Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Investor Presentation (March 2018)
37 slides from Mercury Systems's investor presentation, Mar 1, 2018
Slide 1: Investor Presentation
© 2018 Mercury Systems, Inc. Investor Presentation Mark Aslett President and CEO Michael Ruppert Executive Vice President and CFO March 1, 2018
Slide 2: Forward-looking safe harbor statement
2© 2018 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 fiscal 2018 business performance and beyond and the Company’
Slide 3: Pioneering a next generation defense electronics company
3© 2018 Mercury Systems, Inc. …to address the industry's challenges and opportunities Pioneering a next generation defense electronics company… • Operate high-tech commercial business model • Secure sensor and safety critical processing subsystems • Serving defense Prime contractor outsourcing needs
Slide 4: Strategy delivering above average growth and profitability
4© 2018 Mercury Systems, Inc. Strategy delivering above average growth and profitability Focused on economic core – aerospace and defense electronics Focused on Core Markets Expanded addressable market and moved up value chain High-tech R&D investment level for aerospace and defense electronics Buil
Slide 5: We are deployed on 300+ programs with 25+ Primes
5© 2018 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes C 4 I Se n so r & Ef fe ct o r M is si o n Sy st em s P-8 MMA KC-46 A330 MRTTF-35 C-130 MALD-J SM2/3/6PavewaySDB II PGK Triton AegisPatriotF-16 Reaper/Gorgon Stare Global Hawk SEWIPBadger/BuzzardF-15 AH-64 Apache Aerospac
Slide 6: Mercury's vision
6© 2018 Mercury Systems, Inc. Mercury’s vision is to be the… Leading commercial provider of secure sensor and safety-critical processing subsystems
Slide 7: Acquisitions have transformed Mercury into a commercial provider
7© 2018 Mercury Systems, Inc. ...provider of secure sensor and safety-critical processing subsystems Acquisitions have transformed Mercury into a commercial… • Acquired capabilities significantly expand addressable market • Moved up the value chain • Model facilitates greater customer outsourcing •
Slide 8: Five major trends shaping the defense industry
8© 2018 Mercury Systems, Inc. Five major trends shaping the defense industry Increased Defense Spending Cycle: Rising interest rates, healthcare and social spending remain issues; MilPer expense growth, aging military platforms’ O&M costs rising Challenging Global Security Environment: Resurgent Rus
Slide 9: Bipartisan Budget Deal of 2018 and defense spending
9© 2018 Mercury Systems, Inc. The Bipartisan Budget Deal of 2018 provides a significant near-term impulse to defense spending… …but funding levels in 2020 and beyond remain to be determined Topline Base Authorization Budget vs. BCA Caps (Discretionary BA, Current $B) Notes: Budget and BCA Caps repre
Slide 10: Capabilities and drivers of growth are aligned
10© 2018 Mercury Systems, Inc. Mercury’s capabilities and drivers of growth are aligned… Sensor and C4I modernization and new platforms Weapon systems readiness and modernization Defense Prime contractors outsourcing more Defense Primes’ flight to quality suppliers Defense Primes and government dela
Slide 11: Defense industry's largest secular growth opportunity
11© 2018 Mercury Systems, Inc. …likely the Defense industry's largest secular growth opportunity Captive outsourcing by Defense prime contractors… • 2018 A&D electronics is $103 billion market • US Defense is nearly half of total market at $51B • Tier 2 compute & RF – Global $32B; 5% CAGR – US $16B;
Slide 12: Addressable market increased ~8x
12© 2018 Mercury Systems, Inc. Mercury’s addressable market increased ~8x supporting continued… …above industry average growth, returns and future acquisitions Sources: RSAdvisors research & analysis. Mercury market expansion reflects the Company’s acquisitions and expanded offerings from R&D invest
