Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Non-Deal Roadshow (November 2015)
35 slides from Mercury Systems's roadshow presentation, Nov 3, 2015
Slide 1: KeyBanc Capital Markets KC & Chicago Road Show
© 2015 Mercury Systems, Inc. KeyBanc Capital Markets KC & Chicago Road Show Mark Aslett President and CEO Gerry Haines Executive Vice President and CFO November 3-4, 2015
Slide 2: Forward-looking safe harbor statement
2 © 2015 Mercury 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 the products and services described herein. You can identif
Slide 3: Introducing Mercury Systems
3 © 2015 Mercury Systems, Inc. Commercial secure and sensor processing subsystems Introducing Mercury Systems • MRCY on NASDAQ 1998 • High tech company; commercial business model • Focused on Defense and Intelligence priorities • Deployed on ~300 programs with 25+ Prime contractors • FY15 $235M reve
Slide 4: Pioneering a next generation defense electronics company
4 © 2015 Mercury Systems, Inc. Pioneering a next generation defense electronics company Successful business transformation, double-digit defense revenue growth with improved profitability Proven Management Team Pure play defense electronics company embedded on key growth programs aligned to DoD prio
Slide 5: Mercury's vision
5 © 2015 Mercury Systems, Inc. Mercury’s vision is to be the… Leading high-tech commercial provider of more affordable secure and sensor processing subsystems designed and made in the USA
Slide 6: Acquisitions have transformed the computer company into a pure play defense provider
6 © 2015 Mercury Systems, Inc. Acquisitions have transformed the computer company… …into a pure play provider of defense electronics subsystems
Slide 7: Defense will likely remain a $500B+ industry
7 © 2015 Mercury Systems, Inc. Defense will likely remain a $500B+ industry… …despite the ongoing political and budget uncertainty Crowding Out of Defense Spending and Investment: Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs rising
Slide 8: Long-term Defense budget outlook improving
8 © 2015 Mercury Systems, Inc. Long-term Defense budget outlook improving… Short term, Political dysfunction affecting Government FY16 $530 $495 $496 $496 $534 $547 $556 $564 $570 $559 $500 $512 460 480 500 520 540 560 580 600 2012 2013 2014 2015 2016 2017 2018 2019 2020 PBR16 PBR15 BCA Sources: FY1
Slide 9: Captive innovation giving way to co-productization
9 © 2015 Mercury Systems, Inc. Captive innovation giving way to co-productization The Defense industry has cut its capacity to innovate • Government and industry funding less R&D • Primes do not want to consume IR&D on basic subsystems integration • Fewer engineers means greater program risk • Aging
Slide 10: How we operate as a high-tech commercial company
10 © 2015 Mercury Systems, Inc. …serving the US defense electronics industry How we operate as a high-tech commercial company… • Internal R&D funds the development of modular, reusable open innovations • Pre-integration improves affordability and time to market • Rapid customization and adaptation t
Slide 11: Business model built for speed, innovation and affordability
11 © 2015 Mercury Systems, Inc. …as customers seek more affordable outsourced subsystems Our business model is built for speed, innovation and affordability… • Traditional COTS board model broken (“Plug-n-Pray”) – Product procurement cost low – Large hidden integration costs – Lower prime IRAD spend
Slide 12: From Teraflop modules and RFM subassemblies to pre-integrated sensor processing subsystems
12 © 2015 Mercury Systems, Inc. From highly leveraged Teraflop modules and RFM subassemblies… …to blade servers and pre-integrated sensor processing subsystems Rugged MOSA Teraflop server blade Rugged MOSA solution - servers for the tactical edge ATCA blade server Integrated Microwave Assemblies MOS
Slide 13: Factors leading to a unique market position for Mercury
13 © 2015 Mercury Systems, Inc. • Broadband EW domain expertise • Pre-integrated end-to-end sensor capability unique • Lower integration costs, time, risk • Facilitates Prime outsourcing • DoD mandate • Unique capabilities • Important relationships • Critical programs • 2-3 years ahead of traditiona
Slide 14: Unique capabilities aligned to key industry growth drivers
14 © 2015 Mercury Systems, Inc. Mercury has unique and differentiated capabilities today… …that are aligned to the key industry growth drivers Pacific Pivot: Sensors going long, wide and high. Platforms need improved sensors, autonomy, electronic protection and attack, on-board exploitation Aging Pl
Slide 15: Industry growth drivers translate into company growth drivers
15 © 2015 Mercury Systems, Inc. Defense industry growth drivers translate into specific… …company growth drivers that we are pursuing Outsourced Secure Processing Subsystems: Expand beyond sensor processing to provide MOSA secure processing subsystems for other onboard mission-critical compute appli
Slide 16: Deployed on 300+ programs with 25+ Primes
16 © 2015 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton; NATO AGS Global Hawk AEGIS AEGIS Ashore Patriot F-16 F-35 Global Hawk SEWIP Badger/Buzzard F-15 AH-64 Apache F-35 Fury P-8 F-16 Reaper/Gorgon Stare
Slide 17: Acquisitions and investments driving significant opportunity growth
17 © 2015 Mercury Systems, Inc. Acquisitions and investments driving significant opportunity growth • Low-risk content expansion growth strategy • Key production programs • Total value increased 2.5x to $4.0B in 2 years • Converted 1.4x of possible to probable value in 2 years • After 3 years, RFM n
