Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Mercury Computer Systems — Investor Day (November 2011)
76 slides from Mercury Systems's investor day presentation, Nov 16, 2011
Slide 1: Twelfth Annual Investor Conference
© 2011 Mercury Computer Systems, Inc. Twelfth Annual Investor Conference November 16, 2011 New York, NY Exhibit 99.1
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Slide 3: Agenda
Agenda • Corporate Overview Mark Aslett, President & CEO • Keynote: General James E. Cartwright, USMC (Ret) Former Vice Chairman, US Joint Chiefs of Staff • Coffee Break (15 min) • Advanced Computing Solutions (ACS) • Mercury Federal Systems (MFS) • Financial Review • Closing Remarks / Q&A © 2011 Me
Slide 4: Introducing Mercury Computer Systems
• 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; 600+ employees • Defense revenue ~80% and 61% growth FY07 to
Slide 5: The Mercury Board of Directors
© 2011 Mercury Computer Systems, Inc. The Mercury Board of Directors Vincent Vitto Chairman of the Board; Retired President & CEO, Draper Labs George K. Muellner Retired President, Advanced Systems for Integrated Defense Systems, Boeing; Former Principal Deputy, Office of the Assistant Secretary of
Slide 6: FY11 in review
FY11 in review (June ending) • Highest annual defense revenue in MRCY history 14% growth in defense revenue 22% growth in defense bookings 144% growth in defense design win 5-year value 50% of new design wins service led / outsourcing • 44% growth in GAAP operating income • 37% growth in Adj. EBITDA
Slide 7: DoD budget: lower overall defense spending
• GFY11 defense spend $526B plus $159B OCO • GFY12 President defense request $553B plus $118B OCO • Bipartisan committee tasked with finding $1.2T of savings by Nov 23 • Two chambers approve ‘up or down’ by Dec 23 • 2-stage approach to cuts © 2011 Mercury Computer Systems, Inc. Lower overall defense
Slide 8: Stage 1 of debt deal slides growth 2 years
• Stage 1 of debt deal reduces defense spending growth $350B over 10 years • Short-term growth slides right two years • Defense spending flat in GFY12 and GFY13 at $526B • Request reduced by $27B in GFY12 and $44B in GFY13 • Defense spending expected to grow longer term © 2011 Mercury Computer Syste
Slide 9: Stage 2 of debt deal could result in deeper cuts
• Stage 2 focus on increased revenue, cuts to mandatory and discretionary spending • Cuts equal delta between $1.2T and what is approved • If no deal, mandatory cuts. Defense 50% of cuts • ‘Worst’ case ¹ : Defense reduced by ~$50B per year beginning GFY13 • New Congress and President can change prev
Slide 10: Defense procurement reform is well underway
• Restore affordability to defense goods and services • Provide capabilities we need with the dollars we can afford • Shorten procurement and upgrade cycles • Obtain greater efficiency, affordability and productivity • Avoid program turbulence and maintain industry base © 2011 Mercury Computer Syste
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Slide 13: 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
Slide 14: We are the leader in high-performance embedded computing
We are the leader in high-performance embedded computing Historically, Mercury focused on one element of sensor chain RACE++ Boards From © 2011 Mercury Computer Systems, Inc.
