Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Investor Presentation (May 2018)
34 slides from Mercury Systems's investor presentation, May 8, 2018
Slide 1: Investor Presentation
Investor Presentation Mark Aslett President and CEO Michael Ruppert Executive Vice President and CFO May 8, 2018 © 2018 Mercury Systems, Inc.
Slide 2: Forward-looking safe harbor statement
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’s plans for growth and improve
Slide 3: Pioneering a next generation defense electronics company
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 • Deployed on 300+ programs with 25+ Prime contractors • FY17 $408.6M revenue; Growth
Slide 4: Strategy delivering above average growth and profitability
Strategy delivering above average growth and profitability Focused on Focused on economic core – aerospace and defense electronics 1 Core Markets Acquired New Expanded addressable market and moved up value chain 2 Capabilities Increased High-tech R&D investment level for aerospace and defense electr
Slide 5: We are deployed on 300+ programs with 25+ Primes
We are deployed on 300+ programs with 25+ Primes Aerospace & Defense Platform and Systems Electronics Content JLTV WIN-T KC-46 A330 MRTT Aegis I 4 C F-16 Reaper/Gorgon Stare Triton Patriot Aegis s m e t s y S n o Global Hawk SEWIP i F-15 C-130 Badger/Buzzard s s i M r o t c e f f E & SM2/3/6 r SDB I
Slide 6: Mercury's vision
Mercury’s vision is to be the… Leading commercial provider of secure sensor and safety-critical processing subsystems © 2018 Mercury Systems, Inc. 6
Slide 7: Acquisitions have transformed Mercury into a commercial provider
Acquisitions have transformed Mercury into a commercial… Aerospace and Defense • Acquired capabilities Electronic Subsystem significantly expand MISSION PROCESSING addressable market MISSION PROCESSING SENSOR PROCESSING * • Moved up the value chain SENSOR PROCESSING DIGITIZATION * • Model facilitate
Slide 8: Five major trends shaping the defense industry
Five major trends shaping the defense industry Political Dysfunction: Budget Control Act and repeated Continuing Resolutions disrupting DoD budget process and spending Increased Defense Spending Cycle: Rising interest rates, healthcare and social spending remain issues; MilPer expense growth, aging
Slide 9: Bipartisan Budget Deal of 2018 provides near-term impulse to defense spending
The Bipartisan Budget Deal of 2018 provides a significant near-term impulse to defense spending… Topline Base Authorization Budget vs. BCA Caps (Discretionary BA, Current $B) FY18 Bipartisan Budget Deal (Base) Administration 2019 Base + OCO request Actual funding (Base) $800 FY18 Bipartisan Budget D
Slide 10: Mercury's capabilities and drivers of growth are aligned
Mercury’s capabilities and drivers of growth are aligned… Sensor and C4I modernization and new platforms Weapon systems readiness and modernization Defense Prime contractors outsourcing more Defense Primes’ flight to quality suppliers Defense Primes and government delayering supply chains Foreign mi
Slide 11: Captive outsourcing by Defense prime contractors
Captive outsourcing by Defense prime contractors… • 2018 A&D electronics is Global A&D Electronics Systems Market ($B) $103 billion market $117 $120 $113 $110 Global Aerospace & $106 Defense Electronic • US Defense is nearly half $103 Systems Market of total market at $51B $100 • Tier 2 compute & RF
Slide 12: Acquisitions and investments driving significant opportunity growth
Acquisitions and investments driving significant opportunity growth… Top 30 Programs & Pursuits Estimated Lifetime Value ($M) • Total potential value grew 6,000 Radar EW C4I Weapons Other >3x to $4.9B in 5 years 5,000 3,316 4,909 378 • Significant EW, C4I, weapons 4,000 2,798 1,039 Possible opportun
Slide 13: Business model built for speed, innovation and affordability
Business model built for speed, innovation and affordability… Traditional COTS Mercury Pre-integrated Product Integration Subsystem Less Risk I Classified Prime/Gov’t IP Classified Prime/Gov’t IP N T E Application-Ready Proprietary Middleware G Software Toolkit R A Less Cost Open Middleware T Operat
Slide 14: Only high-tech commercial company with the technology
Only high-tech commercial company with the technology… Secure Sensor and Safety-Critical Processing Solutions ACQUIRE DIGITIZE PROCESS STORAGE EXPLOIT DISSEMINATE SPEED SAFETY Highest Performance Highest Safety Design Processing & RFM Assurance Levels (DAL) SWaP SECURITY SOFTWARE Best Size, Weight &
Slide 15: Disciplined and focused M&A strategy
We have executed on a disciplined and focused M&A strategy 2018 Tier 2* Market ($B) & CY’18-22 CAGR (%) Aerospace & Defense Platform and Systems Electronics Content C4I Sensor & Effector Mission Systems Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Command & Avionics / Dedicated
Slide 16: Strategy and investments have positioned Mercury well
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 content expansion growth strategy
Slide 17: Financial Overview
Financial Overview Michael Ruppert Executive Vice President and CFO © 2018 Mercury Systems, Inc.
