Mercury Systems Reports Third Quarter Fiscal 2013 Results

Mercury Systems Reports Third Quarter Fiscal 2013 Results

                   Third quarter operating results include:
                          Revenues of $54.1 million
                          Net income of $0.8 million
                 GAAP net earnings per diluted share of $0.03
                       Adjusted EBITDA of $5.2 million
                     Operating cash flow of $1.7 million

CHELMSFORD, Mass., April 30, 2013 (GLOBE NEWSWIRE) -- Mercury Systems, Inc.
(Nasdaq:MRCY) (www.mrcy.com), a best-of-breed provider of commercially
developed, open sensor and Big Data processing systems for critical
commercial, defense and intelligence applications, reported operating results
for its third quarter of fiscal 2013 ended March 31, 2013.

Third Quarter Fiscal 2013 Results

Third quarter fiscal 2013 revenues were $54.1 million, an increase of $4.3
million, or 9%, compared to the second quarter of fiscal 2013, as revenues
from defense customers increased $3.9 million and revenues from commercial
customers increased $0.4 million. Fiscal 2013 third quarter revenues decreased
$12.9 million from the third quarter of the prior fiscal year, as revenues
from defense customers decreased by $14.7 million, while revenues from
commercial customers increased by $1.8 million.

GAAP net income for the third quarter of fiscal 2013 was $0.8 million, or
$0.03 per diluted share, compared to GAAP net loss of $4.8 million, or $0.16
per share in the preceding quarter and GAAP net income of $5.2 million, or
$0.17 per diluted share, for the prior year's third quarter. Third quarter
fiscal 2013 GAAP net earnings per diluted share includes $0.05 of income tax
benefits associated with the extension of the federal research and development
tax credit. Additionally, third quarter fiscal 2013 GAAP net earnings per
diluted share includes $0.05 associated with the amortization of acquired
intangible assets compared to $0.05 in the second quarter of fiscal 2013 and
$0.02 in the third quarter of fiscal 2012.

Third quarter fiscal 2013 GAAP net income includes approximately $2.2 million
in tax benefits, $2.1 million in depreciation expense, $2.4 million in
amortization of acquired intangible assets, $1.9 million in stock-based
compensation costs, $0.2 million in restructuring charges, and $0.1 million in
fair value adjustments from purchase accounting. Third quarter fiscal 2013
adjusted EBITDA (net income before interest income and expense, income taxes,
depreciation, amortization of acquired intangible assets, restructuring,
impairment of long-lived assets, acquisition costs and other related expenses,
fair value adjustments from purchase accounting, and stock-based compensation
costs) was $5.2 million, compared to $1.0 million for the preceding quarter
and $12.0 million for the prior year's third quarter.

Cash flows from operating activities were a net inflow of $1.7 million in the
third quarter of fiscal 2013, compared to a net inflow of $1.6 million in the
second quarter of fiscal 2013 and a net inflow of $12.4 million in the third
quarter of fiscal 2012. Free cash flow, defined as cash flow from operating
activities less capital expenditures, in the third quarter of fiscal 2013 was
a net inflow of $1.2 million, compared to a net inflow of $0.8 million in the
second quarter of fiscal 2013 and a net inflow of $9.6 million in the third
quarter of fiscal 2012. Cash and cash equivalents as of March 31, 2013 were
$35.1 million, an increase of $1.2 million from December 31, 2012, largely due
to cash generated by operating activities.

Management Comments

"The Mercury team executed well in the third quarter, delivering results above
the high end of our guidance and continuing to generate positive cash flow
from operations," said Mark Aslett, President and CEO, Mercury Systems.
"Although conditions in the defense industry remained very challenging, the
enactment in March of a fiscal 2013 defense appropriations bill was a positive
step, and we made substantial progress on our two most important programs."

"As a result, our core compute business performed well and delivered improved
results on a sequential basis for the second consecutive quarter," Aslett
said. "We recognized our first low-rate initial production revenue from the
Navy's Surface Electronic Warfare Improvement Program (SEWIP) Block 2. In
addition, this was another strong quarter of bookings for the Navy's Aegis
Ballistic Missile Defense System."

