Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Jefferies 13th Annual Industrials Conference 2017
37 slides from Mercury Systems's conference presentation, Aug 9, 2017
Slide 1: Jefferies 13th Annual Industrials Conference
© 2017 Mercury Systems, Inc. Jefferies 13th Annual Industrials Conference Mark Aslett President and CEO Gerry Haines Executive Vice President and CFO August 9, 2017
Slide 2: Forward-looking safe harbor statement
2 © 2017 Mercury Systems, Inc. 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 2018 business performance and beyond and the Company
Slide 3: Pioneering a next generation defense electronics company
3 © 2017 Mercury Systems, Inc. …to address the industry's challenges and opportunities Pioneering a next generation defense electronics company… • High-tech commercial business model • Secure sensor and mission processing subsystems • Serving defense Prime contractor outsourcing needs • Deployed on
Slide 4: Investor highlights
4 © 2017 Mercury Systems, Inc. Investor highlights Proven Management Team Pure play aerospace and defense electronics company. Embedded on key growth programs aligned to DoD priorities Leading Positions on Well-funded Platforms Platform modernization, increased outsourcing, supply chain flight-to-qu
Slide 5: We are deployed on 300+ programs with 25+ Primes
5 © 2017 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton Aegis Patriot F-16 F-35 Global Hawk SEWIP Badger/Buzzard F-15 AH-64 Apache P-8 MMA KC-46 F-16 Reaper/Gorgon Stare MISSILES & MUNITIONS MALD-J SM2/3/6 Paveway SDB II PGK F-35
Slide 6: Mercury's vision
6 © 2017 Mercury Systems, Inc. Mercury’s vision is to be the… Leading commercial provider of secure sensor and mission processing subsystems
Slide 7: Acquisitions have transformed Mercury into a commercial provider
7 © 2017 Mercury Systems, Inc. …provider of secure sensor and mission processing subsystems Acquisitions have transformed Mercury into a commercial… • Acquired capabilities significantly expand addressable market • Moved up the value chain • Model facilitates greater customer outsourcing • Accelerat
Slide 8: Five major trends shaping the defense industry
8 © 2017 Mercury Systems, Inc. Five major trends shaping the defense industry Increased Defense Spending Cycle: Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs rising Challenging Global Security Environment: Resurgent Russia, Chinese
Slide 9: Defense budget outlook improved
9 © 2017 Mercury Systems, Inc. Defense budget outlook improved New administration expected to better support Defense Sources: National Defense Authorization Act of 2016, GFY2017 President’s Budget Request, Consolidated Appropriations Act of 2017, GFY2018 President’s Budget Request, GFY2018 OSD Compt
Slide 10: Mercury's capabilities and opportunity for growth
10 © 2017 Mercury Systems, Inc. Mercury’s capabilities and opportunity for growth… Radar, EW and C4I modernization; improved readiness Defense Prime contractors outsourcing more Defense Primes’ flight to quality suppliers Defense Primes and government delayering their supply chains Foreign military
Slide 11: Defense industry's largest secular growth opportunity
11 © 2017 Mercury Systems, Inc. …likely the Defense industry's largest secular growth opportunity Captive outsourcing by Defense prime contractors… • 2017 A&D electronics is $97 billion market • US Defense is nearly half of total market at $43B • Global Tier 2 compute & RF $31B; US $13B • Small perc
Slide 12: Mercury's addressable market increased ~8x
12 © 2017 Mercury Systems, Inc. Mercury’s addressable market increased ~8x supporting continued… …above industry average growth, returns and future acquisitions Sources: RSAdvisors research & analysis. Mercury market expansion reflects the Company’s acquisitions and expanded offerings from R&D inves
Slide 13: Business model built for speed, innovation and affordability
