x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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MASSACHUSETTS
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04-2741391
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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50 MINUTEMAN ROAD
ANDOVER, MA
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01810
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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x
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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Smaller reporting company
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¨
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Emerging growth company
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¨
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
|
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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||
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PART II. OTHER INFORMATION
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Item 1.
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||
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Item 1A.
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||
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Item 6.
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||
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ITEM 1.
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FINANCIAL STATEMENTS
|
|
December 31,
2018 |
|
June 30,
2018 |
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
93,903
|
|
|
$
|
66,521
|
|
Accounts receivable, net of allowance for doubtful accounts of $743 and $359 at December 31, 2018 and June 30, 2018, respectively
|
123,117
|
|
|
104,040
|
|
||
Unbilled receivables and costs in excess of billings
|
45,194
|
|
|
39,774
|
|
||
Inventory
|
126,402
|
|
|
108,585
|
|
||
Prepaid income taxes
|
766
|
|
|
3,761
|
|
||
Prepaid expenses and other current assets
|
9,923
|
|
|
9,062
|
|
||
Total current assets
|
399,305
|
|
|
331,743
|
|
||
Property and equipment, net
|
53,130
|
|
|
50,980
|
|
||
Goodwill
|
519,660
|
|
|
497,442
|
|
||
Intangible assets, net
|
176,671
|
|
|
177,904
|
|
||
Other non-current assets
|
7,873
|
|
|
6,411
|
|
||
Total assets
|
$
|
1,156,639
|
|
|
$
|
1,064,480
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
30,750
|
|
|
$
|
21,323
|
|
Accrued expenses
|
16,875
|
|
|
16,386
|
|
||
Accrued compensation
|
23,064
|
|
|
21,375
|
|
||
Deferred revenues and customer advances
|
22,491
|
|
|
12,596
|
|
||
Total current liabilities
|
93,180
|
|
|
71,680
|
|
||
Deferred income taxes
|
12,202
|
|
|
13,635
|
|
||
Income taxes payable
|
2,880
|
|
|
998
|
|
||
Long-term debt
|
240,000
|
|
|
195,000
|
|
||
Other non-current liabilities
|
12,301
|
|
|
11,276
|
|
||
Total liabilities
|
360,563
|
|
|
292,589
|
|
||
Commitments and contingencies (Note M)
|
|
|
|
|
|
||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value; 85,000,000 shares authorized; 47,248,881 and 46,924,238 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively
|
472
|
|
|
469
|
|
||
Additional paid-in capital
|
594,670
|
|
|
590,163
|
|
||
Retained earnings
|
199,830
|
|
|
179,968
|
|
||
Accumulated other comprehensive income
|
1,104
|
|
|
1,291
|
|
||
Total shareholders’ equity
|
796,076
|
|
|
771,891
|
|
||
Total liabilities and shareholders’ equity
|
$
|
1,156,639
|
|
|
$
|
1,064,480
|
|
|
|
Three Months Ended
December 31, |
|
Six Months Ended
December 31, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net revenues
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
Cost of revenues
|
|
88,202
|
|
|
63,752
|
|
|
170,675
|
|
|
119,147
|
|
||||
Gross margin
|
|
70,887
|
|
|
54,160
|
|
|
132,470
|
|
|
104,834
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative
|
|
27,819
|
|
|
21,222
|
|
|
52,560
|
|
|
41,790
|
|
||||
Research and development
|
|
16,192
|
|
|
15,187
|
|
|
31,140
|
|
|
28,929
|
|
||||
Amortization of intangible assets
|
|
6,939
|
|
|
5,827
|
|
|
14,120
|
|
|
11,464
|
|
||||
