Mercury Systems, Inc. announced unaudited consolidated earnings results for the second quarter and six months ended December 31, 2013. For the quarter, revenues were $53.1 million, an increase of $3.3 million, or 7%, compared to the second quarter of fiscal 2013, as revenues from defense customers increased $5.3 million and revenues from commercial customers decreased $2.0 million. GAAP net loss for was $1.0 million, or a loss of $0.03 per basic and diluted share, compared to GAAP net loss of $4.8 million, or $0.16 per basic and diluted share, for the prior year's second quarter. Adjusted EBITDA was $5.1 million, compared to $1.0 million for the prior year's second quarter. Cash flows from operating activities were a net inflow of $7.4 million compared to a net inflow of $1.6 million in the second quarter of fiscal 2013. Free cash flow, defined as cash flow from operating activities less capital expenditures was a net inflow of $4.5 million, compared to a net inflow of $0.8 million in the second quarter of fiscal 2013. Loss from operations was $2,070,000 compared to $7,079,000 for the same period in last year. Capital expenditures were $2,826,000 compared to $746,000 for the same period in last year. Loss before income taxes was $1,638,000 against $6,976,000 a year ago period.

For the six months, the company's net revenues were $107,030,000 compared to $99,232,000 for the same period in last year. Loss from operations was $6,023,000 compared to $18,263,000 for the same period in last year. Net loss was $3,301,000 or $0.11 per basic and diluted share compared to $11,984,000 or $0.40 per basic and diluted share for the same period in last year. Net cash provided by operating activities was $9,531,000 compared to $8,390,000 for the same period in last year. Capital expenditures were $3,934,000 compared to $1,726,000 for the same period in last year. Adjusted EBITDA was $8,711,000 compared to $2,641,000 for the same period in last year. Free cash flow was $5,597,000 compared to free cash outflow of $10,116,000 for the same period in last year. Loss before income taxes was $5,173,000 against $17,827,000 a year ago period.

The company provided earnings guidance for the third quarter, second half and fiscal year 2014. For the quarter, revenues are currently forecasted to be in the range of $50 million to $56 million. At this range, GAAP net loss per share is expected to be in the range of a net loss of $0.09 to $0.15 per share. Adjusted EBITDA is expected to be in the range of $1.0 million to $4.1 million. Within stated revenue guidance, the company is providing gross margins of between 38% and 40% for the third quarter, which is below the 47% gross margin generated in second quarter. The reduction in gross margin is mainly due to product mix as the second quarter included a greater proportion of higher margin digital signal processing revenue that had not been previously anticipated. Excluding restructuring charges, the loss per share for the third quarter is estimated to be in the range of $0.03 to $0.09 per share. The loss per share forecast assumes an income tax benefit of approximately 36% for the third quarter, which is comparable to the second quarter. This forecasted tax rate assumes no benefit for the remainder of fiscal 2014 from the federal research and development tax credit, which expired on December 31, 2013. Consistent with the second quarter the loss per share range forecasted for the third quarter includes an approximate $0.04 per share impact from the amortization of intangible assets. Operating cash flow from cash earnings is expected to be offset by higher receivables related working capital due to the unusually high second quarter collections and capital expenditure levels that are estimated to be comparable to the second quarter.

For full year, revenues are projected to be in the range of $215 million to $225 million. At this range, GAAP net loss per share is estimated to be in the range of a net loss of $0.20 to $0.34 per share. Adjusted EBITDA is expected to be in the range of $14.0 million to $20.0 million. At the higher end of the guidance range, net of anticipated restructuring charges, the company expects to achieve profitability in the second half of fiscal 2014. The company expects gross margin to be between 42% and 43%, which is slightly below the first half gross margin due to a more favorable product mix in the second quarter and its adverse impact on forecasted third quarter gross margin. Excluding restructuring charges the loss per share is anticipated to be between $0.10 and $0.24 per share.

The company is anticipating mid-single digit to low double digit revenue growth in the second half driven largely by Aegis, SEWIP Block 2, LRIP, Patriot and JSF. Achieving the favorable end of the latter loss per share range would result in profitability excluding restructuring charges for the second half of fiscal 2014.