Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Mercury Computer Systems — Jefferies 2012 Global Industrial and A&D Conference
37 slides from Mercury Systems's conference presentation, Aug 7, 2012
Slide 1: Jefferies 2012 Global Industrial and A&D Conference
© 2012 Mercury Computer Systems, Inc. Jefferies 2012 Global Industrial and A&D Conference August 7, 2012 Mark Aslett President & CEO Kevin Bisson SVP & CFO Exhibit 99.1
Slide 2: Forward-Looking Safe Harbor Statement
© 2012 Mercury Computer Systems, Inc. Forward-Looking Safe Harbor Statement This press release contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including those relating to business performance and the Company’s plans for gr
Slide 3: Introducing Mercury Computer Systems
• MRCY on NASDAQ • Real-time digital image, signal and sensor processing • Commercial-item company unique business model • Focused on DoD priorities • Deployed on ~300 programs with 25+ Primes • $245M FY12 revenues; 20% Adj. EBITDA margin; 700+ employees • Defense revenue 76% growth (15% CAGR) FY08–
Slide 4: Defense industry turning the page on a decade of war
• FY12 Defense budget approved - $530B base spending • FY13 Defense budget request announced - $525B base spending • Budget Control Act reduced FYDP spend growth vs 2012 request • Budget Control Act Jan 2013 sequester • 6 month Continuing Resolution likely beginning October 1st © 2012 Mercury Comput
Slide 5: In the near term the industry is in a 12-18 month transition period
• New DoD roles and missions announced • Smaller force structure to protect readiness • Increased investment in key areas e.g. ISR, EW • Build capacity and capability of international partners • Defense procurement reform also underway … where there will be clear winners and losers 5 © 2012 Mercury
Slide 6: Pure-play C4ISR, EW and defense electronics company
Pure-play C4ISR, EW and defense electronics company entrenched on a diverse mix of programs aligned with DoD priorities Best-of-breed provider of specialized sensor processing subsystems to large defense Primes targeting platform upgrades Increased ISR usage, shift to onboard processing and exploita
Slide 7: Growth strategy summary
Mercury has strategically positioned its business to grow 1. Expand our capabilities and offerings along sensor chain 2. Expand market presence within defense electronics 3. Continue to grow our customer and program base 4. Capitalize on Prime outsourcing / supply chain consolidation 5. Acquire comp
Slide 8: We are the leader in high-performance embedded computing
We are the leader in high-performance embedded computing Historically, Mercury focused on one element of sensor chain RACE++ Boards From © 2012 Mercury Computer Systems, Inc.
Slide 9: Growing capabilities along the sensor chain
We are systematically growing our capabilities, services and offerings along the sensor chain organically and by acquisition We now view our market opportunity as providing end-to-end open sensor processing subsystems – a much larger opportunity Services and Systems Integration To RACE++ Boards From
Slide 10: Limiting our growth potential within the C4ISR market
... limiting our growth potential within the C4ISR market RADAR Mercury’s traditional market was narrowly defined as airborne radar processing … C4ISR $8,796M 22% Source: The Teal Group June 2011, World Defense Electronics Funding Available to the US FY13; excludes Sonar and Other totaling $4,212M (
Slide 11: Sensor, Product and Platform Agnostic
Sensor, Pro m and Platform Agnost
Slide 12: Deployed on 300+ programs with 25+ Primes
BAMS Global Hawk SEWIP AEGIS AEGIS Ashore Guardrail Patriot Predator Reaper Gorgon Stare F-16 JCREW 3.3 ADAS Shadow Global Hawk F-35 F-35 F-16 © 2012 Mercury Computer Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I
Slide 13: Aegis ballistic missile defense: SPY-1 BMD Radar
• Countering rogue nations’ ballistic missile threats • Highest performance radar processor Application Ready Subsystem • $10M booked in FY12, $80M+ booked to date • Additional 27 ship sets scheduled through GFY16 • AMDR selection in FY13 - partnering with LM Mercury’s largest single program in prod
Slide 14: Patriot missile defense: Next generation ground radar
© 2012 Mercury Computer Systems, Inc. Program in production; FMS and US Army upgrade driving growth • Services-led design win – Prime outsourcing example • Sophisticated radar processor Application Ready Subsystem • Production awards received to date: $50M – UAE, Taiwan, Saudi Arabia • Potential fut
Slide 15: SEWIP Block 2: Countering new emerging peer threats
• Naval surface fleet EW upgrade: 100+ ships • Delivered best-of-breed EW Application Ready Subsystem • Expected to move from EMD phase to LRIP in next 12 months • Production begins GFY15 • Upside opportunities with Block 1 upgrade and Block 3 • Lockheed and Raytheon partnering on SEWIP Block 3 Stro
Slide 16: JCREW I1B1 (3.3): Joint services CIED program of record
• JCREW I1B1 program of record in FY13 budget • Program currently in EMD (engineering) phase • Milestone C next official gate. Signifies transition to Low Rate Initial Production (LRIP) • Program experiencing delays: – Funding in Marine Corps GY13 budget request • US Marine Corps req’ts: – Total : 3
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Slide 19: ‘Dizi ») »)i Os
‘Dizi ») »)i Os ‘ACQUIRE picmize PROCESS STORE EXPLOIT DISSEMINATE
Slide 20: Sensor Processing Chain
Exploitation and Fusion Tailored feeds directly to field forces or ECM RF acquisition targets: RF transmitters / receivers Power amplifiers Synthesizers DRFM We view our market opportunity as providing end-to-end, open sensor processing subsystems to the Primes © 2012 Mercury Computer Systems, Inc.
