Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Truist Securities 2020 Industrials and Services Summit
39 slides from Mercury Systems's conference presentation, Dec 8, 2020
Slide 1: Truist Securities 2020 Industrials and Services Summit
TRUIST SECURITIES 2020 INDUSTRIALS AND SERVICES SUMMIT Mark Aslett President & CEO Mike Ruppert Executive Vice President & CFO December 8, 2020
Slide 2: Forward-looking safe harbor statement
© Mercury Systems, Inc.2 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 per
Slide 3: Mercury Systems at-a-glance
© Mercury Systems, Inc.3 Transformational business model at the intersection of high tech and defense Founded in 1981 NASDAQ: MRCY Deployed on 300+ programs – serving defense Prime contractor outsourcing needs Making commercial technology profoundly more accessible PURPOSE-BUILTOur goal is to provid
Slide 4: Mercury Systems by the numbers
© Mercury Systems, Inc.4 1,970+ Number of team members globally, >25% hold DoD security clearances $176M FY20 Adj. EBITDA $176M (22% margin) 32% CAGR FY15-FY20 4-5x Research & development relative investment compared to our industry 35+ Years of tech leadership in A&D industry 25+ Prime customers: i
Slide 5: Mercury solutions deployed on 300+ programs with 25+ primes
© Mercury Systems, Inc.5 Mercury solutions deployed on 300+ programs with 25+ primes C4 I Se ns or & E ff ec to r M is si on S ys te m s JLTV KC-46 A330 MRTTWIN-T C-130 MALD-J SM2/3/6PavewayStormbreaker PGK Triton AegisLTAMDSF-16 Reaper/Gorgon Stare Global Hawk SEWIPBadger/BuzzardF-35 Aegis Aerospac
Slide 6: Investment highlights
© Mercury Systems, Inc.6 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
Slide 7: Notes
© Mercury Systems, Inc.7 Notes • Fiscal year figures for Mercury are based on the trailing four fiscal quarters using information reported in Mercury’s Form 10- Ks, Form 10-Qs and/or most recent earnings release. All other data per FactSet as of December 2, 2020. 5-year CAGR for market participants
Slide 8: Mercury strategy: A plan to meet market needs at speed
© Mercury Systems, Inc.8 1/ Invest to grow organically 2/ Expand capabilities, market access and penetration through M&A 4/ Continuously improve operational capability and scalability 3/ Invest in trusted, secure Innovation That Matters® 5/ Attract and retain the right talent Mercury strategy: A pla
Slide 9: Six highly differentiated capabilities
© Mercury Systems, Inc.9 Silicon: We are a leader in adapting commercially developed silicon technology to be purpose-built specifically for aerospace and defense. Safety: Design safety-certifiable processing systems up to the highest design assurance levels. Security: Investment in industry-leading
Slide 10: Providing all types of processing subsystems requiring trusted, secure computing
© Mercury Systems, Inc.10 C3I Software Integration Security Displays Mission Computer Storage Network Management Comms/Datalink Rugged Servers C2/Comms M However, our overarching strategy is to provide all types of processing subsystems requiring trusted, secure computing Certification Security Disp
Slide 11: Game-changing capability enabling new applications at a rapid pace
© Mercury Systems, Inc.11 This game-changing capability will enable new applications at a rapid pace Trusted and Secure Solutions Chip-Scale Application-Specific Customization Processors FPGAs GPUs CPUs I/O RF/Digitization Memory Other Chiplets Best-of-breed Ecosystem from Multiple Vendors Communica
Slide 12: Expanding content footprint vertically while expanding market access horizontally
© Mercury Systems, Inc.12 We are simultaneously expanding our content footprint vertically while horizontally expanding our market access Up to another 2x higher-margin content increase per system as new trusted microelectronic capabilities enable new applications and performance Trusted and Secure
Slide 13: Six major trends shaping the defense industry
