Mercury Systems Inc · NASDAQ:MRCY

Mercury Systems — 2014 KeyBanc Capital Markets Industrial, Automotive & Transportation Conference

34 slides from Mercury Systems's conference presentation, May 28, 2014

  1. Slide 1: 2014 KeyBanc Capital Markets Industrial, Automotive & Transportation Conference

    © 2014 Mercury Systems, Inc. Mark Aslett President and CEO Kevin Bisson SVP and CFO May 28, 2014 2014 KeyBanc Capital Markets Industrial, Automotive & Transportation Conference

  2. Slide 2: Forward-looking safe harbor statement

    2 © 2014 Mercury Systems, Inc. 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 business performance and the Company’s plans for growth and

  3. Slide 3: Introducing Mercury Systems

    3 © 2014 Mercury Systems, Inc. Commercial provider of sensor processing subsystems & solutions Introducing Mercury Systems • MRCY on NASDAQ 1998 • Real-time sensor processing subsystems • High tech company; Scalable business model • Focused on Defense and Intelligence priorities • Deployed on ~300 p

  4. Slide 4: Mercury investor highlights

    4 © 2014 Mercury Systems, Inc. Leading Market Position Pure-play defense electronics company embedded on important programs and platforms aligned to DoD priorities Scalable Business Model Scalable engineering and manufacturing platform positioned to drive increased affordability and rapid time to ma

  5. Slide 5: Political and budget uncertainty are causing change within the defense industry

    5 © 2014 Mercury Systems, Inc. The ongoing political and budget uncertainty… …are causing change within the defense industry Crowding Out Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs rising Procurement Reform Firm-fixed-price contr

  6. Slide 6: Unique and differentiated capabilities aligned to key industry growth drivers

    6 © 2014 Mercury Systems, Inc. Mercury has unique and differentiated capabilities today… …that are aligned to the key industry growth drivers Pacific Pivot: Technology & Innovation Sensors are going long, wide and high. Platforms need improved sensors, autonomy, electronic protection and attack, on-

  7. Slide 7: What the major primes are telling us

    7 © 2014 Mercury Systems, Inc. We work with all the major primes – they’re telling us: “As we pivot to the Pacific the threats, missions and conops are technically more challenging and costly.” “The DoD is funding less R&D and is expecting industry to invest more themselves.” Growth Costs Margin “I

  8. Slide 8: Addressing challenges: innovation, capability, scalability, affordability

    8 © 2014 Mercury Systems, Inc. We have addressed these challenges and opportunities… …with capabilities and strategies to drive growth and returns Innovation Capability Scalability Affordability

  9. Slide 9: Industry-leading processing product portfolio

    9 © 2014 Mercury Systems, Inc. Industry-leading processing product portfolio addresses need to collect, process and analyze sensor data in real-time • State-of-the-art specialized Intel server-class processing for sensor and mission computing • Pioneered GPU use for on-board big data exploitation •

  10. Slide 10: Positioned to benefit from AESA radar, EW and ISR sensor upgrades

    10 © 2014 Mercury Systems, Inc. Well positioned to benefit from AESA radar, electronic warfare, electronic countermeasure and ISR sensor upgrades • RF and microwave industry structure broken • Customers looking for a “better alternative” • Acquired three companies in RF, microwave and EW • Unique en

  11. Slide 11: Capturing more RF and microwave content

    11 © 2014 Mercury Systems, Inc. …our business by capturing more RF and microwave content We have the capabilities and assets we need to expand… • Significant expansion of addressable market • RF/Microwave 3-5x content vs. traditional processing • R&D for new capabilities, to onboard outsourced desig

  12. Slide 12: A new model in the RF and microelectronics industry

    12 © 2014 Mercury Systems, Inc. We’re creating a new model in the RF and microelectronics industry and a better alternative for our customers • Built a second world-class microelectronics facility; leverages ~$20M investment by prior owner • Built-in plant redundancy from a single supplier simplifie