"There was clearly greater stability in our business this quarter; although,
challenges in the industry remain," said Aslett. "Under sequestration, there
is greater potential for the near-term reprogramming of funds from the DoD
investment accounts, and longer term there also remains uncertainty about the
federal government's 2014 fiscal year. These dynamics continue to cloud our
visibility regarding future deal timing and revenues. Consequently, we are
continuing to manage revenue and expense levels conservatively with a focus on
maximizing our cash."

"We expect to make continued progress in our fiscal fourth quarter," Aslett
said. "We believe Mercury's ongoing programs and platforms are closely aligned
with the Defense Department's new roles and missions and should continue to be
well-funded. Finally, we have the potential in fiscal 2014, for a number of
major new design wins and programs should our customers be selected. We
believe these programs will be important to ultimately growing Mercury's
enterprise value for our shareholders."

Backlog

Mercury's total backlog at March 31, 2013 was $127.7 million, a $5.5 million
sequential decrease from December 31, 2012, and a $22.5 million increase from
March 31, 2012. Of the March 31, 2013 total backlog, $101.1 million represents
orders scheduled to be shipped over the next 12 months. The defense backlog at
March 31, 2013 was $108.7 million, a $5.6 million sequential decrease from
December 31, 2012, and a $9.2 million increase from March 31, 2012. Bookings
for the third quarter of fiscal 2013 were $48.6 million, compared to $62.8
million for the second quarter of fiscal 2013 and $49.6 million for the third
quarter of fiscal 2012. The total book-to-bill ratio was 0.9 for the third
quarter of fiscal 2013, compared to 1.3 for the second quarter of fiscal 2013
and 0.7 for the third quarter of fiscal 2012.

Revenues by Reporting Segment

Prior to the third quarter of fiscal 2013, Mercury's reporting segments were
Advanced Computing Solutions (ACS) and Mercury Federal Systems (MFS).
Following recent acquisitions that expanded Mercury's capabilities, coupled
with the Company's recent name change to Mercury Systems, the Company
initiated a reorganization to logically group and reflect the way in which it
manages its business. As a result, effective January 1, 2013, Mercury's new
reporting segments are Mercury Commercial Electronics (MCE) and Mercury
Defense and Intelligence Systems (MDIS). All prior period results have been
restated to reflect the change in reporting segments. A schedule providing
selected historical unaudited quarterly financial information for the new
reporting segments is included with this release.

Mercury Commercial Electronics (MCE) — Revenues for the third quarter of
fiscal 2013 from MCE were $43.9 million, representing an increase of $3.5
million from the second quarter of fiscal 2013, as a result of an increase of
$3.1 million in defense revenues and an increase of $0.4 million in commercial
revenues. Fiscal 2013 third quarter MCE revenues decreased $10.0 million from
the third quarter of fiscal 2012, as a result of a decrease of $11.8 million
in defense revenues and an increase of $1.8 million in commercial revenues.
Approximately 89% of MCE revenues for the second and third quarters of fiscal
2013 related to defense business, as compared to approximately 95% in the
third quarter of fiscal 2012.

Mercury Defense and Intelligence Systems (MDIS)— Revenues for the third
quarter of fiscal 2013 from MDIS were $13.0 million, representing a decrease
of $1.1 million from the second quarter of fiscal 2013 and a decrease of $2.3
million from the third quarter of fiscal 2012.

The revenues by reporting segment do not include adjustments to eliminate $2.8
million of inter-company revenues included in those reporting segments in the
third quarter of fiscal 2013.

Business Outlook

This section presents our current expectations and estimates, given current
visibility, on our business outlook for the current fiscal quarter. It is
possible that actual performance will differ materially from the estimates
given, either on the upside or on the downside. Investors should consider all
of the risks, with respect to these estimates, including those listed in the
Safe Harbor Statement below and in our periodic filings with the U.S.
Securities and Exchange Commission, and make themselves aware of the risk
factors that may impact our actual performance.

