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Mercury Systems Reports First Quarter Fiscal 2014 Results



Mercury Systems Reports First Quarter Fiscal 2014 Results

                   First quarter operating results include:
                          Revenues of $53.9 million
                           Net loss of $2.3 million
                       GAAP net loss per share of $0.07
                       Adjusted EBITDA of $3.6 million
                     Operating cash flow of $2.2 million

CHELMSFORD, Mass., October 29, 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, software and services
for critical commercial, defense and intelligence applications, reported
operating results for its fiscal 2014 first quarter which ended September 30,
2013.

First Quarter Fiscal 2014 Results

First quarter fiscal 2014 revenues were $53.9 million, an increase of $4.5
million, or 9%, compared to the first quarter of fiscal 2013, as revenues from
commercial customers increased $2.6 million and revenues from defense
customers increased $1.9 million.

GAAP net loss for the first quarter of fiscal 2014 was $2.3 million, or a loss
of $0.07 per share, compared to GAAP net loss of $7.2 million, or $0.24 per
share, for the prior year's first quarter. Both the first quarter of fiscal
2014 and the first quarter of fiscal 2013 GAAP net loss per share include
$0.04 associated with the amortization of acquired intangible assets. First
quarter fiscal 2013 GAAP net loss per share includes $0.11 for restructuring
charges, and $0.01 for acquisition costs related to the Micronetics, Inc.
acquisition, which was completed in last year's first quarter.

First quarter fiscal 2014 GAAP net loss includes approximately $1.3 million in
tax benefits, $2.0 million in depreciation expense, $2.1 million in
amortization of acquired intangible assets, and $3.0 million in stock-based
compensation costs. First quarter fiscal 2014 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 $3.6 million,
compared to $1.6 million for the prior year's first quarter.

Cash flows from operating activities were a net inflow of $2.2 million in the
first quarter of fiscal 2014, compared to a net outflow of $9.9 million in the
first quarter of fiscal 2013. Free cash flow, defined as cash flow from
operating activities less capital expenditures, in the first quarter of fiscal
2014 was a net inflow of $1.1 million, compared to a net outflow of $10.9
million in the first quarter of fiscal 2013. Cash and cash equivalents as of
September 30, 2013 were $40.1 million, an increase of $1.0 million from June
30, 2013.

Management Comments

"Mercury performed well in the first quarter despite continued industry
headwinds, and our financial results were at or above the high end of our
guidance across all key metrics," said Mark Aslett, President and CEO, Mercury
Systems. "Given the ongoing budgetary uncertainties in Washington, military
spending has been slow and likely will remain so until a new defense
appropriations bill is signed into law. In addition, the armed services appear
to be assuming that sequestration, or a derivative, is here to stay as they
prepare their next round of budget submissions, all of which continues to
cloud visibility in our business."

"We continue to believe, however, that Mercury's strategy, technology,
capabilities and ongoing programs align well with the Defense Department's new
priorities and those of the primes, which has allowed us to drive improved
performance despite conditions very similar to a year ago." said Aslett. "Our
defense bookings for the first quarter were up 19% year-over-year, highlighted
by another strong quarter of orders related to the Navy's Aegis Ballistic
Missile Defense System program, as we expected. Our other key bookings
included a classified airborne program with Northrop Grumman, an order for
U.S. Army Patriot with Raytheon, Predator/Reaper radar upgrades with General
Atomics, and additional orders for existing and next-generation electronic
warfare products in our MDIS segment."

"The difference today versus 12 months ago is that we are now more than a year
into managing in this challenging environment," Aslett said. "Not only have we
improved the cost structure of the business to continue to generate positive
cash flow, but our focus on building backlog has put us in a significantly
better position than we were at this point last year. Given our focus on cash
management and recent expense reductions, we believe that we have created
substantial operating leverage in our business. We are confident that, as the
defense industry emerges from its current period of uncertainty, this will
lead to a significant improvement in Mercury's profitability, cash flow
generation and enterprise value over time."

Backlog

Mercury's total backlog at September 30, 2013 was $133.3 million, a $13.1
million increase from September 30, 2012. Of the September 30, 2013 total
backlog, $116.1 million represents orders scheduled to be shipped over the
next 12 months. The defense backlog at September 30, 2013 was $114.7 million,
a $6.8 million increase from September 30, 2012. Bookings for the first
quarter of fiscal 2014 were $46.9 million, a 14% increase, compared to $41.1
million for the first quarter of fiscal 2013. The total book-to-bill ratio was
0.9 for the first quarter of fiscal 2014, compared to 0.8 for the first
quarter of fiscal 2013.

Revenues by Reporting Segment

Mercury Commercial Electronics (MCE) — Revenues for the first quarter of
fiscal 2014 from MCE were $44.6 million, representing an increase of $7.8
million, or 21%, from the first quarter of fiscal 2013, as a result of an
increase of $5.1 million in defense revenues related to the Patriot and SEWIP
programs and an increase of $2.7 million in commercial revenues. Approximately
83% of MCE revenues for the first quarter of fiscal 2014 related to defense
business, as compared to approximately 87% in the first quarter of fiscal
2013. 

Mercury Defense and Intelligence Systems (MDIS)— Revenues for the first
quarter of fiscal 2014 from MDIS were $11.1 million, representing a decrease
of $4.7 million from the first quarter of fiscal 2013 due primarily to lower
revenue from the Gorgon Stare program.

