Mercury Systems Inc (MRCY) 2005 Q2 法說會逐字稿

Good day, and welcome, everyone, to the Mercury Computers Systems, Incorporated's Second Quarter Fiscal 2005 Earnings Results Conference Call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Ms. Diane Basile.

Please go ahead, ma'am.

Good morning, everyone, and welcome to the Mercury Computer Systems' Second Quarter 2005 Earnings Conference Call.

If you've not received a copy of the earnings release, you can find it on our website, www.mc.com, or on the First Call network.

We'd like to remind you that remarks that we may make during this call about future expectations, trends, and plans for the Company and its business constitute forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected [indiscernible].

For a discussion of these risks and uncertainties, we refer you to the Company's reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-Q for the quarter ended September 30, 2004.

Further information regarding forward-looking statements and risk factors is included in the press release we issued this morning reporting the Company's second quarter 2005 results.

Be cautioned, listeners of today's conference call, not to place undue reliance upon any forward-looking statements; we speak only as of the date of this call.

We undertake no obligation to update any forward-looking statements.

I'm now pleased to turn the call over to Mercury's President and Chief Executive Officer, Jay Bertelli.

Good morning, everyone.

As you may have read in our earnings release, Mercury's pleased to announce its 56th consecutive quarter of profitability.

This quarter was also the highest reported quarterly revenues in our history, edging out the fourth quarter of fiscal '04 for the honor.

We experienced solid growth in each of our business areas -- Defense Electronics, Imaging and Visualization Solutions, and our OEM Solutions Group, and we're off to a solid start in our newest business unit, Momentum Computer.

Operating income of 9.3m was 15.7 percent of revenues.

Earnings per share of 29 cents exceeded the top end of our guidance by a penny.

And cash flow from operating activities was strong at 8.3m for the second quarter.

Cash and cash equivalents were 222.7m at the end of the quarter.

Continuing our strategy of open innovation, in December, we announced the acquisition of Momentum Computer.

This marked our third acquisition of the past 9 months and is further evidence of our continuing commitment to deliver solutions and services that enable customers' success.

As you are aware, there has been much speculation in the press recently surrounding the defense budget and specific program investments.

I will speak to our position regarding this topic in more detail later in the call.

At this time, I'd like to turn the call over to our Chief Financial Officer, Bob Hult, to provide details to this quarter's results.

Thank you, Jay.

Good morning to everyone.

As you heard from Jay, the second quarter results were very strong.

We continued to evidence top-line growth, reporting the strongest-ever quarterly revenue results in our Company's history.

This morning, I will review revenue, including details by business unit, and then I will discuss Company operating performance, balance sheet, and cash flow results.

I will close out with a discussion regarding the outlook for the third fiscal quarter and the entire fiscal year.

Our objective today is to provide the business context and to review the assumptions behind our guidance as an aid to your own model development.

First, let me summarize total Company second quarter results as reported this morning.

Second quarter 2005 revenues were 59.3m.

This reflected growth of 46 percent over the prior year.

Operating income for the second quarter was 9.3m, or 15.7 percent of revenues.

Earnings per share for the second quarter were 29 cents, exceeding the top end of our previous guidance by one cent.

As we indicated on our first quarter earnings call, the earnings per share reflects the FASB ratified change in accounting treatment relative to the contingent convertible that we issued last year.

At this point, I would like to drill down into operating performance, beginning with revenue detail by business unit.

As you saw in our press release this morning, second quarter revenues were 59.3m.

Our Defense Electronics business unit reported revenue of 33.2m, or 56 percent of total revenues for the second quarter, a growth of approximately 20 percent over the same period last year.

Within our three application areas -- Radar, Signals Intelligence, and Defense Technologies -- the group experienced particular strength in Signals Intelligence and the Radar segment.

Our Imaging and Visualization Solutions business unit revenue for the second quarter were $15.2m, representing 25 percent of total revenue and up 105 percent from the same quarter last year.

This includes a $2m contribution of the acquired TGS business.

During the second quarter, within our application areas -- Medical Imaging, Biotechnology, and Geosciences -- the group experienced particular strength in Medical Imaging.

Our OEM Solutions business unit, second quarter revenues were $10.4m, or 18 percent of total revenues, up nearly 2X from the same quarter last year.

Growth was primarily driven by applications serving the semiconductor industry, which accounted for approximately 78 percent of the OEM Solutions' revenues.

