a longer term number. I think if you look back, Mike, we basically delivered 15% compounded annual growth rate in our defense business from FY ‘08 through FY ‘12. Last year, we grew 27% year-over-year including KOR 16% on an organic basis. We’re excited about the Micronetics acquisitions, and which should close in August. And we think the timing of this deal in the addition of Micronetic’s bookings and revenue couldn’t be better as we head into the transition period itself. So however, that is offset by the challenges that we see with respect to the potentials for a continuing resolution as well as the sequestration. So that mid-teen’s revenue growth rate on average over time including M&A is really a long-term target. We’re not specifically pushing that into our FY ‘13 numbers.

Okay. And I’m assuming then on an organic basis for ‘13, you guys are probably going to remain under pressure. So again, probably the importance of Micronetics?

So again we’re not going to talk about our organic growth rate at the year level. We do believe that is a business we positioned ourselves extremely well, given some of the programs that we have as well as the timing of the certain acquisitions that we’ve done of late. But we’re in an industry environment where the visibility from a forecast perspective is somewhat murky right now. And I think we’re seeing clearly a sore in our fourth quarter and it’s reflect in our Q1 guidance, some of the charges that we’ve seen with respect to funding delays. So we’re going to basically take it one quarter at a time. We’re going to focus on executing well the things that are within our control. And we’re going to be agile enough to react to the things that we may need to react to as the year unfolds.

Okay. How about the growth trends in KOR? I mean, you bought that. It was high single-digits, low-double digits, is that on track?

KOR is actually performing pretty well. We’re pleased with that performance to-date. That booking is an example in Q4. We’re close to $9 million. So they are doing well. I think we’re very, very pleased with that business and the potential going forward.

Okay. And then last one and I’m sorry for asking this again on ‘13. But can you even given us a sense in terms of those major programs. You’ve kind of did a good job outlining for us. How they trended for the year and I’m thinking Gorgon Stare, Patriot, Aegis, I mean, can you give us a sense as to whether or not those programs, how they track in the coming year? I mean do you expect growth in all those programs, some of those programs. We obviously -- you talked to us about what to expect with JCREW program and any other color you can give us?

Sure. The programs that we expect to do well from a revenue perspective this year include various programs in KOR associated with both electronic warfare as well as their radar stimulation business. We anticipate Lockheed Martin SEWIP as well as Lockheed Martin Aegis are going to be important programs. We’re expecting continued good progress with Gorgon Stare with Sierra Nevada, Raytheon Patriots is another program that we’re expecting good growth in. And then there is a couple of new ones. The first is a dismount radar with Northrop Grumman as well as additional upgrades to both the Predator and the Reaper. So beyond that, I think as Bill Swanson talked about on the Raytheon earnings call, there is clearly a lot happening with Raytheon Patriot, particularly in Middle East with countries such as Kuwait and Turkey, which does appear to be delayed a little again. However, there is also among Qatar and Kuwait. And as I mentioned in my prepared remarks, we also booked or recorded the design win for the U.S. army patriot this quarter. I think beyond that we would say that we’re pretty excited about the potential for the F-16 radar upgrades for both Taiwan as well as potentially North Korea. Clearly, this potential opportunity is a competitive scenario where it’s Northrop Grumman SABR versus Raytheon SABR, sorry Raytheon’s racer program. But if Northrop successful and the timing is right, these could also be important opportunities for us.

[Operator Instructions] We’ll go next to Michael Lewis with Lazard Capital Markets.

Okay. First and foremost, I just want to ask you about 10% tax rate in the quarter. What is your full expectation for the year, Kevin, and I guess, the question is, did the restructuring and the reversal on LNX had that implication on lower tax rate?

Definitely the earn-out, there was no tax impact associated with that. So we get the full benefit droppings in the bottom line. Also the acquisition costs, Mike, related to Micronetics are not taxable article. So they are not factored in as well. But essentially, it’s the earn-out. It’s a one-quarter impact. I think you can assume our tax rate will revert back to a more normalized level going forward.

Okay. That’s fair. And then on the restructuring, was there any specific facility that was reduced or was it headquarters, was it one of the other outside facilities. Can you give us a little more detail there?

Sure, Mike. The largest part of the restructuring was respect to our Huntsville facility. And it was -- as I described where we decided to outsource what was ineffective, vertical integrated money manufacturing capability to our contract manufacturer Benchmark Electronics. We also took out heads in both engineering as well as other G&A across the business.

Okay. And then, I want to circle back on the debt. What are the pros and cons of using a revolver versus some type of note structure and how large do you think you like to go on that debt, Mark?

Sure. So I’ll give you my perspective and then I’ll throw it over to Kevin. We think it’s the most appropriate form of capital at this point in time for us. It gives us the most flexibility from a capital structure perspective with the least negative carrying cost associated with the debt. So I’ll hand it over to Kevin for his perspective in terms of where we are at and why we decided to go with that beyond what I’ve just said.

Obviously, Mike, debt markets were fairly attractive in terms of rate, in terms of structure. So obviously, debt was the primary alternative that we looked at, in terms of, why a revolver again. Cost and flexibility were the 2 parameters that we value the most. And obviously, cost is the best from a revolver perspective versus say high yield or a institutional term loan and then obviously flexibility from the standpoint of -- the revolver allows us to use the money when we need it as oppose to placing it under balance sheet immediately and then having that interest cost impact the both earnings and cash flow while waiting for the next deal to be financed. So from that standpoint, that was really the two parameters that we value the most and got us still revolver.

That’s fair. Let me just ask you an additional question there. I guess, part of the mandate when you did the secondary, was the use of those proceeds for acquisitions and we’re almost through those proceeds, so that mandate -- that mandate could possibly kind of move away. Now, if you have a low cost debt-type structuring in the portfolio or in the fire power here, dry powder, what you consider doing things like buybacks for example, considering that EPS hasn’t had such significant lift especially as we progress into fiscal ‘13, uncertainty on the budgets.

Well, obviously that’s a board decision number one but I think that we will as part of any financing package we’ll preserve enough flexibility to allow for things like that but there are no plans at this point with regards to a buyback.

And I think, our primary agenda remains to basically continue to grow in scale the company in terms of capability as well as our EBITDA. And to take advantage of what we think is going to be a depressed pricing environment. So when the industry returns to a more normalize structure.

Okay. And then I apologize to my peers but one more question, did you say that KOR, PDI added about $9.5 million in the quarter.

They say roughly $9 million of bookings in the fourth quarter.

Do you have a revenue number?

I do but…

I mean, for the 6 months as we had them is about $20 million. So roughly about $10 million per quarter.

And with that, we have no further questions in the queue. I'd like to turn the program back over to Mr. Mark Aslett for any additional or closing comments.

Okay. Well, thanks very much for listening. We look forward to speaking to you all again next quarter. Thank you.

And that does conclude today's call. Thank you for your participation.