The revenues by reporting segment do not include adjustments to eliminate $1.8
million of inter-company revenues included in those reporting segments in the
first quarter of fiscal 2014.

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 second quarter of fiscal 2014, 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 $0.06 to $0.12 per
share. Projected GAAP net loss per share includes $0.04 per share associated
with forecasted amortization of acquired intangible assets.

Adjusted EBITDA for the second quarter of fiscal 2014 is expected to be in the
range of $0.4 million to $3.5 million. 

Recent Highlights

September – Mercury announced that its Mercury Defense Systems (MDS)
subsidiary received a $3.9 million initial contract award against its 5 year
sole source basic ordering agreement to deliver advanced Digital RF Memory
(DRFM) jammers to the U.S. Navy. The order is expected to be shipped by the
end of Mercury's fiscal 2015 third quarter.

September – Mercury announced the Ensemble® HDS6602 High Density Server, the
embedded computing industry's most powerful 6U OpenVPX™ processing module. The
Company expects the HDS6602 to be the only embedded, dual Intel® Xeon®
processor E5-2600 v2-based processing module able to deliver peak Symmetric
Multi-Processing performance of 608 GLOPS. Using Mellanox's ConnectX®-3
technology to exploit InfiniBand™ or Ethernet as a high-performance
interconnect in OpenVPX, the HDS6602 is well suited to meet the processing
demands of the most complex radar and other massively intensive embedded
processing applications.

August – Mercury announced that its MDS subsidiary received a $2.3 million
delivery order from the U.S. Navy for advanced DRFM jammers to support both
U.S. Navy and U.S. Air Force requirements. The order is part of the
firm-fixed-price, indefinite delivery/indefinite quantity time and material
contract award worth up to $44.4 million originally received by MDS in March
2010, which has been recently extended by the U.S. Navy for an additional 63
units for a total contract value of $56.7 million. All other terms and
conditions remain unchanged from the original contract award.

August – Mercury announced that its Mercury Commercial Electronics facility in
Hudson, N.H., received a Superior security rating in a recent vulnerability
assessment conducted by the Defense Security Service (DSS). This Superior
rating, the highest level awarded to cleared defense contractors by DSS,
represents a two-level improvement from the facility's previous rating, and
follows on the heels of Superior ratings already received at Mercury's
headquarters facility in Chelmsford, MA, its Mercury Commercial Electronics
facilities in Salem, NH and West Caldwell, NJ, as well as a recent Commendable
rating received by its Mercury Commercial Electronics facility in Manteca, CA.

August – Mercury announced it had added further industry-leading capability to
its portfolio of subsystem building blocks with the introduction of the
DCM-2R2300-2T2300-OVPX FMC transceiver. The transceiver delivers coherent
operation, with more than 1GHz of full instantaneous bandwidth and exceptional
fidelity. With best-in-class features and performance for complex electronic
warfare, electronic intelligence and radar applications, the transceiver
provides excellent multichannel, high-resolution, synchronized and coherent
signal processing.

July – Mercury announced it had received the coveted Supplier Excellence Award
from Raytheon's Integrated Defense Systems business unit. The Special
Affordability Award recognizes the Company for working in partnership with
Raytheon to identify cost reduction opportunities and ensure market
competitiveness for the Patriot Air and Missile Defense program.

Conference Call Information

Mercury will host a conference call and simultaneous webcast on Tuesday,
October 29, 2013, at 5:00 p.m. EDT to discuss the first quarter fiscal 2014
results and review its financial and business outlook going forward.

To join the conference call, dial (877) 303-6977 in the USA and Canada, or
(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 2014 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,
2013. 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)                                        September 30, June 30,
                                                      2013          2013
                                                                     
Assets                                                               
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

 
MERCURY SYSTEMS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(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

 
MERCURY SYSTEMS, INC. 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(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      (2,856)    (5,559)
effect of businesses acquired
                                                                     
 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          (24)       (2)
equivalents
                                                                     
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

 
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
                                                 September 30,
                                                 2013       2012
Net loss                                          $ (2,256)  $ (7,200)
 Interest expense, net                            14         6
 Tax benefit                                      (1,279)    (3,651)
 Depreciation                                     2,012      2,211
 Amortization of acquired intangible assets       2,108      1,788
 Restructuring                                    (15)       4,984
 Acquisition costs and other related expenses     --         230
 Fair value adjustments from purchase accounting  --         925
 Stock-based compensation expense                 3,035      2,345
Adjusted EBITDA                                   $ 3,619    $ 1,638

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
                           September 30,
                           2013     2012
Cash flows from operations  $ 2,173  $ (9,949)
 Capital expenditures       (1,108)  (980)
Free cash flow              $ 1,065  $ (10,929)

 
MERCURY SYSTEMS, INC.  
RECONCILIATION OF FORWARD-LOOKING GUIDANCE RANGE
Quarter Ending December 31, 2013
(In thousands, except per share data)

The Company defines adjusted EBITDA as 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.    

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

                                            Range
                                            Low      High
                                             (0.12)   (0.06)
GAAP expectation -- Loss per share                    
                                                      
GAAP expectation -- Net loss                 (3,866)  (1,871)
                                                      
Adjust for:                                           
 Interest expense, net                       15       15
 Income taxes                                (2,192)  (1,061)
 Depreciation                                1,991    1,991
 Amortization of acquired intangible assets  1,917    1,917
 Restructuring                               98       98
 Stock-based compensation expense            2,453    2,453
Adjusted EBITDA expectation                  $ 416    $ 3,542

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

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