And our recently acquired Momentum Computer Business unit delivered 1 percent of revenues, or $500,000, for the period that it was part of our Company, approximately one month.

Momentum is a developer of high-performance single-board computers for application areas, including telecommunications, defense, medical, and other commercial markets.

Total Company backlog at the end of the second quarter was $102m.

This was up 19m from the beginning of the quarter.

Of the ending backlog, 91.4m, or about 90 percent, relates to orders expected to ship within the next 12 months.

Gross margin was 65.9 percent for the quarter, consistent with the mix of business by segment reported for the quarter.

Total operating expenses were 29.8m for the quarter, including 500K of expenses related to the acquisition of Momentum.

Within operating expenses, selling, general, and administrative expenses were 18.5m for the quarter; research and development were 11.3m for the quarter; amortization of intangibles related to acquisitions was approximately $600,000 for the quarter.

Operating income of 9.3m represented 15.7 percent of revenues for the quarter.

As anticipated as a result of the reinstatement of the U.S. federal [R&E][ph] credit, our second quarter tax rate of 26.7 percent corrects the year-to-date tax rate to 30 percent.

Net income of 6.8m was 11.5 percent of revenue.

I'd like to move now to the balance sheet, cash flow.

Turning to the balance sheet, operating cash flow was 8.3m in the quarter.

Operating cash flow was comprised of 6.8m of net income, 2.8m of depreciation and amortization, a 1.3m net increase to working capital and other non-cash items.

Second quarter day sales outstanding, DSOs, were 51.

Inventory turns were 5.1 for the quarter, which was below our expectations.

We continue to work our supply chain efficiencies and expect to implement process improvements which will allow us to increase our turn to our stated objective of 8 times.

Capital expenditures were 2.9m for the quarter.

Cash and marketable securities were 223m at the end of the quarter.

Total employee population came in at 705, including 30 Momentum employees, which were added via the acquisition.

As part of the previously authorized share repurchase program, during the quarter, the Company repurchased 300,000 shares for approximately $8.8m, or an average price of 29.

We expect to continue to utilize our stock repurchase program to purchase shares to offset dilution from our employee stock option and purchase plan.

We currently have $8.4m available for future stock repurchases.

I'd like to move to the full year 2005 outlook.

I'll first go through the third quarter guidance and then hit the full year.

We expect the third quarter revenues for 2005 to be in the range of between 62 and 64m.

At this level, the Company is again projecting the largest revenue quarter in its history, having just reported its strongest three revenue quarters.

Based on this projected mix of business, we expect gross margin will approximate 66 percent.

For the third quarter, we're projecting operating expenses of $31m and third quarter operating profits are projected in the range of 16 to 17 percent.

Tax rate for the third quarter and the year is expected to remain at the year-to-date rate of 30 percent.

Our earnings-per-share forecast for the remainder of the year incorporates the changes in FASB accounting treatment relative to the contingent convertible debt offering, which took effect with our second quarter reporting period ended December 31, 2004.

Quickly, to review the procedure, the impact of this new accounting treatment for contingent convertibles, which is essentially the equivalent of the as-if-converted method, is to first adjust net income by adding back interest expense for the convertible debenture and the amortization of debt issuing costs net of taxes and then to increase the total shares outstanding by converting to debt to equivalent shares at the conversion price.

For the third quarter, net income would be adjusted up by approximately $600,000, and shares outstanding would be increased by approximately 4.1m shares.

The resulting projection for earnings per share for Q3 would be in the range of 30 to 33 cents.

Full-year 2005 -- on the top line, we anticipate continued strength over the next two quarters, resulting in full-year revenue in the range of 240 to 245m.

By business unit, we projected full-year revenue mix as follows -- the Defense Electronics business unit will approximate 60 percent of revenue, the Imaging and Visualization Solutions business unit will approximate 20 percent, and OEM Solutions business unit will approximate 20 percent of total revenues.

In total, this would represent a mix of approximately 60 percent defense/40 percent commercial applications.

Moving to the P&L, we anticipate FY '05 gross margin to be approximately 66 percent.

Mercury remains committed to our continuing investment in R&D, and we expect that R&D will remain with our historical -- within our historical level of approximately 20 to 21 percent of revenue.

At these levels, we expect that operating margin should approximate 17 percent for full year 2005.

