Mercury Systems Inc · NASDAQ:MRCY

Mercury Systems — Baird 2019 Global Industrial Conference

37 slides from Mercury Systems's conference presentation, Nov 5, 2019

1. Slide 1: Baird 2019 Global Industrial Conference

   Baird 2019 Global Industrial Conference Mark Aslett President and CEO Michael Ruppert Executive Vice President and CFO November 5, 2019 © 2019 Mercury Systems, Inc.

2. 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

3. 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 • FY19 Gr

4. 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

5. 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 TIER 2 DEFENSE 1,057 MARKET CAPITALIZATION BETWEEN $1B - $5B INDEX MEDIAN LTM EBITDA Margin 22% >20% 17% Margin 390 Revenue CAGR 27% >10% 5-Year 4% Growth 122 LTM Revenue 30% Gr

6. Slide 6: 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 • Model facil

7. Slide 7: 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 I 4 C F-16 Reaper/Gorgon Stare Triton LTAMDS Aegis s m e t s y S n o Global Hawk SEWIP i F-35 C-130 Badger/Buzzard s s i M r o t c e f f E & SM2/3/6 r Stormb

8. Slide 8: 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

9. Slide 9: 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

10. Slide 10: 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

11. Slide 11: 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

12. Slide 12: 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) >4.6x to $9.4B in 6 years Radar EW C4I Weapons Other 10,000 • Significant Radar, EW, C4I, 7,360 9,405 EO/IR and Weapons 1,116 opportunity pipelin

13. Slide 13: 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

14. Slide 14: 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 SILICON SAFETY Commercial Silicon Innovation Highest Safety Design Into A&D Market Assurance Levels (DAL) SPEED SECUR

15. Slide 15: Glassdoor current employee ratings

    Glassdoor current employee ratings as of October 29, 2019 Validates Mercury’s destination employer and acquirer of choice status Tier 2 Defense Mercury Glass Door Proxy Company Systems Average Peer Group(1) Index(2) Overall Rating 4.4 3.4 3.5 3.5 Culture & Values 4.4 3.4 3.3 3.3 Work-Life Balance 3.

16. Slide 16: 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 &

17. Slide 17: 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

18. Slide 18: 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

19. Slide 19: Financial Overview

    Financial Overview Michael Ruppert Executive Vice President & CFO © 2019 Mercury Systems, Inc.

20. Slide 20: 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 (1,2) $373 $3,996 11x n Capitalization o i t a u l a V Enterprise Value(1,2) $325 $3,834 12x Revenue(2) $212 $688 3x l a n o i (2) t Adj. EBITDA $28 $150 5x a r e % Margin 13% 22

21. Slide 21: 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

22. 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 700 476 688 • Continued growth in core 78 600 markets 72 500 • Expansion into adjacent 184 markets 400 300 91 • Additional capabilities 212 51 drive content expansion 200 100 • Broader program and

23. Slide 23: LTM Q1 FY20 vs. LTM Q1 FY19

    LTM Q1 FY20 vs. LTM Q1 FY19 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 $711.7 40% 12-Month Backlog $377.8 $499.2 Revenue $531.2 $688.0 30% Organic Revenue Growth(2) 22% 19% Gross Margin 44.

24. Slide 24: Q2 FY20 guidance

    Q2 FY20 guidance In $ millions, except percentage and per share data Q2 FY19(1) Q2 FY20(2) Change Revenue $159.1 $185.0 - $195.0 16% - 23% GAAP Net Income $12.4 $13.9 - $15.4 12% - 24% Effective tax rate(3) 26.6% 26.0% GAAP EPS $0.26 $0.25 - $0.28 (4)% - 8% Weighted-average diluted shares outstandin

25. Slide 25: 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

26. 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/

27. 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 • Operational improvements 37% • Full acquisition integration • Alignment with DoD priorities Grow organically at • Increased outsourcing high-s

28. 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

29. Slide 29: Appendix

    Appendix © 2019 Mercury Systems, Inc.

30. Slide 30: 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

31. Slide 31: 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

32. Slide 32: Q1 FY20 vs. Q1 FY19

    Q1 FY20 vs. Q1 FY19 In $ millions, except percentage and per share data Q1 FY19 Q1 FY20 Change Bookings $178.7 $215.7 21% Book-to-Bill 1.24 1.22 Backlog $507.9 $711.8 40% 12-Month Backlog 377.8 499.2 Revenue $144.1 $177.3 23% Organic Revenue Growth(1) 6% 17% Gross Margin 42.8% 44.2% 1.4 pts Operatin

33. Slide 33: 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

34. Slide 34: 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

35. Slide 35: 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

36. Slide 36: 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

37. Slide 37: 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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