Slide 15: Growing capabilities 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
Slide 16: Evolved business model to open sensor processing solutions
We are an outsourcing partner to the Primes as they seek the rapid development of more affordable sensor processing solutions © 2011 Mercury Computer Systems, Inc. • Industry-leading technology • Advanced size, weight and power design and packaging • Ruggedized for deployment; production volume read
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Slide 22: Growth strategy summary
Mercury has strategically positioned its business to grow 1. Expand our capabilities and offerings along signal 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
Slide 23: Prime customers
NORTHROP GRUMMAN LOCKHEED MARTIN a BAE SYSTEMS {00051} Qa BOEING GoopRICH fo GENERAL ATOMICcS
Slide 24: FY13 program growth driver update
© 2011 Mercury Computer Systems, Inc. FY13 program growth driver update JCREW: Counter-IED LRIP up to 1,350 systems beginning GFY13 Patriot: Missile Defense Potential U.S. Army upgrades beginning in GFY13 Aegis: Ballistic Missile Defense Well-defined upgrade provides foundational revenue SEWIP: Nava
Slide 25: Growth strategy summary
Mercury has strategically positioned its business to grow 1. Expand our capabilities and offerings along signal 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
Slide 26: Helping Primes reduce costs and reengineer supply chains
Primes retaining platform system design & integration RF component / assembly consolidation • 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 w
Slide 27: COTS is approximately 8% of defense electronics market
Prime Defense Electronics, $39B, 92% © 2011 Mercury Computer Systems, Inc. COTS is approximately 8% of defense electronics market COTS, $3.2B, 8%
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Slide 29: Growth strategy summary
Mercury has strategically positioned its business to grow 1. Expand our capabilities and offerings along signal 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
Slide 30: Acquisition strategy to strengthen capabilities
© 2011 Mercury Computer Systems, Inc. Acquisition strategy looking to strengthen capabilities, as well as intersect and exploit key trends in defense • RF marketplace remains fragmented despite recent acquisitions – Hundreds of suppliers focused on niche components, sub-assemblies – Rely on Primes f
Slide 31: Acquire, digitize, process, store, exploit, disseminate
ACQUIRE DIGITIZE PROCESS STORE EXPLOIT DISSEMINATE
Slide 32: Acquisition Case Study: LNX
Acquisition Case Study: LNX • • • • © 2011 Mercury Computer Systems, Inc. World-class supplier of next- generation RF receivers for signals and communications intelligence and electronic warfare applications Increased content on JCREW 3.3 by over 40% Acquired on Jan. 12, 2011, for $31 million, plus
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Slide 36: Advanced Computing Solutions (ACS)
• Providing Application Ready Subsystems to Primes for C4ISR applications • Leverage technologies across market segments • Optimized performance with SWaP innovation • Quick Response Capabilities (QRC) service offerings • Defense 12% CAGR, Radar 29% CAGR, EO/IR 28% CAGR • Key programs driving growth
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Slide 43: F-16 SABR AESA Radar upgrade
• History of success with Northrop Grumman fighter radars F-16, F-22, B1B, F-35 • Potential 1,500-2,000 F-16 radar upgrades • Design win with NGC SABR new AESA radar with OpenVPX product line • NGC just received export license enabling FMS • Target FMS first then USAF and National Guard 43 © 2011 Me
Slide 44: Advanced Distributed Aperture System (ADAS)
© 2011 Mercury Computer Systems, Inc. • Infrared multi-sensor, 360 o situational awareness • Improve effectiveness and safety at low altitude or poor visibility • Raytheon awarded $14M to productize ADAS technology • Mercury selected for image processing subsystem • Targeting upgrades for UH-60 heli
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Slide 46: New market opportunities in CyberINT processing
© 2011 Mercury Computer Systems, Inc. • Cyber Intelligence processing technology demonstrator • High-bandwidth network analysis • Unique balance of high- performance, real-time processing and I/O • Architecture fully leveraged from Radar and EO/IR • Most Primes are targeting Cyber Intelligence 46 Le
Slide 47: Summary: Well positioned for growth