As I discussed, we anticipate a 30-percent annualized tax rate for the full year.

On a full-year basis, we estimate earnings per share in the range of $1.18 to $1.21.

In terms of working capital, we continue to drive for improvements in our DSO to 45 days and our inventory turns at 8 times, understanding that there is still more work to be done in both of these areas.

CapEx for 2005 is projected to be approximately 8m compared to 6m spent in 04.

Depreciation and amortization will be approximately 10 to $11b due to the increase in amortization from intangible assets.

In summary, for the full year, we project revenue in the range of 240 to 245m, or approximately 30-percent growth over fiscal 2004.

We project gross margins of 66 percent and operating expenses decreased slightly throughout the balance of the year, resulting in our full-year guidance for operating profit of 17 percent.

In summary, our balance sheet is strong, we have the cash reserves to support our strategic growth initiative, and we are well positioned to drive our top-line at 25 percent or better on a long-term, sustained pace. [Indiscernible] to the past three quarters again demonstrated the Mercury capability to turn revenue into profit.

We remain focused on leveraging this skill set, and we are committed to maintaining appropriate levels of spending relative to growth projections.

At this point, I'd like to turn the call back over to Jay for his finishing comments and additional context regarding our business outlook.

Thank you.

Thanks, Bob.

Over the past several quarters, we reported to you on our work to position Mercury for significant growth.

A solid example of this is our acquisition of Momentum Computer.

Momentum has been a supplier to Mercury's commercial businesses and has expertise in the design and delivery of application-specific high-performance compute and I/O boards for industries requiring custom solutions.

With Momentum, we are better able to deliver a broader selection of products at varying price performance points to satisfy a broader range of customer requirements.

In other words, increase our share of market size by pursuing entry-level opportunities and to go after new markets with performance price points we could not address previously.

Mercury's collaboration with Momentum led to the recent introductions of the XR9 and XRi computing and visualization systems and more recently the Mercury XB Series, Clustered Systems and Servers, all of which have leveraged Momentum's rapid response delivery capability.

The XB series, a scalable, heterogeneous multiprocessor, is designed for applications in medical diagnostic imaging, geosciences, and visualization/simulation of markets.

Over the course of the second quarter, we introduced and demonstrated at the RSNA, which is the Radiological Society of North America, Conference our portfolio of advanced 3D imaging software and hardware components for life science OEMs, including the XB Series.

Two of these offerings include VisageRT, a software library for accelerated, embedded reconstruction, and visualization of medical image data, and ExamineRT, a family of turnkey workstation and server applications that builds upon the Viisage RT library to optimize clinical work flow.

These embedded solutions deliver increased performance and enhanced image quality for critical applications that include diagnostic and interventional imaging, picture archiving communication systems, or PACS, and biotech.

An important facet in our innovation strategy is our alliance with leading suppliers in Imaging and Visualization Solutions.

As part of our Life Sciences portfolio rollout, we announced our strategic alliance with NVIDIA, a worldwide leader in graphics and digital media processors, to develop and deliver innovative image-processing solutions for the life sciences and geosciences markets.

We also announced our cooperation with Radin, R-A-D-I-N, GmbH, a producer of Web-based image information systems for medical imaging.

We'll expand Radin's product line with next-generation high-end 3D visualization modules or Web-based PACS.

Moreover, we shared results from our alliance with Ziehm Imaging, a provider of mobile CRM x-ray systems used for minimally invasive and interventional medical procedures.

Together, we improved acceleration and 3D medical imaging reconstruction by a factor of 40.

Both the Radin Group and Ziehm Imaging held demonstrations on the new and existing Mercury solutions at the RSNA conference.

In addition to these very impressive results, Mercury's embedded solution enables Ziehm to bring this innovative technology to clinics and hospitals in a timely manner and with greatly reduced engineering effort and risk, and it doesn't end there as we have begun development of the next generation of visualization solutions for their 3D CRM systems.

Our innovations in the imaging and visualization markets are testament to Mercury's integration expertise and industry-leading hardware and software.

We provide more of the total solution for our customers with off-the-shelf components and expert product and lifecycle management.

While in the second quarter we saw a strong pipeline of advanced 3D imaging solutions, we also enjoyed continued success in our defense area.

We were pleased to announce our selection by the Boeing Company to provide RF receivers for the development of the software radio wave forums for the Wideband Network Waveform Test Suite, which is part of the JPRS Cluster-1 testing program.

