Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Gabelli 26th Annual Aerospace & Defense Conference (September 2020)
38 slides from Mercury Systems's conference presentation, Sep 10, 2020
Slide 1: Gabelli 26th Annual Aerospace & Defense Conference
GABELLI 26th ANNUAL AEROSPACE & DEFENSE CONFERENCE Mike Ruppert Executive Vice President & CFO Nelson Erickson Vice President, Strategy & Corporate Development September 10, 2020
Slide 2: Forward-looking safe harbor statement
Forward-looking safe harbor statement This presentation contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including those relating to the acquisitions described herein and to fiscal 2021 business performance and beyond and t
Slide 3: Mercury Systems at-a-glance
Mercury Systems at-a-glance Innovation That Matters. By and For People Who Matter. Founded in Transformational business Making commercial technology model at the intersection profoundly more accessible 1981 of high tech and defense NASDAQ: MRCY PURPOSEProvide all processing-BUILT solutions Deployed
Slide 4: Mercury Systems by the numbers
Mercury Systems by the numbers 1,970+ 4-5x $797M Number of team members globally, Research & development relative FY20 Revenue, 28% CAGR FY15-FY20 >25% hold DoD security clearances investment compared to our industry ~11% avg. organic growth FY15-FY20 22 300+ $176M Global state-of-the-art facilities
Slide 5: Mercury solutions deployed on 300+ programs with 25+ primes
Mercury solutions deployed on 300+ programs with 25+ primes Aerospace & Defense Platform and Systems Electronics Content JLTVWIN-T KC-46 A330 MRTT Aegis Primes AIRBUS C4I BAE SYSTEMS BOEING F-16 Reaper/Gorgon Stare Triton LTAMDS Aegis GENERAL ATOMICS L3HARRIS LEONARDO F-35 C-130 Global Hawk Badger/B
Slide 6: Investment highlights
Investment highlights Focused on large, growing, well-funded addressable markets Proven transformational business model investing 4-5x defense industry average in R&D Benefiting from outsourcing, supply chain delayering and “re-shoring” Low-risk content expansion strategies delivering above-average
Slide 7: Mercury's financial profile demonstrates our unique strategy
Mercury’s financial profile demonstrates our unique strategy ALL NYSE AND NASDAQ U.S. LISTED COMPANIES WITH TIER 2 DEFENSE FY20 1,176 MARKET CAPITALIZATION BETWEEN $1B–$7B INDEX MEDIAN Notes • Fiscal year figures for Mercury are based on the trailing four fiscal quarters using information reported i
Slide 8: Mercury strategy: A plan to meet market needs at speed
Mercury strategy: A plan to meet market needs at speed 1/ 2/ 3/ Invest to grow organically Expand capabilities, Invest in trusted, secure market access and penetration Innovation That Matters® through M&A 4/ 5/ Continuously improve Attract and retain operational capability the right talent and scala
Slide 9: Highly differentiated capabilities: We invest in all six
6 highly differentiated capabilities: To invest in any one of these would be significant. We invest in all six. 01 Silicon: We are a leader in adapting 04 Software: Investment in commercially-developed silicon the most advanced open middleware technology to be purpose-built and software allowing cus
Slide 10: Overarching strategy: all types of processing subsystems requiring trusted, secure computing
However, our overarching strategy is to provide all types of processing subsystems requiring trusted, secure computing Sensor Processing Platform & Mission Management C3I . Traditional COTS product integration model broken M . Procurement reform has shifted development risk Sensor Processing Avionic
Slide 11: This game-changing capability will enable new applications at a rapid pace
This game-changing capability will enable new applications at a rapid pace Chiplets Trusted and Secure Solutions Best-of-breed Ecosystem from Multiple Vendors Chip-Scale Application-Specific Customization Processors I/O RF/Digitization Communications Radar FPGAs GPUs Memory Other Electronic Warfare
Slide 12: Expanding content footprint vertically while expanding market access horizontally
We are simultaneously expanding our content footprint vertically while horizontally expanding our market access Up to a 12x increase in content per system as customers outsource more due to secure computing requirements and as system complexity grows C4I Tier 2 market SEMS Tier 2 market $22.4B $16.4
