Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Goldman Sachs Industrials & Materials Conference 2021
39 slides from Mercury Systems's conference presentation, May 11, 2021
Slide 1: Goldman Sachs Industrials & Materials Conference
© Mercury Systems, Inc. GOLDMAN SACHS INDUSTRIALS & MATERIALS CONFERENCE Mark Aslett President & CEO Mike Ruppert Executive Vice President & CFO May 11, 2021
Slide 2: Forward-looking safe harbor statement
© 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 acquisitions described herein and to fiscal 2021 business perf
Slide 3: Mercury Systems at-a-glance
© Mercury Systems, Inc. Mercury Systems at-a-glance Innovation That Matters. By and For People Who Matter. 3 Transformational business model at the intersection of high tech and defense Deployed on 300+ programs – serving defense Primes and critical infrastructure providers Making commercial technol
Slide 4: Mercury Systems by the numbers
© Mercury Systems, Inc. Mercury Systems by the numbers 4 2,300+ Number of team members globally, ~30% hold DoD security clearances $176M FY20 Adj. EBITDA $176M (22% margin) 32% CAGR FY15-FY20 4-5x Research & development relative investment compared to our industry 35+ Years of tech leadership in the
Slide 5: Mercury solutions deployed on 300+ programs with 25+ primes
© Mercury Systems, Inc. Mercury solutions deployed on 300+ programs with 25+ primes 5 C 4 I S e n so r & E ff e ct o r M is si o n S y st e m s JLTV BLACKHAWK A330 MRTTWIN-T C-130 MALD-J SM2/3/6PavewayStormbreaker PGK Triton AegisLTAMDSF-16 Reaper/Gorgon Stare Global Hawk SEWIPBadger/BuzzardF-35 Aeg
Slide 6: Investment highlights
© Mercury Systems, Inc. Investment highlights Innovative growth company at intersection of high tech and defense Focused on large, growing, well-funded addressable markets Proven transformational business model investing 4-5x defense industry average in R&D Benefiting from outsourcing, supply chain
Slide 7: Mercury's financial profile demonstrates our unique strategy
© Mercury Systems, Inc. 1,176 ALL NYSE AND NASDAQ U.S. LISTED COMPANIES WITH MARKET CAPITALIZATION BETWEEN $1B–$7B 26 102 367 23% 19% 35% 16% 4% 1% TIER 2 DEFENSE INDEX MEDIAN Mercury’s financial profile demonstrates our unique strategy EBITDA Margin >20% Revenue CAGR 10% 5-Year Revenue Growth 20% 1
Slide 8: Thank you
THANK YOU. mercury mrcy.com
Slide 9: Appendix
APPENDIX
Slide 10: Mercury strategy: A plan to meet market needs at speed
© Mercury Systems, Inc. 1/ Invest to grow organically 2/ Expand capabilities, market access and penetration through M&A 4/ Continuously improve operational capability and scalability 3/ Invest in trusted, secure Innovation That Matters® 5/ Attract and retain the right talent Mercury strategy: A plan
Slide 11: Six highly differentiated capabilities
© Mercury Systems, Inc. Silicon: We are a leader in adapting commercially developed silicon technology to be purpose-built specifically for aerospace and defense. Safety: Design safety-certifiable processing systems up to the highest design assurance levels. Security: Investment in industry-leading
Slide 12: Strategy to provide all types of processing subsystems
© Mercury Systems, Inc. C3I Software Integration Security Displays Mission Computer Storage Network Management Comms/Datalink Rugged Servers C2/Comms M Our overarching strategy is to provide all types of processing subsystems requiring trusted, secure computing Certification Security Displays Missio
Slide 13: Game-changing capability enabling new applications at rapid pace
© Mercury Systems, Inc. This game-changing capability will enable new applications at a rapid pace Trusted and Secure Solutions Chip-Scale Application-Specific Customization Processors FPGAs GPUs CPUs I/O RF/Digitization Memory Other Chiplets Best-of-breed Ecosystem from MultipleVendors Communicatio
Slide 14: Expanding content footprint vertically and market access horizontally
© Mercury Systems, Inc. We are simultaneously expanding our content footprint vertically while horizontally expanding our market access Up to another 2x higher-margin content increase per system as new trusted microelectronic capabilities enable new applications and performance Trusted and Secure Co
Slide 15: Six major trends shaping the defense industry