This DOD initiative is designed to provide voice, data, and video communications among U.S. and allied war fighters through software program or radio technology.

The tuners were developed at Mercury's RF Center of Excellence, which was formed following the acquisition of Advanced Radio Corporation in June of '04.

The contract for the RF tuner and synthesizer portions of the WMW Test Suite continues Mercury's involvement in the JTRS program, which began back in 2002 with a non-SETA consulting arrangement with the JTRS program office.

Our commitment to driving standards support and adoption is further evidenced by our making available the Mercury [Serial rep and I/O Silicon IP][ph], our intellectual property core.

The Mercury IP core is designed for compatibility with mainstream processors and optimized for embedded communications and network applications.

It is the latest in our succession of products incorporating [serial rep] and I/O technology.

Mercury is also investing a multiple VITA, V-I-t-a, specifications to address diverse customer needs in key defense market segments.

Our next-generation [V&E] roadmap includes VITA 41, or [VXS] systems, and VITA 46, or VPX systems, with the VITA 48 thermal management enhancements.

These systems are designed to address divergent requirements, from moderately benign environments to the harshest tactical and unmanned platforms.

With regards to our defense business, we remain confident in the continued growth and stability of our defense business.

The recent flurry of media speculation surrounding potential defense budget cuts is causing some investors to question our defense revenue guidance.

I would like to share a few words on that subject from respected defense industry analysts.

These are quotes.

From [Byron Kellum][ph], Merrill Lynch -- "Most of the impact of these changes could affect earnings at the end of this decade and into next.

Investors need to keep in mind that nothing is final until the President signs into law the FY '06 DOD budget later this year."

From [Howard Rubell][ph] at Jefferies -- "A reduction from prior budgets is, in fact, a cut in the growth rate, as opposed to a year-over-year decline in spending.

The emphasis on procurement spending appears to be driven to enhance reliability, [indiscernible], as well as to make sure that the engineering base remains strong."

Emphasis is mine.

[Miles Walton][ph] from CIBC -- "While clouds of uncertainty over potential budget cuts continue to pervade the defense space, this data point further supports our conviction that near-term spending remains strong.

We do believe outlay growth slows into 2005 but still in the mid- to high-single-digit range.

Moreover, the likely FY '05 supplemental budget coming in February could move that growth back to double digits."

From [Tivan Rumor][ph] at SG Cowen -- "DOD's priorities are, one, expand the army to deal with more/longer interventions; two, protect priority C4 ISR/Intel areas; and, three, allow some weapons growth despite cuts."

Mr. Wynn, the Undersecretary of Defense for Acquisition Technology and Logistics, cited, "C4 ISR is a priority area that will not be cut back."

Mercury participates in many ISR, or Intelligence Surveillance and Recognizance, programs, which are projected to be priority areas not subject to cuts, as confirmed by Mr. Wynn.

The strength of our backlog and our visibility into our customers' order patterns give us confidence in the near-term outlook, as we have guided.

Today, as the numbers demonstrate, I'm pleased to tell you that our efforts continue to demonstrate success.

As Bob outlined, we reported significant growth in each of our business areas -- Defense Electronics, Imaging and Visualization Solutions, and OEM Solutions -- and we're off to a strong start with our newest business unit, Momentum Computers.

So to sum up before we take your questions, management is pleased to report our 56th consecutive quarter of profit and the highest recorded quarter of revenue.

We are proud of this achievement and are well on our way to achieve our upwardly revised revenue guidance of 240 to 245m.

Our growth initiatives are demonstrating traction, and we feel confident in our growth strategy.

Our overall objective is to drive sustainable long-term revenue growth of 25 percent or better.

The New England Patriots -- go, you Patriots -- have their record-breaking 21 consecutive wins.

We have our 56 quarters of profit, with the last running quarter our strongest in terms of revenue, and we're not stopping there.

We're well on our way to continued growth in revenues, expansion in existing and emerging markets, and the strength in product and service offering.

And with that, we'll turn the call over for questions.

Thank you. [Caller instructions.]

Brian White, Kaufman.

Can you talk a little bit about some of the backlog trends?

This looks like the biggest sequential increase in backlog in quite a while.

It looks like total backlog is up something like 21 -- or 23 percent sequentially.

Can you discuss a little bit about where that's coming from?