For the fourth quarter of fiscal 2013, revenues are currently forecasted to be
in the range of $48 million to $54 million. At this range, GAAP net loss per
share is expected to be in the range of a net loss of $0.07 to $0.13 per
share. Projected GAAP net loss per share includes $0.05 per share associated
with forecasted amortization of acquired intangible assets.

Adjusted EBITDA for the fourth quarter of fiscal 2013 is expected to be in the
range of $0.1 million to $3.0 million.

Recent Highlights

March – Mercury applauded BAE Systems Maritime Services on achieving a
critical program milestone with the recent successful installation of its
Advanced Radar Target Indication Situational Awareness and Navigation
(ARTISAN) medium-range 3D naval surveillance radar on the HMS Iron Duke Type
23 frigate. Mercury's application-ready subsystems (ARS) comprise the signal
processing element of the ARTISAN system.

March – Mercury announced it received a $2.0 million follow-on order from a
leading defense prime contractor for rugged high-performance digital signal
processing modules for an airborne synthetic aperture radar (SAR) application.

February – Mercury announced it received $3.2 million in follow-on orders from
a leading defense prime contractor for digital signal processing modules for
an unmanned airborne SAR application.

February – Mercury congratulated Lockheed Martin on the successful performance
of its Aegis Ballistic Missile Defense (BMD) system during the U.S. Missile
Defense Agency's Flight Test Standard Missile-20 exercise recently conducted
near the Pacific Missile Range Facility, on Kauai, Hawaii. Mercury's ARS are
integrated as core technologies in the second-generation Aegis BMD system.

February – Mercury announced that its Mercury Intelligence Systems business
unit joined the Open Cloud Consortium. Mercury Intelligence Systems will
collaborate with other members of the organization on a wide range of topics
related to Big Data analytics.

February – Mercury announced that it had been awarded a 3-year indefinite
delivery/indefinite quantity contract by the U.S. Naval Research Laboratory
Tactical Electronic Warfare Division. Worth up to $16.7 million, the contract
calls for Mercury to supply advanced mixed signal digital receivers for
prototype electronic warfare applications on airborne and surface shipboard
platforms.

January – Mercury announced an expansion to its product line with the
industry's first embedded processing module using the powerful Intel® 3rd
generation Core™ i7 quad-core Ivy Bridge mobile-class processor and dual
Mellanox® ConnectX®-3 host adapters for a total of four InfiniBand™ fabric
connections. The new LDS6523 (low-density server) is an industry model for
open architecture high-performance embedded computing solutions, offering
unparalleled data plane bandwidth with four 40Gbps fabric ports.

Conference Call Information

Mercury will host a conference call and simultaneous webcast on Tuesday, April
30, 2013, at 5:00 p.m. EDT to discuss the third quarter fiscal year 2013
financial results and review its financial and business outlook going forward.

To listen to the conference call, dial (877) 303-6977 in the U.S.A. and
Canada, and (760) 298-5079 in all other countries. Please call five to ten
minutes prior to the scheduled start time. The live audio webcast can be
accessed from the 'Events and Presentations' page of Mercury's website at
www.mrcy.com/investor.

A replay of the webcast will be available two hours after the call and
archived on the same web page for 6 months.

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 adjusted EBITDA
and free cash flow, which are non-GAAP financial measures. Adjusted EBITDA
excludes certain non-cash and other specified charges. Free cash flow is
defined as cash flow from operating activities less capital expenditures. The
Company believes these non-GAAP financial measures are useful to help
investors understand its past financial performance and prospects for the
future. However, the presentation of adjusted EBITDA and free cash flow is not
meant to be considered in isolation or as a substitute for financial
information provided in accordance with GAAP. Management believes the adjusted
EBITDA and free cash flow 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 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. A reconciliation of GAAP to non-GAAP financial results
discussed in this press release is contained in the attached exhibits.

Mercury Systems – Innovation That Matters^™

Mercury Systems (Nasdaq:MRCY) is a best-of-breed provider of commercially
developed, open sensor and Big Data processing systems, software and services
for critical commercial, defense and intelligence applications. We deliver
innovative solutions, rapid time-to-value and world-class service and support
to our prime contractor customers. Mercury Systems has worked on over 300
programs, including Aegis, Patriot, SEWIP, Gorgon Stare and Predator/Reaper.
We are based in Chelmsford, Massachusetts. To learn more, visit www.mrcy.com.

