Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Mercury Computer Systems — Investor Day (November 2009)
72 slides from Mercury Systems's investor day presentation, Nov 10, 2009
Slide 1: Tenth Annual Investor's Conference
Tenth Annual Investor’s Conference November 10, 2009 Exhibit 99.1
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 anticipated fiscal 2010 business performance and beyond. You can identify these statements
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Slide 6: Agenda: Corporate Overview
Corporate Overview – Mark Aslett, CEO, Mercury Computer Systems – Mercury Situational Business Analysis – Plans for ACS Defense – the Need for a Converged Sensor Network – Mercury Federal – Evolving our COTS business Model Keynote: John J. Young Coffee Break (15 min) Advanced Computing Solutions Mer
Slide 7: Mercury is a platform-independent, best-of-breed ISR systems and services company
Mercury is a platform-independent, best-of-breed ISR systems and services company Founded in 1981 HQ in Massachusetts; R&D in MA, VA, AL 517 employees Leading provider of commercial high-performance signal, image and sensor processing Focused on growing defense ISR market FY2009 revenues of $189M NA
Slide 8: Phases of Mercury's transformation
Phases of Mercury's transformation 3 Overlapping Phases – Parallel Execution
Slide 9: Mercury operational and financial highlights
Mercury operational and financial highlights Operations Refocused the business Completed divestiture of all non-core assets Improved working capital Refreshing product portfolio Developed a strong growing position in ISR market Growing services and systems integration business Financial Restored pro
Slide 10: Key business growth drivers
5 key business growth drivers Product Portfolio Refresh Application Expansion Platform Penetration Customer Expansion Expand Total Addressable Market to $3.5B Increased System Content Platform Penetration Application Expansion Expand Total Addressable Market to $30B Defense Electronics Market Focus
Slide 11: ACS 5-year design win value increased 22% in FY09
ACS 5-year design win value increased 22% overall in FY09 with 51% growth in defense Defense Highlights Aegis – Naval BMD, C4I Missile Defense – Ground Radar Argon – Naval SIGINT Predator – Airborne Radar JCREW – Ground SIGINT Rivet Joint – Airborne SIGINT Gorgon Stare – Airborne ISR NASP – Airborne
Slide 12: Success in semiconductor equipment
Success in semiconductor equipment – position controller for lithography Application Requirement: Low-latency, deterministic processing for precision control in Stepper/Scanners Initial Deal: $10M pre-production orders booked and partially shipped Starting to receive production orders Integrated pla
Slide 13: Services and Systems Integration drove significant revenue growth
Services and Systems Integration drove significant revenue growth in its first full year of operation Expand ACS total addressable market From startup in FY08, FY09 bookings growth +106%, revenue growth +157% FY09 proved the business model and potential Enables substitute and party technologies e.g.
