Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — 2013 East Coast IDEAS Conference
26 slides from Mercury Systems's conference presentation, May 15, 2013
Slide 1: 2013 East Coast IDEAS Conference
— MERCURY “wm S YS TE M 5s" “i INNOVATION THAT MATTERS™ E —— = a oe 2013 East Coast IDEAS Conference Mark Aslett President and CEO Kevin Bisson SVP and CFO May 15, 2013
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 business performance and the Company’s plans for growth and improvement in profitability a
Slide 3: Introducing Mercury Systems
Introducing Mercury Systems • MRCY on NASDAQ • Real-time image, signal, Big Data processing subsystems • Commercial Item company; unique business model • Focused on Defense and Intelligence priorities • Deployed on ~300 programs with 25+ Primes • FY12 $245M revenues; 20% Adj. EBITDA margin. 770+ emp
Slide 4: Defense industry environment will remain challenging
Defense industry environment will remain challenging …due to budget and political uncertainty © 2013 Mercury Systems, Inc. 4
Slide 5: Mercury investor highlights
Mercury investor highlights Pure-play C4ISR electronics company embedded on a diverse mix of programs and platforms aligned with existing and emerging priorities Best-of-breed provider of open sensor and Big Data processing subsystems to defense Primes and to the Intelligence Community Increased ISR
Slide 6: Growth strategy summary
Growth strategy summary 1. Expand our capabilities and offerings for sensor and Big Data processing 2. Grow business by sensor modality and within the Intelligence Community 3. Penetrate customers, programs and platforms through new design wins 4. Capitalize on Prime outsourcing and supply chain con
Slide 7: We are the only commercial item company with end-to-end capabilities
We are the only commercial item company with the end-to-end capabilities and differentiated technology … …to build today’s sophisticated sensor processing subsystems targeting new platforms or upgrades © 2013 Mercury Systems, Inc. 7
Slide 8: Increased demand for ISR and rapidly evolving threats
Increased demand for ISR and rapidly evolving threats … • More and better sensors. EW EW Radar Radar Overwhelming data. • EW: new and rapidly evolving threats • Radar: smaller, faster targets. New technologies • EO/IR: leap in resolution, EO/IR EO/IR C4I C4I onboard exploitation and real-time tactic
Slide 9: We are deployed on 300+ programs with 25+ Primes
We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR –C4I F-16 F-16 F-15 F-15 F-16 Reaper F-35 AH-64 AH-64 Apache Gorgon Stare Stare BAMS; NATO NATO AGS AGS Global Hawk Hawk Global Global Hawk F-35 Patriot Patriot Badger/Buzzard P-8 P-8 AEGIS AEGIS AEGIS AEGIS Ashore Ashore SEWIP SEWIP Sh
Slide 10: Aegis ballistic missile defense: SPY-1 BMD Radar
Aegis ballistic missile defense: SPY-1 BMD Radar Countering rogue nations’ ballistic missile threats • Highest performance radar processor Application Ready Subsystem • $16M booked in FY13, $102M+ booked to date • Additional 15 ship sets expected through GFY16 • AMDR selection in FY13 – SPY-1 replac
Slide 11: SEWIP: Countering new emerging peer threats
SEWIP: Countering new emerging peer threats Delivered best-of-breed RF, microwave and digital receiver subsystems • Naval surface fleet EW upgrade: 100+ ships • Block 2: – Upgrade to AN/SLQ-32 passive detection – Opportunity to expand through LNX & Micronetics – Entered LRIP; production expected GFY
Slide 12: Patriot missile defense: Next-generation ground radar
Patriot missile defense: Next-generation ground radar Services-led design winPrime – outsourcing example • Sophisticated radar processor Application Ready Subsystem • Production awards received to date: $41M – UAE, Taiwan, Saudi Arabia • Potential future FMS awards – Up to 15 countries including Kuw
Slide 13: Mercury Program Value Drivers
Mercury Program Value Drivers Remaining Event Timing Program Potential Value Sole-source engineering AMDR * $300M -$375M 2H CY13 development contract Sole-source engineering Q4 CY13 to SEWIP Block 3 * $100M -$165M development contract Q1 CY14 -FMS (Taiwan & Singapore) 2H CY13 F-16 AESA Radar Upgrade
Slide 14: Outsourcing by large defense Prime contractors could increase our market opportunity
Outsourcing by large defense Prime contractors could substantially increase our market opportunity • Reduce risk given firm-fixed price contracts Primes retaining platform system design & integration Primes reducing in-house engineering while • Address high-fixed cost consolidating supply chain for
Slide 15: Unique, scalable microwave, RF and digital solutions platform
Through acquisition we have created a unique, scalable microwave, RF and digital solutions platform Sensor Processing Chain RF acquisition targets: RF transmitters / receivers Exploitation Tailored feeds Power amplifiers and directly to field Synthesizers Fusion forces or ECM DRFM We view our market
Slide 16: Well positioned for market rebound
Well positioned for market rebound • Focused on important defense and intelligence priorities • Well positioned on key programs and platforms • Capabilities help address today’s and tomorrow’s threats • Business model aligned with defense procurement reform • Outsourcing partner to Primes for open s
Slide 17: Financial Overview
TM Financial Overview © 2013 Mercury Systems, Inc.
