Mercury Systems Inc · NASDAQ:MRCY

Mercury Systems — Jefferies 2019 Global Industrials Conference

36 slides from Mercury Systems's conference presentation, Aug 7, 2019

  1. Slide 1: Jefferies 2019 Global Industrials Conference

    Jefferies 2019 Global Industrials Conference Mark Aslett President and CEO Michael Ruppert Executive Vice President and CFO August 7, 2019 © 2019 Mercury Systems, Inc.

  2. 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 2020 business performance and beyond and the Company’s plans for growth and improve

  3. Slide 3: Pioneering a next-generation aerospace and defense electronics company

    Pioneering a next-generation aerospace and defense electronics company… • Proven high-tech commercial business model for A&D • Secure sensor and safety critical processing subsystems • Serving defense Prime contractor outsourcing needs • Deployed on 300+ programs with 25+ Prime contractors • FY19 Gr

  4. Slide 4: Investor highlights

    Investor highlights Proven management team with demonstrated track record Focus on Focus on fast-growing markets in aerospace and defense electronics 1 Core Markets Acquire New Expanded addressable market and moved up value chain 2 Capabilities Increase Internal High-tech R&D investment level for ae

  5. Slide 5: Mercury's financial profile demonstrates our unique strategy

    Mercury’s financial profile demonstrates our unique strategy # of Companies ALL NYSE AND NASDAQ U.S. LISTED COMPANIES WITH TIER 2 DEFENSE 1,067 MARKET CAPITALIZATION BETWEEN $1B - $5B INDEX MEDIAN LTM EBITDA Margin 22% >20% 13% Margin 355 Revenue CAGR 26% >10% 5-Year 4% Growth 111 LTM Revenue 33% Gr

  6. Slide 6: Acquisitions have transformed Mercury into a commercial aerospace and defense company

    Acquisitions have transformed Mercury into a commercial… Aerospace and Defense • Acquired capabilities Electronic Subsystem significantly expanded MISSION PROCESSING addressable market MISSION PROCESSING SAFETY & SECURITY IP • Moved up the value chain SECURE STORAGE * SENSOR PROCESSING • Model facil

  7. Slide 7: 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-35 C-130 Global Hawk Badger/Buzzard SEWIP Stormbreaker PGK MALD-J Paveway SM2/3/6 Sensor & Effector Missi

  8. Slide 8: Six major trends shaping the defense industry

    Six 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 m

  9. Slide 9: 2019 Bipartisan Budget Act ends BCA caps

    2019 Bipartisan Budget Act ends BCA caps… Topline Defense Budget vs. BCA Caps (Discretionary BA, Current $B) Budget Control Act 2011 (Base) Actual funding (Base) Actual funding (Base + OCO) FY20 Administration Request (Base) FY20 Administration Request (Base + OCO) 2019 Bipartisan Budget Act $800 74

  10. Slide 10: The A&D electronics systems market is over $125B annually

    The A&D electronics systems market is over $125B annually Our total addressable market is now ~$39B Aerospace & Defense Platform and Systems Electronics Content C4I ($23.0B*) Sensor & Effector Mission Systems ($15.8B*) Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avio

  11. Slide 11: Our capabilities and growth dimensions are well-aligned

    Our capabilities and growth dimensions are well-aligned… GROWTH DIMENSIONS • Growth in Defense spending • Defense Prime contractors Market outsourcing more • Defense Primes’ flight to Geography Customer quality suppliers • Supply chain delayering A&D Industry • Foreign military and international sal

  12. Slide 12: Acquisitions and investments driving significant opportunity growth

    Acquisitions and investments driving significant opportunity growth… • Total potential value grew Top 30 Programs & Pursuits Estimated Lifetime Value ($M) >4.6x to $9.4B in 6 years Radar EW C4I Weapons Other 10,000 • Significant Radar, EW, C4I, 7,360 9,405 EO/IR and Weapons 1,116 opportunity pipelin

  13. Slide 13: Business model built for speed, innovation and affordability

    Business model built for speed, innovation and affordability… Traditional COTS Less Mercury Pre-integrated Product Integration Time Embedded Subsystem(s) I Classified Prime/Gov’t IP Classified Prime/Gov’t IP N T Less E Risk Proprietary Middleware Application-Ready G Software Toolkit R A T Operating