Slide 13: Six major trends shaping the defense industry
Six major trends shaping the defense industry 1/ Defense spending pressures 4/ Investment and innovation challenges Political uncertainty, COVID-19 stimulus, interest payments, Primes increasing headcount but recruitment challenges and healthcare and social spending remain long-term headwinds; aging
Slide 14: FY21 DoD PBR reflects 2019 BBA toplines
FY21 DoD PBR reflects 2019 BBA toplines for FY20-21 and calls for ~1.5% topline budget growth over the FYDIP Notes Topline Defense Budget vs. BCA Caps • FY20 051 appropriations amount $723B includes ~$8B (Discretionary BA, Current $B) of MILCON emergency requirements and ~$10B of Budget Control Act
Slide 15: The A&D electronics systems market is ~$125B annually
The A&D electronics systems market is ~ $125B annually Our total addressable market is now ~$40B Aerospace & Defense Platform and Systems Electronics Content C4I ($22.4B)* Sensor & Effector Mission Systems ($16.4B)* MARKET Platform & C2I Comms EW Radar EO/IR Acoustics Weapons SEGMENT Mission Mgmt 7
Slide 16: Acquisitions and investments driving significant opportunity growth
Acquisitions and investments driving significant opportunity growth . Defense prime contractors TOP 30 PROGRAMS & PURSUITS ESTIMATED LIFETIME VALUE ($M) outsourcing more Radar EW C4I Weapons EO/IR Other 5,900 10,005 10,000 73 . Outsourced integrated subsystems 74% 824 of top 30 program lifetime valu
Slide 17: Glassdoor employee ratings validate Mercury as destination employer
Glassdoor current employee ratings validate Mercury’s status as a destination employer and acquirer of choice (1) PROXY PEER GROUP: ADTRAN, Inc., AeroVironment, Inc., Astronics Corp., Brooks Automation, Inc., CalAmp Corp., Cognex Corp., Comtech Mercury Glass Door Proxy Tier 2 Defense Telecommunicati
Slide 18: We have executed on a disciplined and focused M&A strategy
We have executed on a disciplined and focused M&A strategy Aerospace & Defense Platform and Systems Electronics Content C4I ($22.4B)* Sensor & Effector Mission Systems ($16.4B)* MARKET Platform & C2I Comms EW Radar EO/IR Acoustics Weapons SEGMENT Mission Mgmt 7 Avionics/ Command & Dedicated Electron
Slide 19: Mercury M&A philosophy and value creation blueprint
Mercury M&A philosophy and value creation blueprint Culture Full Unify Combine Like Consolidate & Values Integration Brand Entities Manufacturing Assess cultural fit We believe in full One Brand – Combine like Invest capital to and rapidly integration – We’re Mercury Systems businesses or consolidat
Slide 20: We're a leader in trusted, secure technologies and subsystems
We’re a leader in trusted, secure technologies and subsystems . Innovative growth company at intersection of high tech and defense . Aligned with dominant industry trends . Proven transformational business model for A&D industry . Low-risk content expansion strategies with substantial headroom . Suc
Slide 21: Financial Overview
Michael Ruppert Executive Vice President & CFO FINANCIAL OVERVIEW
Slide 22: The evolution of Mercury Systems
The evolution of Mercury Systems In millions, except percentage and per share data. FY15(1) FY20(1) Change Notes (2) (1) Trailing four fiscal quarters ended Market Capitalization $504 $4,373 9x FY15 and FY20, respectively. Operational figures are based on fiscal year and fiscal quarter results as re
Slide 23: Mercury continues to deliver strong financial results
Mercury continues to deliver strong financial results Revenue ($M) GAAP Income GAAP EPS Notes 85.7 For the fiscal years ended June 797 1.56 30, as reported in the Company’s 22% 83% 63% Form 10-Ks. CAGR figures for the 655 period FY15-FY20. YoY figures for YoY YoY YoY the period FY19 vs. FY20. Number
Slide 24: Content expansion from modules to subsystems
Content expansion from modules to subsystems FY15 REVENUE ($M, %) REVENUE AND GROWTH BY PRODUCT TYPE ($M) $235M . Integrated Subsystems Modules & Subassemblies Components Components Components: 16 7% Integrated Expansion via custom microelectronics 900 Subsystems 109 acquisition from Microsemi 562
Slide 25: Expanding into new markets
Expanding into new markets FY15 REVENUE ($M, %) REVENUE AND GROWTH BY MARKET ($M) $235M Other C4I EW Radar Weapons Other . Continued growth in core markets 39 C4I 16% 900 1 1% Radar . Expansion into adjacent markets and 562 797 143 800 61% leveraging current capabilities 65 700 90 . Additional capab
