Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Investor Day (November 2017)
58 slides from Mercury Systems's investor day presentation, Nov 7, 2017
Slide 1: Mercury Systems FY18 Investor Day Presentation
© 2017 Mercury Systems, Inc. Mercury Systems FY18 Investor Day Presentation November 7, 2017 Nasdaq MarketSite New York, NY
Slide 2: Forward-looking safe harbor statement
2 © 2017 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 fiscal 2018 business performance and beyond and the Company
Slide 3: Agenda
3 © 2017 Mercury Systems, Inc. © 2017 Mercury Systems, Inc. Agenda • Strategy & Business Update – Mark Aslett President & CEO • Growth Strategy at Work • Financial Update • Q&A
Slide 4: Pioneering a next generation defense electronics company
4 © 2017 Mercury Systems, Inc. …to address the industry's challenges and opportunities 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 need
Slide 5: Strategy delivering above average growth and profitability
5 © 2017 Mercury Systems, Inc. Strategy delivering above average growth and profitability Focused on economic core – aerospace and defense electronics Focused on Core Markets Expanded addressable market and moved up value chain High tech R&D investment level for aerospace and defense electronics Bui
Slide 6: Acquisitions have transformed Mercury into a commercial provider
6 © 2017 Mercury Systems, Inc. ...provider of secure sensor and safety-critical processing subsystems Acquisitions have transformed Mercury into a commercial… • Acquired capabilities significantly expand addressable market • Moved up the value chain • Model facilitates greater customer outsourcing •
Slide 7: Mercury has expanded its reach vertically and horizontally
7 © 2017 Mercury Systems, Inc. Integrated subsystems Mercury has expanded its reach vertically and horizontally Mission / Integrated Systems Integrated Subsystems Standalone Subsystems Modules Systems Integration Tier 1 Prime Defense Platform Value Chain Components Tier 2 Acquisitions supporting off
Slide 8: Deployed on 300+ programs with 25+ Primes
8 © 2017 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes C 4 I Se n so r & E ff ec to r M iss io n S ys te m s P-8 MMA KC-46 A330 MRTT F-35 C-130 MALD-J SM2/3/6 Paveway SDB II PGK Triton Aegis Patriot F-16 Reaper/Gorgon Stare Global Hawk SEWIP Badger/Buzzard F-15 AH-64 Apache
Slide 9: Five major trends shaping the defense industry
9 © 2017 Mercury Systems, Inc. Five major trends shaping the defense industry Increased Defense Spending Cycle: Rising interest rates, healthcare and social spending remain issues; MilPer expense growth, aging military platforms’ O&M costs rising Challenging Global Security Environment: Resurgent Ru
Slide 10: Consensus emerging on need for increased defense spending
10 © 2017 Mercury Systems, Inc. Consensus is emerging between Administration, Congress... …and DoD on need for increased defense spending Topline Base Authorization Budget vs. BCA Caps (Discretionary BA, Current $B) Notes: Budget and BCA Caps represent the 051 account (DoD) Sources: CBO, CRS, OMB, D
Slide 11: Mercury's vision
11 © 2017 Mercury Systems, Inc. Mercury’s vision is to be the… Leading commercial provider of secure sensor and safety- critical processing subsystems
Slide 12: Business model built for speed, innovation and affordability
12 © 2017 Mercury Systems, Inc. Business model built for speed, innovation and affordability… …as customers seek outsourced pre-integrated subsystems Primes RF Digital Processing Mercury Pre-integrated Subsystem Government Traditional COTS Product Integration 36+ months Time to Market 12 months Time
Slide 13: Only high-tech commercial company with the technology and domain expertise
13 © 2017 Mercury Systems, Inc. Only high-tech commercial company with the technology… ...and domain expertise for secure sensor and safety-critical processing SPEED SWaP SOFTWARE SECURITY SAFETY Secure Sensor and Safety-Critical Processing Solutions ACQUIRE DIGITIZE PROCESS STORAGE EXPLOIT DISSEMIN
Slide 14: From processing modules to secure subsystems
14 © 2017 Mercury Systems, Inc. From secure Teraflop processing modules and RF subassemblies… …to secure sensor and safety-critical processing subsystems Secure Sensor Processing Subsystems Secure C2 Blade Servers Miniature RF Transceivers RF and EW Subsystems RF & Microwave MOSA Building Blocks Sec
Slide 15: Capabilities and drivers of growth aligned to DoD priorities
15 © 2017 Mercury Systems, Inc. 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 del