Is it more from Defense?

Is it IVS, or is it the OEM Solutions Group?

It's Rob Hult here.

One thing I just want to point out is it was a -- as you point out, a large increase in our backlog certainly.

Our sense is that we're about where we expected to be at this point in the year, so things are going well.

Our backlog business is primarily our Defense Electronics group.

We are much less backlog-intensive in our IVS and OSG businesses, our commercial businesses, but we are running, also, with backlog there.

So I -- we love the backlog, and we like the visibility it gives us going forward, but I wouldn't take that backlog number and go to a place that is outside the guidance range that we've provided.

Okay, fair enough.

And, you know, if we look at the quarter, it looks like Defense grew about what I thought sequentially.

Looks like the IVS Group was much stronger than expected while the OEM Solutions Group was a little softer.

Can you talk, maybe dig down a little bit deeper, into some of the trends you saw in IVS and the OEM Solutions Group in the quarter?

Well, with IVS, it was primarily the way orders came in, some customers ordering at the end of the year, the last quarter of their fiscal year, in order to be able to meet their shipment requirements.

With the OEM Solutions Group, the order rate that we saw there was consistent with what we had expected, and so we're on track to accomplish what we believe we've put out there in terms of their growth for the year.

And do you think all three groups will grow sequentially in the March quarter?

Well, we've given you the guidance in terms of what we expect to see at the end of the year.

There could be some shifting around between the business units, showing different growth rates in Q4 -- or Q3 from Q2, but at the end of the year, look at the numbers that we're giving you there and use that to project your models.

Okay, thank you very much.

Mark Kelleher, Adams Harkness.

I was wondering if you could comment on the step-up in SG&A in the quarter.

Was that related to Momentum?

And what does that look like going forward?

Mark, you're talking about Q2 now, just to clarify, correct?

Right.

The step-up -- there's not much actually in there for Momentum.

I'm looking at Joe.

We've got a few hundred K in there.

That's all because we only had them for one month.

The step-up is primarily related to the R&D activities and hiring that we have generally across the other SG&A functions, so it's, I think, pretty much on track.

Okay, and how about the inventory step-up?

What's that related to?

The inventory -- well, I don't think I'd call the inventory step -- step-up, but there's an increase in inventory, so we've brought on a few million from Momentum, and we clearly have some more inventory here that relates to our traditional businesses.

Our turns decreased.

We were above six; now we're closer to five.

We've had some, what I would describe, as unusual order patterns.

We're continuing to get -- getting pushed very hard at the end of the quarter, so I think you step back from this thing, we've got to do a better job of working with our customers on the forecasts so we can smooth out these order SKUs, if you will, and that's probably what we've got to do, more emphasis on forecasting to calm the supply chain down.

All right.

And one last question.

Were there any 10-percent customers in the quarter?

Who do -- how do we have, Joe?

Two to three.

Two to three.

Two to three, like we always do, Mark.

Okay, thanks.

Bill Benton, William Blair.

Congratulations on the strong quarter and nice backlog growth there.

Just -- if you could maybe talk about -- I know you had the question on the increase in backlog and where it came from.

Did a significant portion of the incremental come from the IVS segment?

And I’m wondering if maybe specifically if the RFNA show, which -- I was there, obviously, and I saw a lot of activity around your booth -- if you could talk about whether that maybe aided the current quarter activity as well.

The activity level that you saw at the RSNA show, which was phenomenal, has not contributed to the backlog.

It's premature for us to -- for anybody to think that we're going to be able to close orders in one month.

Remember, that conference closed, I think it was, the first of December.

But there's a tremendous amount of activity, certainly, and when we look at the prospect list, there are names there that we've never seen before.

So we're really excited about the opportunities that IVS is presenting, and what was demonstrated at the show was a strong interest in our products, but that has not contributed at all to the backlog.

Okay, so the backlog is really more defense, as it has been historically.

The increase would be similar?

Yes.

[Inaudible].

Bill, it's Bob just jumping in here.

One thing on this backlog, if you go back and look at Q1, we actually had a book to bill of less than 1.

Right.

And I want to call people's attention to that because, you know, here we are, mid-year.

We've just finished the quarter with a book to bill significantly above 1, but that puts us on track for the full year.

And I know I said that earlier in the call, but I think it's appropriate to reinforce it.

Okay.

