Mercury Systems Inc · NASDAQ:MRCY

Mercury Systems — Non-Deal Roadshow (March 2015)

33 slides from Mercury Systems's roadshow presentation, Mar 3, 2015

1. Slide 1: William Blair & Company California Road Show

   © 2015 Mercury Systems, Inc. William Blair & Company California Road Show Mark Aslett President and CEO Gerry Haines Executive Vice President and CFO March 3, 2015

2. Slide 2: Forward-looking safe harbor statement

   2© 2015 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 the products and services described herein. You can identify

3. Slide 3: Introducing Mercury Systems

   3© 2015 Mercury Systems, Inc. Commercial secure and sensor processing subsystems Introducing Mercury Systems • MRCY on NASDAQ 1998 • High tech company; commercial business model • Focused on Defense and Intelligence priorities • Deployed on ~300 programs with 25+ Prime contractors • FY14 $209M reven

4. Slide 4: Pioneering a next generation defense electronics company

   4© 2015 Mercury Systems, Inc. Pioneering a next generation defense electronics company Successful business transformation, double-digit defense revenue growth with improved profitability Proven Management Team Pure play defense electronics company embedded on key growth programs aligned to DoD prior

5. Slide 5: Mercury's vision

   5© 2015 Mercury Systems, Inc. Mercury’s vision is to be the… Leading high-tech commercial provider of more affordable secure and sensor processing subsystems designed and made in the USA

6. Slide 6: Defense will likely remain a $500B+ industry

   6© 2015 Mercury Systems, Inc. Defense will likely remain a $500B+ industry… …despite the ongoing political and budget uncertainty Crowding Out of Defense Spending and Investment: Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs rising

7. Slide 7: Defense Business Board promotes continued procurement reform

   7© 2015 Mercury Systems, Inc. • Continue to focus on improving affordability • Achieve dominant capabilities through innovation • Remove barriers to commercial technology utilization • Require platform open architectures • Commercial default for non-platform procurements • Separate components procur

8. Slide 8: How we operate as a high-tech commercial company

   8© 2015 Mercury Systems, Inc. …serving the US defense electronics industry How we operate as a high-tech commercial company… • Internal R&D funds the development of modular, reusable open innovations • Pre-integration improves affordability and time to market • Rapid customization and adaptation to

9. Slide 9: Business model built for speed, innovation and affordability

   9© 2015 Mercury Systems, Inc. …as customers seek more affordable outsourced subsystems Our business model is built for speed, innovation and affordability… • Traditional COTS board model broken (“Plug-n-Pray”) – Product procurement cost low – Large hidden integration costs – Lower prime IRAD spendin

10. Slide 10: From Teraflop modules to pre-integrated sensor processing subsystems

    10© 2015 Mercury Systems, Inc. From highly leveraged Teraflop modules and RFM subassemblies… …to blade servers and pre-integrated sensor processing subsystems Rugged MOSA Teraflop server blade Rugged MOSA solution - servers for the tactical edge ATCA blade server Integrated Microwave Assemblies MOSA

11. Slide 11: Factors leading to a unique market position

    11© 2015 Mercury Systems, Inc. • Broadband EW domain expertise • Pre-integrated end-to-end sensor capability unique • Lower integration costs, time, risk • Facilitates Prime outsourcing • DoD mandate • Unique capabilities • Important relationships • Critical programs • 2-3 years ahead of traditional

12. Slide 12: Unique capabilities aligned to industry growth drivers

    12© 2015 Mercury Systems, Inc. Mercury has unique and differentiated capabilities today… …that are aligned to the key industry growth drivers Pacific Pivot: Sensors going long, wide and high. Platforms need improved sensors, autonomy, electronic protection and attack, on-board exploitation Aging Pla

13. Slide 13: Company growth drivers we are pursuing

    13© 2015 Mercury Systems, Inc. Defense industry growth drivers translate into specific… …company growth drivers that we are pursuing Outsourced Secure Processing Subsystems: Expand beyond sensor processing to provide MOSA secure processing subsystems for other onboard mission-critical compute applic

14. Slide 14: Deployed on 300+ programs with 25+ Primes

    14© 2015 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton; NATO AGS Global Hawk AEGIS AEGIS AshorePatriotF-16 F-35 Global Hawk SEWIPBadger/BuzzardF-15 AH-64 Apache F-35 FuryP-8F-16 Reaper/Gorgon Stare

15. Slide 15: Acquisitions and investments driving opportunity growth

    15© 2015 Mercury Systems, Inc. Acquisitions and investments driving significant opportunity growth • Low-risk content expansion growth strategy • Key production programs • Total value increased 2.5x to $4.1B in 2 years • Converted 1.4x of possible to probable value in 2 years • RFM expansion doubled

16. Slide 16: Strategy and investments have positioned Mercury well

    16© 2015 Mercury Systems, Inc. © 2015 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 • Low-risk content expansion growth strategy with demons

17. Slide 17: Financial Overview

    © 2015 Mercury Systems, Inc. Financial Overview Gerry Haines Executive Vice President & CFO

18. Slide 18: Business model and capabilities create opportunity for growth

    18© 2015 Mercury Systems, Inc. Mercury’s business model and capabilities create a unique opportunity for growth and improved returns Model Characteristics Implications and Benefits Merchant supplier of sensor processing subsystems COTS product competitors remain but not subsystem Commercially design

19. Slide 19: FY09-FY12 revenue summary by market

    19© 2015 Mercury Systems, Inc. FY09-FY12 revenue summary by market Defense revenue CAGR of 15% FY09-FY12 Notes: • All numbers based on continuing operations. 145 158 181 222 44 42 48 15 0 50 100 150 200 250 FY09 FY10 FY11 FY12 Revenue ($M) Defense Commercial 189 200 229 237