Forward-Looking Safe Harbor Statement

This press release contains certain forward-looking statements, as that term
is defined in the Private Securities Litigation Reform Act of 1995, including
those relating to fiscal 2013 business performance and beyond and the
Company's plans for growth and improvement in profitability and cash flow. You
can identify these statements by the use of the words "may," "will," "could,"
"should," "would," "plans," "expects," "anticipates," "continue," "estimate,"
"project," "intend," "likely," "forecast," "probable," 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,
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 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, 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 customers,
unanticipated costs under fixed-price service and system integration
engagements, and various other factors beyond our control. These risks and
uncertainties also include such additional risk factors as are discussed in
the Company's filings with the U.S. Securities and Exchange Commission,
including its Annual Report on Form 10-K for the fiscal year ended June 30,
2012. 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.

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.

MERCURY SYSTEMS, INC.                                                      
UNAUDITED CONSOLIDATED BALANCE SHEETS                                     
(In thousands)                                                             
                                                    March 31,  June 30,
                                                     2013       2012
Assets                                                         
Current assets:                                                
Cash and cash equivalents                            $35,145  $115,964
Accounts receivable, net                            29,470    38,532
Unbilled receivables and costs in excess of billings 17,997    10,918
Inventory                                            38,744    25,845
Deferred income taxes                                13,016    7,653
Prepaid income taxes                                 3,014     2,585
Prepaid expenses and other current assets            4,919     6,206
Total current assets                                 142,305   207,703
                                                              
Restricted cash                                      546       3,281
Property and equipment, net                          16,631    15,929
Goodwill                                            178,398   132,621
Intangible assets, net                               37,209    25,083
Other non-current assets                             1,305     989
Total assets                                         $376,394 $385,606
                                                              
Liabilities and Shareholders' Equity                           
Current liabilities:                                           
Accounts payable                                     $5,997   $9,002
Accrued expenses                                     7,779     9,895
Accrued compensation                                 9,943     13,190
Deferred revenues and customer advances              4,898     4,855
Total current liabilities                            28,617    36,942
                                                              
Deferred gain on sale-leaseback                      3,531     4,399
Deferred income taxes                                12,011    7,197
Income taxes payable                                 2,597     2,597
Other non-current liabilities                        1,216     1,367
Total liabilities                                    47,972    52,502
                                                              
Shareholders' equity:                                          
Common stock                                         303       297
Additional paid-in capital                           229,550   222,769
Retained earnings                                    97,536    108,732
Accumulated other comprehensive income              1,033     1,306
Total shareholders' equity                           328,422   333,104
                                                              
Total liabilities and shareholders' equity           $376,394 $385,606

                                                        
MERCURY SYSTEMS, INC.                                                     
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS                           
(In thousands, except per share data)                                     
                                              
                           Three Months Ended  Nine Months Ended
                            March 31,           March 31,
                           2013      2012      2013        2012
Net revenues                $54,123 $66,989 $153,355  $184,070
Cost of revenues (1)       31,549   31,926   92,819     78,178
Gross margin                22,574   35,063   60,536     105,892
                                                        
Operating expenses:                                      
Selling, general and        13,918   15,217   43,025     43,281
administrative (1)
Research and development    7,503    11,452   25,130     35,041
(1)
Amortization of intangible  2,356    1,143    6,374      2,651
assets
Restructuring and other     228      --      5,429      --
charges
Acquisition costs and other 32       145      304        763
related expenses
Total operating expenses    24,037   27,957   80,262     81,736
                                                        
(Loss) income from          (1,463)  7,106    (19,726)   24,156
operations
                                                        
Interest income             2        3        6          12
Interest expense            (7)      (8)      (30)       (26)
Other income, net           24       524      479        1,323
                                                        
(Loss) income from
operations before income    (1,444)  7,625    (19,271)   25,465
taxes
                                                        