Slide 14: Success in Services & System Integration: Radar Digital Processor
Success in Services & System Integration – Radar Digital Processor Project Requirement: Phased Array Radar for Ground Missile Defense (FMS) Initial Deal: $12M engineering services and system integration $6M production order (1 country) Advanced processing technology: OpenVPX™ embedded computing Note
Slide 15: Mercury Federal Systems first-year bookings and revenue
Strong revenue ($5.7M) and bookings ($11.9M) in FY09 Concurrently, generating new opportunities for ACS 8 active engagements; 3 direct prime contracts Recognized by the DoD as advanced processing architects for next-gen airborne ISR systems Mercury Federal Systems (MFS) delivered significant first y
Slide 16: MFS success story: Wide Area Airborne Surveillance
MFS success story – Wide Area Airborne Surveillance Project Requirement: Concurrent near real-time situational awareness for MQ-9 Reaper UAV (Gorgon Stare) Initial Deal: $7M bookings 1/2 hardware / software 1/2 engineering services Advanced processing technology: Embedded GPUs w/IO Note: Potential i
Slide 17: Defense department spending FY10 forecast
Defense department spending FY10 forecast Source: Defense Appropriations Act FY200-2009, National Defense Budget Estimates FY200, OMB Historical Tables FY2009
Slide 18: Military electronics is a market sweet spot
Military electronics is a market sweet spot Retrofit and upgrades remain strong for legacy programs Increased need for EW; intelligence, surveillance, reconnaissance assets Networked nodal platforms, time to information Next-gen onboard processing, exploitation and dissemination architecture critica
Slide 19: Key defense platforms and programs driving growth
Key defense platforms and programs driving growth Representative Program List Global Hawk Predator/Reaper Rivet Joint Gorgon Stare F-16 F-35 JSF BAMS MESA P8-MMA MP-RTIP Aegis RDP - Ground Missile Defense Radar THAAD JCREW Software Defined Jammer Guardrail SSEE(F) CADF Deepwater
Slide 20: FY10 budget reprioritization benefiting Mercury
FY10 budget reprioritization benefiting Mercury Increase ISR spend by $2B – Build a 43 CAP fleet of Predator class UAVs by end of FY10 – Increase manned turboprop ISR capabilities – Initiate ISR R&D for enhancements and experimental platforms Sustain air superiority – Increase F35 JSF from 14 aircra
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Slide 22: To the warfighter, time to information is critical
? To the warfighter, time to information is critical to address the growing gap between: What’s analyzed? What’s collected? 100GB per mission 100TB per mission Force Protection Mission Critical Real-time Forensics Last 18 hours Recent minutes For decision makers who need timely, actionable, and rele
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Slide 24: Mercury's new Converged Sensor Network vision for persistent ISR
Mercury's new Converged Sensor Network™ (CSN™) vision for persistent ISR A revolutionary open architecture that combines SAN Video Radar SIGINT Signal Processing Signal Processing Image Processing Information Dissemination Data Exploitation Become the government’s trusted partner for next-generation
Slide 25: Positioned for growth
Positioned for growth Focused on growing ISR market segment Creating a platform-independent, best-of-breed ISR systems and services company Unique capabilities in commercial high-performance embedded signal, image and sensor processing Building government amenable business model in line with expecte
Slide 26: Agenda: Keynote
Corporate Overview Keynote – John J. Young, Former Undersecretary of Defense, ATL – Perspectives on Acquisition Challenges, Open Architectures, Budget Outlook, and Future Program Directions Coffee Break (15 min) Advanced Computing Solutions Mercury Federal Systems (MFS) Financial Review Closing Rema
Slide 27: Agenda: Advanced Computing Solutions
Corporate Overview Keynote: John J. Young Advanced Computing Solutions – Didier Thibaud, SVP & GM, Advanced Computing Solutions – Commercial Market Growth – Increase Quantity/Value of Design Wins – Services and Systems Integration Mercury Federal Systems (MFS) Financial Review Closing Remarks / Q&A
Slide 28: Advanced Computing Solutions (ACS)