Restructuring and other charges
|
|
23
|
|
|
313
|
|
|
527
|
|
|
408
|
|
||||
Acquisition costs and other related expenses
|
|
53
|
|
|
723
|
|
|
452
|
|
|
984
|
|
||||
Total operating expenses
|
|
51,026
|
|
|
43,272
|
|
|
98,799
|
|
|
83,575
|
|
||||
Income from operations
|
|
19,861
|
|
|
10,888
|
|
|
33,671
|
|
|
21,259
|
|
||||
Interest income
|
|
71
|
|
|
3
|
|
|
137
|
|
|
22
|
|
||||
Interest expense
|
|
(2,196
|
)
|
|
(107
|
)
|
|
(4,455
|
)
|
|
(110
|
)
|
||||
Other expense, net
|
|
(870
|
)
|
|
(316
|
)
|
|
(1,879
|
)
|
|
(1,131
|
)
|
||||
Income before income taxes
|
|
16,866
|
|
|
10,468
|
|
|
27,474
|
|
|
20,040
|
|
||||
Tax provision (benefit)
|
|
4,483
|
|
|
1,335
|
|
|
7,612
|
|
|
(7,046
|
)
|
||||
Net income
|
|
$
|
12,383
|
|
|
$
|
9,133
|
|
|
$
|
19,862
|
|
|
$
|
27,086
|
|
Basic net earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
|
$
|
0.42
|
|
|
$
|
0.58
|
|
Diluted net earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.19
|
|
|
$
|
0.42
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
47,189
|
|
|
46,752
|
|
|
47,118
|
|
|
46,701
|
|
||||
Diluted
|
|
47,705
|
|
|
47,447
|
|
|
47,696
|
|
|
47,538
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Comprehensive income:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
12,383
|
|
|
$
|
9,133
|
|
|
$
|
19,862
|
|
|
$
|
27,086
|
|
Foreign currency translation adjustments
|
|
205
|
|
|
22
|
|
|
(157
|
)
|
|
(56
|
)
|
||||
Pension benefit plan, net of tax
|
|
(15
|
)
|
|
10
|
|
|
(30
|
)
|
|
40
|
|
||||
Total other comprehensive income, net of tax
|
|
190
|
|
|
32
|
|
|
(187
|
)
|
|
(16
|
)
|
||||
Total comprehensive income
|
|
$
|
12,573
|
|
|
$
|
9,165
|
|
|
$
|
19,675
|
|
|
$
|
27,070
|
|
|
Six Months Ended
December 31, |
||||||
|
2018
|
|
2017
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
19,862
|
|
|
$
|
27,086
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization expense
|
23,254
|
|
|
18,939
|
|
||
Stock-based compensation expense
|
9,963
|
|
|
9,448
|
|
||
Benefit for deferred income taxes
|
(1,943
|
)
|
|
(4,833
|
)
|
||
Other non-cash items
|
2,144
|
|
|
847
|
|
||
Changes in operating assets and liabilities, net of effects of businesses acquired:
|
|
|
|
||||
Accounts receivable, unbilled receivables, and costs in excess of billings
|
(20,845
|
)
|
|
(9,181
|
)
|
||
Inventory
|
(9,422
|
)
|
|
(22,455
|
)
|
||
Prepaid income taxes
|
2,995
|
|
|
1,414
|
|
||
Prepaid expenses and other current assets
|
(340
|
)
|
|
(1,970
|
)
|
||
Other non-current assets
|
118
|
|
|
(2,507
|
)
|
||
Accounts payable, accrued expenses, and accrued compensation
|
7,215
|
|
|
11,597
|
|
||
Deferred revenues and customer advances
|
9,480
|
|
|
1,976
|
|
||
Income taxes payable
|
1,872
|
|
|
(11,284
|
)
|
||
Other non-current liabilities
|
977
|
|
|
(2,270
|
)
|
||
Net cash provided by operating activities
|
45,330
|
|
|
16,807
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Acquisition of business, net of cash acquired
|
(45,029
|
)
|
|
(5,798
|
)
|
||
Purchases of property and equipment
|
(10,802
|
)
|
|
(7,592
|
)
|
||
Other investing activities
|
—
|
|
|
(375
|
)
|
||
Net cash used in investing activities
|
(55,831
|
)
|
|
(13,765
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from employee stock plans
|
1,677
|
|
|
2,049
|
|
||
Borrowings under credit facilities
|
45,000
|
|
|
15,000
|
|
||
Payments under credit facilities
|
—
|
|
|
(15,000
|
)
|
||
Payments for retirement of common stock
|
(6,932
|
)
|
|
(14,909
|
)
|
||
Payments of deferred financing and offering costs
|
(1,851
|
)
|
|
—
|
|
||
Net cash provided by (used in) financing activities
|
37,894
|
|
|
(12,860
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(11
|
)
|
|
216
|
|
||
Net increase (decrease) in cash and cash equivalents
|
27,382
|
|
|
(9,602
|
)
|
||
Cash and cash equivalents at beginning of period
|
66,521
|
|
|
41,637
|
|
||
Cash and cash equivalents at end of period
|
$
|
93,903
|
|
|
$
|
32,035
|
|
Cash paid during the period for:
|
|
|
|
||||
Interest
|
$
|
5,648
|
|
|
$
|
111
|
|
Income taxes
|
$
|
4,308
|
|
|
$
|
9,928
|
|
A.
|
Description of Business
|
B.