Tax (benefit) provision     (2,232)  2,380    (8,075)    8,522
                                                        
Net income (loss)           $788    $5,245  $(11,196) $16,943
                                                        
Basic net earnings (loss)   $0.03   $0.18   $(0.37)   $0.58
per share:
                                                        
Diluted net earnings (loss) $0.03   $0.17   $(0.37)   $0.56
per share:
                                                        
Weighted-average shares                                  
outstanding:
Basic                       30,235    29,562    30,075      29,432
Diluted                    30,410    30,168    30,075      30,057
                                                        
                                                        
(1) Includes stock-based
compensation expense,       
allocated as follows:
Cost of revenues           $105    $83     $335      $241
Selling, general and       $1,486  $1,013  $5,095    $4,261
administrative
Research and development  $310    $246    $826      $692

                                                        
MERCURY SYSTEMS, INC.                                                    
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                 
(In thousands)                                                            
                          Three Months Ended   Nine Months Ended
                           March 31,            March 31,
                          2013      2012       2013        2012
Cash flows from operating                                
activities:
Net income (loss)          $788    $5,245   $(11,196) $16,943
Depreciation and           4,424    3,113     12,844     8,381
amortization
Other non-cash items, net  1,123    3,081     (692)      5,447
Changes in operating
assets and liabilities,    (4,638)  1,004     (7,649)    (3,084)
net of effect of business
acquired
                                                        
Net cash provided by (used 1,697    12,443    (6,693)    27,687
in) operating activities
                                                        
Cash flows from investing                                
activities:
Acquisition of business,   --       --        (67,721)   (70,370)
net of cash acquired
Purchases of property and  (533)    (2,867)   (2,259)    (6,438)
equipment
Decrease (increase) in     112      (30)      (265)      (331)
other investing activities
                                                        
Net cash used in investing (421)    (2,897)   (70,245)   (77,139)
activities
                                                        
Cash flows from financing                                
activities:
Proceeds from employee     73       246       743        1,031
stock plans
Payments of deferred
financing and offering     3        --        (771)      (30)
costs
Payment of acquired debt   --       --        (6,575)    --
Payments of capital lease  (97)     (35)      (365)      (137)
obligations
Decrease in restricted     --       --        3,000      --
cash
Excess tax benefits from   9        75        18         487
stock-based compensation
                                                        
Net cash (used in)
provided by financing      (12)     286       (3,950)    1,351
activities
                                                        
Effect of exchange rate
changes on cash and cash   (19)     58        69         71
equivalents
                                                        
Net increase (decrease) in 1,245    9,890     (80,819)   (48,030)
cash and cash equivalents
                                                        
Cash and cash equivalents  33,900   104,955   115,964    162,875
at beginning of period
                                                        
Cash and cash equivalents  $35,145 $114,845 $35,145   $114,845
at end of period

MERCURY SYSTEMS, INC.
UNAUDITED QUARTERLY SEGMENT INFORMATION
(In thousands)

Following a series of acquisitions that expanded the Company's capabilities,
the Company initiated a reorganization to logically group its product and
service offerings and better reflect the way in which it currently manages its
business.As a result, effective January 1, 2013, the Company's new reporting
segments are Mercury Commercial Electronics (MCE) and Mercury Defense and
Intelligence Systems (MDIS).

For ease of reference, the Company has furnished the following historical
quarterly financial information presented in the context of the new reporting
segments:

Net Revenues March 31, December  September  June 30,  March 31, December  September
             2013      31, 2012  30, 2012   2012      2012      31, 2011  30, 2011
MCE          $43,955 $40,490 $36,804  $48,884 $54,185 $66,058 $47,330
MDIS         13,006   14,068   15,836    15,965   15,265   5,191    4,171
Eliminations (2,838)  (4,754)  (3,212)   (3,990)  (2,461)  (3,290)  (2,379)
Total net    $54,123 $49,804 $49,428  $60,859 $66,989 $67,959 $49,122
revenues
                                                                   
