Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — William Blair 39th Annual Growth Stock Conference (June 2019)
36 slides from Mercury Systems's conference presentation, Jun 5, 2019
Slide 1: William Blair 39th Annual Growth Stock Conference
William Blair 39th Annual Growth Stock Conference Michael Ruppert Executive Vice President and CFO Nelson Erickson Vice President, Strategy and Corporate Development June 5, 2019 © 2019 Mercury Systems, Inc.
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 the acquisition described herein and to fiscal 2019 business performance and beyond and th
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 • FY18 Gr
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
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 1,109 MARKET CAPITALIZATION BETWEEN $1B - $5B TIER 2 DEFENSE INDEX LTM EBITDA Margin 13% 23% >20% Margin 359 Revenue CAGR 4% 29% >10% 4-Year Growth 117 LTM Revenue Growth 8% 38%
Slide 6: The evolution of Mercury Systems
The evolution of Mercury Systems In millions, except percentage and per share data. FY 2014 Today Change Market Capitalization(1,2,3) $355 $3,796 11x Valuation Enterprise Value(1,2,3) $307 $3,610 12x Revenue(2) $209 $631 3x Adj. EBITDA(2) $22 $145 7x % Margin 11% 23% +1,200 bps Operational Adj. EPS(
Slide 7: Acquisitions have transformed Mercury into a commercial A&D provider
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 • SENSOR PROC
Slide 8: 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
Slide 9: 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
Slide 10: Expect a ~5% increase in FY20 Defense budget
Expect a ~5% increase in FY20 Defense budget… Topline Defense Budget vs. BCA Caps (Discretionary BA, Current $B) Budget Control Act 20 11 (Base) Actual funding (Base) Actual funding (Base + OCO) $800 FY19 Administration Request (Base) FY19 Administration Request (Base + OCO) FY20 Administration Requ
Slide 11: 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 ($15.8B*) Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avio
Slide 12: Our capabilities and growth dimensions are well-aligned
Our capabilities and growth dimensions are well-aligned… GROWTH DIMENSIONS • Growth in Defense spending • Defense Prime contractors Market outsourcing more • Defense Primes’ flight to Geography Customer quality suppliers • Supply chain delayering A&D Industry • Foreign military and international sal
Slide 13: Acquisitions and investments driving significant opportunity growth
Acquisitions and investments driving significant opportunity growth… • Total potential value grew Top 30 Programs & Pursuits Estimated Lifetime Value ($M) >4.7x to $7.4B in 6 years Radar EW C4I EO/IR Weapons Other 9,000 • Significant Radar, EW, C4I, 8,000 EO/IR and weapons 5,835 7,428 opportunity pi
Slide 14: Business model built for speed, innovation and affordability
Business model built for speed, innovation and affordability… Traditional COTS Less Mercury Pre-integrated Product Integration Time Embedded Subsystem(s) I Classified Prime/Gov’t IP Classified Prime/Gov’t IP N T Less E Risk Proprietary Middleware Application-Ready G Software Toolkit R A T Operating
Slide 15: Only high-tech commercial company with the technology
Only high-tech commercial company with the technology… Secure Sensor and Safety-Critical Processing Solutions ACQUIRE DIGITIZE PROCESS STORAGE EXPLOIT DISSEMINATE Leading Conduit for Commercial Silicon Innovation SILICON SAFETY Highest Safety Design Into A&D Market Assurance Levels (DAL) SPEED SECUR
Slide 16: Glassdoor current employee ratings
Glassdoor current employee ratings Validates strong leadership, destination employer and acquirer of choice status Mercury Glass Door Proxy Tier 2 Defense Systems Average(1) Peer Group(2) Index(3) Overall Rating 4.3 3.4 3.5 3.6 Culture & Values 4.3 3.4 3.5 3.5 Work-Life Balance 3.7 3.4 3.5 3.5 Senio
Slide 17: We have executed on a disciplined and focused M&A strategy
We have executed on a disciplined and focused M&A strategy 2019 Tier 2* Market ($B) & CY’18-23 CAGR (%) Aerospace & Defense Platform and Systems Electronics Content C4I ($23.0B*) Sensor & Effector Mission Systems ($15.8B*) Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Command &
Slide 18: Mercury M&A philosophy and value creation blueprint
Mercury M&A philosophy and value creation blueprint Culture & Values Assess cultural fit and rapidly enculturate the acquiree Full Integration We believe in full integration – We’re not a holding company Unify Brand One Brand – Mercury Systems Combine Like Entities Combine like businesses or product
Slide 19: Strategy and investments have positioned Mercury well
Strategy and investments have positioned Mercury well • Proven high-tech commercial business model for Aerospace & Defense • Unique technology and capabilities on key production programs • Substantial total addressable market expansion enabling future growth • Low-risk content expansion growth strat
Slide 20: Financial Overview
Financial Overview Michael Ruppert Executive Vice President & CFO © 2019 Mercury Systems, Inc.