Slide 16: A&D electronics systems market: C4I and sensor systems
16 © 2017 Mercury Systems, Inc. The A&D electronics systems market has two major segments: C4I and sensor systems Aerospace & Defense Platform and Systems Electronics Content C4I Sensor & Effector Mission Systems Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Avionics / Vetronics
Slide 17: Revenue growth by domestic and international / FMS
21 © 2017 Mercury Systems, Inc. Revenue growth rates by domestic and international / FMS Int’l and FMS revenue growth accelerating given our program mix 13% International & FMS FY13 - FY17 CAGR 24% 16% total Last Twelve Months 22% Domestic FY13 - FY17 CAGR 47% 84% total Last Twelve Months Notes: Est
Slide 18: Revenue growth by major market segment
22 © 2017 Mercury Systems, Inc. Revenue growth rates by major market segment We are growing significantly above market and taking share Notes: Estimated revenue growth for last twelve months ending September 30, 2017 vs. last twelve months ending September 30, 2016. LTM figures are based on the trai
Slide 19: Revenue growth by sub market segment
23 © 2017 Mercury Systems, Inc. >5x 10% total Revenue growth rates by sub market segment We are growing significantly above market and taking share 5% 35% total 20% Radar Last Twelve Months FY13 - FY17 CAGR 42% 27% total 20% EW Last Twelve Months FY13 - FY17 CAGR >9x 5% total >27x Weapons Last Twelv
Slide 20: Revenue growth by tier
24 © 2017 Mercury Systems, Inc. Revenue growth rates by tier Integrated subsystems revenue growth is a proxy for outsourcing Transforming components and modules into integrated subsystems 165% COMPONENTS 28% total Last Twelve Months 41% total MODULES & SUBASSEMBLIES 27% Last Twelve Months 32% total
Slide 21: Acquisitions and investments driving significant opportunity growth
25 © 2017 Mercury Systems, Inc. …which in turn is driving strong results Acquisitions and investments driving significant opportunity growth… • Total potential value grew >3x to $4.9B in 5 years • Significant EW, C4I, weapons opportunity pipeline • Acquisitions brought new programs and capabilities
Slide 22: Disciplined and focused M&A strategy
26 © 2017 Mercury Systems, Inc. We have executed on a disciplined and focused M&A strategy Aerospace & Defense Platform and Systems Electronics Content C4I Sensor & Effector Mission Systems Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Avionics / Vetronics Command & Control / Ba
Slide 23: Actively developing potential acquisition targets
27 © 2017 Mercury Systems, Inc. We actively develop potential acquisition targets across all channels Acquisition Close Date Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Apr 2017 Jul 2017 Size $31mm $70mm $75mm $10mm $300mm $39mm $40.5mm Not Reported Strong Strategic Rationale
Slide 24: Glassdoor current employee ratings
28 © 2017 Mercury Systems, Inc. Glassdoor current employee ratings Validates Mercury’s destination employer and acquirer of choice status Mercury Systems Glass Door Average Proxy Peer Group(1) Tier 2 Defense Company Index(2) Overall Rating 4.3 3.2 3.6 3.4 Culture & Values 4.2 3.2 3.6 3.2 Work-Life B
Slide 25: Strategy and investments have positioned Mercury well
29 © 2017 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 • Substantial total addressable market expansion enabling future growth • Low-risk c
Slide 26: Agenda
30 © 2017 Mercury Systems, Inc. © 2017 Mercury Systems, Inc. Agenda • Strategy & Business Update • Growth Strategy at Work – Didier Thibaud Executive Vice President & COO • Financial Update • Q&A
Slide 27: Growth strategy driving program content and market expansion
31 © 2017 Mercury Systems, Inc. Growth strategy driving program content and market expansion Aerospace & Defense Platform and Systems Electronics Content C4I Sensor & Effector Mission Systems Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Avionics / Vetronics Command & Control /
Slide 28: Shipborne opportunities continue to drive growth
32 © 2017 Mercury Systems, Inc. Shipborne opportunities continue to drive growth Naval surface fleet growth strategy in action • Radar: – Aegis FMS – Aegis processing refresh • Electronic warfare (EW): – SEWIP Block 2 – SEWIP LIMA – SEWIP Block 3 • Signals intelligence: – SSEE • Communications: – Na
Slide 29: Naval surface fleet potential value from $507M to $1.2B
