Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Jefferies 2018 Global Industrials Conference
35 slides from Mercury Systems's conference presentation, Aug 9, 2018
Slide 1: Jefferies 2018 Global Industrials Conference
Jefferies 2018 Global Industrials Conference Mark Aslett President and CEO Michael Ruppert Executive Vice President and CFO August 9, 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 2019 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 • FY18 $493M revenue; Growth Y
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 C4I F-16 Reaper/Gorgon Stare Triton Patriot Aegis F-15 C-130 Global Hawk Badger/Buzzard SEWIP SDB II PGK MALD-J Paveway SM2/3/6 Sensor & Effector Mission Sys
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 SAFETY & SECURITY IP * • Moved up the value chain SECURE STORAGE SENSOR PROCESSING • Model facilit
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 and 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) $800 FY18 Bipartisan Budget D
Slide 10: Capabilities and drivers of growth are aligned
Mercury’s capabilities and drivers of growth are aligned… Sensor and C4I modernization and new platforms Weapon systems readiness and modernization Defense Prime contractors outsourcing more Defense Primes’ flight to quality suppliers Defense Primes and government delayering supply chains Foreign mi
Slide 11: Captive outsourcing by Defense prime contractors
Captive outsourcing by Defense prime contractors… Global A&D Electronics Systems Market ($B) • 2018 A&D electronics is $117 $103 billion market $120 $113 $110 Global Aerospace & $106 Defense Electronic • US Defense is nearly half $103 Systems Market $100 of total market at $51B • Tier 2 compute & RF
Slide 12: Acquisitions and investments driving opportunity growth
Acquisitions and investments driving significant opportunity growth… • Total potential value grew Top 30 Programs & Pursuits Estimated Lifetime Value ($M) Radar EW C4I EO/IR Weapons Other >4.5x to $7.6B in 6 years 9,000 8,000 5,974 7,567 • Significant Radar, EW, C4I, 7,000 349 717 3,090 EO/IR and we
Slide 13: Business model built for speed, innovation and affordability
Business model built for speed, innovation and affordability… Traditional COTS Mercury Pre-integrated Product Integration Subsystem Less Risk I Classified Prime/Gov’t IP Classified Prime/Gov’t IP N T E Application-Ready Proprietary Middleware G Software Toolkit R A Less Cost Open Middleware T Operat
Slide 14: Only high-tech commercial company with the technology
Only high-tech commercial company with the technology… Secure Sensor and Safety-Critical Processing Solutions ACQUIRE DIGITIZE PROCESS STORAGE EXPLOIT DISSEMINATE SPEED SAFETY Highest Performance Highest Safety Design Processing & RFM Assurance Levels (DAL) SWaP SECURITY SOFTWARE Best Size, Weight &
Slide 15: Disciplined and focused M&A strategy
We have executed on a disciplined and focused M&A strategy 2018 Tier 2* Market ($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 / FY15(1) FY18(1) (Decrease) Market Capitalization $477 $2,317 386% Valuation Enterprise Value $399 $2,445 512% % Increase / FY15(2) FY18(2) (Decrease) Revenue $235 $493 110% Adj. EBITDA $44 $115 160% Op
Slide 19: Financial profile demonstrates our unique strategy
Mercury’s financial profile demonstrates our unique strategy ALL NYSE AND NASDAQ COMPANIES WITH MARKET TIER 2 DEFENSE INDEX LTM based on most CAPITALIZATION BETWEEN $750mm - $3bn recently reported 1074 LTM based on most recently reported quarters quarters Companies EBITDA Margin 18% 23% >20% EBITDA
Slide 20: Strong revenue growth and operating leverage
Strong revenue growth and operating leverage… Revenue to Adjusted EBITDA trends Mercury Revenue ($M) Mercury Adj EBITDA (%, $M) 493 500 40% 450 409 400 30% 350 300 270 235 23% 250 20% 194 209 $115.4M 200 23% $93.9M 150 21% 19% $57.3M 10% 100 11% $44.4M $23.5M 50 5% $9.9M 0 0% FY13 FY14 FY15 FY16 FY1