13 © 2017 Mercury Systems, Inc. …as customers seek affordable outsourced pre-integrated subsystems Business model built for speed, innovation and affordability… • Traditional COTS board model broken (“Plug-n-Pray”) – Product procurement cost low – Large hidden integration costs – Lower Prime IR&D sp
Slide 14: Only high-tech commercial company with the technology
14 © 2017 Mercury Systems, Inc. Highest Safety Design Assurance Levels (DAL) SPEED SWaP SOFTWARE SECURITY Highest Performance Processing Best Size, Weight and Power (SWaP) Industry-leading Embedded Security Most Advanced Open Middleware SAFETY Only high-tech commercial company with the technology… …
Slide 15: Disciplined and focused M&A strategy
15 © 2017 Mercury Systems, Inc. We will continue to execute on a disciplined and focused M&A strategy Platform Management Mission Management Comms EW Radar EO/IR Acoustics Avionics / Vetronics Command & Control / Battle Management Dedicated Communications Electronic Warfare Radar Electro Optical / I
Slide 16: Strategy and investments have positioned Mercury well
16 © 2017 Mercury Systems, Inc. Strategy and investments have positioned Mercury well • Pioneering a next-generation defense electronics business model • Unique technology and capabilities on key production programs • Substantial total addressable market expansion enabling future growth • Low-risk c
Slide 17: Financial Overview
© 2017 Mercury Systems, Inc. Financial Overview Gerry Haines Executive Vice President & CFO
Slide 18: The evolution of Mercury Systems
18 © 2017 Mercury Systems, Inc. The evolution of Mercury Systems 69% Share price $24.86 $42.09 96% Market Capitalization $995 $1,949 110% Enterprise Value $910 $1,907 51% Revenue(1) $270 $409 64% Adj. EBITDA(1) $57 $94 20% Adj. EPS(1) $0.96 $1.15 V al u ati o n Ope ra ti o n al In millions, except p
Slide 19: Mercury's financial profile puts it in a unique category
19 © 2017 Mercury Systems, Inc. 1,079 Mercury’s financial profile puts it in a unique category ALL NYSE AND NASDAQ COMPANIES WITH MARKET CAPITALIZATION BETWEEN $750mm - $3bn L4Q, 3/31/17 18 Companies 77 Companies 233 Companies EBITDA Margin >20% Revenue CAGR >10% 4-Year Companies Revenue Growth >25%
Slide 20: Strong revenue growth and operating leverage
20 © 2017 Mercury Systems, Inc. Strong revenue growth and operating leverage… 20% revenue and 75% Adj. EBITDA CAGR FY13-FY17 …yielded dramatic growth in adjusted EBITDA Notes: (1) Fiscal years ended June 30; FY13-16 figures are as reported in the Company’s Form 10-Ks and FY17 from the Company’s earn
Slide 21: Backlog and revenue coverage
21 © 2017 Mercury Systems, Inc. 109 144 166 239 291 27 30 41 49 66 136 174 208 288 357 0 50 100 150 200 250 300 350 400 FY13 FY14 FY15 FY16 FY17 Mercury Ending Backlog ($M) 12-Month Ending Backlog > 12-Month Backlog Fwd Revenue Coverage Ratio⁽¹⁾ 63% 68% 63% (Est.) 50% 64% FY13-FY17 backlog CAGR of 2
Slide 22: Acquisitions and investments driving significant opportunity growth
22 © 2017 Mercury Systems, Inc. …which in turn is driving strong actual results Acquisitions and investments driving significant opportunity growth… • Acquired businesses brought wide array of programs and capabilities • Content expansion drives outsized growth • New design wins have expanded progra
Slide 23: Strong LTM performance
23 © 2017 Mercury Systems, Inc. Strong LTM performance 51% revenue and 64% adjusted EBITDA growth YoY Notes: (1) Fiscal years ended June 30; FY13-16 figures are as reported in the Company’s Form 10-Ks and FY17 from the Company’s earnings release issued on August 1, 2017. (2) Non-GAAP, see reconcilia
Slide 24: Q4 FY17 vs. Q4 FY16
24 © 2017 Mercury Systems, Inc. Q4 FY17 vs. Q4 FY16 Notes: (1) Q4FY16 figures are as reported in the Company’s Form 10-K and Q4FY17 from the Company’s earnings release issued on August 1, 2017. (2) Non-GAAP, see reconciliation table. In millions, except percentage and per share data Q4 FY16(1) Q4 FY