|
Summary of Significant Accounting Policies
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Basic weighted-average shares outstanding
|
47,189
|
|
|
46,752
|
|
|
47,118
|
|
|
46,701
|
|
Effect of dilutive equity instruments
|
516
|
|
|
695
|
|
|
578
|
|
|
837
|
|
Diluted weighted-average shares outstanding
|
47,705
|
|
|
47,447
|
|
|
47,696
|
|
|
47,538
|
|
|
Amounts
|
||
Consideration transferred
|
|
|
|
Cash paid at closing
|
$
|
46,973
|
|
Working capital and net debt adjustment
|
(1,244
|
)
|
|
Less cash acquired
|
(193
|
)
|
|
Net purchase price
|
$
|
45,536
|
|
|
|
|
|
Estimated fair value of tangible assets acquired and liabilities assumed
|
|
|
|
Cash
|
$
|
193
|
|
Accounts receivable
|
4,277
|
|
|
Inventory
|
8,575
|
|
|
Fixed assets
|
867
|
|
|
Other current and non-current assets
|
596
|
|
|
Accounts payable
|
(3,146
|
)
|
|
Accrued expenses
|
(1,229
|
)
|
|
Other current and non-current liabilities
|
(232
|
)
|
|
Estimated fair value of net tangible assets acquired
|
9,901
|
|
|
Estimated fair value of identifiable intangible assets
|
12,910
|
|
|
Estimated goodwill
|
22,918
|
|
|
Estimated fair value of net assets acquired
|
45,729
|
|
|
Less cash acquired
|
(193
|
)
|
|
Net purchase price
|
$
|
45,536
|
|
|
Amounts
|
||
Consideration transferred
|
|
||
Cash paid at closing
|
$
|
187,089
|
|
Working capital and net debt adjustment
|
(1,274
|
)
|
|
Less cash acquired
|
(6,810
|
)
|
|
Net purchase price
|
$
|
179,005
|
|
|
|
||
Estimated fair value of tangible assets acquired and liabilities assumed
|
|
||
Cash
|
$
|
6,810
|
|
Accounts receivable
|
7,713
|
|
|
Inventory
|
7,333
|
|
|
Fixed assets
|
479
|
|
|
Other current and non-current assets
|
2,896
|
|
|
Accounts payable
|
(3,287
|
)
|
|
Accrued expenses
|
(4,672
|
)
|
|
Other current and non-current liabilities
|
(1,210
|
)
|
|
Deferred tax liability
|
(14,115
|
)
|
|
Estimated fair value of net tangible assets acquired
|
1,947
|
|
|
Estimated fair value of identifiable intangible assets
|
71,720
|
|
|
Estimated goodwill
|
112,148
|
|
|
Estimated fair value of net assets acquired
|
185,815
|
|
|
Less cash acquired
|
(6,810
|
)
|
|
Net purchase price
|
$
|
179,005
|
|
|
|
Fair Value Measurements
|
||||||||||||||
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Certificates of deposit
|
|
$
|
31,153
|
|
|
$
|
—
|
|
|
$
|
31,153
|
|
|
$
|
—
|
|
Total
|
|
$
|
31,153
|
|
|
$
|
—
|
|
|
$
|
31,153
|
|
|
$
|
—
|
|
E.
|
Inventory
|
|
|
December 31, 2018
|
|
June 30, 2018
|
||||
Raw materials
|
|
$
|
79,771
|
|
|
$
|
61,748
|
|
Work in process
|
|
34,240
|
|
|
30,841
|
|
||
Finished goods
|
|
12,391
|
|
|
15,996
|
|
||
Total
|
|
$
|
126,402
|
|
|
$
|
108,585
|
|
F.
|
Goodwill
|
|
|
SMP
|
|
AMS
|
|
MDS
|
|
Total
|
||||||||
Balance at June 30, 2018
|
|
$
|
119,560
|
|
|
$
|
218,147
|
|
|
$
|
159,735
|
|
|
$
|
497,442
|
|
Goodwill adjustment for the Themis acquisition
|
|
—
|
|
|
—
|
|
|
(700
|
)
|
|
(700
|
)
|
||||
Goodwill arising from the Germane acquisition
|
|
—
|
|
|
—
|
|
|
22,918
|
|
|
22,918
|
|
||||
Balance at December 31, 2018
|
|
$
|
119,560
|
|
|
$
|
218,147
|
|
|
$
|
181,953
|
|
|
$
|
519,660
|
|
G.