Slide 18: Strategy and investments have positioned Mercury well
18 © 2015 Mercury Systems, Inc. © 2015 Mercury Systems, Inc. Strategy and investments have positioned Mercury well • Pioneering a next-generation defense electronics business model • Unique technology and capabilities on key production programs • Low-risk content expansion growth strategy with demon
Slide 19: Financial Overview
© 2015 Mercury Systems, Inc. Financial Overview Gerry Haines Executive Vice President & CFO
Slide 20: Business model and capabilities create opportunity for growth and improved returns
20 © 2015 Mercury Systems, Inc. Mercury’s business model and capabilities… …create a unique opportunity for growth and improved returns Model Characteristics Implications and Benefits Merchant supplier of sensor processing subsystems COTS product competitors remain but not subsystem Commercially des
Slide 21: FY09-FY12 revenue summary by market
21 © 2015 Mercury Systems, Inc. FY09-FY12 revenue summary by market Defense revenue CAGR of 15% FY09-FY12 Notes: • All numbers based on continuing operations. 145 158 181 222 44 42 48 15 0 50 100 150 200 250 FY09 FY10 FY11 FY12 Revenue ($M) Defense Commercial 189 200 229 237
Slide 22: Adjusted EBITDA CAGR of 28% FY09-FY12
22 © 2015 Mercury Systems, Inc. Adjusted EBITDA CAGR of 28% FY09-FY12 Achieved historic target business model in FY11 Notes: • FY09 figures are as reported in the Company’s fiscal 2010 Form 10K. FY10-12 figures are reported in the Company’s fiscal 2014 Form 10K. • Adjusted EBITDA is income from cont
Slide 23: Strong performance in FY15
23 © 2015 Mercury Systems, Inc. Strong performance in FY15 13% revenue and 89% adjusted EBITDA growth YoY Notes: (1) All numbers based on continuing operations. (2) Excludes $7.1M of restructuring and other charges from GAAP operating expenses in FY13, $5.4M in FY14 and $3.2M in FY15. GAAP ($M) FY13
Slide 24: Record backlog exiting FY15
24 © 2015 Mercury Systems, Inc. Record backlog exiting FY15 139% growth since FY11; Revenue coverage more than doubles FY11-FY15 Well positioned for FY16 Notes: (1) Revenue Coverage Ratio = 12-month ending backlog/Next 12 months Revenue (or initial revenue estimate for current/future year). (2) Esti
Slide 25: Program focus driving substantial growth potential
25 © 2015 Mercury Systems, Inc. FY15 FY16 FY17 Production Years Probable Bid vs. Won Expansion Probable Possible Process RFM Total ($M) Total ($M) Aegis Sensor Processing FRP: FY14-25 Won 296 523 Processing Expansion FRP: FY19-25 Bid 57 96 RFM FRP: FY16-25 Won/Bid 46 198 SEWIP Block 2 FRP: FY1
Slide 26: Q2 FY16 guidance
26 © 2015 Mercury Systems, Inc. Q2 FY16 guidance (as of October 27th) Notes: (1) The guidance included herein is from the Company’s earnings release and is as of the date of the earnings release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any o
Slide 27: Strong revenue growth and operating leverage
27 © 2015 Mercury Systems, Inc. Strong revenue growth and operating leverage Est. 5% revenue increase yields 10% Adj. EBITDA increase for FY16 Notes: (1) The guidance included herein is from the Company’s earnings release and is as of the date of the earnings release. The Company is neither reconfir
Slide 28: Achievement of target business model for FY15
28 © 2015 Mercury Systems, Inc. Achievement of target business model for FY15 Current Target Business Model GAAP FY15 FY16E ⁽¹⁾ Revenue 100% 100% 100% Gross Margin 47% Target Range 45-50% SG&A 21% ~21% Low 20’s R&D 14% ~14% 11-13% Amortization 3% ~3% 2-3% Adjusted EBITDA 19% ~19-20% 18-22% Notes: (1
Slide 29: Solid balance sheet with zero debt
29 © 2015 Mercury Systems, Inc. Solid balance sheet with zero debt Ample liquidity, unused $200M credit facility, $500M Universal Shelf Notes: (1) Discontinued operations numbers are MIS. FY14 FY15 Q1 FY16 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 47.3 77.6 79.1 Accounts rece
Slide 30: Poised for profitable growth
30 © 2015 Mercury Systems, Inc. © 2015 Mercury Systems, Inc. Poised for profitable growth • Growth and profitability accelerated in FY15 • Business fully integrated, yielding strong operating leverage • Strategy, operational discipline, provide platform for profitable growth • Well-funded production
Slide 31: Appendix
© 2015 Mercury Systems, Inc. Appendix
Slide 32: Adjusted EPS reconciliation
32 © 2015 Mercury Systems, Inc. Adjusted EPS reconciliation (000’s) FY13 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 FY15 Q1 FY16 Diluted net earnings (loss) per share ⁽¹⁾ $ (0.46) $ (0.13) $ 0.02 $ 0.09 $ 0.14 $ 0.18 $ 0.44 $ 0.06 Income (loss) from continuing operations $ (13,782) $ (4,072) $ 717 $ 2,886
Slide 33: Adjusted EBITDA reconciliation
33 © 2015 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) FY09 FY10 FY11 FY12 FY13 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 FY15 Q1 FY16 Income (loss) from continuing operations $ 7,909 $ 28,069 $ 18,507 $ 22,323 $(13,782) $ (4,072) $ 717 $ 2,886 $ 4,694 $ 6,132 $ 14,429 $ 1,960 Interest ex
Slide 34: Glossary
34 © 2015 Mercury Systems, Inc. Glossary AEGIS Aegis Ballistic Missile Defense System EO/IR Electro-optical / Infrared O&M Operations & Maintenance AESA Active Electronically Scanned Array EW Electronic Warfare OpenVPX System-level specification for VPX, initiated by Mercury AGS Alliance Ground Surv
Slide 35: Sales-related definitions
35 © 2015 Mercury Systems, Inc. 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