Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Investor Day (December 2019)
92 slides from Mercury Systems's investor day presentation, Dec 3, 2019
Slide 1: Mercury Systems FY20 Investor Day Presentation
Mercury Systems FY20 Investor Day Presentation December 3, 2019 Nasdaq MarketSite New York, NY © 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 fiscal 2020 business performance and beyond and the Company’s plans for growth and improve
Slide 3: Agenda
Agenda • Strategy & Business Update – Mark Aslett President & CEO • Defense Industry Update – Dr. Bill Conley Senior Vice President & CTO • Growth Strategy in Action – Didier Thibaud Executive Vice President & COO • Financial Update – Mike Ruppert Executive Vice President & CFO • Q&A ©© 2019 2019 Me
Slide 4: Pioneering a next-generation defense electronics company
Pioneering a next-generation defense electronics company... • Unique business model at the intersection of high-tech and Defense • Make commercial technology profoundly more accessible • Provide all trusted and secure computers for A&D • Deployed on 300+ programs - serving defense Prime contractor o
Slide 5: Investment highlights
Investment highlights Spent $1.2B since fiscal 2014 creating a unique business and model for A&D industry • Innovative growth company at the intersection of high-tech and defense – Focused on large, growing and well-funded addressable markets • Proven transformational business model for A&D industry
Slide 6: 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 1,057 MARKET CAPITALIZATION BETWEEN $1B - $5B INDEX MEDIAN LTM Adj. EBITDA Margin 22% >20% 17% Margin 390 Revenue CAGR 27% >10% 5-Year 4% Growth 122 LTM Revenue 3
Slide 7: Six major trends shaping the defense industry
Six major trends shaping the defense industry Political Dysfunction: 2019 Budget Control Act positive. Repeated Continuing Resolutions disrupting DoD budget process and spending. Possible Impeachment and 2020 Election Increased Defense Spending Cycle: Rising interest rates, healthcare and social spe
Slide 8: 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
Slide 9: The A&D electronics systems market has two major segments
The A&D electronics systems market has two major segments: C4I; Sensor and Effector Mission Systems Aerospace & Defense Platform and Systems Electronics Content C4I ($22.6B)* Sensor & Effector Mission Systems ($17.4B)* Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avio
Slide 10: The A&D electronics systems market has two major segments
The A&D electronics systems market has two major segments: C4I; Sensor and Effector Mission Systems Aerospace & Defense Platform and Systems Electronics Content C4I ($22.6B)* Sensor & Effector Mission Systems ($17.4B)* Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avio
Slide 11: Mercury participates at the Tier 2 level for RF and Computing
Mercury participates at the Tier 2 and 3 levels for RF and Computing Aerospace & Defense Platform and Systems Electronics Content C4I ($22.6B)* Sensor & Effector Mission Systems ($17.4B)* Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avionics / Dedicated Electronic Ele
Slide 12: Translated market expansion into growth well above industry average
Translated market expansion into growth well above industry average Aerospace & Defense Platform and Systems Electronics Content C4I ($22.6B)* Sensor & Effector Mission Systems ($17.4B)* Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avionics / Dedicated Electronic Elec
Slide 13: Penetrating new markets larger than our traditional ones
Penetrating new markets larger than our traditional ones Aerospace & Defense Platform and Systems Electronics Content C4I ($22.6B)* Sensor & Effector Mission Systems ($17.4B)* Platform & C2I Comms EW Radar EO/IR Acoustics Weapons Mission Mgmt Command & Avionics / Dedicated Electronic Electro-Optical
Slide 14: 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 LTAMDS Aegis F-35 C-130 Global Hawk Badger/Buzzard SEWIP Stormbreaker PGK MALD-J Paveway SM2/3/6 Sensor & Effector Missio
Slide 15: Our purpose connects our vision, positioning, culture & values
Our purpose connects our vision, positioning, culture & values… OUR PURPOSE Innovation That Matters OUR VISION Provide all processing solutions on every system that requires trusted and secure ® computing OUR POSITIONING Mercury Systems is the leader in making trusted, secure mission-critical techno
