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Form 8-k

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): November 3, 2008

Mercury Computer Systems, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Massachusetts   000-23599   04-2741391
(State or Other Jurisdiction   (Commission   (IRS Employer
of Incorporation)   File Number)   Identification No.)

 

199 Riverneck Road, Chelmsford, Massachusetts   01824
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (978) 256-1300

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 7.01 Regulation FD Disclosure.

The management of Mercury Computer Systems, Inc. (“Mercury”) will present an overview of Mercury’s business on November 4-5, 2008, at the AeA Classic Financial Conference. Attached as Exhibit 99.1 to this Current Report on Form 8-K (the “Report”) is a copy of the slide presentation to be made by Mercury at the conference.

This information is being furnished pursuant to Item 7.01 of this Report and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section and will not be incorporated by reference into any registration statement filed by Mercury under the Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference. This Report will not be deemed an admission as to the materiality of any information in this Report that is being disclosed pursuant to Regulation FD.

Please refer to page 2 of Exhibit 99.1 for a discussion of certain forward-looking statements included therein and the risks and uncertainties related thereto, as well as the use of non-GAAP financial measures included therein.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit No.

   

Description

99.1    Presentation materials dated November 4-5, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: November 3, 2008     MERCURY COMPUTER SYSTEMS, INC.
    By:   /s/ Alex A. Van Adzin
      Alex A. Van Adzin
      Vice President, General Counsel,
      and Corporation Secretary

EXHIBIT INDEX

 

Exhibit

   

Description

99.1    Presentation materials dated November 4-5, 2008.
Presentation materials
www.mc.com
AeA
Financial
Conference
November 4-5, 2008
Mark Aslett
–
President & CEO
Bob Hult
–
SVP, CFO
©
2008 Mercury Computer Systems, Inc.
www.mc.com
Exhibit 99.1

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Forward-Looking Safe Harbor Statement
This
presentation
contains
certain
forward-looking
statements,
as
that
term
is
defined
in
the
Private
Securities
Litigation
Reform
Act
of
1995,
including
those
relating
to
anticipated
fiscal
2009
business
performance
and
beyond.
You
can
identify
these
statements
by
our
use
of
the
words
"may,"
"will,"
"should,"
"plans,"
"expects,"
"anticipates,"
"continue,"
"estimate,"
"project,"
"intend,"
and
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,
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
the
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
outsourced
components,
the
inability
to
fully
realize
the
expected
benefits
from
acquisitions
or
delays
in
realizing
such
benefits,
challenges
in
integrating
acquired
businesses
and
achieving
anticipated
synergies,
and
difficulties
in
retaining
key
customers.
These
risks
and
uncertainties
also
include
such
additional
risk
factors
as
are
discussed
in
the
Company's
recent
filings
with
the
U.S.
Securities
and
Exchange
Commission,
including
its
Annual
Report
on
Form
10-K
for
the
year
ended
June
30,
2008.
The
Company
cautions
readers
not
to
place
undue
reliance
upon
any
such
forward-looking
statements,
which
speak
only
as
of
the
date
made.
The
Company
undertakes
no
obligation
to
update
any
forward-looking
statement
to
reflect
events
or
circumstances
after
the
date
on
which
such
statement
is
made.
Use
of
Non-GAAP
(Generally
Accepted
Accounting
Principles)
Financial
Measures
In
addition
to
reporting
financial
results
in
accordance
with
generally
accepted
accounting
principles,
or
GAAP,
the
Company
provides
non-GAAP
financial
measures
adjusted
to
exclude
certain
specified
charges,
which
the
Company
believes
are
useful
to
help
investors
better
understand
its
past
financial
performance
and
prospects
for
the
future.
However,
the
presentation
of
non-GAAP
financial
measures
is
not
meant
to
be
considered
in
isolation
or
as
a
substitute
for
financial
information
provided
in
accordance
with
GAAP.
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
and
the
marketplace,
and
to
establish
operational
goals.
A
reconciliation
of
GAAP
to
non-GAAP
financial
measures
discussed
in
this
presentation
is
contained
in
the
Company’s
Fourth
Quarter
and
Fiscal
Year
2008
earnings
release,
which
can
be
found
on
our
website
at
www.mc.com/mediacenter/pressreleaseslist.aspx.
1

