MRCY ( $50 -$39) P/E 44 2001 Revenues Up 28% and EPS Up 21%; issues warning
Fourth Quarter EPS Up 85% and Revenues Up 38% Year-Over-Year
Business/Technology Editors
CHELMSFORD, Mass.--(BUSINESS WIRE)--July 30, 2001-- Mercury
Computer Systems, Inc. (NASDAQ: MRCY), a leading supplier of embedded
real-time digital signal and image processing systems, today reported
results for the fourth quarter and fiscal year ended June 30, 2001.
Posting its 42nd consecutive quarter of profitable company
performance in the fourth quarter:
--Revenues were $48.7 million, up 38% over Q4 FY2000.
--Net income was $8.7 million, up 87% over Q4 FY2000.
--EPS (diluted) was $0.37, up 85% over Q4 FY2000.
Fiscal 2001 was another outstanding performance year for the
company:
--Revenues were $180.5 million, up 28% over FY2000.
--Operating income was 22% of revenues at $39.6 million, up 18%
over FY2000.
--Net income was 17% of revenues at $30.7 million, up 23% over
FY2000.
--EPS (diluted) was $1.33, up 21% over FY2000.
"Healthy revenue growth in each of our core businesses once again
contributed to Mercury's strong year-to-year performance," said Jay
Bertelli, president and CEO of Mercury Computer Systems. "Fiscal 2001
was another record year. Despite the economic turmoil in the
technology sector over the past several months, we outperformed the
company's goals set at the beginning of the year by nearly $5 million
on the revenue line and over 15 percent in earnings per share. The
strength of our market leadership combined with the ongoing product
development and advanced technology initiatives of our engineering
team, keeps Mercury Computer Systems well positioned to provide
continued product leadership to our customers and long-term revenue
and earnings growth for our shareholders."
Defense Electronics Segment
--Fourth quarter revenues were $31.6 million, up 30% over Q4
FY2000, and represented 65% of the company's total revenues for the
quarter.
--FY2001 revenues were $120.4 million, up 20% over FY2001,
accounting for 67% of the company's total revenues for the year.
During the quarter the company secured 15 new program wins
amounting to approximately $4.5 million in initial contracts. Two of
the new programs are international and the remaining 13 are domestic.
Combined, the 15 programs represent a five-year potential of more than
$33 million if all the programs were to progress to full completion.
Included in this quarter's successes were initial program wins in two
new application areas targeted by the company for penetration:
software defined radio and surface radar. The company received
multiple international and domestic orders for systems to be used in
developing software defined radio solutions, an offshoot from our
wireless initiative. In addition, the company won three new surface
radar programs. These include a program with Northrop Grumman's
Electronic Sensors and Systems Sector (ES3) in which the company will
provide systems as part of ES3's contract to upgrade the Federal
Aviation Administration's Weather Systems Processor (WSP), and another
supporting RS Information Systems, Inc., in its recently awarded
contract to upgrade the National Weather Service's Radar Data
Acquisition System.
The revenue for the worldwide defense segment of the business has
remained strong throughout the year. The company has a pipeline of new
programs that are expected to continue to drive our defense
electronics growth. The fourth quarter wins bring the total of new
program wins for FY2001 to 53. These 53 program wins follow the 56
program wins recorded in FY2000 and the 28 programs won in FY1999.
Combined, these 137 programs represent a five-year potential in excess
of $470 million in revenue if all the programs were to progress to
full completion.
Medical Diagnostic Imaging Segment
--Fourth quarter revenues were $13.9 million, up 80% over Q4
FY2000, accounting for 28% of the company's fourth quarter revenues.
--For FY2001 revenues were $43.5 million, up 61% over FY2000,
representing 24% of the company's total revenues for the year.
Mercury continued to benefit from the stellar performances turned
in by our customers in sales of high-end MRI and multislice CT
scanners. In addition, our PET business and the production ramp
supporting General Electric Medical Systems' new digital cardiology
system continued to expand. This year's 61% growth in medical imaging
revenues follows the 77% growth experienced in fiscal 2000. During the
year the company secured two new medical design wins; one in PET, and
one, which was previously announced, with GEMS in its next generation
MRI. These wins, along with our growing business with GEMS in its
Innova 2000. digital cardiology system, and the potential with Philips
in the digital X-ray area, will further establish Mercury as the
leading supplier of high-performance systems for the medical
diagnostic imaging industry.
OEM Solutions Segment
--Fourth quarter revenues were $3.2 million, down 3% from Q4
FY2000, accounting for 7% of the company's revenues for the quarter.