Slide 16: Strategy delivering above-average growth and profitability
Strategy delivering above-average growth and profitability Invest to grow organically 1 Invest in our people, processes, systems and trusted manufacturing assets to support continued organic growth Expand capabilities, market access and penetration through M&A 2 Create value through disciplined M&A
Slide 17: Innovating and making mission-critical technologies profoundly accessible
Innovating and making mission-critical technologies profoundly... Trusted and Secure Mission-Critical Technologies and Subsystems ACQUIRE DIGITIZE PROCESS STORAGE EXPLOIT DISSEMINATE Leading conduit for SILICON SAFETY commercial silicon innovation Highest Safety Design into A&D market Assurance Leve
Slide 18: Acquisitions initially transformed Mercury
Acquisitions initially transformed Mercury into a... • Acquired capabilities Sensor Processing Sensor Processing significantly expanded addressable market • Moved up the value chain • Model facilitates greater customer outsourcing • Accelerates customer supply chain transformation • Disintermediate
Slide 19: Our overarching strategy is to provide all types of processing subsystems
Our overarching strategy however is to provide all types... Platform & Mission Management C3I Sensor Processing M ...of processing subsystems requiring trusted, secure computing © 2019 Mercury Systems, Inc. 19
Slide 20: Our goal is to replicate our sensor processing integration at chip scale
Our goal is to also uniquely replicate our sensor... Sensor Processing Trusted and Secure Solutions Chip-Scale Application-Specific Customization ...processing subsystem integration strategy at chip scale © 2019 Mercury Systems, Inc. 20
Slide 21: This game-changing capability will enable new applications
This game-changing capability will enable new applications... New Modular IP Library Enables Rapid Affordable Customization Open systems at chip scale allows unprecedented configurability and flexibility Chiplets Trusted and Secure Solutions Best-of-breed Ecosystem from Multiple Vendors Application-
Slide 22: First driver of growth is content expansion
The first driver of growth is content expansion driven... Up to a 12x increase in content per system as customers outsource more due to secure computing requirements and as system complexity grows 1 Trusted and Secure Computing ...by M&A, customer outsourcing, share gains and system complexity © 201
Slide 23: Second is growing in sub-market adjacencies
Second is growing in sub-market adjacencies... Up to a 12x increase in content per system as customers outsource more due to secure computing requirements and as system complexity grows 1 SEMS Tier 2 market Trusted and $17.4B Secure 2 4.6% CAGR Computing Move into adjacent submarkets and 4 other sys
Slide 24: Third is expanding into all other systems
Third is expanding into all other systems... Up to a 12x increase in content per system as customers outsource more due to secure computing requirements and as system complexity grows 1 C4I Tier 2 market SEMS Tier 2 market $22.6B Trusted and $17.4B 4.1% CAGR 3 Secure 2 4.6% CAGR Computing Provide al
Slide 25: Chip scale technology will enable new applications
Finally, unique chip scale technology will enable new... Up to a 12x increase in content per system as customers outsource more due to secure computing requirements and as system complexity grows 1 C4I Tier 2 market SEMS Tier 2 market $22.6B Trusted and $17.4B 4.1% CAGR 3 Secure 2 4.6% CAGR Computin
Slide 26: Our M&A sensor processing content expansion strategy
Our M&A sensor processing content expansion strategy... Platform & Mission Management C3I Sensor Processing M Market Capability Penetration ...has worked well yet we’re in the early phases of market penetration Note: Capability and Market Penetration for illustration purposes only © 2019 Mercury Sys
Slide 27: Our C3I content and market expansion began in fiscal 2018
Our C3I content and market expansion began in fiscal 2018... Platform & Mission Management C3I Sensor Processing M Market Penetration Market Capability Capability Penetration ...still in early stages of M&A content and organic market penetration Note: Capability and Market Penetration for illustrati
Slide 28: Platform and mission management expansion began in fiscal 2017
