Mercury Systems Inc · NASDAQ:MRCY

Mercury Systems — Jefferies 11th Annual Industrials Conference (August 2015)

33 slides from Mercury Systems's conference presentation, Aug 12, 2015

1. Slide 1: Jefferies 11th Annual Industrials Conference

   © 2015 Mercury Systems, Inc. Jefferies 11th Annual Industrials Conference Mark Aslett President and CEO Gerry Haines Executive Vice President and CFO August 12, 2015

2. 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 identify

3. 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 reven

4. 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 prior

5. 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

6. Slide 6: Acquisitions have transformed the 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

7. 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

8. Slide 8: Defense budgetary environment improving

   8© 2015 Mercury Systems, Inc. Defense budgetary environment improving Actions underway to replace or minimize sequestration $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: FY15 PBR, FY16

9. 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

10. Slide 10: Serving the US defense electronics industry

    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 to

11. Slide 11: Customers seek more affordable outsourced subsystems

    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 spendi

12. Slide 12: From Teraflop modules 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 MOSA

13. Slide 13: 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 traditional

14. Slide 14: Unique capabilities aligned to 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 Pla

15. Slide 15: Company growth drivers we are pursuing

    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 applic

16. 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 AshorePatriotF-16 F-35 Global Hawk SEWIPBadger/BuzzardF-15 AH-64 Apache F-35 FuryP-8F-16 Reaper/Gorgon Stare

17. Slide 17: Acquisitions and investments driving 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 no

18. 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 demons

19. Slide 19: Financial Overview

    © 2015 Mercury Systems, Inc. Financial Overview Gerry Haines Executive Vice President & CFO

20. Slide 20: Business model and capabilities create unique opportunity

    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 desi

21. 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

22. 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 conti

23. 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

24. 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) Estim

25. 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: FY16

26. Slide 26: Q1 FY16 guidance

    26© 2015 Mercury Systems, Inc. Q1 FY16 guidance (as of August 4th) 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 obli

27. Slide 27: Accelerating revenue growth and operating leverage

    27© 2015 Mercury Systems, Inc. Accelerating revenue growth and operating leverage 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

28. 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% ~47% 45-50% SG&A 21% ~21% Low 20’s R&D 14% ~14% 11-13% Amortization 3% ~3% 2-3% Adj EBITDA 19% 20% 18-22% Notes: (1) The guidance inc

29. 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 (In millions) Actual Actual ASSETS Cash & cash equivalents 47.3 77.6 Accounts receivable, net 59.7 53.8

30. 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

31. Slide 31: Adjusted EBITDA reconciliation

    31© 2015 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) 2009 2010 2011 2012 2013 2014 2015 Low High Income (loss) from continuing operations $ 7,909 $ 28,069 $ 18,507 $ 22,323 $(13,782) $ (4,072) $ 14,429 $ 1,500 $ 2,600 Interest expense (income), net 492 (151) 45 27 31 40 13 — — Incom

32. Slide 32: Glossary

    32© 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 Surve

33. Slide 33: Sales-related definitions

    33© 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

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