Slide 13: Opportunity pipeline growth driving strong results
13© 2018 Mercury Systems, Inc. …which in turn is driving strong results Acquisitions and investments driving significant opportunity growth… • Total potential value grew >3x to $4.9B in 5 years • Significant EW, C4I, weapons opportunity pipeline • Acquisitions brought new programs and capabilities •
Slide 14: Business model built for speed, innovation and affordability
14© 2018 Mercury Systems, Inc. Business model built for speed, innovation and affordability… …as customers seek outsourced pre-integrated subsystems Primes RF Digital Processing Mercury Pre-integrated Subsystem Government Traditional COTS Product Integration 36+ months Time to Market 12 months Time
Slide 15: Only high-tech commercial company with the technology
15© 2018 Mercury Systems, Inc. Only high-tech commercial company with the technology… ...and domain expertise for secure sensor and safety-critical processing SPEED SWaP SOFTWARE SECURITY SAFETY Secure Sensor and Safety-Critical Processing Solutions ACQUIRE DIGITIZE PROCESS STORAGE EXPLOIT DISSEMINA
Slide 16: Disciplined and focused M&A strategy
16© 2018 Mercury Systems, Inc. We have executed on a disciplined and focused M&A strategy Aerospace & Defense Platform and Systems Electronics Content C4I Sensor & Effector Mission Systems Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Avionics / Vetronics Command & Control / Bat
Slide 17: Strategy and investments have positioned Mercury well
17© 2018 Mercury Systems, Inc. Strategy and investments have positioned Mercury well • Pioneering a next-generation defense electronics business model • Unique technology and capabilities on key production programs • Substantial total addressable market expansion enabling future growth • Low-risk co
Slide 18: Financial Overview
© 2018 Mercury Systems, Inc. Financial Overview Mike Ruppert Executive Vice President and CFO
Slide 19: The evolution of Mercury Systems
19© 2018 Mercury Systems, Inc. The evolution of Mercury Systems 425% Market Capitalization $472 $2,477 504%Enterprise Value $398 $2,404 105%Revenue(1) $218 $447 209%Adj. EBITDA(1) $34 $105 115%Adj. EPS(1) $0.59 $1.27 V al u at io n O p e ra ti o n al In millions, except percentage and per share data
Slide 20: Financial profile puts it in a unique category
20© 2018 Mercury Systems, Inc. 1,119 Mercury’s financial profile puts it in a unique category ALL NYSE AND NASDAQ COMPANIES WITH MARKET CAPITALIZATION BETWEEN $750mm - $3bn LTM based on most recently reported quarters 6 Companies 93 Companies 305 Companies EBITDA Margin >20% Revenue CAGR >10% 4-Year
Slide 21: Strong revenue growth and operating leverage
21© 2018 Mercury Systems, Inc. Strong revenue growth and operating leverage… …yielded dramatic growth in adjusted EBITDA Notes: (1) Fiscal years ended June 30; FY13-17 figures are as reported in the Company’s Form 10-Ks. (2) LTM figures are based on the trailing four fiscal quarters using informatio
Slide 22: Mercury Ending Backlog
22© 2018 Mercury Systems, Inc. 109 144 166 239 291 27 30 41 49 66 136 174 208 288 357 0 50 100 150 200 250 300 350 400 FY13 FY14 FY15 FY16 FY17 Mercury Ending Backlog ($M) 12-Month Ending Backlog > 12-Month Backlog Fwd Revenue Coverage Ratio⁽¹⁾ 63% 68% 63% 50% 64% FY13-FY17 backlog CAGR of 27%... …s
Slide 23: Market expansion strategy is working well
23© 2018 Mercury Systems, Inc. Market expansion strategy is working well • Continued growth in core markets • Expansion into adjacent markets • Additional capabilities drive content expansion • Broader program and customer base • Vastly larger addressable market • Consistently driving above market g
Slide 24: Strong performance last full fiscal year
24© 2018 Mercury Systems, Inc. Strong performance last full fiscal year 51% revenue and 64% adjusted EBITDA growth YoY Notes: (1) Fiscal years ended June 30; FY16-17 figures are as reported in the Company’s Form 10-Ks. (2) Non-GAAP, see reconciliation table. In millions, except percentage and per sh