--For FY2001 revenues were $16.6 million, up 23% over FY2000,
representing 9% of the company's total revenues for the year.
The company has had an exciting and successful year in our OEM
Solutions segment with multiple design wins in the semiconductor
imaging market which are expected to provide very strong revenue and
earnings growth in fiscal 2003 and beyond. Overall the semiconductor
imaging market represents a new served market potential for Mercury in
excess of $200 million over the next four years. The current design
wins represent potential new annual revenues of more than $50 million
by FY03. It is anticipated that these design wins will require from 12
to 24 months to achieve production. Therefore, FY2002 revenues in this
segment will come primarily from development systems to support each
design program.
Mercury's systems are being used in applications targeted to the
newest semiconductor geometries and process technologies. We believe
that investments in the infrastructure required to support the
manufacturing of chips based on these new technologies will continue
for development of the processes. This will position Mercury to
participate in equipping the new fabs when production begins.
Wireless Communications Segment
The company is very encouraged with the continuing progress of the
technology and business development activity within the wireless
business segment. During the quarter the team has continued to have
favorable technical and business-level dialogue with potential
customers. So, despite the turmoil in the wireless industry, with the
base station manufacturers (BSMs) dealing with poor financial
performances and the resulting reorganizations and cost-control
measures, the wireless group is making headway. In fact, because of
this turmoil, our value proposition to the BSMs and their customers,
the service providers, is perhaps more compelling than ever.
Outsourcing of the Mercury communications computer is a means for a
BSM to lower its overall internal engineering costs. Our products
offer the opportunity to provide a flexible and scalable base station,
while significantly increasing coverage and/or service quality.
The company's investment strategy has been to leverage the
products developed by the wireless engineering team into new
applications within Mercury's other market segments. This includes the
opportunity for taking the products into other segments of the telecom
infrastructure where there are multiple potential distribution and
application partners. In the coming year the wireless team expects to
expand its business development focus into these adjacent telecom
network application markets. We also see the opportunity to apply the
new features designed into the wireless product in our other markets.
Consequently, some of this year's investment will be to configure the
systems to more specifically meet the needs of our other markets.
Though the timing of development of the 3G wireless market
continues to be a topic of public debate, the company remains
convinced that it is making the right strategic decisions to optimize
its return on investment in this potentially hyper-growth market. As
indicated in the attached pro forma P&L statement, the company
invested $5.7 million in this business segment during fiscal 2001. The
company anticipates investing approximately $7.5 million in fiscal
2002 to continue the product and market development. Though the
company's time-to-revenue may be pushed out somewhat by the current
conditions, this market continues to represent the largest single new
market potential for the company, with an estimated served market size
in the range of $500 million to $1 billion annually over the next
several years.
Product Developments
During the fourth quarter, Mercury announced extensions to its
industry-leading family of multicomputer systems that quadrupled the
communications performance between processors in the system. Each
processing board in the system can now stream data at over 2
GByte/second, and a single-chassis system can now provide up to a
TeraFLOP of processing capability. The company's high-end systems are
targeted at the most complex defense applications, such as those that
use space-time adaptive processing. Mercury has already delivered
several systems for use in surface ship-based radar and airborne early
warning radar applications.
During the year the company continued its investments in core
technology that will result over the course of the coming fiscal year
and fiscal 2003 in the introduction of several new and exciting
products. These products promise to bring the high-performance,
high-bandwidth supercomputing power for which Mercury is known to some
new markets and additional applications within existing markets. The
culmination of these multi-year investments in a new hardware and
software architecture will be systems that can provide as much as ten
times (10X) the price/performance capability of current products.
Backlog Summary
The company started fiscal 2001 with a record backlog of
approximately $60.2 million. For the year as a whole, the company
experienced a book-to-bill ratio of 0.94. The softness in orders came
primarily within the domestic defense electronics segment. As an
example, the company saw between $15 million and $20 million in
expected fiscal 2001 bookings in sonar-related programs pushed out,
particularly the Acoustic Rapid COTS Insertion (ARCI) program, due in
part to limited Navy funding. As a result, the backlog at the
beginning of fiscal 2002 was reduced to $42.3 million.
Business Outlook
The following estimates are our best understanding, given current
visibility on business outlook. It is possible that actual performance
will be outside the ranges and estimates given -- either on the upside
or on the downside. Investors should consider all of the risks
identified, including those listed in the Safe Harbor Statement below,
with respect to these estimates and make themselves aware of the risk
factors that may impact the company's actual performance.