Slide 21: Acquisition Case Study: Micronetics
© 2012 Mercury Computer Systems, Inc. Leading designer and manufacturer of microwave and RF subsystems and components for defense and commercial customers Applications include electronic warfare, radar, electronic countermeasures, satellite communications and commercial wireless products Announced t
Slide 22: Positioned for growth in a changing industry
• Focused on the right defense market segments • Well positioned on key programs and platforms • Capabilities help address today’s and tomorrow’s threats • Business model aligned with defense procurement reform • Outsourcing partner to the Primes for sensor subsystems • Strong defense revenue growth
Slide 23: Financial Overview
© 2012 Mercury Computer Systems, Inc. © 2012 Mercury Computer Systems, Inc. Financial Overview
Slide 24: Defense revenue growth accelerating
Defense: 16% CAGR FY07-12 111 130 145 158 180 230 89 60 44 42 48 15 © 2012 Mercury Computer Systems, Inc. Defense revenue growth accelerating 27% defense revenue growth YoY in FY12 FY07 FY08 FY09 FY10 FY11 FY12 Revenue ($M) Defense Commercial Notes: • FY07-10 figures adjusted for discontinued operat
Slide 25: Profitability restored and improving
($1.78) ($0.21) $0.35 $1.22 $0.71 $0.75 © 2012 Mercury Computer Systems, Inc. Profitability restored and improving (41) (5) -50 -40 -30 -20 -10 FY07 FY08 FY09 FY10 FY11 FY12 Operating Income $M Earnings per Share Notes: • FY07 figures are as reported in the Company’s fiscal 2007 Form 10K and have no
Slide 26: Adjusted EBITDA above pro forma target
12% 12% 15% 18% 20% © 2012 Mercury Computer Systems, Inc. Adjusted EBITDA above pro forma target FY08 FY09 FY10 FY11 FY12 Adj. EBITDA ($M, %) EBITDA Margin % Notes: • FY08 figures are as reported in the Company’s fiscal 2010 Form 10K. FY09-11 figures are as reported in the Company’s fiscal 2011 Form
Slide 27: Generating healthy free cash flow from operations
• Engineering and supply chain transformation – Engineering methods – Investments in DFM – Operational efficiencies – Reduced lead times – Improved cost of quality – Outsourced manufacturing © 2012 Mercury Computer Systems, Inc. (10) 14 11 16 31 32 (8) (5) (4) (7) (9) (9) • Efficient working capital
Slide 28: Balance sheet poised for investment
© 2012 Mercury Computer Systems, Inc. Balance sheet poised for investment No short and long term debt Other financing sources available: • $35M Operating line of credit (no drawdowns) (70) Q4'10 Ending LNX Acq, Net Stock Offering, FY11 Free Cash Net Flow & Other Q4'11 Ending FY12 Free Cash Flow & Ot
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Slide 32: Guidance: Strong performance track record
Q1 Q2 Q3 Q4 2008 Revenue ($M) EPS ($) 2009 Revenue ($M) EPS ($) 2010 Revenue ($M) EPS ($) 2011 Revenue ($M) EPS ($) 2012 Revenue ($M) EPS ($) 2013 Revenue ($M) EPS ($) Non-GAAP GAAP © 2012 Mercury Computer Systems, Inc. Guidance: Strong performance track record Reported Guidance Reported Guidance Re
Slide 33: Changes to new target business model
Changes to new model: • New acquisitions and increased services lower gross margin • Increased customer funded R&D from new acquisitions and lower SG&A more than offset gross margin decline • Amortization addback to operating income increases Adjusted EBITDA target © 2012 Mercury Computer Systems, I
Slide 34: Financial summary
34 • Defense revenue growth accelerated in FY12 • Profitability restored and improved • Built increased levels of Adjusted EBITDA • Converted earnings growth to healthy free cash flows • Strong balance sheet with no debt • Exceeded historic target model • Established new target model with higher Adj
Slide 35: Appendix
© 2012 Mercury Computer Systems, Inc. Appendix
Slide 36: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Years Ended June 30, (000'S) 2008 2009 2010 2011 2012 Income (loss) from continuing operations $ (4,437) $ 7,909 $ 28,069 $ 18,507 $ 22,619 Interest expense (income), net (3,129) (151) Income tax expense (benefit) 3,710 (9,377) 8,060 9,152 Depreciation 7,372 5,640 5,14
Slide 37: Free cash flow reconciliation
© 2012 Mercury Computer Systems, Inc. Free cash flow reconciliation Years Ended June 2007 2008 2009 2010 2011 2012 Cash flows from operating activities $ (10,313) $ 13,726 $ 11,199 $ 15,708 $ 31,474 $ 31,869 Capital expenditures (8,109) (4,625) (4,126) (7,334) (8,825) (9,427) Free cash flow $ (18,42
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