                                                                   
Adjusted     March 31, December  September  June 30,  March 31, December  September
EBITDA       2013      31, 2012  30, 2012   2012      2012      31, 2011  30, 2011
MCE          $3,320  $(323)  $(2,208) $5,866  $8,499  $18,047 $8,105
MDIS         1,885    1,972    3,223     3,417    3,118    1,115    558
Eliminations 37       (651)    624       18       390      (325)    66
Total
adjusted     $5,242  $998    $1,639   $9,301  $12,007 $18,837 $8,729
EBITDA

UNAUDITED SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(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:

Interest income and expense.The Company receives interest income on
investments and incurs interest expense on loans, capital leases and other
financing arrangements.These amounts may vary from period to period due to
changes in cash and debt balances and interest rates driven by general market
conditions or other circumstances outside of the normal course of Mercury's
operations.

Income taxes.The Company's GAAP tax expense can fluctuate materially from
period to period due to tax adjustments that are not directly related to
underlying operating performance or to the current period of operations.

Depreciation.The Company incurs depreciation expense related to capital
assets purchased to support the ongoing operations of the business.These
assets are recorded at cost or fair value and are depreciated using the
straight-line method over the useful life of the asset.Purchases of such
assets may vary significantly from period to period and without any direct
correlation to underlying operating performance.

Amortization of acquired intangible assets.The Company incurs amortization of
intangibles related to various acquisitions it has made and license
agreements.These intangible assets are valued at the time of acquisition, are
amortized over a period of several years after acquisition and generally
cannot be changed or influenced by management after acquisition.

Restructuring.The Company incurs restructuring charges in connection with
management's decisions to undertake certain actions to realign operating
expenses through workforce reductions and the closure of certain Company
facilities, businesses and product lines.Management believes this item is
outside the normal operations of the Company's business and is not indicative
of ongoing operating results.

Impairment of long-lived assets.The Company incurs impairment charges of
long-lived assets based on events that may or may not be within the control of
management.Management believes these items are outside the normal operations
of the Company's business and are not indicative of ongoing operating
results.

Acquisition costs and other related expenses.The Company incurs costs
associated with third-party professional services related to acquisition and
potential acquisition opportunities, such as legal and accounting
fees.Although we may incur such costs and other related charges and
adjustments, it is not indicative that any transaction will be
consummated.Management believes the exclusion of these items eliminates
fluctuations in our selling, general, and administrative expenses related to
acquisition activities which are unrelated to ongoing operations.

Fair value adjustments from purchase accounting.As a result of applying
purchase accounting rules to acquired assets and liabilities, certain fair
value adjustments are recorded in the opening balance sheet of acquired
companies. These adjustments are then reflected in the Company's income
statements in periods subsequent to the acquisition. In addition, the impact
of any changes to originally recorded contingent consideration amounts are
reflected in the income statements in the period of the change. Management
believes these items are outside the normal operations of the Company and are
not indicative of ongoing operating results.

Stock-based compensation expense. The Company incurs expense related to
stock-based compensation included in its GAAP presentation of cost of
revenues, selling, general and administrative expense and research and
development expense.Although stock-based compensation is an expense of the
Company and viewed as a form of compensation, these expenses vary in amount
from period to period, and are affected by market forces that are difficult to
predict and are not within the control of management, such as the market price
and volatility of the Company's shares, risk-free interest rates and the
expected term and forfeiture rates of the awards.Management believes that
exclusion of these expenses allows comparisons of operating results to those
of other companies, both public, private or foreign, that disclose non-GAAP
financial measures that exclude stock-based compensation.