© Mercury Systems, Inc.13 Six major trends shaping the defense industry 1/ Defense spending pressures Political uncertainty, COVID-19 stimulus, interest payments, healthcare and social spending remain long-term headwinds; Pressures require prioritization within DoD 2/ Challenging global security env
Slide 14: FY21 DoD budget request and topline defense budget vs. BCA caps
© Mercury Systems, Inc.14 FY21 DoD PBR reflects 2019 BBA toplines for FY20-21 and calls for ~1.5% topline budget growth over the FYDP $522 $524 $598 $617 $633 $636 $702 $717 $743 $758 $581 $606 $671 $685 $713 $705 $722 $737 $753 $768 $706 $708 $723 $450 $500 $550 $600 $650 $700 $750 $800 2016 2017 2
Slide 15: Aerospace & Defense platform and systems electronics content
© Mercury Systems, Inc.15 Aerospace & Defense Platform and Systems Electronics Content C4I ($22.4B)* Sensor & Effector Mission Systems ($16.4B)* MARKET SEGMENT Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons 7 Avionics/ Vetronics Command & Control/Battle Management Dedicated Commu
Slide 16: Acquisitions and investments driving significant opportunity growth
© Mercury Systems, Inc.16 Acquisitions and investments driving significant opportunity growth Defense prime contractors outsourcing more Outsourced integrated subsystems 74% of top 30 program lifetime value Content expansion driving above-average growth Defense primes’ flight to quality supp
Slide 17: Glassdoor ratings validate Mercury as destination employer
© Mercury Systems, Inc.17 Glassdoor current employee ratings validate Mercury’s status as a destination employer and acquirer of choice Mercury Systems Glassdoor Average Proxy Peer Group(1) Tier 2 Defense Company Index(2) Overall Rating 4.7 3.6 3.5 3.6 Culture & Values 4.7 3.4 3.4 3.5 Diversity & In
Slide 18: Disciplined and focused M&A strategy
© Mercury Systems, Inc.18 We have executed on a disciplined and focused M&A strategy Notes: *Tier 2 includes embedded computing and subsystems with RF content. Includes US Government and Global Defense & Commercial Aerospace Markets Sources: RSAdvisors research & analysis, November 2019. Numbers are
Slide 19: Mercury M&A philosophy and value creation blueprint
© Mercury Systems, Inc.19 Mercury M&A philosophy and value creation blueprint Culture & Values Full Integration Unify Brand Combine Like Entities Consolidate Manufacturing Deploy Common Processes & Systems Invest R&D Leverage G&A Accelerate Organic Growth Continuously Improve Deliver Results Assess
Slide 20: Leader in trusted, secure technologies and subsystems
20 © Mercury Systems, Inc. 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
Slide 21: Financial Overview
FINANCIAL OVERVIEW Michael Ruppert Executive Vice President & CFO
Slide 22: The evolution of Mercury Systems
© Mercury Systems, Inc.22 The evolution of Mercury Systems Notes (1) Trailing four fiscal quarters ended FY15 and FY20, respectively. Operational figures are based on fiscal year and fiscal quarter results as reported in the Company’s Form 10-Ks, Form 10- Qs and/or most recent earnings release. Hist
Slide 23: Mercury continues to deliver strong financial results
© Mercury Systems, Inc.23 Mercury continues to deliver strong financial results 270 409 493 655 797 825 FY16 FY17 FY18 FY19 FY20 LTM Q1 FY21 Revenue ($M) 20% YoY 288 357 448 625 831 826 FY16 FY17 FY18 FY19 FY20 LTM Q1 FY21 Backlog ($M) 16% YoY Notes: CAGR figures for the period FY16-FY20. YoY figure
Slide 24: Content expansion from modules to subsystems
© Mercury Systems, Inc.24 Content expansion from modules to subsystems Components: Expansion via custom microelectronics acquisition from Microsemi Investment in trusted microelectronics Modules/Subassemblies: Down from 47% of revenue in FY15 to 16% in FY20 as shift towards subsystems Su
Slide 25: Expanding into new markets
© Mercury Systems, Inc.25 Expanding into new markets Continued growth in core markets Expansion into adjacent markets and leveraging current capabilities Additional capabilities drive content expansion Broader program and customer base Vastly larger addressable market Consistently drivin