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Introduction
•
New strategy and management team well established
•
Improved FY08 financial performance
•
Strong core defense business –
stabilizing commercial
•
Defense provides long-term profitable growth potential
•
Need to evolve COTS board business –
Converged Sensor
Network™
architecture
•
Mercury Federal Systems a means to evolve Mercury's
business model and expand our total addressable market
2
Become the government’s trusted partner for next-generation
ISR signal processing and computing solutions

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Significant company dynamics (#’s GAAP FY08)
•
Revenue and profitability strength in ACS business
•
Non-core businesses eroding operating profits
3
Notes:
FY08 Operating Profit Total excludes stock-based compensation expense
Includes $7.3M amortization expense, $5.2M restructuring, $18M
goodwill impairment, $3.2M gain for sale of long-lived asset, and
$0.8M inventory write-down

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Major ACS business dynamics
•
Focus on strengthening and growing the defense business
4
FY07
FY08
Commercial
Defense

©
2008 Mercury Computer Systems, Inc.
www.mc.com
ACS commercial segment dynamics
•
Commercial bookings slower rate of decline in FY08
•
Current market conditions challenging
•
Significant volatility has added unpredictability to ACS
•
Focused on commercial and defense leverage
5

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Refocusing ACS commercial opportunities
•
Focus on existing customer accounts and industry segments
•
Selective tactical new pursuits leveraging existing products
or planned roadmap
•
Maximize R&D synergies across product lines and defense
•
Converged Sensor Network™
architecture applicable to
commercial markets
6

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Strength in ACS defense markets
•
17% revenue growth and 33% bookings growth in FY08
•
Strong revenue growth in Radar, C4I and EW
•
Focused on the C4ISR market going forward
7
“C4ISR”

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Growing and evolving our COTS defense core
•
Highly penetrated across many programs and platforms
presents good upgrade opportunities and lower risk
•
Design win-led –
refresh product portfolio
•
Tactically penetrate more programs on new and existing
platforms on land, air, and sea
•
Expand presence in additional defense application
segments, such as Electronic Warfare (EW) and C4I
•
Revolutionize embedded sensor processing with
Converged Sensor Network™
8

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Defense Electronics
Market**
COTS
Market*
$3B
$30B
Boards
($0.9B)
Subsystems
($2.3B)
$3B
COTS defense market trends
•
COTS comprises $3B (10%)
of defense electronics TAM
•
Defense primes driving
increased outsourcing
•
Platform upgrades,
obsolescence, and new
functionality driving end-
user growth
•
Challenging industry
dynamics
Figures in Billions and are approximate
Sources:
*
Venture
Development
Corp.
Embedded
COTS
in
Military,
Aerospace,
&
Defense
Study,
2008
**TEAL
Group,
Corp,
Military
Electronics
Briefing
with
Mercury
analysis
9

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Sustain and differentiate COTS business
•
Innovate interconnect expertise to unique, low-latency IP
networking connectivity
•
Evolve software to provide higher value-add:  security,
high availability, virtualization, scalability and portabilty
•
Leverage commercial telecom products and experience
into defense, e.g., GPUs, ATCA
•
Move from board-centric to an architectural basis of
competition –
Converged Sensor Network™
10
Evolution of COTS business is necessary to differentiate,
sustain and provide higher value in our traditional business

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Converged Sensor Network™
vision
•
Target real need –
money flows
•
Next-generation platform-
independent ISR architecture
•
Beyond COTS –
expand
addressable market 10x
•
Leverages technology
strengths, installed base,
and recent acquisitions
•
Provides catalyst for growth
11
Become the government’s trusted partner for next-generation
ISR platform signal processing and computing