© Mercury Systems, Inc. Six major trends shaping the defense industry 1/ Defense spending pressures Political uncertainty, COVID-19 stimulus, interest payments, healthcare and social spending remain long-term headwinds; Pressures require prioritization within DoD 2/ Challenging global security envir
Slide 16: Topline Defense Budget Outlook
© Mercury Systems, Inc. FY22 DoD initial request adds $10B over FY21 appropriated amount, but no out year guidance has been provided $522 $524 $598 $617 $633 $636 $715 $581 $606 $671 $685 $723 $705 $722 $737 $753 $768 $450 $500 $550 $600 $650 $700 $750 $800 2016 2017 2018 2019 2020 2021 2022 2023 20
Slide 17: Aerospace & Defense Platform and Systems Electronics Content
© Mercury Systems, Inc. Aerospace & Defense Platform and Systems Electronics Content C4I ($22.4B)* Sensor & Effector Mission Systems ($16.4B)* MARKET SEGMENT Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons 7 Avionics/ Vetronics Command & Control/Battle Management Dedicated Communi
Slide 18: Acquisitions and investments driving significant opportunity growth
© Mercury Systems, Inc. Acquisitions and investments driving significant opportunity growth ▪ Defense prime contractors outsourcing more ▪ Outsourced integrated subsystems 74% of top 30 program lifetime value ▪ Content expansion driving above-average growth ▪ Defense primes’ flight to quality suppli
Slide 19: Glassdoor employee ratings validate Mercury as destination employer
© Mercury Systems, Inc. Glassdoor current employee ratings validate Mercury’s status as a destination employer and acquirer of choice Mercury Systems Glassdoor Average Proxy Peer Group(1) Tier 2 Defense Company Index(2) Overall Rating 4.7 3.5 3.5 3.7 Culture & Values 4.7 3.4 3.3 3.5 Diversity & Incl
Slide 20: Disciplined and focused M&A strategy
© Mercury Systems, Inc. We have executed on a disciplined and focused M&A strategy Notes: *Tier 2 includes embedded computing and subsystems with RF content. Includes US Government and Global Defense & Commercial Aerospace Markets Sources: RSAdvisors research & analysis, November 2019. Numbers are r
Slide 21: Mercury M&A philosophy and value creation blueprint
© Mercury Systems, Inc. Mercury M&A philosophy and value creation blueprint Culture & Values Full Integration Unify Brand Combine Like Entities Consolidate Manufacturing Deploy Common Processes & Systems Invest R&D Leverage G&A Accelerate Organic Growth Continuously Improve Deliver Results Assess cu
Slide 22: A leader in trusted, secure technologies and subsystems
© Mercury Systems, Inc. We’re a leader in trusted, secure technologies and subsystems ▪ Innovative growth company at intersection of high tech and defense ▪ Aligned with dominant industry trends ▪ Proven transformational business model for A&D industry ▪ Low-risk content expansion strategies with su
Slide 23: Financial Overview
FINANCIAL OVERVIEW MICHAEL RUPPERT EXECUTIVE VICE PRESIDENT & CFO
Slide 24: The evolution of Mercury Systems
© Mercury Systems, Inc. The evolution of Mercury Systems Notes (1) Trailing four fiscal quarters ended FY15 and FY20, respectively. Operational figures are based on fiscal year and fiscal quarter results as reported in the Company’s Form 10-Ks, Form 10- Qs and/or most recent earnings release. Histor
Slide 25: Mercury continues to deliver strong financial results
© Mercury Systems, Inc. Mercury continues to deliver strong financial results Notes: CAGR figures for the period FY16-FY20. YoY figures for the period LTM Q3 FY20 vs. LTM Q3 FY21. Numbers are rounded. Per share data is presented on a fully diluted basis. As of Q3 FY20, the Company has revised its de
Slide 26: Content expansion from modules to subsystems
© Mercury Systems, Inc. Content expansion from modules to subsystems ▪ Components: • Expansion via custom microelectronics acquisition from Microsemi • Investment in trusted microelectronics ▪ Modules/Subassemblies: • Down from 47% of revenue in FY15 to 16% in FY20 as shift towards subsystems ▪ Subs
Slide 27: Expanding into new markets
© Mercury Systems, Inc. Expanding into new markets ▪ Continued growth in core markets ▪ Expansion into adjacent markets and leveraging current capabilities ▪ Additional capabilities drive content expansion ▪ Broader program and customer base ▪ Vastly larger addressable market ▪ Consistently driving
