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Mercury Systems Reports First Quarter Fiscal 2014 Results

Mercury Systems, Inc., Innovation That Matters, Air Flow-By, and Application-Ready Subsystems are trademarks of Mercury Systems, Inc. Other product and company names mentioned may be trademarks and/or registered trademarks of their respective holders.

(In thousands) September 30, June 30,
  2013 2013
Current assets:    
 Cash and cash equivalents  $ 40,106  $ 39,126
 Accounts receivable, net   35,143  30,498
 Unbilled receivables and costs in excess of billings  13,913  17,743
 Inventory  35,179  37,432
 Deferred income taxes  10,724  11,672
 Prepaid income taxes  3,541  2,369
 Prepaid expenses and other current assets  6,737  7,461
 Total current assets  145,343  146,301
Restricted cash  546  546
Property and equipment, net  14,565  15,019
Goodwill   176,612  176,521
Intangible assets, net  32,758  34,866
Other non-current assets  1,061  1,178
 Total assets  $ 370,885  $ 374,431
Liabilities and Shareholders' Equity    
Current liabilities:    
 Accounts payable  $ 7,522  $ 4,813
 Accrued expenses  6,743  7,999
 Accrued compensation  8,403  12,218
 Deferred revenues and customer advances  4,749  5,788
 Total current liabilities  27,417  30,818
Deferred gain on sale-leaseback  2,953  3,242
Deferred income taxes  7,238  7,721
Income taxes payable  2,880  2,880
Other non-current liabilities  1,179  1,269
 Total liabilities  41,667  45,930
Shareholders' equity:    
 Common stock  309  304
 Additional paid-in capital  234,620  231,711
 Retained earnings  93,268  95,524
 Accumulated other comprehensive income   1,021  962
 Total shareholders' equity  329,218  328,501
 Total liabilities and shareholders' equity  $ 370,885  $ 374,431
(In thousands, except per share data)
  Three Months Ended
  September 30,
  2013 2012
Net revenues  $ 53,940  $ 49,428
Cost of revenues (1)   31,355  29,038
 Gross margin  22,585  20,390
Operating expenses:    
 Selling, general and administrative (1)   15,101  14,533
 Research and development (1)  9,344  10,039
 Amortization of intangible assets  2,108  1,788
 Restructuring and other charges  (15)  4,984
 Acquisition costs and other related expenses  --   230
 Total operating expenses  26,538  31,574
Loss from operations  (3,953)  (11,184)
Interest income  1  2
Interest expense  (15)  (8)
Other income, net  432  339
Loss before income taxes  (3,535)  (10,851)
Tax benefit  (1,279)  (3,651)
Net loss  $ (2,256)  $ (7,200)
Basic net loss per share:  $ (0.07)  $ (0.24)
Diluted net loss per share:  $ (0.07)  $ (0.24)
Weighted-average shares outstanding:    
 Basic 30,653 29,883
 Diluted  30,653 29,883
(1) Includes stock-based compensation expense, allocated as follows:    
 Cost of revenues  $ 236  $ 131
 Selling, general and administrative   $ 2,332  $ 1,903
 Research and development   $ 467  $ 311
(In thousands)    
  Three Months Ended
  September 30,
  2013 2012
Cash flows from operating activities:    
 Net loss  $ (2,256)  $ (7,200)
 Depreciation and amortization  4,120  3,999
 Other non-cash items, net  3,165  (1,189)
 Changes in operating assets and liabilities, net of effect of businesses acquired  (2,856)  (5,559)
 Net cash provided by (used in) operating activities  2,173  (9,949)
Cash flows from investing activities:    
 Acquisition of businesses, net of cash acquired  --  (67,721)
 Purchases of property and equipment  (1,108)  (980)
 Increase in other investing activities  --  (265)
 Net cash used in investing activities  (1,108)  (68,966)
Cash flows from financing activities:    
 Proceeds from employee stock plans  60  133
 Payment of acquired debt  --  (6,575)
 Payments of capital lease obligations  (121)  (46)
 Excess tax benefits from stock-based compensation  --  9
 Net cash used in financing activities  (61)  (6,479)
Effect of exchange rate changes on cash and cash equivalents  (24)  (2)
Net increase (decrease) in cash and cash equivalents  980  (85,396)
Cash and cash equivalents at beginning of period  39,126  115,964
Cash and cash equivalents at end of period  $ 40,106  $ 30,568
(In thousands)

Adjusted EBITDA, a non-GAAP measure for reporting financial performance, excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. Management believes that exclusion of these items assists in providing a more complete understanding of the Company's underlying operational results and trends, and management uses these measures along with the 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. The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below:

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