  14. 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 Leading Conduit for SILICON SAFETY Commercial Silicon Innovation Highest Safety Design Into A&D Market Assurance Levels (DAL) SPEED SECUR

  15. Slide 15: Glassdoor current employee ratings

    Glassdoor current employee ratings as of July 9, 2019 Validates Mercury’s destination employer and acquirer of choice status Tier 2 Defense Mercury Glass Door Proxy Company Systems Average Peer Group(1) Index(2) Overall Rating 4.2 3.4 3.5 3.5 Culture & Values 4.2 3.4 3.5 3.4 Work-Life Balance 3.7 3.

  16. Slide 16: We have executed on a disciplined and focused M&A strategy

    We have executed on a disciplined and focused M&A strategy 2019 Tier 2* Market ($B) & CY’18-23 CAGR (%) Aerospace & Defense Platform and Systems Electronics Content C4I ($23.0B*) Sensor & Effector Mission Systems ($15.8B*) Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Command &

  17. Slide 17: Mercury M&A philosophy and value creation blueprint

    Mercury M&A philosophy and value creation blueprint Culture & Values Assess cultural fit and rapidly enculturate the acquiree Full Integration We believe in full integration – We’re not a holding company Unify Brand One Brand – Mercury Systems Combine Like Entities Combine like businesses or product

  18. Slide 18: Strategy and investments have positioned Mercury well

    Strategy and investments have positioned Mercury well • Proven high-tech commercial business model for Aerospace & Defense • Unique technology and capabilities on key production programs • Substantial total addressable market expansion enabling future growth • Low-risk content expansion growth strat

  19. Slide 19: Financial Overview

    Financial Overview Michael Ruppert Executive Vice President & CFO © 2019 Mercury Systems, Inc.

  20. Slide 20: The evolution of Mercury Systems

    The evolution of Mercury Systems In millions, except percentage and per share data. FY2014 FY2019 Change Market Capitalization(1,2) $355 $3,894 11x Valuation Enterprise Value(1,2,3) $307 $3,636 12x Revenue(2) $209 $655 3x Adj. EBITDA(2) $22 $145 7x % Margin 11% 22% +~1,100 bps Operational Adj. EPS(2

  21. Slide 21: Mercury has delivered strong financial results

    Mercury has delivered strong financial results Revenue GAAP Income GAAP EPS 655 46.8 40.9 33% 14% 12% 493 0.96 YoY YoY YoY 0.86 409 24.9 0.56 0.58 270 19.7 235 0.44 209 14.4 FY14 FY15 FY16 FY17 FY18 FY19 (4.1) (0.13) FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 Backlog Adj. EPS Adj. E

  22. Slide 22: Market expansion strategy is working well

    Market expansion strategy is working well Revenue and Growth by Market ($M) Radar EW C4I Weapons Other 700 • Continued growth in core 446 655 62 markets 600 63 • 500 Expansion into adjacent 175 markets 400 300 83 • Additional capabilities 209 63 drive content expansion 200 100 • Broader program and

  23. Slide 23: FY19 vs. FY18

    FY19 vs. FY18 In $ millions, except percentage and per share data FY18 FY19 Change Bookings $563.5 $782.9 39% Book-to-Bill 1.14 1.20 Backlog $447.1 $625.4 40% 12-Month Backlog 328.5 451.2 Revenue $493.2 $654.7 33% Organic Revenue Growth(1) 7% 12% Gross Margin 45.8% 43.7% (2.1 pts) Operating Expenses

  24. Slide 24: FY20 annual guidance

    FY20 annual guidance In $ millions, except percentage and per share data FY19(1) FY20(2)(5) Change Revenue $654.7 $740.0 - $760.0 13% - 16% Gross Margin 43.7% 43.6% - 44.2% (0.1) - 0.5 pts Operating Expenses $209.6 $235.2 - $240.2 12% - 15% GAAP Net Income $46.8 $66.5 - $72.4 42% - 55% Effective tax