Mercury uses adjusted EBITDA as an important indicator of the operating
performance of its business.Management excludes the above-described items
from its internal forecasts and models when establishing internal operating
budgets, supplementing the financial results and forecasts reported to the
Company's board of directors, determining the portion of bonus compensation
for executive officers and other key employees based on operating performance,
evaluating short-term and long-term operating trends in the Company's
operations, and allocating resources to various initiatives and operational
requirements.The Company believes that adjusted EBITDA permits a comparative
assessment of its operating performance, relative to its performance based on
its GAAP results, while isolating the effects of charges that may vary from
period to period without any correlation to underlying operating
performance.The Company believes that these non-GAAP financial adjustments
are useful to investors because they allow investors to evaluate the
effectiveness of the methodology and information used by management in its
financial and operational decision-making.The Company believes that trends in
its adjusted EBITDA are valuable indicators of its operating performance.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered
in isolation or as a substitute for financial information provided in
accordance with GAAP.This non-GAAP financial measure may not be computed in
the same manner as similarly titled measures used by other companies.The
Company expects to continue to incur expenses similar to the adjusted EBITDA
financial adjustments described above, and investors should not infer from the
Company's presentation of this non-GAAP financial measure that these costs are
unusual, infrequent or non-recurring.

The following table reconciles the most directly comparable GAAP financial
measure to the non-GAAP financial measure.

                                 Three Months Ended Nine Months Ended      
                                  March 31,          March 31,
                                 2013     2012      2013        2012
Net income (loss)                 $788   $5,245  $(11,196) $16,943
Interest expense, net             5       5        24         14
Tax (benefit) provision           (2,232) 2,380    (8,075)    8,522
Depreciation                      2,068   1,970    6,470      5,730
Amortization of acquired          2,356   1,143    6,374      2,651
intangible assets
Restructuring                     228     --      5,429      --
Acquisition costs and other       32      145      304        763
related expenses
Fair value adjustments from       96      (223)    2,293      (245)
purchase accounting
Stock-based compensation expense  1,901   1,342    6,256      5,194
Adjusted EBITDA                  $5,242 $12,007 $7,879    $39,572

Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash
provided by operating activities less capital expenditures and, therefore, has
not been calculated in accordance with GAAP. Management believes free cash
flow provides investors with an important perspective on cash available for
investment and acquisitions after making capital investments required to
support ongoing business operations and long-term value creation. The Company
believes that trends in its free cash flow are valuable indicators of its
operating performance and liquidity.

Free cash flow is a non-GAAP financial measure and should not be considered in
isolation or as a substitute for financial information provided in accordance
with GAAP.This non-GAAP financial measure may not be computed in the same
manner as similarly titled measures used by other companies.The Company
expects to continue to incur expenditures similar to the free cash flow
financial adjustment described above, and investors should not infer from the
Company's presentation of this non-GAAP financial measure that these
expenditures reflect all of the Company's obligations which require cash.

The following table reconciles the most directly comparable GAAP financial
measure to the non-GAAP financial measure.

                          Three Months Ended Nine Months Ended     
                           March 31,         March 31,
                          2013     2012      2013       2012
Cash flows from operations $1,697 $12,443 $(6,693) $27,687
Capital expenditures       (533)   (2,867)  (2,259)   (6,438)
Free cash flow             $1,164 $9,576  $(8,952) $21,249

MERCURY SYSTEMS, INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE RANGE
Quarter Ending June 30, 2013
(In thousands, except per share data)

The Company defines adjusted EBITDA as income from continuing operations
before interest, income taxes, depreciation, amortization of acquired
intangible assets, restructuring, impairment of long-lived assets, acquisition
costs and other related expenses, fair value adjustments from purchase
accounting, and stock-based compensation costs. 

The following table reconciles the adjusted EBITDA financial measure to its
most directly comparable GAAP measure:

                                               Range
                                               Low        High
                                                         
GAAP expectation -- Loss per share              $(0.13)  $(0.07)
                                                         
GAAP expectation -- Net loss                    $(4,001) $(2,196)
                                                         
Adjust for:                                               
Interest expense, net                           10        10
Income taxes                                    (2,149)   (1,064)
Depreciation                                    2,057     2,057
Amortization of acquired intangible assets      2,344     2,344
Acquisition costs and other related expenses    30        30
Fair value adjustments from purchase accounting --       --
Stock-based compensation expense                1,775     1,775
Adjusted EBITDA expectation                     $66      $2,956

CONTACT: Kevin Bisson, CFO
         Mercury Systems, Inc.
         978-967-1990

Mercury Systems, Inc. Logo
 
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