©
2008 Mercury Computer Systems, Inc.
www.mc.com
High-level defense market data look promising
12
DoD
1993
2008
2013e
Budget ($B)
258
490
511
Supplemental ($B)
None
+190 GWOT
None planned
R&D ($B)
44
78
63
Procurement ($B)
56
101
113
C4ISR Budget ($B)
13
18
24
UAS Platforms (#)
25
2,100
3,300
Ships/Subs (#)
600
340
313
Fed Svcs
($B)
95
250
310
Embedded S/W ($B)
0.4
3
4.2
Growth trend will be in C4ISR systems integration
and related engineering services
Source:
DoD
Budget
Request
FY93
and
FY2008

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Military electronics is a market sweet spot
•
Retrofit and upgrades remain
strong for legacy programs
•
Increased need for EW –
Intelligence, Surveillance,
Reconnaissance assets
•
Networked nodal platforms, 
virtualized sensors
•
Next-gen onboard processing,
exploitation and dissemination
architecture critical
13

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Commentary on the election and DoD
budget
•
History shows defense budget more related to what is
happening, not who is in charge
–
Democrats presided over Vietnam and WWII
–
DoD budget decline started with Bush-41 and rose under Clinton
•
Budget and funding deemed to be at a bare minimum
according to military leadership
–
Military needs to recapitalize, replace damaged and worn
equipment, fund GWOT and invest in new systems
–
Funding may shift according to who wins the election
•
McCain –
seen as the strongest supporter of defense
•
Obama –
pull out of Iraq but keep defense spending stable
14
Overall defense budget likely to remain intact with reduced
supplemental spending –
funding priorities may change

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Transitioning Mercury's business model
Today’s Model
•
Government frustrated with
current prime model
•
Platform-centric approach
•
Proprietary stovepipe
processing architectures
•
Pay multiple times for
similar capabilities
•
Slow time to deployment
•
Maybe not best in class
Emerging Model
•
Platform-independent
•
Best of breed model proven
on sensor side
•
Likely to occur for signal
processing and computing
•
Pay once –
common
architecture across multiple
platforms
•
Fast time to deployment
15
Become the government’s trusted, platform-independent
signal processing and compute partner

©
2008 Mercury Computer Systems, Inc.
www.mc.com
ACS Defense and MFS –
a hybrid business model
ACS COTS Defense
•
Total addressable market
COTS defense electronics
($3B annually)
•
Be told what board to
develop by a prime                                              
•
Board-level design wins
•
Develop everything on our
own nickel
•
Long payback period –
high risk
with Mercury Federal
•
Total addressable market
military electronics market
($30B annually)
•
Consult
on
overall
signal
processing
architecture
with
the
government
•
Platform design wins
•
Paid to develop elements
that do not exist
•
Lower risk, faster returns
16

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Summary
•
Rationalize portfolio of non-core businesses by end FY09
•
Strengthen ACS defense business –
stabilize commercial
•
Grow ACS defense business by targeting upgrades, new
platforms and applications
•
Evolve beyond COTS board business due to industry size
constraints and dynamics –
Converged Sensor Network™
•
Mercury Federal a means to evolve Mercury's business
model and expand our total addressable market
17
Become the government’s trusted partner for next-generation
ISR signal processing and computing solutions

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Financial Overview
18

©
2008 Mercury Computer Systems, Inc.
www.mc.com
FY07 vs
FY08: Improved Performance
19
Notes:
1) All historical income statement figures adjusted for the discontinued operation of Embedded Systems & Professional
Services and SolMap.
2) All numbers are non-GAAP.