Similarly, our platform and mission management expansion began in fiscal 2017… Platform & Mission Management C3I Sensor Processing M Market Market Penetration Market Capability Penetration Capability Capability Penetration ...still in early stages of M&A content and organic market penetration Note:
Slide 29: Business model built for speed, innovation and affordability
Business model built for speed, innovation and affordability... Mercury Pre-integrated Prime Traditional COTS Less Trusted and Secure Product Integration Time Computer Subsystem I Classified Prime/Gov’t IP Classified Prime/Gov’t IP N T Less E Risk Open Middleware & APIs G Proprietary Middleware R Tr
Slide 30: Applying the subsystem pre-integration model
We can apply the same subsystem pre-integration model... Sensor Processing Mercury Pre-integrated Trusted and Secure Less Computer Subsystem Time Classified Prime/Gov’t IP Less C3I Open Middleware & APIs Risk Trusted and Secure Mission Critical Technologies M and Subsystems Lower Trusted Microelectr
Slide 31: Trusted manufacturing and integration capabilities
We’ve built trusted manufacturing and integration capabilities Manufacturing Capabilities W. Caldwell, Fremont, Oxnard, Cypress, Phoenix, Mesa, Alpharetta, Hudson, Chantilly, Andover, Geneva, Huntsville, Rugged Servers NJ CA CA CA AZ AZ GA NH VA MA Switz. AL Mission Systems RuggedSecure Servers Proc
Slide 32: 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 33: Using M&A to expand our capability set
We’re using M&A to expand our capability set... Platform & Mission Management C3I Sensor Processing M * ...for all systems that need trusted, secure computing * Represents carve-out acquisition from Microsemi Corp. © 2019 Mercury Systems, Inc. 33
Slide 34: Access and penetrate adjacent markets
As well as to access and penetrate adjacent markets 2019 Tier 2* Market ($B) & CY’19-24 CAGR (%) Aerospace & Defense Platform and Systems Electronics Content C4I ($22.6B)* Sensor & Effector Mission Systems ($17.4B)* Platform & Mission Mgmt C2I Comms EW Radar EO/IR Acoustics Weapons Command & Avionic
Slide 35: Glassdoor current employee ratings
Glassdoor current employee ratings Validates Mercury’s destination employer and acquirer of choice status Tier 2 Defense Mercury Glassdoor Proxy Company Systems Average Peer Group(1) Index(2) Overall Rating 4.4 3.4 3.4 3.5 Culture & Values 4.5 3.4 3.2 3.4 Work-Life Balance 3.9 3.4 3.3 3.5 Senior Man
Slide 36: Capabilities and growth dimensions are well-aligned
Our capabilities and growth dimensions are well-aligned… • Addressable market growing GROWTH DIMENSIONS faster than DoD budget • Content per system increasing Content due to greater outsourcing, share gains and threat driven system complexity Geography Market • Acquisitions adding new capabilities,
Slide 37: Revenue growth rates by content and tier
Revenue growth rates by content and tier • Integrated subsystem revenue up 73% in last twelve months – now 46% of total company revenue • Majority of new designs wins at the subsystem level • Modules provide ability to differentiate in open systems • Security dominates P-win • Doubled size of Micros
Slide 38: Revenue growth rates by market
Revenue growth rates by market • Significant C4I and SEMS modernizations underway – Radar: 10% 5 year CAGR – EW: 23% 5 year CAGR – Weapons: 117% 5 year CAGR – Comm’s: 32% 5 year CAGR – C2I: 192% 5 year CAGR • Rapid and affordable means to add new warfighting capability • Secure, trusted systems crit
Slide 39: Revenue growth rates by platform
Revenue growth rates by platform • Airborne: – Modernization and new designs to replace F-22 and Navy F/A-18, requiring new radars and EW systems • Naval: – C4I upgrades to support distributed lethality (any sensor, any shooter, any weapon) • Ground: – New radars to replace legacy Patriot air defens
Slide 40: Revenue growth rates by top customer
Revenue growth rates by top customer • Increased Tier 2 outsourcing: – Upfront partner IRAD – Lower integration risk / cost – Faster time to field – Lower lifecycle costs – Lack of resources and skills • Flight to quality suppliers: – Trusted, secure computing – Safety certifiable processing – RF de
Slide 41: Revenue growth rates by top programs
Revenue growth rates by top programs • Tracking well over 100 active programs • Top 25 and top 50 programs growing faster than top 10 • Content expansion underway across top programs • Top programs growing faster than total company revenue • Top program LTM revenue growing faster as programs move fr