20. Slide 20: Adjusted EBITDA CAGR of 28% FY09-FY12

    20© 2015 Mercury Systems, Inc. Adjusted EBITDA CAGR of 28% FY09-FY12 Achieved historic target business model in FY11 Notes: • FY09 figures are as reported in the Company’s fiscal 2010 Form 10K. FY10-12 figures are reported in the Company’s fiscal 2015 Form 10K. • Adjusted EBITDA is Income from conti

21. Slide 21: FY13-14 restructuring and integration plans

    21© 2015 Mercury Systems, Inc. FY13-14 restructuring and integration plans Accelerating achievement of target business model FISCAL 2013 • Restructuring actions align cost base with new environment FISCAL 2014 • 12-month Acquisition Integration Plan (through mid-FY2015) – Facilities consolidation in

22. Slide 22: Financial improvement in FY14

    22© 2015 Mercury Systems, Inc. Financial improvement in FY14 Returned to growth; adjusted EBITDA more than doubled GAAP ($M) FY13 FY14 Change Bookings 209.7 246.8 18% Revenue 194.2 208.7 7% Gross Margin % 40% 45% 5 pts Operating Expenses OpEx less restructuring (% of revenue) ⁽²⁾ 103.0 49% 102.1 46%

23. Slide 23: Record backlog exiting FY14

    23© 2015 Mercury Systems, Inc. Record backlog exiting FY14 121% growth since FY11; Revenue coverage doubles FY11-FY14 Well positioned for balance of FY15 Notes: (1) Revenue Coverage Ratio = 12-month ending backlog/Next 12 months Revenue 71 84 109 144 148 87 97 136 174 192 0 50 100 150 200 250 FY11 F

24. Slide 24: Program focus driving substantial growth potential

    24© 2015 Mercury Systems, Inc. FY15 FY16 FY17 Production Years Bid vs. Won Expansion Probable Possible Process RFM Total ($M) Total ($M) Aegis Existing FRP: FY16-25 Won  90 144 Processing FRP: FY19-25 Bid  116 420 RFM FRP: FY15-20 Won  46 48 SEWIP Block 2 FRP: FY15-23 Won  316 344 Small Ship FRP

25. Slide 25: Momentum continues in H1 FY15

    25© 2015 Mercury Systems, Inc. Momentum continues in H1 FY15 Notes: (1) All numbers based on continuing operations. (2) Excludes $0.1M of restructuring and other charges from GAAP operating expenses in H1 FY14 and $2.4M in H1 FY15. GAAP ($M) FY14 FY15 Change H1 H1 Bookings 92.6 129.1 39% Revenue 101

26. Slide 26: FY15 guidance (as of January 27th)

    26© 2015 Mercury Systems, Inc. FY15 guidance (as of January 27th) Notes: (1) The guidance included herein is from the Company’s earnings release and is as of the date of the earnings release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any oblig

27. Slide 27: Accelerating revenue growth and operating leverage

    27© 2015 Mercury Systems, Inc. Accelerating revenue growth and operating leverage 9-13% revenue growth yields 74-87% increase in FY15 Adj. EBITDA Notes: (1) The guidance included herein is as of January 27, 2015. 194 209 228 5% $9.9M 11% $23.5M 18%-19% $41M-$44M 0 50 100 150 200 250 FY13 FY14 FY15F

28. Slide 28: Achievement of target business model for FY15

    28© 2015 Mercury Systems, Inc. Achievement of target business model for FY15 Notes: (1) FY15 percentages are estimates only, as of January 27, 2015. GAAP FY14 FY15⁽¹⁾ Revenue 100% 100% 100% Gross Margin 45% 47% 45-50% SG&A 26% 21-22% Low 20’s R&D 17% 14% 11-13% Amortization 4% 3% 2-3% Adj EBITDA 11%

29. Slide 29: Solid balance sheet with zero debt

    29© 2015 Mercury Systems, Inc. Solid balance sheet with zero debt Ample liquidity, unused $200M credit facility, $500M Universal Shelf Notes: (1) Discontinued operations numbers are MIS. FY13 FY14 Q2 FY15 (In millions) Actual Actual Actual ASSETS Cash & cash equivalents 39.1 47.3 57.0 Accounts recei

30. Slide 30: Poised for profitable growth

    30© 2015 Mercury Systems, Inc. © 2015 Mercury Systems, Inc. Poised for profitable growth • Growth and profitability accelerating in FY15 • Integration plan complete, yielding $16M in gross annualized savings • Strategy, operational discipline, yield significant operating leverage • Strong, well-fund

31. Slide 31: Adjusted EBITDA reconciliation

    31© 2015 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) 2009 2010 2011 2012 2013 2014 2015 - Low 2015 - High Income (loss) from continuing operations $ 7,909 $ 28,069 $ 18,507 $ 22,323 $(13,782) $ (4,072) $ 10,800 $ 12,800 Interest expense (income), net 492 (151) 45 27 31 40 — — Income

32. Slide 32: Glossary

    32© 2015 Mercury Systems, Inc. Glossary AEGIS Aegis Ballistic Missile Defense System EO/IR Electro-optical / Infrared O&M Operations & Maintenance AESA Active Electronically Scanned Array EW Electronic Warfare OpenVPX System-level specification for VPX, initiated by Mercury AGS Alliance Ground Surve

33. Slide 33: Sales-related definitions

    33© 2015 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

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