|
Restructuring
|
|
|
Severance &
Related |
|
Facilities
& Other |
|
Total
|
||||||
Restructuring liability at June 30, 2018
|
|
$
|
1,801
|
|
|
$
|
—
|
|
|
$
|
1,801
|
|
Restructuring and other charges
|
|
525
|
|
|
18
|
|
|
543
|
|
|||
Cash paid
|
|
(2,068
|
)
|
|
(2
|
)
|
|
(2,070
|
)
|
|||
Reversals(*)
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
|||
Restructuring liability at December 31, 2018
|
|
$
|
258
|
|
|
$
|
—
|
|
|
$
|
258
|
|
H.
|
Income Taxes
|
I.
|
Debt
|
J.
|
Employee Benefit Plan
|
K.
|
Stock-Based Compensation
|
|
|
Options Outstanding
|
|||||||
|
|
Number of
Shares |
|
Weighted Average
Exercise Price |
|
Weighted Average
Remaining Contractual Term (Years) |
|||
Outstanding at June 30, 2018
|
|
4
|
|
|
$
|
5.52
|
|
|
3.13
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
Canceled
|
|
—
|
|
|
—
|
|
|
|
|
Outstanding at December 31, 2018
|
|
4
|
|
|
$
|
5.52
|
|
|
2.63
|
|
|
Non-vested Restricted Stock Awards
|
|||||
|
|
Number of
Shares |
|
Weighted Average
Grant Date Fair Value |
|||
Outstanding at June 30, 2018
|
|
1,135
|
|
|
$
|
27.26
|
|
Granted
|
|
386
|
|
|
49.15
|
|
|
Vested
|
|
(414
|
)
|
|
49.17
|
|
|
Forfeited
|
|
(49
|
)
|
|
33.32
|
|
|
Outstanding at December 31, 2018
|
|
1,058
|
|
|
$
|
38.95
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Cost of revenues
|
$
|
159
|
|
|
$
|
47
|
|
|
$
|
411
|
|
|
$
|
195
|
|
Selling, general and administrative
|
4,542
|
|
|
4,270
|
|
|
8,426
|
|
|
8,246
|
|
||||
Research and development
|
583
|
|
|
510
|
|
|
1,126
|
|
|
1,007
|
|
||||
Stock-based compensation expense before tax
|
5,284
|
|
|
4,827
|
|
|
9,963
|
|
|
9,448
|
|
||||
Income taxes
|
(1,427
|
)
|
|
(1,593
|
)
|
|
(2,690
|
)
|
|
(3,118
|
)
|
||||
Stock-based compensation expense, net of income taxes
|
$
|
3,857
|
|
|
$
|
3,234
|
|
|
$
|
7,273
|
|
|
$
|
6,330
|
|
L.
|
Operating Segment, Geographic Information and Significant Customers
|
|
|
U.S.
|
|
Europe
|
|
Asia Pacific
|
|
Eliminations
|
|
Total
|
||||||||||
THREE MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenues to unaffiliated customers
|
|
$
|
145,669
|
|
|
$
|
13,200
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
159,089
|
|
Inter-geographic revenues
|
|
803
|
|
|
345
|
|
|
—
|
|
|
(1,148
|
)
|
|
—
|
|
|||||
Net revenues
|
|
$
|
146,472
|
|
|
$
|
13,545
|
|
|
$
|
220
|
|
|
$
|
(1,148
|
)
|
|
$
|
159,089
|
|
THREE MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenues to unaffiliated customers
|
|
$
|
105,687
|
|
|
$
|
9,417
|
|
|
$
|
2,808
|
|
|
$
|
—
|
|
|
$
|
117,912
|
|
Inter-geographic revenues
|
|
3,169
|
|
|
43
|
|
|
—
|
|
|
(3,212
|
)
|
|
—
|
|
|||||
Net revenues
|
|
$
|
108,856
|
|
|
$
|
9,460
|
|
|
$
|
2,808
|
|
|
$
|
(3,212
|
)
|
|
$
|
117,912
|
|
SIX MONTHS ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenues to unaffiliated customers
|
|