Slide 42: 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) >5.2x to $10.6B in 6 years Radar EW C4I Weapons EO/IR Other • Significant Radar, EW, C4I, 12,000 8,572 10,6175,717 EO/IR and Weapons 288 opport
Slide 43: Acquisitions and investments driving significant potential
Acquisitions and investments driving significant potential... FY19 Revenue (in $ millions, % of total) Submarket Platform Content Other Other Naval 104 C4I 129 137 Modules 183 16% 20% 21% Subsystems 181 28% EW 289 28% Ground 129 44% Weapons 83 20% Airborne 64 12% Radar 306 Components 10% EO/IR 164 4
Slide 44: A leader in trusted, secure technologies and subsystems
We’re a leader in trusted, secure technologies and subsystems Innovative growth company at intersection of high tech and defense Proven transformational business model for A&D industry Low-risk content expansion strategies with substantial headroom Successful M&A strategy targeting new capabilities
Slide 45: Agenda
Agenda • Strategy & Business Update – Mark Aslett President & CEO • Defense Industry Update – Dr. Bill Conley Senior Vice President & CTO • Growth Strategy in Action – Didier Thibaud Executive Vice President & COO • Financial Update – Mike Ruppert Executive Vice President & CFO • Q&A ©© 2019 2019 Me
Slide 46: The threat is changing
The threat is changing... Time to Time to Time to market challenges decision challenges adapt 3 generations of threat to Hypersonic weapons – • US forces must be able to single generation of aircraft hard to track, maneuver operate globally throughout flight (hard to US F-22 Russian know what the ta
Slide 47: Global economic trends
Global economic trends make... • Economic parity • R&D investment parity • US defense investment exceeds Chinese State • US investment supports global goals; China’s supports regional goals ($T) GDP US • Chinese State investment in defense adequate for Defense modernization programs • Chinese defens
Slide 48: Commercial R&D growth outpaces Defense
Commercial R&D growth outpaces Defense... Ratio of Commercial to Federal R&D • Commercial R&D 3x Commercial funding investments dominate since 2x dominates Cold War ended 1.0 • Today, dual-use technologies 1/2x Federal transition from commercial funding 1/3x dominates to defense applications 1960 19
Slide 49: Mercury is poised to address US Government's priorities
Mercury is poised to address US Government’s priorities… It’s difficult to line up, synchronize and deliver programmatically on things that make sense at the right time for the force. —RADM Steve Parode, 2019 Director, Warfare Integration The Air Force must be able to collect and decipher informatio
Slide 50: Agenda
Agenda • Strategy & Business Update – Mark Aslett President & CEO • Defense Industry Update – Dr. Bill Conley Senior Vice President & CTO • Growth Strategy in Action – Didier Thibaud Executive Vice President & COO • Financial Update – Mike Ruppert Executive Vice President & CFO • Q&A ©© 2019 2019 Me
Slide 51: Growth strategy in action with Aegis
Growth strategy in action with Aegis Naval Fleet Radar: • SPY-1 Radar processing • FMS processing refresh Our largest program ($100M) 10 years ago © 2019 Mercury Systems, Inc. 51
Slide 52: EW content expansion
EW content expansion Radar: EW: • SPY-1 Radar processing • EP/ES: SEWIP Block 2 • FMS processing refresh • EA: SEWIP Block 3 • SIGINT: SSEE add-on M&A strategies in RFM drove 2.5x content expansion © 2019 Mercury Systems, Inc. 52
Slide 53: Weapons content expansion
Weapons content expansion Radar: EW: • SPY-1 Radar processing • EP/ES: SEWIP Block 2 • FMS processing refresh • EA: SEWIP Block 3 • SIGINT: SSEE add-on Weapons: • Phalanx C2 Expansion opportunities on every sensor & effector subsystem © 2019 Mercury Systems, Inc. 53
Slide 54: C3I market expansion
C3I market expansion Radar: EW: • SPY-1 Radar processing • EP/ES: SEWIP Block 2 • FMS processing refresh • EA: SEWIP Block 3 • SIGINT: SSEE add-on Weapons: • Phalanx C2 C3I: • C2I: CPS and CDS • Comms: – Navy Multiband Terminal – IFF interrogators M&A doubled content and expanded market into C3I fro
Slide 55: Total potential Naval surface fleet value increased 5x
Total potential Naval surface fleet value increased 5x Radar: EW: • SPY-1 Radar processing • EP/ES: SEWIP Block 2 • FMS processing refresh • EA: SEWIP Block 3 • SIGINT: SSEE add-on Weapons: • Phalanx C2 C3I: • C2I: CPS and CDS • Comms: – Navy Multiband Terminal – IFF interrogators © 2019 Mercury Sys
