Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Jefferies 2013 Global Industrial and A&D Conference
31 slides from Mercury Systems's conference presentation, Aug 14, 2013
Slide 1: Jefferies 2013 Global Industrial and A&D Conference
— MERCURY —a "@syYsTEms INNOVATION THAT MATTERS” Jefferies 2013 Global Industrial and A&D Conference Mark Aslett President and CEO Kevin Bisson SVP and CFO August 14, 2013 a ia (© 2013 Mercury systems, ne:
Slide 2: Forward-looking safe harbor statement
Forward-looking safe harbor statement This presentation¢ contain corain cd is defined i i bien Reform Act of 19: the So flow. You can fords “may,” “will” “could,” nous “ “would,” “plans,” “expects,” “anticipates,” “continue,” “estimate,” “prlet “intend tikely> “forecast” “probable” and similar expre
Slide 3: Introducing Mercury Systems
Introducing Mercury Systems MRCY on NASDAQ. * Real-time image, signal, Big Data processing subsystems * Commercial Item company; unique business model * Focused on Defense and Intelligence priorities * Deployed on ~300 programs with 25+ Primes * FY13 $209M revenues; 750+ employees * Defense revenue
Slide 4: Defense industry environment will remain challenging
Defense industry environment will remain challenging ¢ Sequestration implemented for remainder of GFY13 * Potential for a continuing resolution beginning GFY14 * New DoD roles and missions announced — Smaller force structure to protect readiness — Increased investment in key areas e.g. ISR, EW — Bui
Slide 5: Mercury investor highlights
Mercury investor highlights Leading Market Position Differentiated Capal S Favorable Macro Industry Trends Unique Business del Proven Management Team Well Positioned for Growth | Fg © 2013 Mercury Systems, Ine Pure-play C4ISR electronics company embedded on a diverse mix of programs and platforms al
Slide 6: Growth strategy summary
Growth strategy summary 1. Innovation of sensor and Big Data processing hardware, software and services 2. Maximize existing customers and selectively penetrate new accounts 3. New program and platform p ion and content ion design wins 4. Evolve value delivery for customer outsourcing and supply cha
Slide 7: We are the only commercial item company with end-to-end capabilities
We are the only commercial item company with the end-to-end capabilities and differentiated technology ... RACE++ Boards RE] ™ From) fe) az | = = a — on ACQUIRE DIGITIZE PROCESS STORE EXPLOIT DISSEMINATE Open Sensor Processing Subsystems past - * Zi ea ee ACQUIRE DIGITIZE PROCESS STORE EXPLOIT DISSE
Slide 8: Increased demand for ISR and rapidly evolving threats
Increased demand for ISR and rapidly evolving threats ... More and better sensors. Overwhelming data. EW: new and rapidly evolving threats Radar: smaller, faster targets. New technologies EO/IR: leap in resolution, onboard exploitation and real-time tactical access C4l: Net-centric command, control
Slide 9: We are deployed on 300+ programs with 25+ Primes
We are deployed on 300+ programs with 25+ Primes a LockneeD = BAE SYSTEMS Gaos}) Q pavives” BOLING sn mT™EXELIS % UTC Aerospace Systems {fe GENERAL aromics CORPORATION EZ 02013 meray syste RADAR au IR - C4l r. 7 BA r ao l ( h q ( F-16 A+ F-15" F-16 hoe Re Gorgon Stare BApAS;N Gi@bal Hawk Badger/bul
Slide 10: Aegis ballistic missile defense: SPY-1 BMD Radar
Aegis ballistic missile defense: SPY-1 BMD Radar Countering rogue nations’ ballistic missile threats Highest performance radar processor Application Ready Subsystem $32M booked in FY13, $117M+ booked to date Expected domestic and FMS remaining potential value $100M-$125M* AMDR selection in 2013 — SP
Slide 11: SEWIP: Countering new emerging peer threats
SEWIP: Countering new emerging peer threats Providing best-of-breed RF, microwave and digital receiver subsystems Naval surface fleet EW upgrade Block 2: — Upgrade to AN/SLQ-32 passive detection — Partnered with Lockheed — Began LRIP in FY13 — Expected remaining potential value $300M-$375M* Block 3:
Slide 12: Patriot missile defense: Next-generation ground radar
Patriot missile defense: Next-generation ground radar Services-led design win — Prime outsourcing example * Sophisticated radar processor Application Ready Subsystem * Production FMS awards received to date: $40M — UAE, Taiwan, Saudi Arabia Potential future FMS awards — Up to 15 countries — Qatar &
Slide 13: Mercury program value drivers
Mercury program value drivers Program AMDR™ SEWIP Block 3° F-16 AESA Radar Upgrade E-2D Advanced Hawkeye Radar Upgrade Patriot US Army Motes: a) Potential Value!) $300M - $375M+ $150M - $175M $90M - $120M $35M - $105M ~$50M - Sole-source engineering development contract - Sole-source engineering dev
Slide 14: Outsourcing by large defense Prime contractors could increase our market opportunity