  13. Slide 13: Substantial changes occurring within our customers

    13 © 2014 Mercury Systems, Inc. Despite record earnings, high yields and large buy-backs… … there are substantial changes occurring within our customers “Reducing costs is another element of our approach to affordability… includes reduction of $1.2B in annual cost over the past two years, while rema

  14. Slide 14: Customers seeking more affordable sensor processing solutions

    14 © 2014 Mercury Systems, Inc. Our customers are seeking more affordable sensor processing solutions • State-of-the-art portfolio and lower cost engineering design services improve affordability • Pre-integrated sensor processing subsystems require less customer or government R&D • Sensor, program

  15. Slide 15: Deployed on 300+ programs with 25+ Primes

    15 © 2014 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton; NATO AGS Global Hawk SEWIP AEGIS AEGIS Ashore F-15 Patriot AH-64 Apache Reaper Gorgon Stare F-16 Badger/Buzzard Fury Global Hawk F-35 F-35 F-16 P-8

  16. Slide 16: Key program update

    16 © 2014 Mercury Systems, Inc. FY13 FY14 FY15 FY16 Production Years Relevance Possible Pivot Upgrade FMS Total ($M) SEWIP Block 2 FRP: FY15-23   209-345 SEWIP Expansion FRP: FY15-23   110-120 SEWIP Deriv.** FRP: FY17-23    104-166 SEWIP Block3** LRIP: FY16 FRP: FY18-26    161-334 Badger/B

  17. Slide 17: Strategy, acquisitions and investments positioned us well

    17 © 2014 Mercury Systems, Inc. Strategy, acquisitions and investments positioned us well… …to drive growth and improved returns for our customers Innovation: We’ve invested in innovations that expand our addressable market and facilitate low-risk growth tied to specialized sensor processing upgrade

  18. Slide 18: Financial Overview

    TM © 2014 Mercury Systems, Inc. Financial Overview

  19. Slide 19: Revenue summary by market

    19 © 2014 Mercury Systems, Inc. Revenue summary by market Defense revenue CAGR of 15% FY08-FY12 Notes: • FY08-10 figures adjusted for discontinued operations. 130 145 158 181 230 60 44 42 48 15 0 50 100 150 200 250 FY08 FY09 FY10 FY11 FY12 Revenue ($M) Defense Commercial 190 189 200 229 245

  20. Slide 20: Adjusted EBITDA more than doubled FY08-FY12

    20 © 2014 Mercury Systems, Inc. Adjusted EBITDA more than doubled FY08-FY12 Notes: • FY08-FY09 figures are as reported in the Company’s fiscal 2010 Form 10K. FY10-12 figures are as reported in the Company’s fiscal 2012 Form 10K. • Adjusted EBITDA excludes interest income and expense, income taxes, d

  21. Slide 21: Achieved historic target business model in FY12

    21 © 2014 Mercury Systems, Inc. Achieved historic target business model in FY12 GAAP FY08 FY09 FY10 FY11 FY12 Historic Target Business Model Revenue 100% 100% 100% 100% 100% 100% Gross Margin 58% 56% 56% 57% 56% 54+% SG&A and other OPEX(1) 37% 29% 27% 26% 25% Low-mid 20’s R&D 24% 22% 21% 19% 19% Hig

  22. Slide 22: Healthy balance sheet with sufficient liquidity

    22 © 2014 Mercury Systems, Inc. Healthy balance sheet with sufficient liquidity No debt and expanded credit facility • $500M Shelf Registration • $200M senior unsecured revolving line of credit (no drawdowns) Other financing sources available 163 39 (70) 116 (3) (74) 6 46 0 20 40 60 80 100 120 140 1

  23. Slide 23: Defense industry headwinds in FY13

    23 © 2014 Mercury Systems, Inc. Defense industry headwinds in FY13 • Adversely impacted bookings and revenue levels • Restructuring actions lead to more than $25M of annualized savings • Forecasted revenue more conservatively; emphasis on building backlog • Focused on managing expenses and working c