Slide 21: Mercury has delivered strong financial results
Mercury has delivered strong financial results Revenue ($M) 631 GAAP Income ($M) GAAP EPS ($) 44.1 0.92 40.9 0.86 38% 493 11% 11% LTM LTM LTM 24% CAGR 409 0.56 0.58 24.9 270 0.44 235 19.7 209 14.4 FY14 FY15 FY16 FY17 FY18 LTM Q3 FY19'19 (4.1) (0.13) FY14 FY15 FY16 FY17 FY18 LTM Q3 FY14 FY15 FY16 FY1
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 422 631 markets 600 59 55 500 • Expansion into adjacent 163 markets 400 300 80 • 209 64 Additional capabilities 200 drive content expansion 100 • Broader program and
Slide 23: Q3 FY19 vs. Q3 FY18 and LTM Q3 FY19 vs. LTM Q3 FY18
Q3 FY19 vs. Q3 FY18 and LTM Q3 FY19 vs. LTM Q3 FY18 In $ millions, except LTM LTM percentage and Q3 FY18 Q3 FY19 Change Change per share data Q3 FY18⁽¹⁾ Q3 FY19⁽¹⁾ Bookings $150.4 $189.7 26% $524.1 $713.3 36% Book-to-Bill 1.29 1.09 1.15 1.13 Backlog $429.3 $558.2 30% $429.3 $558.2 30% Revenue $116.3
Slide 24: Capitalization (at March 31, 2019)
Capitalization (at March 31, 2019) As Adjusted As Further Actual Acquisition Offering In $ millions(1) for Athena & Adjusted for 3/31/19 Adjustments (2) Adjustments (3) Syntonic the Offering Cash and cash equivalents 112.5 2.9 115.4 130.2 245.6 Long-term debt, including 276.5 48.0 324.5 (324.5) - cu
Slide 25: FY19 annual guidance (as of 4/30/19)
FY19 annual guidance (as of 4/30/19) In $ millions, except percentage and per share data FY18(1) FY19(2) Change Revenue $493.2 $642.0 - $651.0 30% - 32% Gross Margin 45.8% 43.3% - 43.5% (2.5) - (2.3) pts Operating Expenses $178.9 $203.4 - $205.9 14% - 15% GAAP Net Income $40.9 $45.2 - $47.4 11% - 16
Slide 26: Mercury recent acquisition history
Mercury recent acquisition history Expansion Closing Purchase Ending Company Primary Theme Date Price ($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/
Slide 27: 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 to high end • Operational improvements of target model 32% • Full acquisition integration • Alignment with DoD priorities Grow organically at •
Slide 28: 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
Slide 29: Appendix
Appendix © 2019 Mercury Systems, Inc.
Slide 30: Balance sheet
Balance sheet As of (In $ millions)(1) 3/31/18 6/30/18 9/30/18 12/31/18 3/31/19 ASSETS Cash & cash equivalents $44.2 $66.5 $72.9 $93.9 $112.5 Accounts receivable, net 141.6 143.8 153.9 168.3 170.7 Inventory, net 117.1 108.6 121.2 126.4 131.7 PP&E, net 51.3 51.0 50.8 53.1 55.9 Goodwill and intangible
Slide 31: Cash flow summary
Cash flow summary For the Fiscal Quarters Ended (In $ millions)(1) 3/31/18 6/30/18 9/30/18 12/31/18 3/31/19 Net Income $3.7 $10.1 $7.5 $12.4 $14.1 Depreciation and amortization 11.4 12.0 11.5 11.7 11.6 Other non-cash items, net 3.3 5.1 5.5 4.6 6.3 Change in Working Capital Accounts receivable, unbil
Slide 32: Adjusted EPS reconciliation
Adjusted EPS reconciliation (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 (Loss) Earnings per share(1) $ (0.13) $ 0.44 $ 0.56 $ 0.10 $ 0.13 $ 0.16 $ 0.19 $ 0.58 $ 0.38 $ 0.19 $ 0.08 $ 0.21 $ 0.86
Slide 33: Adjusted EBITDA reconciliation
Adjusted EBITDA 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 Net (Loss) Income $ (4,072) $ 14,429 $ 19,742 $ 3,819 $ 5,204 $ 7,048 $ 8,804 $ 24,875 $ 17,953 $ 9,133 $ 3,696 $ 10,101 $ 40,883 $ 7,479 $ 1
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 Cash flows from operations $ 14,241 $ 32,207 $ 36,940 $ 10,283 $ 14,238 $ 24,889 $ 9,736 $ 59,146 $ 8,028 $ 8,779 $ 873 $ 25,641 $ 43,321 $ 20
Slide 35: Organic revenue reconciliation
Organic revenue reconciliation (In millions) FY14 FY15 FY16 FY17 FY18 LTM Q3 FY19 Organic Revenue(1) $ 208.7 $ 234.8 $ 253.5 $ 277.7 $ 433.4 $ 517.3 Acquired Revenue(2) - - 16.6 130.9 59.8 113.4 Net revenues $ 208.7 $ 234.8 $ 270.2 $ 408.6 $ 493.2 $ 630.6 Notes: (1) Organic revenue represents total
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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