Advanced Computing Solutions (ACS) Focus on providing solutions for high-performance embedded computing Leverage technologies and product between commercial and defense markets Focus on C4ISR in defense Optimized performance for SWAP Quick Response Capabilities (QRC) through our service offerings
Slide 29: Key business growth drivers
5 key business growth drivers Commercial Increase Quantity/Value of Design Wins Services and Systems Integration Mercury Federal Systems Acquisitions Product Portfolio Refresh Application Expansion Platform Penetration Customer Expansion Expand Total Addressable Market to $3.5B Increased System Cont
Slide 30: ACS commercial segment dynamics
ACS commercial segment dynamics Commercial revenues down 24% FY08 to FY09 Positioning for a turnaround
Slide 31: Commercial growth factors
Commercial growth factors Semiconductor – market rebound – Early signs of market recovery – Design wins entering production – New potential opportunities Communication – Entering new area: 4G test equipment – New satellite communication systems in deployment Homeland Security – Design wins still in
Slide 32: Strength in ACS defense markets
Strength in ACS defense markets Radar (32% CAGR FY07-09) and EW (9% CAGR) driving growth
Slide 33: Key business growth drivers
5 key business growth drivers Commercial Increase Quantity/Value of Design Wins Services and Systems Integration Mercury Federal Systems Acquisitions Product Portfolio Refresh Application Expansion Platform Penetration Customer Expansion Expand Total Addressable Market to $3.5B Increased System Cont
Slide 34: The Warfighter's challenge: key market drivers
The Warfighter’s challenge to Government? Time to Information Key market drivers Open Systems Quick Response Capability/ Increase Outsourcing The Government’s challenge to Primes? Lower Costs Faster to Theater Enable Deliver
Slide 35: Open architecture solutions to cover the ISR spectrum
Open architecture solutions to cover the ISR spectrum Ensemble ES 1000 Ensemble ES 3000 Ensemble ES 5000 Ensemble ES 6000 Ensemble ES 7100 Ensemble ES 8000 Ensemble ES 2000
Slide 36: Growth: program penetration, SAR Predator
Growth: program penetration – SAR Predator Provide DSP processing for SAR Expand system footprint – RF and acquisition subsystem – Storage subsystem – Command and Control – Systems integration Mercury Processing Boards Opportunities for new design wins, product growth and services Total Opportunity
Slide 37: AEGIS BMD radar processing
2011 2012 2013 2014 2015 Total AEGIS BMD radar processing Selected for BMD Radar – Most powerful deployed embedded computer for digital beam-forming – Extend to Radar Control System Addressable market 60 ships out of 92 – Plan of Record for ship upgrade: 6-8 6-8 30-34 Additional 8 ships to be built
Slide 38: Growth: platform expansion, AEGIS
Growth: platform expansion - AEGIS Expand to new sensor systems beyond BMD radar – Electronic Warfare – SIGINT – EO / IR – Combat System Example EW subsystem – Starting deployment in 2011-2012 – Will be used on LCS Surface Electronic Warfare System Additional Opportunity Potential: $100M
Slide 39: Growth: expand to new customers
Growth: expand to new customers Historically targeted LM, Raytheon, NGC based on Radar and SIGINT focus New design wins with BAE, ITT, SNC, Goodrich enabling expansion in EW, EO/IR and C4I New product portfolio opening new markets like EO / IR
Slide 40: Key business growth drivers
5 key business growth drivers Product Portfolio Refresh Application Expansion Platform Penetration Customer Expansion Expand Total Addressable Market to $3.5B Increased System Content Platform Penetration Application Expansion Expand Total Addressable Market to $30B Defense Electronics Market Focus
Slide 41: The changing environment opens growth opportunities through Systems Integration
The changing environment opens growth opportunities through Systems Integration Government demands increasing – Provide more warfighting capability more rapidly at lower cost – Quick reaction capability (QRC) – New requirements rapidly evolving – UAV and UGV driving small high-density systems Proven
Slide 42: ACS summary: well positioned for growth