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Revenue growth follows investment cycles:
Driven by Defense
20
Notes:
1)Represents total Company revenues; VI, VSG and Emerging businesses’
revenue treated as Commercial
2)All historical figures adjusted for the discontinued operation of Embedded Systems & Professional Services and SolMap
June Fiscal Year End
~ 10% CAGR
FY98 –
FY08
Revenue ($M)

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Segment Operating Profit (#’s GAAP)
•
Profitability strength in ACS; non-core businesses eliminating operating profits
Notes:
1)FY08 Segment Operating Profit Total excludes stock-based compensation expense.
2)Includes $7.3M amortization expense, $5.2M restructuring, $18M goodwill impairment, $3.2M gain for
sale of long-lived asset, and $0.8M inventory write down.
21

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Strategic Direction –
Sell, fix or grow
VSG
AUSG -
Sold
VI ES/PS -
Sold
Biotech -
Sold
Government
Defense
Commercial
Mercury Federal
Sell or
Shutdown
Fix
Grow
VI
22

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Strong Balance Sheet
•
$125M convertible debenture
(May 2009 Put)
•
Net cash positive: $42M
•
$50M ARS’s
–
UBS payback @ par in June
2010
–
Access to $35M zero cost margin
loan at UBS
23
Quarter ended September 30, 2008
Cash and Equivalents
$167
Total Current Assets
$175
Total Assets
$323
Total Debt
$125
Total Liabilities
$179
Stockholders’
Equity
$144

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Focus on Working Capital 
•
Supply chain
transformation
–
Operational efficiencies
–
Manufacturing lead times
–
Cost of quality
–
Competitive advantage
for Mercury and
customers
–
Inventory reduced $7.1M
•
Customer satisfaction
–
DSO’s at model
–
End-of-quarter
shipment skew
24

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Gap to Target Business Model (#’s non-GAAP)
25
Target
Business
Model
Notes:
1) All historical income statement figures adjusted for the discontinued operation of Embedded Systems & Professional
Services and SolMap.

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Guidance Summary (Non-GAAP)   
Q1
Q2
Q3
Q4
Q109
Reported
Guidance
Reported
Guidance
Reported
Guidance
Reported
Guidance
Reported
Guidance
Revenue
($M)
49.2
48.0
52.6
51.0
56.5
53.0-
55.0
55.2
53.0-
56.0
49.1
47.0-
49.0
EPS
($)
0.09
(0.08)
0.04
(0.05)
0.04
(0.04)-
0.00
0.01
(0.05)-
0.01
0.07
(0.07)-
(0.03)
Last 5 quarters’
revenue and EPS exceeded
or met the top end of guidance
26

©
2008 Mercury Computer Systems, Inc.
www.mc.com
Q2 Fiscal Year 2009 Guidance
Quarter Ending December 31, 2008
Revenues ($M)
$47 -
$49
GAAP
Non-GAAP
Gross Margin
Approximately 59%
Approximately 59%
EPS
$(0.22) -
$(0.14)
$(0.05) -
$0.00
27
•
Impact of equity-based compensation costs related to FAS 123R of
approximately $2.4M excluded from non-GAAP
•
Acquisition-related amortization of approximately $0.8M excluded from
non-GAAP
Notes:
1) Figures in millions, except percent and per share data

©
2008 Mercury Computer Systems, Inc.
www.mc.com
www.mc.com
NASDAQ: MRCY
Thank you!
28

www.mc.com
Appendix
©
2008 Mercury Computer Systems, Inc.
www.mc.com

©
2008 Mercury Computer Systems, Inc.
www.mc.com
GAAP to non-GAAP reconciliation   
•
Q209 Guidance Reconciliation*
30
* Per Company guidance range, October 22, 2008 earnings conference call
RANGE
Income (Loss) Per Share - Diluted
Income (Loss) Per Share - Diluted
GAAP expectation
(0.22)
$                                                 
(0.14)
$                                                 
Adjustment to exclude stock-based compensation
0.11
                                                    
0.10
                                                    
Adjustment to exclude amortization of acquired intangible assets
0.04
                                                    
0.04
                                                    
Adjustment for tax impact
0.02
                                                    
-
                                                      
Non-GAAP expectation
(0.05)
$                                                 
0.00
$