• Positioned well on key programs and platforms • Unique and differentiated products and capabilities • Outsourcing partner to Primes for sensor subsystems • Capabilities in RF will help drive expansion in EW market • Design wins ramping up in FY13: JCREW 3.3, SEWIP, Patriot • Pursuing complementary
Slide 48: Agenda
© 2011 Mercury Computer Systems, Inc. Agenda • Corporate Overview • Keynote: General James E. Cartwright, USMC (Ret) Former Vice Chairman, US Joint Chiefs of Staff • Coffee Break (15 min) • Advanced Computing Solutions (ACS) • Mercury Federal Systems (MFS) – Paul Monticciolo, General Manager • Finan
Slide 49: ISR opportunities in the growing marketplace
Electronic Warfare Information Operations Focus on COMINT and IMINT. Cross cueing and interoperability for target geolocation. Tactical and strategic computing supporting all source intelligence with multi-level access. Robust human and cultural collection and reporting. Fused all-source data. Every
Slide 50: MCS & MFS well positioned given capabilities and programs
Computers Tactical Communications Embedded COTS (Intel, GPUs, FPGAs) for tactical users. Shift to more open integrated subsystems. Wearable, networked cognitive computers with light weight long lasting batteries. Interoperable global intranet. Merging of onboard processors with mission computers. Pl
Slide 51: Mercury Federal Systems: Vision and approach
• Expertise in CONOPS, architectures, and onboard PED processing • Implementation of classified applications • Emphasis on use of application-ready subsystems critical to ISR market • Team to force-multiply Mercury’s expertise • Organic and acquisition- based growth Classified IP © 2011 Mercury Comp
Slide 52: MFS Focus: Porting Prime/Gov't sensing and exploitation IP
• Implement novel ISR IP onboard to create actionable intelligence - Exploitation techniques - Multi-INT fusion - Autonomous control - Sensor signal processing • Map gov’t classified IP onto open standards-based ACS processor architecture to meet onboard SWAP constraints … onto our commercially deve
Slide 53: Migrating ground multi-INT processing on board platforms
Value of timely onboard processing-based results: • • “ The real trick in the analyst’s area is automation. We have a person watching every soda straw. It is a manpower intensive way to do this, and there is a better way.” Gen. Norton Schwartz, USAF Chief of Staff C4ISR Journal, September 2011 53 Ta
Slide 54: Gorgon Stare Increment 1
• Successfully fielded quick reaction capability system – Image processor and onboard storage – Wide-area and narrow field-of-view imagery – Multiple operational flight systems – $10.6M total program revenue through Q1 FY12 • Received prestigious Geospatial Intelligence Foundation and C4ISR Journal
Slide 55: Gorgon Stare Increment 2
• 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
Slide 56: MFS growth strategy summary
MFS positioned to grow ISR-based business and provide alternative DCAA channels for increased MCS revenues • Win future Gorgon Stare increments • Leverage ACS application-ready subsystems • Develop onboard exploitation capabilities • Enable Prime multi-INT program wins • Acquire exploitation and IC-
Slide 57: Agenda
© 2011 Mercury Computer Systems, Inc. Agenda • Corporate Overview • Keynote: General James E. Cartwright, USMC (Ret) Former Vice Chairman, US Joint Chiefs of Staff • Coffee Break (15 min) • Advanced Computing Solutions (ACS) • Mercury Federal Systems (MFS) • Financial Review – Bob Hult, CFO • Closin
Slide 58: Strong bookings growth and rebuilding backlog
© 2011 Mercury Computer Systems, Inc. 107 145 174 143 173 63 54 35 63 29 58 67 94 77 81 12 11 4 28 5 • 13% CAGR defense bookings FY07-11 • 21% defense bookings growth FY11 • 9% defense CAGR ending backlog FY07-11 • $98M Q1 FY12 defense ending backlog Strong bookings growth and rebuilding backlog FY0
Slide 59: Defense revenue growth accelerating
Defense: 13% CAGR FY07-11; 14% revenue growth YoY ACS Defense $174 (74%) ACS Commercial $50 (21%) MFS Defense $11 (5%) 111 130 145 158 179 89 60 44 42 50 Defense revenue growth accelerating Note: Excludes $6M interco eliminations Note: FY07-10 figures adjusted for discontinued operations FY11 Revenu
Slide 60: Profitability restored and improving
($1.78) ($0.21) $ 0.35 $ 1.22 $ 0.71 $0.54 Profitability restored and improving Notes: ($41)M ($5)M $8M $17M $25M -50 -40 -30 -20 -10 FY07 FY08 FY09 FY10 FY11 Operating Income ($M) Earnings per Share, as reported Earnings per Share, FY10 at normalized tax rate © 2011 Mercury Computer Systems, Inc. •