Slide 56: Future potential expansion
Future potential expansion • Sensor & Effectors • C4I – Microlectronics at antenna – Network Management – SEWIP Block4 EO/IR – Displays Many more processing subsystems to be targeted and upgraded © 2019 Mercury Systems, Inc. 56
Slide 57: Another important example: Patriot
Another important example: Patriot Radar Ground mobile Radar: • Radar Processing Initial outsourcing at subsystem level drove >$100M to Mercury © 2019 Mercury Systems, Inc. 57
Slide 58: Major design win as key supplier to RTN on LTAMDS
Major design win as key supplier to RTN on LTAMDS Ground mobile Radar: • Radar Processing Next-generation LTAMDS: • Radar processing >4x Next-generation drives additional substantial processing needs © 2019 Mercury Systems, Inc. 58
Slide 59: New threats driving new needs
New threats driving new needs Ground mobile Radar: • Radar Processing Next-generation LTAMDS: • Radar processing 5x • EP processing expansion >4x EW/EP needs enabling substantial content expansion © 2019 Mercury Systems, Inc. 59
Slide 60: Additional content expansion based on broad range of capabilities
Additional content expansion based on broad range of capabilities Ground mobile Radar: • Radar Processing Next-generation LTAMDS: • Radar processing 5x • EP processing expansion 5x • RF content expansion 2x Total content expansion increased >10x from Patriot to LTAMDS © 2019 Mercury Systems, Inc. 60
Slide 61: New microelectronics capabilities enabling future content expansion
New microlectronics capabilities enabling potential future content expansion Ground mobile Radar: • Radar Processing Future potential expansion • Microelectronics processing at the antenna Next-generation LTAMDS: • Radar processing 5x • EP processing expansion 5x • RF content expansion 2x Could doub
Slide 62: Airborne growth strategy in action
Airborne growth strategy in action Radar Processing: • F-16, F-22, F-15, F-18, P-8, B-52, Reaper, Global Hawk… Long-term leadership in airborne Radar processing © 2019 Mercury Systems, Inc. 62
Slide 63: Content and market expansion in EW, EO/IR, weapons
Content and market expansion in EW, EO/IR, weapons Radar Processing: Electronic warfare: • F-16, F-22, F-15, F-18, P-8, B-52, • Fighter: F15, F16, F35, F18 Reaper, Global Hawk… • Rotary-wing • ISR Platforms EO/IR Weapons: • Paveway, Stormbreaker Platform sensor electronics upgrades and leadership in
Slide 64: Additional market expansion in C4I
Additional market expansion in C4I Radar Processing: Electronic warfare: • F-16, F-22, F-15, F-18, P-8, B-52, • Fighter: F15, F16, F35, F18… Reaper, Global Hawk… • Helicopter • ISR Platforms C4i including displays: EO/IR • Fighters: F-35, F-18, F-15, A-10 • Tankers: KC-46, MRTT Weapons: • Helicopter
Slide 65: Summary
Summary • Modernization of legacy systems to address new threats • LTAMDS over 10x more content expansion than Patriot • Digital convergence driving more processing demand in C4I market • Broad product portfolio including servers to address processing demand • State-of-the-art secure IP driving grow
Slide 66: Agenda
Agenda • Strategy & Business Update – Mark Aslett President & CEO • Defense Industry Update – Dr. Bill Conley Senior Vice President & CTO • Growth Strategy in Action – Didier Thibaud Executive Vice President & COO • Financial Update – Mike Ruppert Executive Vice President & CFO • Q&A ©© 2019 2019 Me
Slide 67: The evolution of Mercury Systems
The evolution of Mercury Systems In millions, except percentage and per share data. LTM Q1 2015 LTM Q1 2020 Change Market Capitalization(1,2) $373 $3,996 11x Valuation Enterprise Value(1,2) $325 $3,834 12x Revenue(2) $212 $688 3x Adj. EBITDA(2) $27 $150 5x % Margin 13% 22% +~900 bps Operational Adj.
Slide 68: Mercury has delivered strong financial results
Mercury has delivered strong financial results Revenue GAAP Net Income 58.5 GAAP EPS 688 46.8 655 80% 1.15 30% 93% 40.9 YoY YoY YoY 0.96 493 0.86 409 24.9 0.56 0.58 270 19.7 209 235 14.4 0.44 FY14 FY15 FY16 FY17 FY18 FY19 LTM Q1FY20 (4.1) (0.13) FY14 FY15 FY16 FY17 FY18 FY19 LTM FY14 FY15 FY16 FY17
Slide 69: LTM Q1 FY20 performance
LTM Q1 FY20 performance LTM LTM In $ millions, except percentage and per share data Change Q1 FY19⁽¹⁾ Q1 FY20⁽¹⁾ Bookings $635.0 $820.0 29% Book-to-Bill 1.20 1.19 Backlog $507.9 $711.8 40% 12-Month Backlog $377.8 $499.2 Revenue $531.2 $688.0 30% Organic Revenue Growth(2) 22% 19% GAAP Net Income $30.