Slide 25: Strong performance continues into FY18
25© 2018 Mercury Systems, Inc. Strong performance continues into FY18 LTM Q2 ’18 vs. LTM Q2 ‘17 33% Revenue $447M 41% Adj. EBITDA $105M 106% Net Income $43M Notes: Revenue growth for last twelve months ending December 31, 2017 vs. last twelve months ending December 31, 2016. LTM figures are based on
Slide 26: FY18 annual guidance
26© 2018 Mercury Systems, Inc. FY18 annual guidance In millions, except percentage and per share data FY17(1) FY18(2) Change Revenue $409 $460 - $468 13% - 15% Gross Margin 46.9% 46.5% - 46.8% (.4pts) - (.1pt) Operating Expenses $154.1 $167.3 - $169.7 9% - 10% GAAP Income $24.9 $38.4 - $40.4 54% - 6
Slide 27: Achieving target business model
27© 2018 Mercury Systems, Inc. Achieving target business model Notes: (1) FY16 and FY17 figures are as reported in the Company’s Form 10-K. (2) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming s
Slide 28: Conservative balance sheet
28© 2018 Mercury Systems, Inc. Conservative balance sheet $400M revolving credit facility, universal shelf for future investments FY16 FY17 Q2 FY18 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 81.7 41.6 32.0 Accounts receivable, net 95.9 113.7 123.0 Inventory, net 58.3 81.1 105.
Slide 29: Actively developing potential acquisition targets
29© 2018 Mercury Systems, Inc. We actively develop potential acquisition targets across all channels Acquisition Close Date Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Apr 2017 Jul 2017 Feb 2018 Size $31M $70M $75M $10M $300M $39M $40.5M Not Reported $180M Strong Strategic Rationale
Slide 30: Poised for continued, profitable growth
30© 2018 Mercury Systems, Inc. • Improving defense environment; fast-moving streams enhance opportunities • Acquisitions have transformed top and bottom lines • Broader base of larger, more diversified programs • Record backlog enhances forward visibility, facilitates operational execution • Sustain
Slide 31: Appendix
© 2018 Mercury Systems, Inc. Appendix
Slide 32: Strong LTM performance
32© 2018 Mercury Systems, Inc. Strong LTM performance 33% revenue and 41% adjusted EBITDA growth YoY Notes: (1) LTM figures are based on the trailing four fiscal quarters using information reported in the Company’s Form 10-Ks, Form 10-Qs and/or most recent earnings release. (2) Non-GAAP, see reconci
Slide 33: FY18 guidance (as of January 24th)
33© 2018 Mercury Systems, Inc. FY18 guidance (as of January 24th) Notes: (1) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any o
Slide 34: Adjusted EPS reconciliation
34© 2018 Mercury Systems, Inc. Adjusted EPS reconciliation Notes: (1) Numbers shown are in cents. (000's) FY13 FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Diluted net earnings (loss) per share⁽¹⁾ $ (0.46) $ (0.13) $ 0.44 $ 0.56 $ 0.10 $ 0.13 $ 0.16 $ 0.19 $ 0.58 $ 0.38 $ 0.19
Slide 35: Adjusted EBITDA reconciliation
35© 2018 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) FY13 FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Income (loss) from continuing operations $(13,782) $ (4,072) $ 14,429 $ 19,742 $ 3,819 $ 5,204 $ 7,048 $ 8,804 $ 24,875 $ 17,953 $ 9,133 Interest expense (in
Slide 36: Sales-related definitions
36© 2018 Mercury Systems, Inc. Sales-related definitions Design Win A design win means that the customer has selected us to provide services, products, or intellectual property for a program of record or equivalent. In addition, the customer has won the program and we have an initial purchase order
Slide 37: Glossary
37© 2018 Mercury Systems, Inc. Glossary AEGIS Aegis Ballistic Missile Defense System EP Electronic Protection O&M Operations & Maintenance AESA Active Electronically Scanned Array EPAWWS Eagle Passive Active Warning Survivability System OpenVPX System-level specification for VPX, initiated by Mercur