Slide 21: FY13-FY18 ending backlog CAGR of 27%
FY13-FY18 ending backlog CAGR of 27%... Mercury Ending Backlog ($M) 12-Month Ending Backlog > 12-Month Backlog Fwd Revenue Coverage Ratio⁽¹⁾ 58% (Est.) 447 450 63% 400 357 119 350 64% 66 300 288 68% 49 250 63% 208 200 50% 174 41 30 328 150 136 291 27 239 100 109 144 166 50 0 FY13 FY14 FY15 FY16 FY17
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 markets 500 299 493 39 450 37 • Expansion into adjacent 400 73 markets 350 300 62 • Additional capabilities 250 88 drive content expansion 200 194 150 • Broader program a
Slide 23: FY18 vs. FY17
FY18 vs. FY17 In $ millions, except percentage and per share data FY17(1) FY18(1) Change Bookings $443.8 $563.5 27% Book-to-Bill 1.09 1.14 Backlog $357.0 $447.1 25% 12-Month Backlog $290.8 $328.5 Revenue $408.6 $493.2 21% Organic Revenue Growth(2) 10% 7% Gross Margin 46.9% 45.8% (1.1 pt) Operating E
Slide 24: FY19 annual guidance
FY19 annual guidance In $ millions, except percentage and per share data FY18(1) FY19(2) Change Revenue $493.2 $602 - $624 22% - 27% Gross Margin 45.8% 43.7% - 44.4% (2.1) - (1.4)pts Operating Expenses $178.9 $202.2 - $204.3 13% - 14% GAAP Income $40.9 $36.1 - $44.5 (12%) - 9% Effective tax rate(3)
Slide 25: Achieving target business model
Achieving target business model Target FY16(1) FY17(1) FY18⁽¹⁾ Business Model Revenue 100% 100% 100% 100% Gross Margin 47% 47% 46% 45 - 50% SG&A 20% 19% 18% 16 - 18% R&D 13% 13% 12% 11 - 13% Amortization 3% 5% 5% 4 - 5% GAAP Income 7% 6% 8% N/A Adj. EBITDA(2) 21% 23% 23% 22 - 26% Notes: (1) Figures
Slide 26: Balance Sheet
Balance Sheet As of As of (In $ millions)(1) 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 ASSETS Cash & cash equivalents 41.6 26.1 32.0 44.2 66.5 Accounts receivable, net 113.7 121.4 123.0 141.6 143.8 Inventory, net 81.1 93.3 105.9 117.1 108.6 PP&E, net 51.6 51.6 51.6 51.3 51.0 Goodwill and intangibles,
Slide 27: We actively develop potential acquisition targets across all channels
We actively develop potential acquisition targets across all channels ~$620M of capital deployed in ~30 months * Acquisition Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Apr 2017 Jul 2017 Feb 2018 Jul 2018 Close Date Size $31M $70M $75M $10M $300M $39M $40.5M $6M $180M $45M Strong Strategic
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: FY19 guidance (as of July 31)
FY19 guidance (as of July 31) YoY In $millions, except percentage and per share data FY18 FY19⁽¹⁾ Change Actual Est. Range Revenue $493 $602 - $624 22% - 27% GAAP Income $40.9 $36.1 - $44.5 (12%) - 9% Adj EBITDA⁽²⁾ $115.4 $130.5 - $142.0 13% - 23% Adj EBITDA Adjustments: Income (loss) from continuin
Slide 31: Adjusted EPS reconciliation
Adjusted EPS reconciliation Q1FY19 FY2019 (000's) Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Low High Low High Diluted net earnings (loss) per share⁽¹⁾ $ 0.10 $ 0.13 $ 0.16 $ 0.19 $ 0.58 $ 0.38 $ 0.19 $ 0.08 $ 0.21 $ 0.86 $ 0.10 $ 0.15 $ 0.75 $ 0.93 Income (loss) from
Slide 32: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Q1FY19 FY2019 (000'S) Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Low High Low High Income (loss) from continuing operations $ 3,819 $ 5,204 $ 7,048 $ 8,804 $ 24,875 $ 17,953 $ 9,133 $ 3,696 $ 10,101 $ 40,883 $ 4,900 $ 7,000 $ 36,100 $ 44,
Slide 33: Free cash flow reconciliation
Free cash flow reconciliation (000's) Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Cash flows from operations $ 10,283 $ 14,238 $ 24,889 $ 9,736 $ 59,146 $ 8,028 $ 8,779 $ 873 $ 25,641 $ 43,321 Capital expenditures (6,050) (7,703) (13,036) (6,055) $ (32,844) (3,628) (3,9
Slide 34: 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 35: 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
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