Slide 61: Adjusted EBITDA at pro forma target for FY11
© 2011 Mercury Computer Systems, Inc. Adjusted EBITDA at pro forma target for FY11 Notes: • FY08–FY10 figures are as reported in the Company’s fiscal 2010 Form 10K. FY11 figures are reported in the Company’s earnings release on August 2, 2011. • Adjusted EBITDA excludes interest income and expense,
Slide 62: Generating healthy free cash flow from operations
© 2011 Mercury Computer Systems, Inc. • 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 Generating healthy f
Slide 63: Balance sheet poised for investment
© 2011 Mercury Computer Systems, Inc. Balance sheet poised for investment Zero short and long term debt • $35M Operating line of credit (no drawdowns) Other financing sources available: • $500M Shelf Registration (30) Q4'10 Ending LNX Acq, Net Stock Offering, Net FY11 Free Cash Flow & Other Q4'11 En
Slide 64: Performing at target business model
© 2011 Mercury Computer Systems, Inc. • Organic growth only • ACS : MFS revenue split 95% : 5% respectively • High mix, low volume • R&D delivering significant added value and returns • Increased engineering services and systems integration • Services-led design wins lead to long-term production sub
Slide 65: Q1 FY12 performance highlights
© 2011 Mercury Computer Systems, Inc. Q1 FY12 performance highlights • Classified program order of $12.7M received on 10/25/11 • Total defense bookings of $60.9M up 47% vs Q1 FY11 • Total defense revenue of $45M up 19% • Defense book-to-bill ratio of 1.35 compared to 1.09 Q1 FY11 • Total defense bac
Slide 66: Q2 FY12 guidance
Q2 FY11 Actual Quarter Ending December 31, 2011 Low High $67 $69 $0.24 $0.27 $15.7 $17.0 7.4 8.2 0.0 0.0 3.9 4.3 2.1 2.1 0.7 0.7 0.0 0.0 (0.1) (0.1) 1.7 1.7 $15.7 $17.0 Q2 FY12 guidance Revenue $56 GAAP EPS (continuing) $0.22 Adj. EBITDA $10.7 Adj. EBITDA Adjustments Net income (continuing) 5.2 Inte
Slide 67: H1 FY12 year-over-year comparison
GAAP H1 FY11 H1 FY12 Delta Revenue ($M) Gross Margin (% Revenue) Operating Expenses ($M) Adj EBITDA ($M) EPS Average Shares (M) H1 FY12 year-over-year comparison Q1 actuals and midpoint of Q2 guidance 8% 58% 60% 200 bps $0.37 $0.35 ($0.02) 23.7 30.2 6.5 Notes: • H1 FY12 EPS includes the impact of 5.
Slide 68: FY12 guidance
© 2011 Mercury Computer Systems, Inc. FY12 guidance • Approximately 10% organic revenue growth • Approximately 47% / 53% revenue split H1 / H2 • Gross margin approximately 57% • Operating margin approximately 12% • Adjusted EBITDA approximately 18% • Flat EPS due to impact of new shares issued in FY
Slide 69: Guidance: Strong performance track record
Non-GAAP GAAP Q1 Q2 Q3 Q4 2008 Revenue ($M) EPS ($) 2009 Revenue ($M) EPS ($) 2010 Revenue ($M) EPS ($) 2011 Revenue ($M) EPS ($) 2012 Revenue ($M) EPS ($) Guidance: Strong performance track record Reported Guidance Reported Guidance Reported Guidance Reported Guidance 49.2 52.6 56.5 53.0-55.0 55.2
Slide 70: Financial summary
• 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 • Performing at target business model 70 © 2011 Me
Slide 71: Agenda
© 2011 Mercury Computer Systems, Inc. Agenda • Corporate Overview • Keynote: General James E. Cartwright, USMC (Ret) Former Vice Chairman, US Joint Chiefs of Staff • Coffee Break (15 min) • Advanced Computing Solutions (ACS) • Mercury Federal Systems (MFS) • Financial Review • Closing Remarks / Q&A
Slide 72: 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
Slide 73: Appendix
© 2011 Mercury Computer Systems, Inc. Appendix
Slide 74: Glossary
© 2011 Mercury Computer Systems, Inc. Glossary ACS Advanced Computing Solutions Group FMV Full Motion Video PED Processing, Exploitation and Dissemination ADAS Advanced Distributed Aperture System FPGA Field Programmable Gate Array P-Win Probability of Win AEGIS Aegis Ballistic Missile Defense Syste
Slide 75: Adjusted EBITDA reconciliation
© 2011 Mercury Computer Systems, Inc. Adjusted EBITDA reconciliation Years Ended June (000'S) 2008 2009 2010 2011 Income (loss) from continuing operations $ (4,437) $ 7,909 $ 28,069 $ 18,507 Interest expense (income), net (3,129) (151) Income tax expense (benefit) 3,710 (9,377) 8,060 Depreciation 7,
Slide 76: Free cash flow reconciliation
© 2011 Mercury Computer Systems, Inc. Free cash flow reconciliation Three Months Ended September 30 Years Ended June 2011 2007 2008 2009 2010 2011 Cash flows from operating activities $ 4,216 $ (10,313) $ 13,726 $ 11,199 $ 15,708 $ 31,474 Capital expenditures (1,646) (8,109) (4,625) (4,126) (7,334)
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