Good day everyone, and welcome to the Mercury Systems Second Quarter Fiscal 2016 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 company’s Executive Vice President and Chief Financial Officer, Gerry Haines. Please go ahead, sir.

Thank you, operator. Good afternoon everyone, 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 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 use of the words may, will, could, should, would, plans, expects, anticipates, continue, estimate, project, intend, likely, forecast, probable, possible potential, assumes 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 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, changes in or 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 or unanticipated expenses 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…

Thanks Gerry. Good afternoon, everyone and thanks for joining us. I'll 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's business is performing well and we continue to deliver strong results in the second quarter fiscal 2016. The capabilities that we’ve developed and acquired are very much in line with need of our customers. We are pioneering a next generation defense electronics business model which aligns well with the industry conditions today and what we expect to occur in the future. We're also continuing to deliver important new program wins along with above industry average revenue and EBITDA growth. Our total revenue for Q2 was up 6% year-over-year and near the top end of our guidance, reflecting favorable mix and improved operating leverage in the business, adjusted EBITDA for Q2 came in well above the high end of our guidance, increasing by 1.9 million or nearly 18% year-over-year on 3.3 million of incremental revenue. GAAP profit from continuing operations increased 66% from Q2 last year and cash flow from operations was also up substantially. We're successfully leveraging our relationships with primes to drive bookings and revenue from existing programs as well as new programs and platforms. We've established strong positions for Mercury on critical production programs in the right segments of the market. These programs appear to be well-funded, are currently in or moving into production and are precisely aligned with the DoD's roles and missions. As we expected, our fiscal 2016 booking and revenue are coming from a broader set of key programs then in the past couple of years. This is primarily due to strong demand related to Radar and EW modernization activities. Secondly we continue to see an insatiable appetite for…

Thank you Mark, and good afternoon again everyone. Before we go through the financial results, I just want to remind everyone that unless otherwise noted, I will be discussing the company’s financial results, comparisons to prior period and guidance on a continuing operations basis. However, in accordance with GAAP, Mercury Intelligence Systems is reflected in our statement of cash flows for periods prior to our sales of that business in January of 2015. Turning to our results for Q2, Mercury delivered solid performance across the board consistent with our expectations. Total revenue increased $3.3 million or 6% from Q2 last year to $60.4 million near the top end of our guidance of $58 million to $61 million. International revenue including foreign military sales was 21% of total revenue compared with 26% in Q2 last year. Revenue from radar and electronic warfare again accounted for 82% of total revenue the same as a year ago. Radar revenue was down 14% year-over-year while electronic warfare revenue grew 59%. Net of $1.3 million of intercompany eliminations, revenue in our largest reporting segment Mercury Commercial Electronics or MCE was $53 million, an increase of $1.2 million or 2.3% from net revenue in Q2 of last year. In our Mercury Defense Systems or MDS reporting segment, net revenue was $7.9 million, up $3.2 million or 67% from the second quarter of last year. These segment revenues are adjusted for revenues of negative $0.5 million in Q2 of fiscal ’16 and positive $0.5 million in Q2 of fiscal ’15 that are included in our consolidated results for those quarters. This revenue difference is attributable to development programs where the revenue is recognized in both segments under contract accounting and reflects the reconciliation to our consolidated results. Turning now to bookings, Mercury’s total bookings for the second…

Thank you. [Operator Instructions] Our first question is from Michael French with Drexel Hamilton. Your line is open.

The first question, you mentioned as Northrop selected you for the Block 3 SEWIP program, maybe if you can walk us through what the chain of events was because as I understand you weren't originally on their team, so why is it they turned and selected you?