Slide 28: Outspent industry in R&D, Capex and M&A
© Mercury Systems, Inc.28 Since FY14, we have outspent our industry in R&D, Capex and M&A to make trusted, secure commercial technology profoundly more accessible ~$475M ~$163M ~$1.1B ~$1.7B 4-5X peers 2-3X peers 12 acquisitions R&D Capex M&A Total Investment Notes: All figures are approximate and r
Slide 29: LTM Q3 FY21 performance
© Mercury Systems, Inc. LTM Q3 FY21 performance Notes (1) Organic revenue represents total company revenue excluding net revenue from acquisitions for the first four full quarters since the entities’ acquisition date (which excludes any intercompany transactions). After the completion of four fiscal
Slide 30: Mercury recent acquisition history
© Mercury Systems, Inc. Total Capital Deployed: $1,114M Mercury recent acquisition history Company Expansion Primary Theme Closing Date Purchase Price ($M) Ending Debt Balance Funding LIT Security Dec-2015 $ 10 $ 0 Cash on Hand Microsemi (1) Weapons, EW, Security May-2016 $ 300 - Term Loan Cash on H
Slide 31: Committed to differentiated and attractive financial profile
© Mercury Systems, Inc. Committed to maintaining differentiated and attractive financial profile Increase adj. EBITDA margins Grow organically at high-single / low-double digit Supplement w/strategic M&A ▪ Operating expense leverage ▪ Program production mix ▪ Operational improvements ▪ Full acquisit
Slide 32: Strategy and business model delivering financial performance
© Mercury Systems, Inc. Strategy and business model delivering financial performance well above industry average ▪ Track record of strong organic growth, profitability and strategic M&A ▪ Significant investment over last 5 years is competitive differentiator ▪ Poised for continued organic growth and
Slide 33: Balance sheet
© Mercury Systems, Inc. Balance sheet As of (In $ millions)(1) 3/27/20 7/3/20 10/2/20 1/1/21 4/2/21 ASSETS Cash & cash equivalents $407.1 $226.8 $239.1 $109.1 $121.9 Restricted cash - - - 61.6 - Accounts receivable, net 214.0 210.7 207.8 240.2 264.0 Inventory, net 161.9 178.1 206.0 218.4 226.8 PP&E,
Slide 34: Cash flow summary
© Mercury Systems, Inc. Cash flow summary For the Fiscal Quarters Ended (In $ millions)(1) 3/27/20 7/3/20 10/2/20 1/1/21 4/2/21 Net Income $23.6 $27.2 $15.8 $12.7 $15.6 Depreciation and amortization 12.7 12.8 13.0 13.3 20.0 (Gain)/Loss on investment (3.8) (2.0) - 0.4 - Other non-cash items, net 8.5
Slide 35: Q3 FY21 vs. Q3 FY20
© Mercury Systems, Inc. Q3 FY21 vs. Q3 FY20 In $ millions, except percentage and per share data Q3 FY20(3) Q3 FY21(3) CHANGE Bookings Book-to-Bill $250.3 1.20 $210.2 0.82 (16%) Backlog 12-Month Backlog $769.8 544.8 $893.7 545.5 16% Revenue Organic Revenue Growth(1) $208.0 11% $256.9 5% 23% Gross Mar
Slide 36: Adjusted EBITDA reconciliation
© Mercury Systems, Inc. Adjusted EBITDA reconciliation Notes (1) Rounded amounts used. (2) Effective as of July 1, 2019, the Company’s fiscal year has changed to the 52-week or 53-week period ending on the Friday closest to the last day of June. All references in this presentation to the fourth quar
Slide 37: Adjusted EPS reconciliation
© Mercury Systems, Inc. Adjusted EPS reconciliation Notes (1) Per share information is presented on a fully diluted basis. (2) Rounded amounts used. (3) Effective as of the third quarter of fiscal 2020, the Company has added back incremental COVID related expenses. (4) Impact to income taxes is calc
Slide 38: Free cash flow and organic revenue reconciliation
© Mercury Systems, Inc. Free cash flow reconciliation Organic revenue reconciliation Notes (1) Organic revenue represents total company revenue excluding net revenue from acquisitions for the first four full quarters since the entities’ acquisition date (which excludes any intercompany transactions)
Slide 39: Glossary
© Mercury Systems, Inc. Glossary API Application Programming Interface BCA Budget Control Act C4I Command, Control, Communications, Computers COTS Commercial off-the Shelf CPU Central Processing Unit EO/IR Electro-optical / Infrared EW Electronic Warfare FPGA Field Programmable Gate Array GPU Graphi
Mercury Systems — Goldman Sachs Industrials & Materials Conference 2021 on 6ix