You know, I suspected that -- I guess it puts you on track with your higher guidance number so -- as well.

Is that a fair assessment?

Puts us on track with the current guidance, the updated guidance, absolutely.

Okay.

Could you talk -- I know you got the question on the SG&A.

But R&D has dropped, I guess, for a couple quarters in a row, and I know you expect it to be 20 percent for the year.

Is there anything, I guess, happening in that line that -- obviously, all we see is the number there.

I'm just curious what may be happening behind the number there.

Well, one of the things that happens is that, you know, not all of our R&D expenses are based upon the headcount in engineering.

We have outside project expenses, which are some considerable sums of money, if you will, hundreds of thousands of dollars, that don't always come in as planned in dealing with the outside suppliers.

And so some of those expenses tend to move between quarters.

Okay.

Yeah, a little more context, Bill.

Looking back now at 2004, we ran the first three quarters of 2004 at approximately 9m a quarter R&D.

Right.

I know you stepped up.

Yup, stepped up to 12 in the fourth quarter.

Yeah.

So a lot of projects, programs being concluded there.

And then in -- now here in Q1 and Q2, we've been in the mid-11s.

So --

Okay, but --

There has -- there has -- you know, this year, one view is the last 3 quarters have been 2 or 3 million higher than the previous 3.

So we're running at a higher investment level in the R&D line, and we're expecting to see that increase further in H2 of '05.

Okay.

And then if you could just maybe talk about the Momentum acquisition thus far and maybe just your thoughts on the ability to hasten your pace and -- I know it's one of the new markets you've been looking at.

I'm not sure I understand what it is you're looking for there.

What do you want me to talk about?

I guess on the acquisition, you know, you've -- it's only been there -- obviously you've known them for quite a bit of time when you acquired the rest of it.

I guess I’m trying to get a sense that you've always looked at the [indiscernible] side of the business as an opportunity, a large opportunity.

I'm just curious if you could talk about where that takes you in terms of timing and ability to get into the market faster even.

Well, it has the potential to do that.

The -- Momentum has a customer in the telecom space, and you know, we haven't leveraged that into anything additional in the -- you know, that five weeks or so, six weeks, that we've had control over Momentum, but we certainly would expect that that would help us in the future.

Momentum's products are really more custom than what we have traditionally developed.

They sit down with their customers and get the exact requirements and then come up with a product to be the most cost effective from a design standpoint.

And we're looking at them in terms of not only the existing business units, what they're supplying to our existing business units, IVS and OSG, but we expect to use them to penetrate some opportunities in Defense where the price point for the products and the complexity of the products is less than what we've typically delivered.

So we expect to be able to expand our Defense business.

And then they have customers outside of areas that we're currently involved with that we expect will help open up new markets for us.

Okay, well, great, guys.

Great quarter.

Abel Beyene, Wells Fargo.

Congratulations on a great quarter.

Thank you.

Most of my questions have been answered or have been covered.

Just maybe drilling down into medical business, it was up significantly sequentially.

Was CT a big part of that?

Are you seeing a comeback in that segment of your Medical Imaging business?

CT was not a contributor in that space for the last quarter.

Thank you.

Steve Levenson, Advest.

Can you give us an idea on the Defense side of the business, even if there are cuts out in the future, I guess we have the opinion that there would likely be a requirement for upgrades on certain of the existing platforms.

Could you give us a little -- maybe a broad picture or if you've got some specific items on where Mercury could benefit from potential upgrade programs?

Steve, Barry Isenstein is here with us, who's the VP and General Manager for the Defense Group, and I'm going to let him address that question.

Thank you.

Yeah, I would say that upgrade is a very -- always in our mix when we have -- our pipeline consists of systems in the lab, systems being demonstrated, as well as deployed systems.

So upgrades are always a key part of what we try to do.

For example, we are -- participate in the radar of both the F16 and the F22, as well as JSF, so that's a very good example, as well, as we pursue [J-Ukat][ph].

So all those -- it's a mix of upgrades, as well as research and new starts.

Are there any other specific programs necessarily big platforms, aircraft or, you know, like [AWAX][ph], where there could be an upgrade in lieu of a new platform --

Well --

-- that you're aware of, at least?

Well, I -- the one thing we have announced is actually the new platform of the E10A that replaces some of the wide-body platforms that are currently flying, and that's our MPR-tip radar of multi-platform radar improvement program.

