Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Drexel Hamilton Aerospace & Defense Conference (June 2015)
34 slides from Mercury Systems's conference presentation, Jun 11, 2015
Slide 1: Drexel Hamilton Aerospace & Defense Conference
© 2015 Mercury Systems, Inc. Drexel Hamilton Aerospace & Defense Conference Mark Aslett President and CEO Gerry Haines Executive Vice President and CFO June 11, 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 • FY14 $209M 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 electronics 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: Firm-centered innovation giving way to open / decentralized
8 © 2015 Mercury Systems, Inc. Firm-centered innovation giving way to open / decentralized 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 ris
Slide 9: How we operate as a high-tech commercial company
9 © 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
Slide 10: Customers seek more affordable outsourced subsystems
10 © 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 11: From Teraflop modules and RFM subassemblies to pre-integrated sensor processing subsystems
11 © 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 12: Unique market position for Mercury
12 © 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 13: Unique and differentiated capabilities aligned to industry growth drivers
13 © 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 14: Company growth drivers we are pursuing
14 © 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 15: Deployed on 300+ programs with 25+ Primes
15 © 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 16: Acquisitions and investments driving significant opportunity growth
16 © 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 $4.0B in 2 years • Converted 1.4x of possible to probable value in 2 years • After 3 years, RFM n
Slide 17: Strategy and investments have positioned Mercury well
17 © 2015 Mercury Systems, Inc. © 2015 Mercury Systems, Inc. Strategy and investments have positioned Mercury well • Pioneering a next-generation defense electronics business model • Unique technology and capabilities on key production programs • Low-risk content expansion growth strategy with demon
Slide 18: Financial Overview
© 2015 Mercury Systems, Inc. Financial Overview Gerry Haines Executive Vice President & CFO
Slide 19: Business model and capabilities create opportunity for growth and improved returns
19 © 2015 Mercury Systems, Inc. Mercury’s business model and capabilities create a unique opportunity for growth and improved returns Model Characteristics Implications and Benefits Merchant supplier of sensor processing subsystems COTS product competitors remain but not subsystem Commercially desig
Slide 20: FY09-FY12 revenue summary by market
20 © 2015 Mercury Systems, Inc. FY09-FY12 revenue summary by market Defense revenue CAGR of 15% FY09-FY12 Notes: • All numbers based on continuing operations. 145 158 181 222 44 42 48 15 0 50 100 150 200 250 FY09 FY10 FY11 FY12 Revenue ($M) Defense Commercial 189 200 229 237
Slide 21: Adjusted EBITDA CAGR of 28% FY09-FY12
21 © 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 22: FY13-14 restructuring and integration plans
22 © 2015 Mercury Systems, Inc. FY13-14 restructuring and integration plans Accelerating achievement of target business model FISCAL 2013 • Restructuring actions align cost base with new environment FISCAL 2014 • 12-month Acquisition Integration Plan (through mid-FY2015) – Facilities consolidation i
Slide 23: Financial improvement in FY14
23 © 2015 Mercury Systems, Inc. Financial improvement in FY14 Returned to growth; adjusted EBITDA more than doubled GAAP ($M) FY13 FY14 Change Bookings 209.7 246.8 18% Revenue 194.2 208.7 7% Gross Margin % 40% 45% 5 pts Operating Expenses OpEx less restructuring (% of revenue) ⁽²⁾ 103.0 49% 102.1 46
Slide 24: Record backlog exiting FY14
24 © 2015 Mercury Systems, Inc. Record backlog exiting FY14 119% growth since FY11; Revenue coverage doubles FY11-FY14 Well positioned for balance of FY15 Notes: (1) Revenue Coverage Ratio = 12-month ending backlog/Next 12 months Revenue (or initial revenue estimate for current/future year). 71 84 1
Slide 25: Program focus driving substantial growth potential
25 © 2015 Mercury Systems, Inc. FY15 FY16 FY17 Production Years Probable Bid vs. Won Expansion Probable Possible Process RFM Total ($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: Momentum continues in FY15
26 © 2015 Mercury Systems, Inc. Momentum continues in FY15 Notes: (1) All numbers based on continuing operations. (2) Excludes $3.6M of restructuring and other charges from GAAP operating expenses in 3Q’s FY14 and $2.5M in 3Q’s FY15. GAAP ($M) FY14 FY15 Change 3Q's 3Q's Bookings 166.6 186.1 12% Reve
Slide 27: FY15 guidance
27 © 2015 Mercury Systems, Inc. FY15 guidance (as of April 28th) 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 obliga
Slide 28: Accelerating revenue growth and operating leverage
28 © 2015 Mercury Systems, Inc. Accelerating revenue growth and operating leverage 12-13% revenue growth yields 79-85% increase in FY15 Adj. EBITDA 194 209 233 5% $9.9M 11% $23.5M 18%-19% $42M-$43.5M 0 50 100 150 200 250 FY13 FY14 FY15F ⁽¹⁾ Revenue to Adjusted EBITDA trends Adj. EBITDA (%, $M) 235 N
Slide 29: Achievement of target business model for FY15
29 © 2015 Mercury Systems, Inc. Achievement of target business model for FY15 Notes: (1) FY15 percentages are estimates only, as of April 28, 2015. GAAP FY14 FY15⁽¹⁾ Revenue 100% 100% 100% Gross Margin 45% 46% 45-50% SG&A 26% 21% Low 20’s R&D 17% 14% 11-13% Amortization 4% 3% 2-3% Adj EBITDA 11% 18-
Slide 30: Solid balance sheet with zero debt
30 © 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. FY13 FY14 Q3 FY15 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 39.1 47.3 66.5 Accounts rece
Slide 31: Poised for profitable growth
31 © 2015 Mercury Systems, Inc. © 2015 Mercury Systems, Inc. Poised for profitable growth • Growth and profitability accelerating in FY15 • Integration plan complete, yielding $16M in gross annualized savings • Strategy, operational discipline, yield significant operating leverage • Strong, well-fun
Slide 32: Adjusted EBITDA reconciliation
32 © 2015 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) 2009 2010 2011 2012 2013 2014 2015 - Low 2015 - High Income (loss) from continuing operations $ 7,909 $ 28,069 $ 18,507 $ 22,323 $(13,782) $ (4,072) $ 11,600 $ 12,500 Interest expense (income), net 492 (151) 45 27 31 40 — — Incom
Slide 33: Glossary
33 © 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 34: Sales-related definitions
34 © 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
Mercury Systems — Drexel Hamilton Aerospace & Defense Conference (June 2015) on 6ix