ACS summary – well positioned for growth Commercial business ready for rebound ISR requirements in ACS sweet spot Full product refresh driving new design wins Go-to-Market Strategy focusing on program, platform and customer expansion Services and Systems Integration tapping $3.5B market Bridge to MF
Slide 43: Agenda: Mercury Federal Systems
Corporate Overview Keynote: John J. Young Advanced Computing Solutions Mercury Federal Systems (MFS) – J. Michael Johnson, RADM USN (Retired) and Interim President, MFS – Evolving our COTS business Model Financial Review Closing Remarks / Q&A Agenda
Slide 44: Key business growth drivers
5 key business growth drivers Product Portfolio Refresh Application Expansion Platform Penetration Customer Expansion Expand Total Addressable Market to $3.5B?? Increased System Content Platform Penetration Application Expansion Expand Total Addressable Market to $30B Defense Electronics Market Focu
Slide 45: Mercury Federal Systems overview
Mercury Federal Systems overview Wholly owned subsidiary of MRCY Incorporated 2007 in Delaware Arlington, VA office open May 2008 13 employees Focus on Persistent ISR government market $12M bookings in FY09 8 programs TS facility clearance DCAA approved labor rates
Slide 46: MFS core strategic vision
MFS core strategic vision Be the leading provider of consulting and software engineering services to: – Deploy leading-edge computing capabilities for C4ISR systems – Increase client agility and compatibility – Reduce technological and financial risk – Accelerate system performance Leverage Mercury’
Slide 47: The Federal market is continuously evolving
DoD 1993 2010 2013e The Federal market is continuously evolving Budget ($B) Supplemental ($B) None +128 GWOT None planned R&D ($B) Procurement ($B) C4ISR Budget ($B) UAS Platforms (#) 2,100 3,300 Fed Svcs ($B) Source: DoD Budget Request FY93 and FY2008 MFS focused on capturing growth in C4ISR system
Slide 48: Era of persistent conflict defines ISR needs
Collection cycles appropriate to track targets of interest in any theatre of operation Collection cycles appropriate to track targets of interest in any theatre of operation Era of “persistent conflict” defines ISR Needs Global coverage On station 24/7 Multi-function / multi-sensor Networked, fused
Slide 49: On-demand sensing
On-demand sensing Machine-assisted processing, exploitation, and dissemination Direct to the warfighter In time to do something, < 1s Time-to-information is our differentiator Time-to-information is our differentiator Tactical Smart Processing is our strength Leveraging our trusted position in ISR m
Slide 50: MCS/MFS approach: hybrid business model
Maximize our State-of-the-Shelf Expertise MCS/MFS approach – hybrid business model
Slide 51: Benefits of a hybrid business model to Mercury
Benefits of a hybrid business model to Mercury Closer to the end customer – track the money flows, insight years ahead of the competition Leverages current business model to a future state Funded product development helps lower R&D expenses, accelerate growth and reduces risk Larger deal sizes overa
Slide 52: MFS program example: Gorgon Stare (WAAS)
MFS program example: Gorgon Stare (WAAS) Validation of MCS & MFS leadership and agility Won C4ISR Journal’s 2009 “Big 25” award in “Innovations” category Partnered with other agile companies (Sierra Nevada Corp, ITT, Adam Works, General Atomics) Rapid prototyping leading to first flight demos in 201
Slide 53: MFS summary
MFS summary Currently executing 8 Programs – 3 as Prime – Bookings grew from $.4M in 2008 to $11.9M in 2009 – Revenue grew from $.2M in 2008 to $5.7M in 2009 Positioning MFS on critical path of several key government programs Demonstrating success on current contracts Assembling world-class team of
Slide 54: Agenda: Financial Review
Agenda Corporate Overview Keynote: John J. Young Advanced Computing Solutions Mercury Federal Systems (MFS) Financial Review – Bob Hult, CFO, Mercury Computer Systems – FY09 Financial Results – FY10 Guidance Closing Remarks / Q&A
Slide 55: FY07-FY09: Restored profitability
FY07 – FY09: Restored profitability Note: All historical income statement figures are as reported in the Company’s earnings press release at the end of the applicable fiscal year and have not been restated for operations that have been discontinued subsequent to that time.