  25. Slide 25: Mercury recent acquisition history

    Mercury recent acquisition history Expansion Closing Purchase Ending Company Primary Theme Date Price ($mm) Debt Balance Funding Security Dec-2015 $ 10 $ 0 Cash on Hand (1) Weapons, EW, Term Loan May-2016 $ 300 - Security Cash on Hand April 2016 ($ 93) $ 200 Equity Offering Equity Offering Platform/

  26. Slide 26: Committed to maintaining differentiated and attractive financial profile

    Committed to maintaining differentiated and attractive financial profile 100% • Operating expense leverage Increase EBITDA • Program production mix margins • Operational improvements 33% • Full acquisition integration • Alignment with DoD priorities Grow organically at • Increased outsourcing high-s

  27. Slide 27: Summary

    Summary • Strategy driving sustained growth and profitability above industry average • Raised and deployed capital creating significant shareholder value • Invested in infrastructure and developed core competencies to scale • Poised for continued organic and inorganic growth, margin expansion • Well

  28. Slide 28: Appendix

    Appendix © 2019 Mercury Systems, Inc.

  29. Slide 29: Balance sheet

    Balance sheet As of (In $ millions)(1) 6/30/18 9/30/18 12/31/18 3/31/19 6/30/19 ASSETS Cash & cash equivalents $66.5 $72.9 $93.9 $112.5 $257.9 Accounts receivable, net 143.8 153.9 168.3 170.7 176.2 Inventory, net 108.6 121.2 126.4 131.7 137.1 PP&E, net 51.0 50.8 53.1 55.9 60.0 Goodwill and intangibl

  30. Slide 30: Cash flow summary

    Cash flow summary For the Fiscal Quarters Ended FY18 FY19 (In $ millions)(1) 9/30/18 12/31/18 3/31/19 6/30/19 Net Income $40.9 $7.5 $12.4 $14.1 $12.8 $46.8 Depreciation and amortization 42.3 11.5 11.7 11.6 11.6 46.4 Termination of interest rate swap - - - - 5.4 5.4 Other non-cash items, net 14.0 5.5

  31. Slide 31: Q4 FY19 vs. Q4 FY18

    Q4 FY19 vs. Q4 FY18 In $ millions, except percentage and per share data Q4 FY18 Q4 FY19 Change Bookings $171.7 $241.3 41% Book-to-Bill 1.12 1.36 Backlog $447.1 $625.4 40% 12-Month Backlog 328.5 451.2 Revenue $152.9 $177.0 16% Organic Revenue Growth(1) 16% 4% Gross Margin 44.7% 45.1% 0.4 pts Operatin

  32. Slide 32: Adjusted EPS reconciliation

    Adjusted EPS reconciliation Q1 FY20(2)(4) FY20(2)(4) (In thousands, except per share data) FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 FY19 Low High Low High Earnings per share(1) $ (0.13) $ 0.44 $ 0.56 $ 0.10 $ 0.13 $ 0.16

  33. Slide 33: Adjusted EBITDA reconciliation

    Adjusted EBITDA reconciliation Q1 FY20(2)(3) FY20(2)(3) (In thousands) FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 FY19 Low High Low High Net Income $ (4,072) $ 14,429 $ 19,742 $ 3,819 $ 5,204 $ 7,048 $ 8,804 $ 24,875 $ 17,

  34. Slide 34: Free cash flow reconciliation

    Free cash flow reconciliation (In thousands) FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 FY19 Cash provided by operating activities $ 14,241 $ 32,207 $ 36,940 $ 10,283 $ 14,238 $ 24,889 $ 9,736 $ 59,146 $ 8,028 $ 8,779 $ 87

  35. Slide 35: Organic revenue reconciliation

    Organic revenue reconciliation (In thousands) FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 FY19 Organic revenue(1) $ 208,729 $ 234,847 $ 253,516 $ 63,339 $ 68,072 $ 75,080 $ 71,208 $ 277,699 $ 93,498 $ 104,957 $ 100,625 $ 13

  36. Slide 36: Glossary

    Glossary Engineering Data AEGIS Aegis Ballistic Missile Defense System EDM MRTT Multi Role Tanker Transport Management AESA Active Electronically Scanned Array EM Electromagnetic O&M Operations & Maintenance System-level specification for VPX, AMC Advanced Microelectronics Center EO/IR Electro-optic

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