  24. Slide 24: Second half FY13 recovery

    24 © 2014 Mercury Systems, Inc. Second half FY13 recovery GAAP ($M) FY13 H1 FY13 H2 % Change FY13 Bookings 103.9 116.7 12% 220.6 Revenue 99.2 109.6 10% 208.8 Gross Margin % 38% 41% 3 pts 40% EPS (0.40) (0.04) 90% (0.44) Adj. EBITDA 2.7 9.0 242% 11.7 Operating Cash Flow (8.4) 6.5 N/A (1.9)

  25. Slide 25: Building record backlog in FY14

    25 © 2014 Mercury Systems, Inc. Building record backlog in FY14 Significant growth since FY12 105 87 105 140 151 0 20 40 60 80 100 120 140 160 FY10 FY11 FY12 FY13 Q3 FY14 Mercury Ending Backlog ($M)

  26. Slide 26: Continued financial improvement in FY14

    26 © 2014 Mercury Systems, Inc. Continued financial improvement in FY14 Adjusted EBITDA more than doubled in FY14 GAAP ($M) Nine Months Ended FY13 FY14 % Change Bookings 152.5 173.3 14% Revenue 153.4 162.5 6% Gross Margin % 39% 45% 6 pts Operating Expenses 80.3 80.4 EPS (0.37) (0.13) 65% Adj. EBITDA

  27. Slide 27: FY14 guidance (as of April 29th)

    27 © 2014 Mercury Systems, Inc. FY14 guidance (as of April 29th) Notes: (1) The guidance included herein is from the Company’s earnings release and is as of the date of the earnings release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any obliga

  28. Slide 28: Guidance: Strong performance track record

    28 © 2014 Mercury Systems, Inc. Guidance: Strong performance track record Q1 Q2 Q3 Q4 Reported Guidance Reported Guidance Reported Guidance Reported Guidance 2010 Revenue ($M) 47.4 43.0-45.0 45.2 40.0-42.0 43.6 41.0-43.0 63.6 58.0-60.0 EPS ($) 0.19 0.03-0.08 0.08 (0.08)-(0.04) 0.16 (0.15)-(0.11) 0.7

  29. Slide 29: Current target business model

    29 © 2014 Mercury Systems, Inc. GAAP FY12 FY13 FY14 YTD Revenue 100% 100% 100% 100% Gross Margin 56% 40% 45% 45-50% SG&A 23% 28% 27% Low 20’s R&D 19% 16% 17% 11-13% Amortization (1) 0% 4% 4% 2-3% Operating (2) Income 14% (8%) (3%) 12-13% Adj EBITDA 20% 6% 10% 18-22% Current Target Business Model Inc

  30. Slide 30: FY14-15 integration plan

    30 © 2014 Mercury Systems, Inc. FY14-15 integration plan Accelerating achievement of target business model • 12 month plan through mid-fiscal 2015 (January 2015) • Integration plan components – Facilities consolidation centering on new AMC in Hudson, NH to create a scalable manufacturing platform –

  31. Slide 31: Financial summary

    31 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Financial summary • Successfully stabilized business after FY13 sequestration impact • Final integration plan expected to accelerate achievement of target business model • FY14 actions yield nearly $12 million of the anticipated $16 millio

  32. Slide 32: Appendix

    TM © 2014 Mercury Systems, Inc. Appendix

  33. Slide 33: Adjusted EBITDA reconciliation

    33 © 2014 Mercury Systems, Inc. Adjusted EBITDA reconciliation Years Ended June 30, Nine Months Ended (000'S) 2008 2009 2010 2011 2012 2013 2014 Income (loss) from continuing operations $ (4,437) $ 7,909 $ 28,069 $ 18,507 $ 22,619 $ (13,208) $ (3,879) Interest expense (income), net (3,129) 492 (151)

  34. Slide 34: Free cash flow reconciliation

    34 © 2014 Mercury Systems, Inc. Free cash flow reconciliation Nine Months Ended Years Ended June 30 2008 2009 2010 2011 2012 2013 2014 Cash flows from operating activities $ 13,726 $ 11,199 $ 15,708 $ 31,474 $ 31,869 $ (1,871) $ 11,732 Capital expenditures (4,625) (4,126) (7,334) (8,825) (9,427) (3,

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