Mercury Systems Inc · NASDAQ:MRCY

Mercury Systems — Mercury Computer Systems — Sidoti & Company Annual New York Conference 2012

30 slides from Mercury Systems's conference presentation, Mar 20, 2012

  1. Slide 1: Sidoti & Company Annual New York Conference

    © 2012 Mercury Computer Systems, Inc. Sidoti & Company, LLC th Annual New York Conference March 20, 2012 Mark Aslett President & CEO Kevin Bisson SVP & CFO Exhibit 99.1

  2. Slide 2: Forward-Looking Safe Harbor Statement

    © 2012 Mercury Computer 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 2012 business performance and beyond and the

  3. Slide 3: Introducing Mercury Computer Systems

    © 2012 Mercury Computer Systems, Inc. • MRCY on NASDAQ • Real-time digital image, signal and sensor processing • Commercial-item company unique business model • Focused on DoD priorities • Deployed on ~300 programs with 25+ Primes • $229M FY11 revenues; 18% Adj. EBITDA margin; 730+ employees • LTM D

  4. Slide 4: Defense industry turning the page on a decade of war

    • FY12 Defense budget approved - $530B base spending • FY13 Defense budget request announced - $525B base spending • Budget Control Act reduced FYDP spend growth vs 2012 request • Budget Control Act Jan 2013 sequester © 2012 Mercury Computer Systems, Inc. 4 Source: DOD Comptroller 2012 Budget Reques

  5. Slide 5: In the near term we believe the industry is entering an 18 month transition period

    • New DoD roles and missions announced • Smaller force structure to protect readiness • Increased investment in key areas e.g. ISR, EW • Build capacity and capability of international partners • Defense procurement reform also underway • 2012 election year © 2012 Mercury Computer Systems, Inc. … whe

  6. Slide 6: Pure-play C4ISR, EW and defense electronics company

    Pure-play C4ISR, EW and defense electronics company entrenched on a diverse mix of programs aligned with DoD priorities Best-of-breed provider of specialized sensor processing subsystems to large defense Primes targeting platform upgrades Increased ISR usage, shift to onboard processing and exploita

  7. Slide 7: Growth strategy summary

    Mercury has strategically positioned its business to grow 1. Expand our capabilities and offerings along sensor chain 2. Expand market presence within defense electronics 3. Continue to grow our customer and program base 4. Capitalize on Prime outsourcing / supply chain consolidation 5. Acquire comp

  8. Slide 8: We are the leader in high-performance embedded computing

    We are the leader in high-performance embedded computing © 2012 Mercury Computer Systems, Inc. Historically, Mercury focused on one element of sensor chain RACE++ Boards From

  9. Slide 9: Growing capabilities, services and offerings along the sensor chain

    We are systematically growing our capabilities, services and offerings along the sensor chain organically and by acquisition We now view our market opportunity as providing end-to-end open sensor processing subsystems – a much larger opportunity Services and Systems Integration To RACE++ Boards From

  10. Slide 10: Traditional market narrowly defined as airborne radar processing

    ... limiting our growth potential within the C4ISR market IMINT RADAR © 2012 Mercury Computer Systems, Inc. Mercury’s traditional market was narrowly defined as airborne radar processing … C4ISR $9,695M 25% C4I EW EO/IR

  11. Slide 11: Investing in new products and capabilities to broaden addressable market

    … by investing in new products and capabilities EW RADAR EO/IR C4I S e n s o r , P r o g r a m a n d P l a t f o r m A g n o s t i c Since then, we have systematically broadened our addressable market within C4ISR … C4ISR $9,695M 25% $6,755M 17% $7,801M 20% $10,737M 28% © 2012 Mercury Computer Syste

  12. Slide 12: We are deployed on 300+ programs with 25+ Primes

    © 2012 Mercury Computer Systems, Inc. BAMS Global Hawk SEWIP AEGIS AEGIS Ashore Guardrail Patriot Predator Reaper Gorgon Stare F-16 JCREW 3.3 ADAS Shadow Global Hawk F-35 F-35 F-16 © 2012 Mercury Computer Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I BAMS Global

  13. Slide 13: Aegis ballistic missile defense: SPY-1 BMD Radar

    • Countering rogue nations’ ballistic missile threats • Highest performance radar processor Application Ready Subsystem • 19 ship sets booked FY08-11 • $24M booked in FY11, $75M+ booked to date • Additional 35 ship sets scheduled through GFY16 • AMDR pushout likely • Additional upside 13 Mercury’s l

  14. Slide 14: Patriot missile defense: Next generation ground radar

    • Services-led design win – Prime outsourcing example • Sophisticated radar processor Application Ready Subsystem • Production awards received to date: $36M – UAE, Taiwan, Saudi Arabia • Potential future FMS awards – Up to 15 countries • MEADS funding termination • Major growth potential beginning i

  15. Slide 15: SEWIP Block 2: Countering new emerging peer threats

    © 2011 Mercury Computer Systems, Inc. • Naval surface fleet EW upgrade: 100 ships • Delivered best-of-breed EW Application Ready Subsystem • Moving from EMD phase to LRIP in next 12 months • Production begins GFY15 • Upside opportunities with Block 1 upgrade and Block 3 • Lockheed and Raytheon partn