Slide 70: Q1 FY20 capitalization
Q1 FY20 capitalization Sources and Uses Actual Actual as of (1) Other In $ millions Free Cash (3) 9/30/18 Acquisitions Financing 9/27/19 Flow Activities Cash and cash equivalents 72.9 69.2 (177.3) 196.5 161.3 Long-term debt, including 240.0 - - (240.0) - current portion Net Debt / (Cash) 167.1 (69.2
Slide 71: Mercury recent acquisition history
Mercury recent acquisition history Expansion Closing Purchase Ending Company Primary Theme Date Price ($M) 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/M
Slide 72: FY20 annual guidance
FY20 annual guidance In $ millions, except percentage and per share data FY19(1) FY20(2)(5) Change Revenue $654.7 $775.0 - $790.0 18% - 21% GAAP Net Income $46.8 $72.9 - $77.8 56% - 66% Effective tax rate(3) 21.4% 26% GAAP EPS $0.96 $1.32 - $1.41 38% - 47% Weighted-average diluted shares outstanding
Slide 73: Committed to maintaining differentiated and attractive financial profile
Committed to maintaining differentiated and attractive financial profile 100% • Operating expense leverage Increase Adj. EBITDA • Program production mix margins • Operational improvements 37% • Full acquisition integration • Alignment with DoD priorities Grow organically at • Increased outsourcing h
Slide 74: Clear path to increasing Adj. EBITDA margins
Clear path to increasing Adj. EBITDA margins • Operating leverage: Adjusted EBITDA Margin Expansion – Revenue growing faster than operating expenses Acquisition – SG&A declined from 21% of Integration Future sales in FY15 to 17% in FY19 Operating • Program mix: Efficiencies – Programs transitioning
Slide 75: Strategy driving above market growth
Strategy driving above market growth • Positioned in fast-growing Content segments of defense Expansion electronics market • Business model facilitates 1 outsourcing trend and content expansion • Expanding into adjacent C4I Tier 2 Trusted and Sensor and Effector markets leveraging technology Market
Slide 76: Content expansion from modules to subsystems
Content expansion from modules to subsystems Revenue and Growth by Content and Tier ($M) Components Modules & Subassemblies Integrated Subsystems • Components: 700 446 655 – Expansion via custom 600 microelectronics acquisition 210 from Microsemi 500 – Investment in trusted 400 73 microelectronics 3
Slide 77: Expanding into new markets
Expanding into new markets Revenue and Growth by Market ($M) Radar EW C4I Weapons Other • Continued growth in core 700 446 655 markets 62 600 63 • Expansion into adjacent 500 175 markets and leveraging 400 current capabilities 300 83 209 63 • Additional capabilities drive 200 content expansion 100 •
Slide 78: Taking market share due to significant investments
Taking market share due to significant investments Focused on core markets, technologies and scale Markets C4I and SEMS R&D $312M Trusted and Secure Mission Critical Capital Technologies and Subsystems $120M Expenditures Acquisition $800M Investment Trusted Domestic Manufacturing and Integration fro
Slide 79: Continue supplementing organic growth with M&A
Continue supplementing organic growth with M&A Hypothetical Organic and Inorganic Revenue Growth ($M) 2,000 Organic Acquired Growth Acquired in Year • Continue 20+% annual growth 1,750 1,623 • Target 10% organic 1,500 growth 1,250 • Supplement with strategic M&A 1,000 • Strong pipeline of 750 opport
Slide 80: As we expand inorganically into new markets
As we expand inorganically into new markets… Sensor & Effector C3I Platform and Mission Mgmt Mission Systems Tier 2 Market Tier 2 Market Tier 2 Market $15.5B $7.1B $17.4B …our M&A pipeline continues to grow significantly © 2019 Mercury Systems, Inc. 80
Slide 81: M&A is an integral part of our model
M&A is an integral part of our model M&A Vision Our strategy contemplated M&A at the outset for this ‘environment’ Origination Dedicated M&A team to identify and originate proprietary deals Diligence Superior in-house market, technical and business diligence capabilities supplemented with external o
Slide 82: We have created significant value through M&A
We have created significant value through M&A FY16 and FY17 FY18 and FY19 FY19 and FY20 YTD Acquisitions Purchase Price $396M $225M $183M Avg. Mkt.(1) 11.6x 13.4x 11.6x @ Close(2) 10.2x 12.4x 10.4x EV / PF EBITDA 7.3x 9.2x 10.4x w/Synergies(3) FY19(4) 6.8x 8.4x (strong FY20 performance YTD) • Accele
Slide 83: Strategy and business model delivering financial performance above industry average
Strategy and business model delivering financial performance well above industry average Track record of strong organic growth, profitability and strategic M&A Significant investment over last 5 years competitive differentiator Poised for continued organic growth and margin expansion Well positioned
Slide 84: Q&A
Q&A Thank you for attending our FY20 Investor Day! © 2019 Mercury Systems, Inc.