Outsourcing by large defense Prime contractors could substantially increase our market opportunity Reduce risk given firm-fixed price contracts Address high-fixed cost operating model Increase success rate on new programs and production recompetes Develop differentiated, more affordable solutions wi
Slide 15: Through acquisition we have created a unique, scalable microwave, RF and digital solutions platform
Through acquisition we have created a unique, scalable microwave, RF and digital solutions platform Sensor Processing Chain ai Pi Wi DEF ACQUIRE DIGITIZE PROCESS STORE EXPLOIT DISSEMINATE/ ECM RF acquisition targets: RF transmitters / receivers Power amplifiers Synthesizers Exploitation Tailored fee
Slide 16: Well positioned for market rebound
Well positioned for market rebound ¢ Focused on important defense and intelligence priorities ¢ Well positioned on key programs and platforms * Capabilities help address today’s and tomorrow’s threats ¢ Business model aligned with defense procurement reform * Outsourcing partner to Primes for open s
Slide 17: Financial Overview
= MERCURY “M@isysTems Financial Overview
Slide 18: Revenue summary by market
Revenue summary by market Defense revenue CAGR of 15% FY08-FY12 Revenue ($M) ™ Defense = Commercial Notes + FY08-10 figures adjusted for discontinued operations. => am ©2013 Mercury Systems, ne. 18
Slide 19: Adjusted EBITDA more than doubled FY08-FY12
Adjusted EBITDA more than doubled FY08-FY12 Adj. EBITDA ($M, %) “+ EBITDA Margin % + Adjusted EBITD: interes it i depreci => am ©2013 Mercury Systems, ne. 19
Slide 20: Achieved historic target business model in FY12
Achieved historic target business model in FY12 Historic Target FY12 Business Model GAAP Revenue 100% 100% Gross Margin 56% 54+% SG&A and 3 25% Low-mid 20’s other OPEX”? R&D 19% High Teens Operating Income 12% 12-13% Adj. EBITDA 20% 17-18% aS mq ©2013 Mercury Systems, ne
Slide 21: Healthy balance sheet with sufficient liquidity
Healthy balance sheet with sufficient liquidity No debt and expanded credit facility Cash and Marketable Securities ($M) 200 23 180 163 160 140 120 100 (70) 80 60 40 39 (74) (3) 20 FY11 Ending Free Cash KOR Acq Fyi2Ending ——_Micronetics FreeCash ——-FY13 Ending Flow & Other Acq Flow & Other Other + $
Slide 22: Defense industry headwinds in FY13
Defense industry headwinds in FY13 ¢ Adversely impacted bookings and revenue levels * Restructuring actions lead to more than $25M of annualized savings * Forecasted revenue more conservatively; emphasis on building backlog * Focused on managing expenses and working capital to preserve liquidity * I
Slide 23: Second half FY13 recovery
Second half FY13 recovery GAAP ($M) Bookings % Change Revenue Gross Margin % EPS Adj. EBITDA Operating Cash Flow aS mq ©2013 Mercury Systems, ne
Slide 24: Entering FY14 with record backlog
Entering FY14 with record backlog Significant growth in FY13 Mercury Ending Backlog ($M)
Slide 25: Q1 FY14 guidance (as of August 6, 2013)
Q1 FY14 guidance (as of August 6, 2013)” Q4 FY13 “ aa Quarter Ending September 30, 2013 High Revenue $55 $54 GAAP EPS (Continuing) ($0.07) ($0.08) ‘Adj EBITDA $3.8 Note - Adj EBITDA Adjustments: Net income (Continuing) (2.0) Interest (income) expense, net 0.0 Income tax (benefit) expense (1.8) Depre
Slide 26: Guidance: Strong performance track record
Guidance: Strong performance track record Reported Guidance | Reported | Guidance | Reported | Guidance | Reported | Guidance 474 43.0-45.0 | 45.2 | 40.0-42.0 | 43.6 41.0-43.0 | 63.6 58.0-60.0 0.19 0.03-0.08 0.08 — | (0.08)-(0.04) 0.16 (0.15)-(0.11) | 0.77 0.25-0.28 52.1 48.0-50.0 | 555 | 54.0550 |
Slide 27: Updated business model raises Adjusted EBITDA target
Updated business model raises Adjusted EBITDA target In a more normalized industry environment Current Target ‘GAAP Business Model Revenue 100% Gross Beene 45-50% /SG&Aand and o other ae Low 20’s Amortization” 2-3% Operating Income 12-13% 18-22% R&D neo 11-13% ‘Adj EBITDA Lived Assets, and Acquistio
Slide 28: Financial summary
Financial summary * 15% Defense revenue CAGR FY08-FY12 * Profitability restored and improved through FY12 * Exceeded historic target model in FY12; new targets established * Healthy balance sheet; zero debt; $200M revolving credit facility ¢ Aggressive cost reduction in FY13 to address industry chal
Slide 29: Appendix
= MERCURY “M@isysTems Appendix
Slide 30: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Years Ended June 30, (00'S) 2010 2011 2013 a = a from continuing operations S$ (4437) $7,909 $ 069 $ 18,507 $ 2,619 $ (13,208) ferest expense (income), net (3,129) 492 (151) 45 2 31 Income tax expense (benefit) 3,710 109 (9,377) 8,060 9,152 (9,954) Depreciation 7,372 5
Slide 31: Free cash flow reconciliation
Free cash flow reconciliation Cash flows from operating activities Capital expenditures Free cash flow => mq ©2013 Mercury Systems, ne 31
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