$
|
277,018
|
|
|
$
|
24,638
|
|
|
$
|
1,489
|
|
|
$
|
—
|
|
|
$
|
303,145
|
|
Inter-geographic revenues
|
|
2,450
|
|
|
703
|
|
|
—
|
|
|
(3,153
|
)
|
|
—
|
|
|||||
Net revenues
|
|
$
|
279,468
|
|
|
$
|
25,341
|
|
|
$
|
1,489
|
|
|
$
|
(3,153
|
)
|
|
$
|
303,145
|
|
SIX MONTHS ENDED DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenues to unaffiliated customers
|
|
$
|
203,402
|
|
|
$
|
16,895
|
|
|
$
|
3,684
|
|
|
$
|
—
|
|
|
$
|
223,981
|
|
Inter-geographic revenues
|
|
4,916
|
|
|
65
|
|
|
—
|
|
|
(4,981
|
)
|
|
—
|
|
|||||
Net revenues
|
|
$
|
208,318
|
|
|
$
|
16,960
|
|
|
$
|
3,684
|
|
|
$
|
(4,981
|
)
|
|
$
|
223,981
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Domestic (1)
|
|
$
|
142,906
|
|
|
$
|
89,969
|
|
|
$
|
273,485
|
|
|
$
|
179,647
|
|
International/Foreign Military Sales (2)
|
|
16,183
|
|
|
27,943
|
|
|
29,660
|
|
|
44,334
|
|
||||
Total Net Revenue
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Radar (1)
|
|
$
|
42,008
|
|
|
$
|
44,678
|
|
|
$
|
82,987
|
|
|
$
|
81,218
|
|
Electronic Warfare (2)
|
|
25,697
|
|
|
29,411
|
|
|
49,751
|
|
|
57,419
|
|
||||
Other Sensor & Effector (3)
|
|
21,455
|
|
|
10,992
|
|
|
35,113
|
|
|
20,741
|
|
||||
Total Sensor & Effector
|
|
89,160
|
|
|
85,081
|
|
|
167,851
|
|
|
159,378
|
|
||||
C4I (4)
|
|
47,276
|
|
|
13,562
|
|
|
91,500
|
|
|
26,388
|
|
||||
Other (5)
|
|
22,653
|
|
|
19,269
|
|
|
43,794
|
|
|
38,215
|
|
||||
Total Net Revenue
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Components (1)
|
|
$
|
40,914
|
|
|
$
|
39,908
|
|
|
$
|
81,314
|
|
|
$
|
72,720
|
|
Modules and Sub-assemblies (2)
|
|
42,397
|
|
|
41,728
|
|
|
93,989
|
|
|
89,460
|
|
||||
Integrated Subsystems (3)
|
|
75,778
|
|
|
36,276
|
|
|
127,842
|
|
|
61,801
|
|
||||
Total Net Revenue
|
|
$
|
159,089
|
|
|
$
|
117,912
|
|
|
$
|
303,145
|
|
|
$
|
223,981
|
|
|
|
U.S.
|
|
Europe
|
|
Asia Pacific
|
|
Eliminations
|
|
Total
|
||||||||||
December 31, 2018
|
|
$
|
48,872
|
|
|
$
|
4,241
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
53,130
|
|
June 30, 2018
|
|
$
|
47,997
|
|
|
$
|
2,974
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
50,980
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Raytheon Company
|
|
25
|
%
|
|
17
|
%
|
|
22
|
%
|
|
19
|
%
|
Lockheed Martin Corporation
|
|
13
|
%
|
|
20
|
%
|
|
11
|
%
|
|
19
|
%
|
Northrop Grumman Corporation
|
|
*
|
|
|
12
|
%
|
|
*
|
|
|
11
|
%
|
|
|
38
|
%
|
|
49
|
%
|
|
33
|
%
|
|
49
|
%
|
*
|
Indicates that the amount is less than 10% of the Company’s revenues for the respective period.
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
F-35
|
|
11
|
%
|
|
*
|
|
|
11
|
%
|
|
*
|
|
|
|
11
|
%
|
|
—
|
%
|
|
11
|
%
|
|
—
|
%
|
*
|
Indicates that the amount is less than 10% of the Company’s revenues for the respective period.
|
M.
|
Commitments and Contingencies
|
N.