33 © 2017 Mercury Systems, Inc. Total potential Naval surface fleet value from $507M to $1.2B Naval surface fleet growth strategy in action Future market and content expansion in sensor and platform management systems • Radar: – Aegis FMS – Aegis processing refresh – Aegis RF content expansion • Ele
Slide 30: Missile defense opportunities continue to drive growth
34 © 2017 Mercury Systems, Inc. Missile defense opportunities continue to drive growth Missile defense growth strategy in action • Ground mobile Radar: – Patriot missile defense Radar processing FMS – C2I: • Patriot fire control • Ground fixed Radar: – Aegis Ashore ballistic missile defense Radar pr
Slide 31: Missile defense: up to $225M potential
35 © 2017 Mercury Systems, Inc. New opportunities and capabilities driving up to $225M potential Missile defense growth strategy in action Recent acquisitions expand addressable market • Ground mobile Radar: – Patriot missile defense Radar processing FMS – C2I: • Patriot fire control – New opportuni
Slide 32: Leadership in sensor systems driving growth
36 © 2017 Mercury Systems, Inc. Leadership in sensor systems driving growth Manned airborne growth strategy in action Leadership in Radar and EW, growing in platform management and mission systems • Radar processing: – F-15, F-16, F-18, F-22, F-35, B1, P-8, E2-D, AWACS • Electronic warfare: – Fighte
Slide 33: Manned airborne market expansion from $1.2B to $2.9B
37 © 2017 Mercury Systems, Inc. Market expansion driving growth from $1.2B to $2.9B Manned airborne growth strategy in action Future market and content expansion in mission computing and platform management • Radar processing: – F-15, F-16, F-18, F-22, F-35, B1, P-8, E2-D, AWACS • Electronic warfare
Slide 34: Unmanned airborne: new capabilities opening opportunities
38 © 2017 Mercury Systems, Inc. New capabilities opening broad range of opportunities Unmanned airborne growth strategy in action Leadership in Radar and WAMI processing • Radar processing: – Predator, Reaper, Global Hawk, Triton • Wide Area Motion Imagery: – Gorgon Stare • C3I: – Communications RAD
Slide 35: Unmanned airborne opportunities up to $222M
39 © 2017 Mercury Systems, Inc. New capabilities opening opportunities up to $222M Unmanned airborne growth strategy in action Recent and past acquisitions provide opportunities for future expansion • Radar processing: – Predator, Reaper, Global Hawk, Triton • Wide Area Motion Imagery: – Gorgon Star
Slide 36: Weapon systems growth from $189M to $378M
40 © 2017 Mercury Systems, Inc. Market expansion driving growth from $189M to $378M Market expansion to weapon systems • PGK – Precision Guidance Kit for large caliber traditional munitions • Paveway – Laser-guided bomb • SDB II – Next-generation Small Diameter Bomb • MALD – Miniature Air Launched D
Slide 37: Market and content expansion strategy driving growth
41 © 2017 Mercury Systems, Inc. • Designed in on well-funded, long-standing programs of record • Aligned with DoD strategy and in growing areas of the budget • Leveraging long-standing relationships with key strategic accounts • Driving content and market expansion through acquisitions • Technologie
Slide 38: Agenda
42 © 2017 Mercury Systems, Inc. © 2017 Mercury Systems, Inc. Agenda • Strategy & Business Update • Growth Strategy at Work • Financial Update – Gerry Haines Executive Vice President & CFO • Q&A
Slide 39: The evolution of Mercury Systems
43 © 2017 Mercury Systems, Inc. The evolution of Mercury Systems 111% Share price $24.57 $51.88 152% Market Capitalization $992 $2,496 124% Enterprise Value $1,102 $2,470 43% Revenue(1) $299 $427 58% Adj. EBITDA(1) $64 $101 30% Adj. EPS(1) $0.99 $1.29 V al u ati o n Ope ra ti o n al In millions, exc
Slide 40: Mercury's financial profile puts it in a unique category
44 © 2017 Mercury Systems, Inc. 1,091 Mercury’s financial profile puts it in a unique category ALL NYSE AND NASDAQ COMPANIES WITH MARKET CAPITALIZATION BETWEEN $750mm - $3bn LTM based on most recently reported quarters 6 Companies 101 Companies 315 Companies EBITDA Margin >20% Revenue CAGR >10% 4-Ye
Slide 41: Revenue to Adjusted EBITDA trends
45 © 2017 Mercury Systems, Inc. Strong revenue growth and operating leverage… …yielded dramatic growth in adjusted EBITDA Notes: (1) Fiscal years ended June 30; FY13-17 figures are as reported in the Company’s Form 10-Ks. (2) LTM figures are based on the trailing four fiscal quarters using informati
Slide 42: Ending backlog and revenue coverage
46 © 2017 Mercury Systems, Inc. 109 144 166 239 291 27 30 41 49 66 136 174 208 288 357 0 50 100 150 200 250 300 350 400 FY13 FY14 FY15 FY16 FY17 Mercury Ending Backlog ($M) 12-Month Ending Backlog > 12-Month Backlog Fwd Revenue Coverage Ratio⁽¹⁾ 63% 68% 63% (Est.) 50% 64% FY13-FY17 backlog CAGR of 2