Slide 25: Q1 FY18 guidance vs. Q1 FY17 actual
25 © 2017 Mercury Systems, Inc. Q1 FY18 guidance vs. Q1 FY17 actual Notes: (1) Q1FY17 figure is as reported in the Company’s Form 10-Q. (2) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such
Slide 26: FY18 annual guidance
26 © 2017 Mercury Systems, Inc. FY18 annual guidance In millions, except percentage and per share data FY17(1) FY18(2) Change Revenue $409 $453 - $468 11% - 15% GAAP Income $24.9 $26.4 - $30.3 6% - 22% GAAP EPS $0.58 $0.55 - $0.63 (5%) - 10% Weighted-average diluted shares outstanding 43.0 47.8 11%
Slide 27: Achieving target business model
27 © 2017 Mercury Systems, Inc. Achieving target business model Notes: (1) FY16 figures are as reported in the Company’s Form 10-K , except as noted below in footnote 4. (2) FY17 figures are as reported in the Company’s earnings release issued on August 1, 2017. (3) The guidance included herein is f
Slide 28: Conservative balance sheet
28 © 2017 Mercury Systems, Inc. Conservative balance sheet Zero debt, $400M revolving credit facility for future investments FY15 FY16 FY17 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 78 82 42 Accounts receivable, net 54 96 114 Inventory, net 32 58 81 PP&E, net 13 28 52 Goodwil
Slide 29: We actively develop potential acquisition targets across all channels
29 © 2017 Mercury Systems, Inc. We actively develop potential acquisition targets across all channels Acquisition Close Date Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Apr 2017 Jul 2017 Size $31mm $70mm $75mm $10mm $300mm $39mm $40.5mm Not reported Strong Strategic Rationale
Slide 30: Poised for continued, profitable growth
30 © 2017 Mercury Systems, Inc. • Improving defense environment; fast-moving streams enhance opportunities • Acquisitions have transformed top and bottom lines • Broader base of larger, more diversified programs • Record backlog enhances forward visibility, facilitates operational execution • Sustai
Slide 31: Appendix
© 2017 Mercury Systems, Inc. Appendix
Slide 32: Q1 FY18 guidance (as of August 1st)
32 © 2017 Mercury Systems, Inc. Q1 FY18 guidance (as of August 1st) Notes: (1) Q1FY17 figure is as reported in the Company’s Form 10-Q. (2) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such
Slide 33: FY18 guidance (as of August 1st)
33 © 2017 Mercury Systems, Inc. FY18 guidance (as of August 1st) Notes: (1) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any ob
Slide 34: Adjusted EPS reconciliation
34 © 2017 Mercury Systems, Inc. Adjusted EPS reconciliation Notes: (1) Numbers shown are in cents. (2) Upon the adoption of FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company recognized $1,100 of excess tax benefits in FY16. The tax benefit (provision) impacts wer
Slide 35: Adjusted EBITDA reconciliation
35 © 2017 Mercury Systems, Inc. Adjusted EBITDA reconciliation Notes: (1) Upon the adoption of FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company recognized $1,100 of excess tax benefits in FY16. The tax benefit (provision) impacts were $896, $247, $(169), and $12
Slide 36: Sales-related definitions
36 © 2017 Mercury Systems, Inc. Sales-related definitions Design Win A design win means that the customer has selected us to provide services, products, or intellectual property for a program of record or equivalent. In addition, the customer has won the program and we have an initial purchase order
Slide 37: Glossary
37 © 2017 Mercury Systems, Inc. Glossary AEGIS Aegis Ballistic Missile Defense System ECM Electronic Countermeasures OpenVPX System-level specification for VPX, initiated by Mercury AESA Active Electronically Scanned Array EO/IR Electro-optical / Infrared PBR President's Budget Request AIDEWS Advanc
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