Sure, so we've had a longstanding relationship with Northrop and I would characterize it's been a strategic relationship. We weren't part of that team prior to the award mainly because I think we were working extremely closely with both Lockheed and Raytheon who were competing against Northrop for the SEWIP Block 3 business. However since they were awarded the business, we've engaged or reengaged with them and we obviously know the SEWIP program well and we've got multiple sets of technologies and capabilities that are applicable for Block 3. And so I think its result of our capabilities, our relationships, our knowledge of the program that allowed us to basically win a pretty significant piece of the business on the program going forward.

Yes, that's great, congratulations. And then just to shift gears from, you've mentioned that there were some temporary order delays during the period, can you tell us where those delays came from, was it a result of the CR or just something having to do with the program or what was the underlying cause?

I don't think it's anything that is materially in nature, it was really just some short-term timing delays in terms of getting the POs from our customers, and as I mentioned in prepared remarks, we do anticipate those booking will occur in Q3 and in fact we’re expect a very strong bookings quarter this quarter.

And what was the magnitude of delays or in another words, what do you think the book-to-bill would have been had the delays not happened?

It's not something that we're going to talk about per se, but do expect a strong booking quarters in Q3, Mike.

And then the last one on the taxes and I think Gerry answered this in his comments, but if the tax rate came down during the quarter was that solely a result of LIT adjustment?

No that wasn't so much LIT because we only had them for a very short span at the end of the quarter, it was really a combination of two things, one is the catchup for the tax year of ’15 where so we had a few quarters of catching up to do.

The R&D.

The R&D tax credit that was reenacted and then of course there is the particular slug of it that would have applied to the quarter and which will apply on a go forward basis and that’s what’s lowering our rate a few points.

Thank you. Our next question is from Sheila Kahyaoglu with Jefferies. Your line is open.

I guess this is a follow-up on the order comment, it seems like you’ll recover that in the third quarter, maybe could you elaborate on your revived outlook a bit and what the expected contribution is from the LIT acquisition and how much of that is being -- is contributing to it?

So as we said, we don’t expect LIT to have a material impact on either the quarter or the year, the capabilities, that's a capabilities of LIT acquisition is obviously very small, so essentially what we're doing is observing a little more on the OpEx front which is dominated by engineering, so it's going to drive some of the R&D expense, a piece of which is money that we would likely have spent internally, but for the fact that we now on the capability through LIT. So we kind of get lost in the results, we don’t see it making a bigger contribution to the year, but we see it as a capability that we can leverage very effectively as we move forward and as we're seeing the market take shape in the future we think that is an increasing important capability and one that we’ve spend a lot of time working on, as on LIT and so it just made a lot of sense for us to acquire it.

So put in another way, it really is the increase in our guidance from 5% growth to now 6% to 8% in revenues and from 10% growth in adjusted EBITDA to now 9% to 13% is largely a result of strong performance in the first half as well as the improved government [ph] fiscal ’16 budget outlook.

Understood, that clarified it, thank you. And then I guess, are you sort of, you do expect a big Q3, but I guess just an ongoing discussions, can you give us an idea of what the environments like or short cycle demand for your products and also maybe on the international side have you seen that move along or what kind of discussions you’re having with your [indiscernible]?

Sure. So as I said in my prepared remarks, I think we’re extremely well positioned, we are deeply entrenched in some very important production programs. What’s driving the growth is related, is really Radar and EW modernization, the fact that we’ve talked about the long-term trend of requiring more processing on-board military platforms that deal with the big data issue that is present, as well relating to the LIT acquisition. We believe that we have a leadership position in embedded security for high performance processing for defense and intelligence applications. And with the wave of flow-downs from DoD relating to program protection security requirements, we’re exceptionally well position there and that becomes the driver of growth to not only domestic sales, but also to foreign military sales where it is our customers who are looking to explore that capabilities overseas that technology needs to be protected and so we’re kind of right in the middle of that particular trend. So overall, we feel that we’re well positioned many of our programs I think as we’ve talked about historically have got FMS sales associated with them whether it be Aegis or Patriot or the F-35. So again we think that’s going to continue to be an important part of the business Sheila.