Mr. G. Mead Wyman, Mercury senior vice president and CFO, said,
"While the longer-term outlook is robust, the shorter term has some
weaknesses. Specifically, there has been a recent shortfall in
bookings levels in the domestic defense business, and a subsequent
slowing of the revenue growth rate. This reduction appeared
definitively at the end of the FY01 fourth quarter. We have seen
reinforcement of this drop off in business volume as we look at the
business forecasts in the first part of this fiscal year. When the DoD
decides to start spending again we believe we are well positioned, as
the result of the many design wins over the years, to see our defense
business get back on track. The medical business future growth
potential is very strong, but the growth rate in FY2002 will be
relatively flat and as said previously, the growth in the
semiconductor inspection business is in its early stages."
"In view of the more difficult predictive outlook, we will not
give a specific forecast model for the year. We will, however, give
our best current understanding of important annual financial
parameters. Beginning with this report, and as the year goes on, we
will provide specific estimates for the upcoming quarter as part of
our normal quarterly reports.
"We expect that annual corporate revenue growth in FY2002 will be
in the range of 5% to 15%. We expect to see our gross margin improve
slightly but to remain within management's target range of 67-69%.
SG&A expenses, as a percentage of revenues, will be within
management's target range of 28-30%. R&D expense will be approximately
20% of revenues. The planned expenditures for FY2002 in SG&A and
Engineering, while subject to more rigid expense control, do provide
for the continuing investment in the development of products and
markets that offer significant growth and return. We believe it is in
the best long-term interest of shareholders to continue to pursue
these opportunities. AgileVision losses are estimated to be
approximately $1.0 million for the fiscal year. The company's
effective tax rate is expected to remain at 32% for the year.
"Our net margins are expected to be near or within management's
target range. Operating income is expected to be in the range of
17%-18% of revenues, but could be several percentage points lower,
depending on volume. Net income is expected to be in the range of 15%
to 16%, but could be several points below that, again depending upon
volume.
"In the first quarter of FY2002, revenues are expected to be
8%-12% below the levels of revenues in the first quarter of Fiscal
2001, reflecting, especially in defense, the weaker business input in
the fourth quarter and the business outlook for the first quarter. The
summer quarter is often our weakest quarter. At this volume level, we
estimate operating income to be 1%-5% of revenues. Net income is
estimated to be in the 4%-6% of revenues range," said Mr. Wyman.
"Looking out over the next several years," said Mr. Bertelli, "the
growth rates in our established businesses should keep our overall
annual growth rates in the 25% to 30% range. The medical diagnostic
imaging marketplace will moderate from its greater than 50% growth
rate level, but is expected to grow at least at the overall corporate
rate. The OEM solutions business, which is still in a developmental
phase, is expected to grow very rapidly as a result of the investment
and design wins achieved or which are highly probable in this area. We
expect to see the established defense business grow at rates similar
to those of the past several years, but at this point in time, it is
more difficult to estimate growth in this market.
"In addition to the continued growth in our established markets,
we now see more clearly the revenue growth potential in semiconductor
imaging, wireless, software defined radio, and digital entertainment,
areas where Mercury has been making major investments in recent years.
These investments could increase Mercury's corporate growth rate
beyond the CAGR of 25% achieved over the past five years.
"Contained within our fiscal 2002 operating plan are those
investments in both product development and market development that
are anticipated to significantly expand the company's served market
potential. Investments in defense electronics will expand our served
markets into software defined radio and surface radar applications.
These two new application areas combined represent a potential served
market in excess of $250 million over the FY02-FY06 timeframe.
Investments in the medical diagnostic imaging are expected to expand
our annual served market to over $200 million by FY04-FY05. By
achieving our target of at least 50% market share, revenues from this
business segment could potentially more than double in that timeframe.
Investments in our semiconductor imaging segment are expected to
expand this potential annual served market to more than $200 million
over the next four years. And finally, investments in wireless
communications are anticipated to expand the company's served market
by as much as $500 million to over $1 billion annually in the
FY03-FY06 timeframe.
"We are convinced we have made, and continue to make, the right
strategic product development and market development investments to
keep the company in a favorable position to capitalize on the growing
demand for high-performance signal and image processing systems,"
concluded Mr. Bertelli. "Despite current market conditions and
uncertainties, we will continue to make the investments that will
maintain our market and technology leadership in the high-performance
embedded digital signal and image processing industry. While we remain
cautiously optimistic about the near term, Mercury's long-term
prospects for continued annual revenue growth in the 25% to 30% range
coupled with strong operating income and net income performance are
excellent." |