|
Subsequent Events
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
(In thousands)
|
|
December 31, 2018
|
|
As a % of
Total Net Revenue |
|
December 31, 2017
|
|
As a % of
Total Net Revenue |
||||||
Net revenues
|
|
$
|
159,089
|
|
|
100.0
|
%
|
|
$
|
117,912
|
|
|
100.0
|
%
|
Cost of revenues
|
|
88,202
|
|
|
55.4
|
|
|
63,752
|
|
|
54.1
|
|
||
Gross margin
|
|
70,887
|
|
|
44.6
|
|
|
54,160
|
|
|
45.9
|
|
||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||
Selling, general and administrative
|
|
27,819
|
|
|
17.5
|
|
|
21,222
|
|
|
18.0
|
|
||
Research and development
|
|
16,192
|
|
|
10.2
|
|
|
15,187
|
|
|
12.9
|
|
||
Amortization of intangible assets
|
|
6,939
|
|
|
4.4
|
|
|
5,827
|
|
|
4.9
|
|
||
Restructuring and other charges
|
|
23
|
|
|
—
|
|
|
313
|
|
|
0.3
|
|
||
Acquisition costs and other related expenses
|
|
53
|
|
|
—
|
|
|
723
|
|
|
0.6
|
|
||
Total operating expenses
|
|
51,026
|
|
|
32.1
|
|
|
43,272
|
|
|
36.7
|
|
||
Income from operations
|
|
19,861
|
|
|
12.5
|
|
|
10,888
|
|
|
9.2
|
|
||
Interest income
|
|
71
|
|
|
—
|
|
|
3
|
|
|
—
|
|
||
Interest expense
|
|
(2,196
|
)
|
|
(1.4
|
)
|
|
(107
|
)
|
|
(0.1
|
)
|
||
Other expense, net
|
|
(870
|
)
|
|
(0.5
|
)
|
|
(316
|
)
|
|
(0.3
|
)
|
||
Income before income taxes
|
|
16,866
|
|
|
10.6
|
|
|
10,468
|
|
|
8.8
|
|
||
Tax provision
|
|
4,483
|
|
|
2.8
|
|
|
1,335
|
|
|
1.1
|
|
||
Net income
|
|
$
|
12,383
|
|
|
7.8
|
%
|
|
$
|
9,133
|
|
|
7.7
|
%
|
(In thousands)
|
|
December 31, 2018
|
|
As a % of
Total Net Revenue |
|
December 31, 2017
|
|
As a % of
Total Net Revenue |
||||||
Net revenues
|
|
$
|
303,145
|
|
|
100.0
|
%
|
|
$
|
223,981
|
|
|
100.0
|
%
|
Cost of revenues
|
|
170,675
|
|
|
56.3
|
|
|
119,147
|
|
|
53.2
|
|
||
Gross margin
|
|
132,470
|
|
|
43.7
|
|
|
104,834
|
|
|
46.8
|
|
||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||
Selling, general and administrative
|
|
52,560
|
|
|
17.3
|
|
|
41,790
|
|
|
18.7
|
|
||
Research and development
|
|
31,140
|
|
|
10.3
|
|
|
28,929
|
|
|
12.9
|
|
||
Amortization of intangible assets
|
|
14,120
|
|
|
4.7
|
|
|
11,464
|
|
|
5.1
|
|
||
Restructuring and other charges
|
|
527
|
|
|
0.2
|
|
|
408
|
|
|
0.2
|
|
||
Acquisition costs and other related expenses
|
|
452
|
|
|
0.1
|
|
|
984
|
|
|
0.4
|
|
||
Total operating expenses
|
|
98,799
|
|
|
32.6
|
|
|
83,575
|
|
|
37.3
|
|
||
Income from operations
|
|
33,671
|
|
|
11.1
|
|
|
21,259
|
|
|
9.5
|
|
||
Interest income
|
|
137
|
|
|
—
|
|
|
22
|
|
|
—
|
|
||
Interest expense
|
|
(4,455
|
)
|
|
(1.4
|
)
|
|
(110
|
)
|
|
—
|
|
||
Other expense, net
|
|
(1,879
|
)
|
|
(0.6
|
)
|
|
(1,131
|
)
|
|
(0.5
|
)
|
||
Income before income taxes
|
|
27,474
|
|
|
9.1
|
|
|
20,040
|
|
|
9.0
|
|
||
Tax provision (benefit)
|
|
7,612
|
|
|
2.5
|
|
|
(7,046
|
)
|
|
(3.1
|
)
|
||
Net income
|
|
$
|
19,862
|
|
|
6.6
|
%
|
|
$
|
27,086
|
|
|
12.1
|
%
|
•
|
the acquisition of other companies or businesses;
|
•
|
the repayment and refinancing of debt;
|
•
|
capital expenditures;
|
•
|
working capital; and
|
•
|
other purposes as described in the prospectus supplement.