Slide 43: Strong performance last full fiscal year
47 © 2017 Mercury Systems, Inc. Strong performance last full fiscal year 51% revenue and 64% adjusted EBITDA growth YoY Notes: (1) Fiscal years ended June 30; FY16-17 figures are as reported in the Company’s Form 10-Ks. (2) Non-GAAP, see reconciliation table. In millions, except percentage and per s
Slide 44: Strong performance continues into FY18
48 © 2017 Mercury Systems, Inc. Strong performance continues into FY18 LTM Q1 ’18 vs. LTM Q1 ‘17 43% Revenue $427M 58% Adj. EBITDA $101M 88% Net Income $39M Notes: Revenue growth for last twelve months ending September 30, 2017 vs. last twelve months ending September 30, 2016. LTM figures are based
Slide 45: Market expansion strategy is working well
49 © 2017 Mercury Systems, Inc. Market expansion strategy is working well • Continued growth in core markets • Expansion into adjacent markets • Additional capabilities drive content expansion • Broader program and customer base • Vastly larger addressable market • Consistently driving above market
Slide 46: FY18 annual guidance
50 © 2017 Mercury Systems, Inc. FY18 annual guidance In millions, except percentage and per share data FY17(1) FY18(2) Change Revenue $409 $457 - $468 12% - 15% Gross Margin 46.9% 46.8% - 47.3% (.1pt) - .4pts Operating Expenses $154.1 $167.7 - $171.2 9% - 11% GAAP Income $24.9 $37.8 - $40.7 52% - 64
Slide 47: Achieving target business model
51 © 2017 Mercury Systems, Inc. Achieving target business model Notes: (1) FY16 and FY17 figures are as reported in the Company’s Form 10-K. (2) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming
Slide 48: Guidance: Strong performance track record
52 © 2017 Mercury Systems, Inc. Guidance: Strong performance track record Q1 Q2 Q3 Q4 Reported Guidance Reported Guidance Reported Guidance Reported Guidance 2013 Revenue ($M) 49.4 51.0 - 57.0 49.8 43.0 - 49.0 54.1 44.0 - 50.0 55.4 48.0 - 54.0 EPS ($) (0.24) (0.05) - 0.00 (0.16) (0.24) - (0.17) $0.0
Slide 49: Conservative balance sheet
53 © 2017 Mercury Systems, Inc. Conservative balance sheet Zero debt, $400M revolving credit facility, universal shelf for future investments FY16 FY17 Q1 FY18 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 81.7 41.6 26.1 Accounts receivable, net 95.9 113.7 121.5 Inventory, net 58
Slide 50: Poised for continued, profitable growth
54 © 2017 Mercury Systems, Inc. • 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 • Sustai
Slide 51: Appendix
© 2017 Mercury Systems, Inc. Appendix
Slide 52: Management team
56 © 2017 Mercury Systems, Inc. Management team Since 2007, Mercury management has successfully grown the Company’s defense business, returned the Company to profitability, acquired and integrated several companies, and positioned Mercury as a leading pure-play defense electronics company. Demonstra
Slide 53: Strong LTM performance
57 © 2017 Mercury Systems, Inc. Strong LTM performance 43% revenue and 58% adjusted EBITDA growth YoY Notes: (1) LTM figures are based on the trailing four fiscal quarters using information reported in the Company’s Form 10-Ks, Form 10-Qs and/or most recent earnings release. (2) Non-GAAP, see reconc
Slide 54: FY18 guidance (as of October 24th)
58 © 2017 Mercury Systems, Inc. FY18 guidance (as of October 24th) Notes: (1) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any
Slide 55: Adjusted EPS reconciliation
59 © 2017 Mercury Systems, Inc. Adjusted EPS reconciliation Notes: (1) Numbers shown are in cents. (000's) FY14 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Diluted net earnings (loss) per share⁽¹⁾ $ (0.13) $ 0.44 $ 0.08 $ 0.15 $ 0.13 $ 0.19 $ 0.56 $ 0.10 $
Slide 56: Adjusted EBITDA reconciliation
60 © 2017 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) FY14 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Income (loss) from continuing operations $ (4,072) $ 14,429 $ 2,856 $ 5,040 $ 4,357 $ 7,489 $ 19,742 $ 3,819 $ 5,204 $ 7,048 $ 8,804 $ 24
Slide 57: Sales-related definitions
61 © 2017 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
Slide 58: Glossary
62 © 2017 Mercury Systems, Inc. Glossary AEGIS Aegis Ballistic Missile Defense System EP Electronic Protection O&M Operations & Maintenance AESA Active Electronically Scanned Array EPAWWS Eagle Passive Active Warning Survivability System OpenVPX System-level specification for VPX, initiated by Mercu