Slide 18: Revenue summary by market
Revenue summary by market Defense revenue CAGR of 15% FY08-FY12 Notes: • FY08-10 figures adjusted for discontinued operations. © 2013 Mercury Systems, Inc. 18
Slide 19: Adjusted EBITDA more than doubled FY08-FY12
Adjusted EBITDA more than doubled FY08-FY12 Notes: • FY08-FY09 figures are as reported in the Company’s fiscal 2010 Form 10K. FY10-12 figures are as reported in the Company’s fiscal 2012 Form 10K. • Adjusted EBITDA excludes interest income and expense, income taxes, depreciation, amortization of acq
Slide 20: Achieved historic target business model in FY12
Achieved historic target business model in FY12 Target GAAP FY08 FY09 FY10 FY11 FY12 Business Model Revenue 100% 100% 100% 100% 100% 100% Gross Margin 58% 56% 56% 57% 56% 54+% SG&A and (1) 37% 29% 27% 26% 25% Low-mid 20’s other OPEX R&D 24% 22% 21% 19% 19% High Teens Operating Income (3%) 4% 9% 11%
Slide 21: Healthy balance sheet with sufficient liquidity
Healthy balance sheet with sufficient liquidity No debt and expanded credit facility Other financing sources available • $500M Shelf Registration • $200M senior unsecured revolving line of credit (no drawdowns) © 2013 Mercury Systems, Inc. 21
Slide 22: Defense industry conditions are currently challenging
Defense industry conditions are currently challenging • Adversely impacting FY13 financial results • Restructuring lead to $25M of recurring annualized savings • Forecasting conservatively • Focused on managing controllable items to preserve liquidity • Improving FY13 second half financial outlook S
Slide 23: Q4 FY13 guidance (as of April 30, 2013)
(1) Q4 FY13 guidance (as of April 30, 2013) Q3 FY13 Quarter Ending June 30, 2013 Actual Low High Revenue $54 $48 $54 GAAP EPS (Continuing) $0.03 ($0.13) ($0.07) Adj EBITDA $5.2 $0.1 $3.0 Note -Adj EBITDA Adjustments: Net income (Continuing) 0.8 (4.0) (2.2) Interest (income) expense, net 0.0 0.0 0.0
Slide 24: Guidance: Strong performance track record
Guidance: Strong performance track record Q1 Q2 Q3 Q4 Reported Guidance Reported Guidance Reported Guidance Reported Guidance Revenue 49.2 48.0 52.6 51.0 56.5 53.0-55.0 55.2 53.0-56.0 ($M) 2008 EPS ($) 0.09 (0.08) 0.04 (0.05) 0.04 (0.04)-0.00 0.01 (0.05)-0.01 Revenue 49.1 47.0-49.0 50.7 47.0-49.0 50
Slide 25: Updated business model raises Adjusted EBITDA target
Updated business model raises Adjusted EBITDA target In a more normalized industry environment Historic Current Target GAAP FY12 Target Business Business Model Model Revenue 100% 100% 100% Gross Margin 56% 54+% 45-50% SG&A and (1) 25% Low-mid 20’s Low 20’s other OPEX R&D 19% High Teens 11-13% (2) Am
Slide 26: Financial summary
Financial summary • 15% Defense revenue CAGR FY08-FY12 • Profitability restored and improved through FY12 • Healthy balance sheet; zero debt; $200M revolving credit facility • Exceeded historic target model in FY12; new targets established (for a more normalized industry environment) • Reduced cost