|
|
|
As of and For the Six
Month Period Ended December 31, |
||||||
(In thousands)
|
|
2018
|
|
2017
|
||||
Net cash provided by operating activities
|
|
$
|
45,330
|
|
|
$
|
16,807
|
|
Net cash used in investing activities
|
|
$
|
(55,831
|
)
|
|
$
|
(13,765
|
)
|
Net cash provided by (used in) financing activities
|
|
$
|
37,894
|
|
|
$
|
(12,860
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
27,382
|
|
|
$
|
(9,602
|
)
|
Cash and cash equivalents at end of period
|
|
$
|
93,903
|
|
|
$
|
32,035
|
|
(In thousands)
|
|
Total
|
|
Less Than
1 Year |
|
1-3
Years |
|
3-5
Years |
|
More Than
5 Years |
||||||||||
Purchase obligations
|
|
$
|
68,695
|
|
|
$
|
68,695
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating leases
|
|
61,182
|
|
|
9,420
|
|
|
16,936
|
|
|
14,109
|
|
|
20,717
|
|
|||||
|
|
$
|
129,877
|
|
|
$
|
78,115
|
|
|
$
|
16,936
|
|
|
$
|
14,109
|
|
|
$
|
20,717
|
|
|
|
Three Months Ended
December 31, |
|
Six Months Ended
December 31, |
||||||||||||
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net income
|
|
$
|
12,383
|
|
|
$
|
9,133
|
|
|
$
|
19,862
|
|
|
$
|
27,086
|
|
Other non-operating adjustments, net (1)
|
|
(18
|
)
|
|
(326
|
)
|
|
347
|
|
|
(104
|
)
|
||||
Interest expense (income), net
|
|
2,125
|
|
|
104
|
|
|
4,318
|
|
|
88
|
|
||||
Income taxes
|
|
4,483
|
|
|
1,335
|
|
|
7,612
|
|
|
(7,046
|
)
|
||||
Depreciation
|
|
4,769
|
|
|
3,775
|
|
|
9,134
|
|
|
7,475
|
|
||||
Amortization of intangible assets
|
|
6,939
|
|
|
5,827
|
|
|
14,120
|
|
|
11,464
|
|
||||
Restructuring and other charges (2)
|
|
23
|
|
|
313
|
|
|
527
|
|
|
408
|
|
||||
Impairment of long-lived assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Acquisition and financing costs
|
|
762
|
|
|
1,366
|
|
|
1,805
|
|
|
2,220
|
|
||||
Fair value adjustments from purchase accounting (3)
|
|
—
|
|
|
84
|
|
|
620
|
|
|
593
|
|
||||
Litigation and settlement expense (income), net
|
|
179
|
|
|
—
|
|
|
179
|
|
|
—
|
|
||||
Stock-based and other non-cash compensation expense
|
|
5,338
|
|
|
4,941
|
|
|
10,081
|
|
|
9,637
|
|
||||
Adjusted EBITDA
|
|
$
|
36,983
|
|
|
$
|
26,552
|
|
|
$
|
68,605
|
|
|
$
|
51,821
|
|
|
|
Three Months Ended December 31,
|
||||||||||||||
(In thousands, except per share data)
|
|
2018
|
|
2017
|
||||||||||||
Net income and diluted earnings per share
|
|
$
|
12,383
|
|
|
$
|
0.26
|
|
|
$
|
9,133
|
|
|
$
|
0.19
|
|
Amortization of intangible assets
|
|
6,939
|
|
|
|
|
5,827
|
|
|
|
||||||
Restructuring and other charges (1)
|
|
23
|
|
|
|
|
313
|
|
|
|
||||||
Impairment of long-lived assets
|
|
—
|
|
|
|
|
—
|
|
|
|
||||||
Acquisition and financing costs
|
|
762
|
|
|
|
|
1,366
|
|
|
|
||||||
Fair value adjustments from purchase accounting (2)
|
|
—
|
|
|
|
|
84
|
|
|
|
||||||
Litigation and settlement expenses (income), net
|
|
179
|
|
|
|
|
—
|
|
|
|
||||||
Stock-based and other non-cash compensation expense
|
|
5,338
|
|
|
|
|
4,941
|
|
|
|
||||||
Impact to income taxes (3)
|
|
(3,009
|
)
|
|
|
|
(8,615
|
)
|
|
|
||||||
Adjusted income and adjusted earnings per share
|
|
$
|
22,615
|
|
|
$
|
0.47
|
|
|
$
|
13,049
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted weighted-average shares outstanding
|
|
|
|
47,705
|
|
|
|
|
47,447
|
|
|
|
Six Months Ended
December 31, |
||||||||||||||
(In thousands, except per share data)
|
|
2018
|
|
2017
|
||||||||||||
Net income and diluted earnings per share
|
|
$
|
19,862
|
|
|
$
|
0.42
|
|
|
$
|
27,086
|
|
|
$
|
0.57
|
|
Amortization of intangible assets