Slide 85: Appendix
Appendix © 2019 Mercury Systems, Inc.
Slide 86: Balance sheet
Balance sheet As of (In $ millions)(1) 9/30/18 12/31/18 3/31/19 6/30/19 9/27/19 ASSETS Cash & cash equivalents $72.9 $93.9 $112.5 $257.9 $161.3 Accounts receivable, net 153.9 168.3 170.7 176.2 177.5 Inventory, net 121.2 126.4 131.7 137.1 148.5 PP&E, net 50.8 53.1 55.9 60.0 65.9 Goodwill and intangib
Slide 87: Cash flow summary
Cash flow summary For the Fiscal Quarters Ended (In $ millions)(1) 9/30/18 12/31/18 3/31/19 6/30/19 9/27/19 Net Income $7.5 $12.4 $14.1 $12.8 $19.2 Depreciation and amortization 11.5 11.7 11.6 11.6 11.4 Other non-cash items, net 5.5 4.6 6.3 5.1 6.4 Changes in Operating Assets and Liabilities Account
Slide 88: Adjusted EPS reconciliation
Adjusted EPS reconciliation Q2 FY20(2)(4) FY20(2)(4) (In thousands, except per share data) Q1 FY19 Q1 FY20 LTM Q1 FY19 LTM Q1 FY20 Low High Low High Earnings per share(1) $ 0.16 $ 0.35 $ 0.64 $ 1.15 $ 0.25 $ 0.28 $ 1.32 $ 1.41 Net Income $ 7,479 $ 19,247 $ 30,409 $ 58,543 $ 13,900 $ 15,400 $ 72,900
Slide 89: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Q2 FY20(2)(3) FY20(2)(3) (In thousands) Q1 FY19 Q1 FY20 LTM Q1 FY19 LTM Q1 FY20 Low High Low High Net Income $ 7,479 $ 19,247 $ 30,409 $ 58,543 $ 13,900 $ 15,400 $ 72,900 $ 77,800 Other non-operating adjustments, net(1) 365 301 (652) 300 - - 300 300 Interest (income) e
Slide 90: Free cash flow reconciliation
Free cash flow reconciliation (In thousands) Q1 FY19 Q1 FY20 LTM Q1 FY19 LTM Q1 FY20 Cash provided by operating activities $ 20,029 $ 24,310 $ 55,322 $ 101,798 Purchases of property and equipment (3,727) (9,595) (15,205) (32,559) Free cash flow $ 16,302 $ 14,715 $ 40,117 $ 69,239 © 2019 Mercury Syst
Slide 91: Organic revenue reconciliation
Organic revenue reconciliation (In thousands) Q1 FY19 Q1 FY20 LTM Q1 FY19 LTM Q1 FY20 Organic revenue(1) $ 135,062 $ 158,053 $ 522,177 $ 622,087 Acquired revenue 8,994 19,251 8,994 65,905 Net revenues $ 144,056 $ 177,304 $ 531,171 $ 687,992 Notes: (1) Organic revenue represents total company revenue
Slide 92: Glossary
Glossary AEGIS Aegis Ballistic Missile Defense System EO/IR Electro-optical / Infrared NTCD Non-traditional Defense Contractor AESA Active Electronically Scanned Array EP Electronic Protection O&M Operations & Maintenance System-level specification for VPX, initiated AMC Advanced Microelectronics Ce