Slide 56: Major business dynamics
Major business dynamics Focus on strengthening and growing the defense business Note: Excludes $2M interco eliminations
Slide 57: Strong defense revenue
Strong defense revenue Note: All historical figures adjusted for the discontinued operations 14% Defense CAGR FY07 – FY09 Revenue ($M) Commercial Defense
Slide 58: Strong growth in bookings and backlog
Strong growth in bookings and backlog FY07-FY09: Total Company – 11% Bookings CAGR – 18% Backlog CAGR Defense – 28% Bookings CAGR – 28% Backlog CAGR Note: Historical figures adjusted for discontinued operations Bookings Total Company $M Ending Backlog FY07 FY08 FY09 Defense $107 Defense $145 Defense
Slide 59: FY07-FY09 profitability improves
FY07-FY09 profitability improves Note: GAAP Net Income and EPS results are from continuing operations
Slide 60: Improved working capital efficiencies
Improved working capital efficiencies Supply chain transformation – Operational efficiencies – Manufacturing lead times – Cost of quality – Competitive advantage for Mercury and customers – Inventory reduced $13.9M since Q3 FY08 as reported Customer satisfaction – Blue chip customers – End-of-quarte
Slide 61: Much improved cash conversion cycle
Much improved cash conversion cycle
Slide 62: Repaid debt and improved cash balance
Repaid debt and improved cash balance Note: ARS settlement at par ($50M) with UBS 6/30/10
Slide 63: Strong and unencumbered balance sheet
Strong and unencumbered balance sheet Q1'10 ($M) Cash and Marketable Securities Total Current Assets Total Assets Debt Total Liabilities Shareholders' Equity Generated $2M free cash flow in Q1 Zero cost ARS loan of $33M $50M ARS balance repaid at par 6/30/10 22.5M shares outstanding
Slide 64: Robust target business model
Robust target business model Notes: Target Business Model assumes organic growth. ACS /MFS approx 90%/10% revenue split Adj EBITDA adjusts for Depreciation 2-3% of revenue and Stock Based Comp 2-3% of revenue Target Business Model
Slide 65: Q1'10 prior year comparison (GAAP)
Q1'10 prior year comparison (GAAP) Notes: 1)All historical income statement figures have been restated for operations that have been discontinued subsequent to that time. 2) Adj EBITDA is earnings before impairment charges, interest, taxes, restructuring, stock compensation, amortization and depreci
Slide 66: Last 9 quarters' revenues and EPS met or exceeded guidance
2008 Q1 Q2 Q3 Q4 Revenue ($M) EPS ($) 2009 Q1 Q2 Q3 Q4 Revenue ($M) EPS ($) 2010 Q1 Q2 Q3 Q4 Revenue ($M) EPS ($) Last 9 quarter’s revenues and EPS exceeded or met the top end of guidance Reported Guidance Reported Guidance Reported Guidance Reported Guidance 49.2 48.0 52.6 51.0 56.5 53.0-55.0 55.2
Slide 67: Q2'10 guidance
Q2’10 guidance Quarter Ending December 31, 2009 Low High Revenues ($M) $40 $42 GAAP EPS ($0.08) ($0.04) Adj EBITDA $0.6 $1.9 Note - Adj EBITDA Adjustments: Net Income (1.8) (0.8) Stock compensation 1.3 1.3 Interest Expense 0.1 0.1 Interest Income (0.1) (0.1) Taxes (0.7) (0.4) Amortization 0.4 0.4 De
Slide 68: Financial summary
Financial summary Returned to profitability 11% bookings and 18% backlog growth (CAGR) Improved working capital efficiencies Healthy cash flows from operations Strong and unencumbered balance sheet Robust target business model 17-18% Adj. EBITDA $100M shelf registration effective
Slide 69: Mercury Computer Systems
= MERCURY COMPUTER SYSTEMS
Slide 70: Mercury Computer Systems
— MERCURY “a COMPUTER SYSTEMS
Slide 71: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation Notes: 1)FY07 – FY08 GAAP net income (loss) figures are as reported in the Company’s earnings press release at the end of the applicable fiscal period 2)FY09 GAAP net income (loss) figures are restated for discontinued operations as reported 3)GAAP related items: stoc
Slide 72: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Note: All historical income statement figures have been restated for operations that have been discontinued subsequent to that time. Quarter Ended Quarter Ended Sept 30, 2008 Sept 30, 2009 Income from Operations $1.3 $5.1 Other income / (expense) 0.0 0.3 Income Tax Exp
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