  16. Slide 16: JCREW 3.3 (I1B1): Joint services CIED program of record

    © 2011 Mercury Computer Systems, Inc. • 2013 Navy RDT&E budget: – GFY12 RDT&E funding $62M – Expect “milestone C” Q3 FY12 – GFY12 LRIP funding $61M – LRIP timing Q3 GFY12 – Q2 GFY14 – JCREW GFY13 RDT&E $71.3M • 2013 Navy production budget: – GFY12 CIED activities transition to JCREW 3.3 enduring pro

  17. Slide 17: Gorgon Stare Increment 2 new program win

    • Increment 2 – Total contract potential $22-26M – $18M booked H1 FY12 – Quick reaction capability; delivery in 18 months – New onboard processor and storage for advanced wide area sensors – Potential upside: flight systems and spares • Future Increments to GFY18 – Processor upgrades – Onboard multi

  18. Slide 18: FY13 program growth driver update

    © 2012 Mercury Computer Systems, Inc. JCREW 3.3 (I1B1): Counter-IED Program transitioning from RDT&E phase to LRIP Patriot: Missile Defense Potential U.S. Army upgrades beginning in GFY13 Aegis: Ballistic Missile Defense Well-defined upgrade provides foundational revenue SEWIP: Naval Electronic Warf

  19. Slide 19: Outsourcing could substantially increase our market opportunity

    © 2012 Mercury Computer Systems, Inc. • Reduce risk given firm-fixed price contracts • Address high-fixed cost operating model • Increase success rate on new programs and production recompetes • Develop differentiated, more affordable solutions with fewer internal R&D dollars • Compress upgrade deve

  20. Slide 20: Developing capabilities organically and through acquisitions

    Exploitation and Fusion Tailored feeds directly to field forces or ECM RF acquisition targets: RF transmitters / receivers Power amplifiers Synthesizers DRFM Mission Computing and Embedded Security We view our market opportunity as providing end-to-end, open sensor processing subsystems to the Prime

  21. Slide 21: Positioned for growth in a changing industry

    • Focused on the right defense market segments • Well positioned on key programs and platforms • Capabilities help address today’s and tomorrow’s threats • Business model aligned with defense procurement reform • Outsourcing partner to the Primes for sensor subsystems • Strong defense revenue growth

  22. Slide 22: Financial Overview

    © 2012 Mercury Computer Systems, Inc. Financial Overview

  23. Slide 23: Defense revenue growth accelerating

    Defense: 13% CAGR FY07-11 111 130 145 158 179 208 89 60 44 42 50 30 © 2012 Mercury Computer Systems, Inc. Defense revenue growth accelerating Notes: • FY07 FY08 FY09 FY10 FY11 LTM Revenue ($M) Defense Commercial FY07-10 figures adjusted for discontinued operations.

  24. Slide 24: Profitability restored and improving

    ($1.78) ($0.21) $0.35 $1.22 $0.71 $0.73 © 2012 Mercury Computer Systems, Inc. Profitability restored and improving Notes: • • • • (41) (5) -50 -40 -30 -20 -10 FY07 FY08 FY09 FY10 FY11 LTM Operating Income $M Earnings per Share FY07 figures are as reported in the Company’s fiscal 2007 Form 10K and ha

  25. Slide 25: Adjusted EBITDA at pro forma target

    12% 12% 15% 18% 21% © 2012 Mercury Computer Systems, Inc. Adjusted EBITDA at pro forma target Notes: • • FY08 FY09 FY10 FY11 LTM Adj. EBITDA ($M, %) EBITDA Margin % FY08 figures are as reported in the Company’s fiscal 2010 Form 10K. FY09-11 figures are as reported in the Company’s fiscal 2011 Form 1

  26. Slide 26: Generating healthy free cash flow from operations

    • Engineering and supply chain transformation – Engineering methods – Investments in DFM – Operational efficiencies – Reduced lead times – Improved cost of quality – Outsourced manufacturing • Efficient working capital platform supports growth 14 11 16 31 (5) (4) (7) (9) (10) (8) 29 (9) © 2012 Mercu

  27. Slide 27: Balance sheet poised for investment

    Balance sheet poised for investment No short and long term debt Other financing sources available: • $35M Operating line of credit (no drawdowns) © 2012 Mercury Computer Systems, Inc. • $500M Shelf Registration Cash and Marketable Securities ($M)

  28. Slide 28: Performing at target business model

    • ACS : MFS LTM revenue split 94% : 6% respectively • High mix, low volume • R&D delivering significant added value and returns • Increased lower margin engineering services and systems integration • Services-led design wins lead to long-term production subsystem annuity revenues © 2012 Mercury Comp

  29. Slide 29: H1 FY12 year over year comparison (GAAP)

    GAAP H1 FY12 H1 FY11 Delta Revenue ($M) Gross Margin % Revenue Operating Expenses ($M) Operating Income ($M) % Revenue Adj EBITDA EPS (Continuing Operations) Op Cash Flow ($M) Bookings Total Backlog ($M) 12-mo Backlog($M) H1 FY12 year over year comparison (GAAP) 9% 60.5% 57.9% 260 bps 14.6% 10.9% 3.

  30. Slide 30: Financial summary

    30 © 2012 Mercury Computer Systems, Inc. • Strong bookings growth and rebuilding backlog • Defense revenue growth accelerating • Profitability restored and improving • Generating healthy free cash flows from operations • Scalable working capital platform • Strong balance sheet with no debt • Perform

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