Slide 18: The evolution of Mercury Systems
The evolution of Mercury Systems In millions, except percentage and per share data. % Increase / Mar. 31, 2015 (2) Apr. 30, 2018(2) (Decrease) Market $503 $1,546 207% n Capitalization o i t a u l a V Enterprise Value $437 $1,697 289% LTM LTM % Increase / Mar. 31, 2015 (1) Mar. 31, 2018(1) (Decrease)
Slide 19: Mercury's financial profile puts it in a unique category
Mercury’s financial profile puts it in a unique category ALL NYSE AND NASDAQ COMPANIES WITH MARKET TIER 2 DEFENSE INDEX LTM based on most CAPITALIZATION BETWEEN $750mm - $3bn recently reported 1,068 LTM based on most recently reported quarters quarters Companies EBITDA Margin 18% 23% >20% EBITDA Mar
Slide 20: Strong revenue growth and operating leverage
Strong revenue growth and operating leverage… Revenue to Adjusted EBITDA trends Mercury Revenue ($M) Mercury Adj EBITDA (%, $M) 500 40% 456 450 409 400 378 30% 350 300 270 235 250 209 20% 194 21% 23% 23% 200 19% $57.3M $93.9M $105.5M $44.4M 22% 150 $84.4M 10% 100 11% $23.5M 50 5% 0 $9.9M 0% FY13 FY1
Slide 21: FY13-FY17 backlog CAGR of 27%
FY13-FY17 backlog CAGR of 27%... Mercury Ending Backlog ($M) 12-Month Ending Backlog > 12-Month Backlog Fwd Revenue Coverage Ratio⁽¹⁾ 63% 400 357 350 64% 66 300 288 68% 49 250 63% 208 200 50% 174 41 136 30 150 291 27 239 100 109 144 166 50 0 FY13 FY14 FY15 FY16 FY17 Notes: (1) Revenue Coverage Ratio
Slide 22: Market expansion strategy is working well
Market expansion strategy is working well Revenue and Growth by Market ($M) • Continued growth in core Radar EW C4I Weapons Other 500 markets 262 456 450 46 • Expansion into adjacent 400 33 markets 350 49 300 52 250 82 • Additional capabilities 194 200 drive content expansion 150 • 100 Broader progr
Slide 23: Strong LTM performance
Strong LTM performance 20% revenue and 25% adjusted EBITDA growth YoY LTM LTM In millions, except percentage and per share data Change Q3 FY17⁽¹⁾ Q3 FY18⁽¹⁾ Backlog $318.0 $429.3 35% Revenue $378.4 $455.9 20% Gross Margin 46.5% 46.4% (0.1 pt) Operating Expenses $143.7 $170.4 19% Amortization/Restruc
Slide 24: FY18 annual guidance
FY18 annual guidance In millions, except percentage and per share data FY17(1) FY18(2) Change Revenue $409 $487 - $492 19% - 20% Gross Margin 46.9% 45.7% - 45.8% (1.2pt) - (1.1pt) Operating Expenses $154.1 $177.9 - $178.4 15% - 16% GAAP Income $24.9 $40.2 - $41.8 62% - 68% GAAP EPS $0.58 $0.85 - $0.
Slide 25: Achieving target business model
Achieving target business model Target LTM FY16(1) FY17(1) Business Q3 FY18⁽¹⁾ Model Revenue 100% 100% 100% 100% Gross Margin 47% 47% 46% 45 - 50% SG&A 20% 19% 18% 16 - 18% R&D 13% 13% 13% 11 - 13% Amortization 3% 5% 5% 4 - 5% GAAP Income 7% 6% 9% N/A Adj. EBITDA(2) 21% 23% 23% 22 - 26% Notes: (1) F
Slide 26: Conservative balance sheet
Conservative balance sheet $205M available revolving credit facility, universal shelf for future investments FY16 FY17 Q3 FY18 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 81.7 41.6 44.2 Accounts receivable, net 95.9 113.7 141.6 Inventory, net 58.3 81.1 117.1 PP&E, net 28.3 51.6
Slide 27: We actively develop potential acquisition targets across all channels
We actively develop potential acquisition targets across all channels ~$580M of capital deployed in ~24 months * Acquisition Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Apr 2017 Jul 2017 Feb 2018 Close Date Size $31M $70M $75M $10M $300M $39M $40.5M $6M $180M Strong Strategic Rationale
Slide 28: Poised for continued, profitable growth
Poised for continued, profitable growth • 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
Slide 29: Appendix
Appendix © 2018 Mercury Systems, Inc.
Slide 30: FY18 guidance (as of April 24th)
FY18 guidance (as of April 24th) YoY In millions, except percentage and per share data FY17 FY18⁽¹⁾ Change Actual Est. Range Revenue $409 $487 - $492 19% - 20% GAAP Income $24.9 $40.2 - $41.8 62% - 68% Adj EBITDA⁽²⁾ $93.9 $111.0 - $113.5 18% - 21% Adj EBITDA Adjustments: Income (loss) from continuin
Slide 31: Adjusted EPS reconciliation
Adjusted EPS reconciliation (000's) FY13 FY14 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Diluted net earnings (loss) per share⁽¹⁾ $ (0.46) $ (0.13) $ 0.44 $ 0.08 $ 0.15 $ 0.13 $ 0.19 $ 0.56 $ 0.10 $ 0.13 $ 0.16 $ 0.19 $ 0.58 $ 0.38 $ 0.19 $
Slide 32: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation (000'S) FY13 FY14 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Income (loss) from continuing operations $(13,782) $ (4,072) $ 14,429 $ 2,856 $ 5,040 $ 4,357 $ 7,489 $ 19,742 $ 3,819 $ 5,204 $ 7,048 $ 8,804 $ 24,
Slide 33: Sales-related definitions
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 from the customer. Pursuit We h
Slide 34: Glossary
Glossary AEGIS Aegis Ballistic Missile Defense System EP Electronic Protection O&M Operations & Maintenance Eagle Passive Active Warning System-level specification for VPX, initiated AESA Active Electronically Scanned Array EPAWWS OpenVPX Survivability System by Mercury Advanced Integrated Defensive