Thank you. Our next question is from Michael Ciarmoli with KeyBanc Capital. Your line is open.

Mark just to go back maybe to SEWIP Block 3. Are you guys ready to sort of quantify the long-term probable and possible impact there?

Yes. So right now based upon our daily assumptions we believe that the Block 3 volumes to Mercury approximately 58 million to 144 million. It could change overtime, as the shift in those assumptions, the number of platforms that are going to be upgraded, the increase or decrease, but that’s our expectation right now Mike.

Okay. And then obviously given the success getting back in Block 3. How should we think about AMDR? Is there going to be an opportunity for you guys to call your vote way back onto that program?

We’ll see, it’s in area that the Naval [indiscernible] is an area that we’re very focused on and we believe we’ve got a set of capability that’s broadly applicable to a number of different programs of which AMDR maybe one. It’s too early to say anything specific about that, but it certainly something that we’d like to be a part of.

Got it. And then just on, you mentioned the facility in New Hampshire. Can you guys give us a sense of what the utilization is up there now, I know for quite some time you’ve been talking about customer visits a lot of positive feedback. Can you give us any sense, how that facility is performing right now from a volume standpoint?

So again talking about this specific utilization rates it’s not something that we’ve discuss other than to say that we’re still running one shift and we’ve got plenty of capacity to meet both our forward revenue projections as well as potential future M&A. The facility is performing extremely well, it’s critically important is obviously programed such as fix deposit moves into full rate production later this year as well as program such see SEWIP which you may recall, we received our first full rate production order for Block 2 last quarter. So volumes are increasing, but we’ve sold off plenty of capacity.

Got it. Thanks a lot guys. I’ll turn it back in the queue.

Great. Thanks so much.

[Operator Instructions] Our next question is from Peter Arment with Sterne Agee. Your line is open.

Mark, just maybe a clarification back on SEWIP Block 3. You mentioned I think it was $11 million contract. Is that just the EMD portion and how long is that last roughly?

Sure. So we actually received in $11 million order, which we recognized slightly less than half from a bookings perspective associate with the EMD phase during Q2. The other or the remainder, we’ll recognize as ALRIB orders once the options for the ALRIB firms are.

Got it. And then the mentioned on the 58 million to 144 million kind of probable value. Is that just a differential between the current relationship with Northrop versus the previous expectation with Lockheed and kind of on the mix or is it just been conservative on the units?

No. It's actually I think since what we thought was going to happen with, when we were part of the Lockheed and Raytheon team, it really isn’t to do with the content per say it's more around the assumptions of the number of shifts that’s going to be upgraded with the block three capability and previously the assumption was much higher. Our latest information is the number of ships that’s going to be upgraded has gone down. Now that’s the currents assumption, it may change overtime, but that's the assumption right. So it’s more to do with number of ships than it is to do with the content.

Got it, that's helpful. And then just lastly Mark on the Naval [ph] server opportunities, some of the things that you are seeing there, what kind of conversations you are having, are you seeing any more pickup and kind of the interest there?

Yes. So I think the answer is yes. It's just going to play out over the long-term, but we've already won several applications in Naval domain for the technology that we’re provided. At our Investor Day recently, we've talked about not only being able to provide server class capability in an ATCA format, but we’re also exploring the opportunity of providing it in a two year stackable foam factor which again opens up other potential opportunities for us. The nice thing about this opportunity is that it’s basically all leveraged R&D. We design our processing complex once then we can rely that Ag very cost effectively and very quickly into different form factors. So we think that it’s going to put us in an interesting position particularly when you tie that highest performance processing with the source of embedded security capabilities that we’re now delivering.

Hey, got it, appreciated. Nice quarter guys.

Alright, thank you.

Thank you and Mr. Aslett it appears there will be no further questions. Therefore I'll turn the call back over to you for any closing remark.

Okay. Well, thank you all for listening. We look forward to speaking to you again next quarter. Good evening.