|
|
14,120
|
|
|
|
|
11,464
|
|
|
|
||||||
Restructuring and other charges (1)
|
|
527
|
|
|
|
|
408
|
|
|
|
||||||
Impairment of long-lived assets
|
|
—
|
|
|
|
|
—
|
|
|
|
||||||
Acquisition and financing costs
|
|
1,805
|
|
|
|
|
2,220
|
|
|
|
||||||
Fair value adjustments from purchase accounting (2)
|
|
620
|
|
|
|
|
593
|
|
|
|
||||||
Litigation and settlement expenses (income), net
|
|
179
|
|
|
|
|
—
|
|
|
|
||||||
Stock-based and other non-cash compensation expense
|
|
10,081
|
|
|
|
|
9,637
|
|
|
|
||||||
Impact to income taxes (3)
|
|
(6,082
|
)
|
|
|
|
(20,566
|
)
|
|
|
||||||
Adjusted income and adjusted earnings per share
|
|
$
|
41,112
|
|
|
$
|
0.86
|
|
|
$
|
30,842
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted weighted-average shares outstanding
|
|
|
|
47,696
|
|
|
|
|
47,538
|
|
|
|
Three Months Ended
December 31, |
|
Six Months Ended
December 31, |
||||||||||||
(In thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Cash provided by operating activities
|
|
$
|
25,301
|
|
|
$
|
8,779
|
|
|
$
|
45,330
|
|
|
$
|
16,807
|
|
Purchase of property and equipment
|
|
(7,075
|
)
|
|
(3,964
|
)
|
|
(10,802
|
)
|
|
(7,592
|
)
|
||||
Free cash flow
|
|
$
|
18,226
|
|
|
$
|
4,815
|
|
|
$
|
34,528
|
|
|
$
|
9,215
|
|
(In thousands)
|
|
December 31, 2018
|
|
As a % of
Total Net Revenue |
|
December 31, 2017
|
|
As a % of
Total Net Revenue |
|
$ Change
|
|
% Change
|
|||||||||
Organic revenue
|
|
$
|
130,326
|
|
|
82
|
%
|
|
$
|
117,912
|
|
|
100
|
%
|
|
$
|
12,414
|
|
|
11
|
%
|
Acquired revenue
|
|
28,763
|
|
|
18
|
%
|
|
—
|
|
|
—
|
%
|
|
28,763
|
|
|
100
|
%
|
|||
Total revenues
|
|
$
|
159,089
|
|
|
100
|
%
|
|
$
|
117,912
|
|
|
100
|
%
|
|
$
|
41,177
|
|
|
35
|
%
|
(In thousands)
|
|
December 31, 2018
|
|
As a % of
Total Net Revenue |
|
December 31, 2017
|
|
As a % of
Total Net Revenue |
|
$ Change
|
|
% Change
|
|||||||||
Organic revenue
|
|
$
|
243,127
|
|
|
80
|
%
|
|
$
|
223,981
|
|
|
100
|
%
|
|
$
|
19,146
|
|
|
9
|
%
|
Acquired revenue
|
|
60,018
|
|
|
20
|
%
|
|
—
|
|
|
—
|
%
|
|
60,018
|
|
|
100
|
%
|
|||
Total revenues
|
|
$
|
303,145
|
|
|
100
|
%
|
|
$
|
223,981
|
|
|
100
|
%
|
|
$
|
79,164
|
|
|
35
|
%
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 6.
|
EXHIBITS
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
101
|
|
The following materials from the Company’s Quarterly Report on the Form 10-Q for the quarter ended December 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) notes to the Consolidated Financial Statements
|
+
|
Furnished herewith. This certificate shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
|
MERCURY SYSTEMS, INC.
|
||
|
|
|
By:
|
|
/
S
/ M
ICHAEL
D. R
UPPERT
|
|
|
Michael D. Ruppert
|
|
|
Executive Vice President,
|
|
|
Chief Financial Officer, and Treasurer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Mercury Systems, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/
S
/ M
ARK
A
SLETT
|
Mark Aslett
|
PRESIDENT AND CHIEF EXECUTIVE OFFICER
[PRINCIPAL EXECUTIVE OFFICER]
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Mercury Systems, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/
S
/ M
ICHAEL
D. R
UPPERT
|
Michael D. Ruppert
|
EXECUTIVE VICE PRESIDENT,
|
CHIEF FINANCIAL OFFICER, AND TREASURER
|
[PRINCIPAL FINANCIAL OFFICER]
|
/
S
/ M
ARK
A
SLETT
|
Mark Aslett
|
PRESIDENT AND CHIEF EXECUTIVE OFFICER
|
|
/
S
/ M
ICHAEL
D. R
UPPERT
|
Michael D. Ruppert
|
EXECUTIVE VICE PRESIDENT,
|
CHIEF FINANCIAL OFFICER, AND TREASURER
|