Slide 26: Taking market share due to significant investments
© Mercury Systems, Inc.26 Taking market share due to significant investments Focused on core markets, technologies and scale. Invested $1.3 billion since FY14 driving outsourcing Notes All figures are approximate and reflect the period of FY14-FY20 using information reported in the Company’s Form 10
Slide 27: LTM Q1 FY21 performance
© Mercury Systems, Inc.27 LTM Q1 FY21 performance Notes (1) Organic revenue represents total company revenue excluding net revenue from acquisitions for the first four full quarters since the entities’ acquisition date (which excludes any intercompany transactions). After the completion of four fisc
Slide 28: FY20 vs. FY19
© Mercury Systems, Inc.28 FY20 vs. FY19 Notes (1) Organic revenue represents total company revenue excluding net revenue from acquisitions for the first four full quarters since the entities’ acquisition date (which excludes any intercompany transactions). After the completion of four fiscal quarter
Slide 29: Mercury recent acquisition history
© Mercury Systems, Inc.29 Total Capital Deployed: $804M Mercury recent acquisition history Company Expansion Primary Theme Closing Date Purchase Price ($M) Ending Debt Balance Funding LIT Security Dec-2015 $ 10 $ 0 Cash on Hand Microsemi(1) Weapons, EW, Security May-2016 $ 300 - Term Loan Cash on Ha
Slide 30: Committed to maintaining differentiated and attractive financial profile
© Mercury Systems, Inc.30 Committed to maintaining differentiated and attractive financial profile 100% 3% 9% 33% Increase Adj. EBITDA margins Grow organically at high-single / low-double digit Supplement w/strategic M&A Operating expense leverage Program production mix Operational improvement
Slide 31: Strategy and business model delivering financial performance above industry average
31 © Mercury Systems, Inc. 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
Slide 32: Appendix
APPENDIX - 4 ; . = S <=
Slide 33: Balance sheet
© Mercury Systems, Inc.33 Balance sheet As of (In $ millions)(1) 9/27/19 12/27/19 3/27/20 7/3/20 10/2/20 ASSETS Cash & cash equivalents $161.3 $182.0 $407.1 $226.8 $239.1 Accounts receivable, net 177.5 193.4 214.0 210.7 207.8 Inventory, net 148.5 153.6 161.9 178.1 206.0 PP&E, net 65.9 72.7 78.7 87.7
Slide 34: Cash flow summary
© Mercury Systems, Inc.34 Cash flow summary For the Fiscal Quarters Ended (In $ millions)(1) 9/27/19 12/27/19 3/27/20 7/3/20 10/2/20 Net Income $19.2 $15.7 $23.6 $27.2 $15.8 Depreciation and amortization 11.4 12.5 12.7 12.8 13.0 Gain on investment - - (3.8) (2.0) - Other non-cash items, net 6.4 7.6
Slide 35: Q1 FY21 vs. Q1 FY20
© Mercury Systems, Inc.35 Q1 FY21 vs. Q1 FY20 In $ millions, except percentage and per share data Q1 FY20(3)(4) Q1 FY21(3)(5) CHANGE Bookings Book-to-Bill $215.7 1.22 $200.7 0.98 (7%) Backlog 12-Month Backlog $711.8 499.2 $826.1 516.1 16% Revenue Organic Revenue Growth(1) $177.3 17% $205.6 12% 16% G
Slide 36: Adjusted EPS reconciliation
© Mercury Systems, Inc.36 Adjusted EPS reconciliation Notes (1) Per share information is presented on a fully diluted basis. (2) 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 37: Adjusted EBITDA reconciliation
© Mercury Systems, Inc.37 Adjusted EBITDA reconciliation Notes (1) Effective as of July 1, 2019, the Company’s fiscal year has changed to the 52-week or 53-week period ending on the Friday closest to the last day of June. All references in this presentation to the second quarter of fiscal 2020 and f
Slide 38: Free cash flow and organic revenue reconciliation
© Mercury Systems, Inc.38 Free cash flow reconciliation Organic revenue reconciliation Notes (1) Organic revenue represents total company revenue excluding net revenue from acquisitions for the first four full quarters since the entities’ acquisition date (which excludes any intercompany transaction
Slide 39: Glossary
© Mercury Systems, Inc.39 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 Grap
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