Slide 26: Taking market share due to significant investments
Taking market share due to significant investments Focused on core markets, technologies and scale. Invested $1.3 billion since FY14 driving outsourcing Notes Markets All figures are approximate and C4I and SEMS reflect the period of FY14-FY20 using information reported in the Company’s Form 10-Ks,
Slide 27: FY20 vs. FY19
FY20 vs. FY19 Notes (3) (1) Organic revenue represents In $ millions, except percentage and per share data FY19 FY20 CHANGE total company revenue excluding net revenue from acquisitions for the first four full Bookings $782.9 $954.3 quarters since the entities’ 1.20 1.20 22% acquisition date (which
Slide 28: Mercury recent acquisition history
Mercury recent acquisition history Source: Company filings, Company Expansion Closing Purchase Ending investor presentations (1) Represents carve-out acquisition Company Primary Theme Date Price ($M) Debt Balance Funding from Microsemi Corp. (2) On June 27, 2017, Mercury LIT Security Dec-2015 $ 10 $
Slide 29: Committed to maintaining differentiated and attractive financial profile
Committed to maintaining differentiated and attractive financial profile PERCENTAGE OF ALL NYSE AND NASDAQ U.S. LISTED COMPANIES 100% WITH MARKET CAPITALIZATION BETWEEN $1B - $7B . Operating expense leverage Increase Adj. EBITDA . Program production mix margins . Operational improvements 31% . Full
Slide 30: Strategy and business model delivering financial performance well above industry average
Strategy and business model delivering financial performance well above industry average . Track record of strong organic growth, profitability and strategic M&A . Significant investment over last 5 years is competitive differentiator . Poised for continued organic growth and margin expansion . Well
Slide 31: Appendix
APPENDIX ee a = S a
Slide 32: Balance sheet
Balance sheet Notes As of (1) Rounded amounts used. (2) Effective July 1, 2019, the (1) Company has adopted ASC 842 (In $ millions) 6/30/19 9/27/19 12/27/19 3/27/20 7/3/20 - Leases using the optional transition method. Prior periods were not changed. As ASSETS of July 3, 2020, the Company has Right-
Slide 33: Cash flow summary
Cash flow summary Notes For the Fiscal Quarters Ended (1) Rounded amounts used. FY19 FY20 (2) Non-GAAP, see (In $ millions)(1) 9/27/19 12/27/19 3/27/20 7/3/20 reconciliation table. Net Income $46.8 $19.2 $15.7 $23.6 $27.2 $85.7 Depreciation and amortization 46.4 11.4 12.5 12.7 12.8 49.3 Termination
Slide 34: Q4 FY20 vs. Q4 FY19
Q4 FY20 vs. Q4 FY19 Notes (3) (1) Organic revenue represents total In $ millions, except percentage and per share data Q4 FY19 Q4 FY20 CHANGE company revenue excluding net revenue from acquisitions for the first four full quarters since Bookings $241.3 $278.6 the entities’ acquisition date 15% (whic
Slide 35: Adjusted EPS reconciliation
Adjusted EPS reconciliation Notes (1) Per share information is presented on a fully diluted basis. (2) Rounded amounts used. (3) Effective as of the third quarter of fiscal 2020, the Company has revised its definition of adjusted income and adjusted earnings per share to incorporate other non-operat
Slide 36: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Notes (1) As of July 1, 2018, the Company has revised its definition of adjusted EBITDA to incorporate other non-operating adjustments, net, which includes gains or losses on foreign currency remeasurement, investments and fixed asset sales or disposals among other adj
Slide 37: Free cash flow and organic revenue reconciliation
Free cash flow reconciliation Organic revenue reconciliation Notes (In thousands) Q4 FY19 Q4 FY20 FY19 FY20 (1) Organic revenue represents total company revenue excluding net revenue from acquisitions for the first (1) four full quarters since the entities’ acquisition date Organic revenue $ 174,899
Slide 38: Glossary
Glossary API Application Programming Interface BCA Budget Control Act C4I Command, Control, Communications, Computers COTS Commercial off-the Shelf CPU Central Processing Unit EO/IR Electro-optical / Infrared EW Electronic Warfare FPGA Field Programmable Gate Array GPU Graphics Processing Unit I/O I
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