And that's going to be both on the E10A and the [Global Hawk][ph].

So that's, you know, sort of an upgrade to Global Hawk and the new radar on the [Jstar][ph]'s replacement.

Steve, let me jump in on that.

The fact is that we are in the next-generation system, which is what the E10A is for the [AWAX], and if, in fact, there is some reduction in the newer platforms and the monies go to, you know, upgrading older platforms, we're obviously well positioned to take advantage of that, also, because that's where we are today.

That's what I was hoping to hear; thank you.

I have one other question related to CT.

While it was not a contributor in the quarter just ended, is there -- do you have any prospects on that front?

We always have prospects.

Nothing specific, though, I take it?

You know, we're -- Steve, we're -- the Life Sciences business, which is a subset of IVS, has opened up as a result of the acquisition of TGS and how we're positioning that strategically in terms of overall solutions.

We've expanded the served market that we're going after here dramatically, and it's no longer a focus on CT and MR and digital angiography/digital cardiology.

There are many more opportunities in that space.

And so we're really not going to be talking in the future about how much business is coming out of CT or MRI.

We really want to talk about it at the next level up, which is the overall Life Sciences level.

Okay, thanks very much.

[Rob Stone][ph], SG Cowen.

It's too bad.

I was just going to ask you the same question another way, which is in the Medical Imaging area, you know, roughly how much of the -- of the increase is TGS-related versus your traditional businesses.

As a follow-on, though, with respect to the Momentum acquisition, can you say how much that is contributing to your upwardly revised revenue guidance for F '05?

We've got about five in there through H2, 5m revenue, neutral at the profit line after we take in the amortization charges.

Okay.

And I noticed that you broke that out this time, I guess, by virtue of the fact that it's, you know, recently acquired.

But because it contributes to the various segments, the revenue segment treatment is going to be the same three segments and Momentum gets folded into those?

No, no, we're going to run Momentum as a fourth segment, so you'll be seeing details here in the Q filings going forward.

Okay, thank you.

Yup.

[Caller instructions.]

Scot Robertson, Stanford Group.

Question directed to either Jay or Barry.

With all the recent flurry of activity we've seen from the Air Force regarding the ABL and getting some of the plane -- getting the plane back up in the air for a battery of test performance, are you seeing any effect from that program versus in the past?

Talking about the ABL?

Yeah, the Airborne Laser.

There has been no significant activity to report.

Okay, thank you.

[Shau Ling][ph], Lotus Investment Management.

I just wanted to check on the revenue run rate for Momentum.

I'm wondering if you could give me that number again.

You told me it was about a million in the December quarter, but I seem to remember from the acquisition you also had a number for where you thought the revenue run rate per year would be for Momentum, and I wanted to see if you could give that again?

And, separately, any updates or further comments, you know, what Jay mentioned with respect to NVIDIA?

Thank you.

Okay, it's Bob.

I'll hit the revenue run rate for Momentum.

What we have baked into the guidance for the balance of '05 is approximately 5m.

So about a million eight?

That did about 12m a year kind of thing or --?

Ten, think 10 --

Okay.

-- you know, at this moment in time.

Okay.

So, you know, we've got 5 in.

You know, if you had to place it in quarters, do the obvious, you know, 2 and 3, just to quarterize it.

But about 5m is certainly a safe assumption in terms of building a model.

All right.

Yup.

And, Shau, the question regarding NVIDIA again, I want to make sure I understand it.

I'm just wondering if there's any update or comments on how progress might be going, if it might take you into a different kind of market.

I'm wondering if you could expand or get a little color on where you think NVIDIA might take you.

Well, we're using the NVIDIA products currently in the IVS group.

Some of the press releases that we've put out relative to how we've been able to increase the performance dramatically for some of these applications has been the result of our ability to incorporate the NVIDIA GPU chip into our heterogeneous processing environment.

The relationship with NVIDIA was described in our press release, which went out in, I think, November, and it's a collaboration, an alliance, if you will.

They're looking at us to, you know, help get them into markets that they previously haven't been interested in, so they're leaving it up to us to go after those markets.

They've been permanently interested in the game business.

So --

Okay, thank you.

We appear to have no further questions at this time.

Okay, no further questions.

We thank you all, and we look forward to talking to you again mid-April.

Goodbye now.

This does conclude today's conference.

You may disconnect at this time.