Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Investor Day (November 2014)
93 slides from Mercury Systems's investor day presentation, Nov 12, 2014
Slide 1: Mercury Systems FY15 Investor Day Presentation
© 2014 Mercury Systems, Inc. Mercury Systems FY15 Investor Day Presentation November 12, 2014 Hudson, NH
Slide 2: Forward-looking safe harbor statement
2 © 2014 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 identif
Slide 3: Agenda
3 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Agenda • Strategy & Business Update – Mark Aslett President & CEO • Program Update • Financial Update • AMC Overview & Tour • Q&A
Slide 4: Introducing Mercury Systems
4 © 2014 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 reve
Slide 5: Proven management team
5 © 2014 Mercury Systems, Inc. Proven management team Since 2007, Mercury management has successfully grown the Company’s defense business, returned the Company to profitability, acquired and integrated three companies, and positioned Mercury as a leading pure-play defense electronics company. • Mar
Slide 6: Pioneering a next generation defense electronics company
6 © 2014 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 prio
Slide 7: Pioneering a next generation defense electronics company
7 © 2014 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 prio
Slide 8: Proven management team transformed Mercury
8 © 2014 Mercury Systems, Inc. …and positioned the business for profitable growth • Rebuilt executive team •Divested 5 non-core businesses approximating 10% of revenue • Refocused business on defense electronics ‘economic core’ • Focused R&D investments on DoD priorities: C4ISR, EW, Missile Defense
Slide 9: Acquired and integrated unique capabilities
9 © 2014 Mercury Systems, Inc. …and positioned the business for profitable growth • Acquired and integrated three businesses in broadband RF and EW • End-to-end provider of secure and sensor processing subsystems • Expanded addressable market; grew content on production programs • Acquired and built
Slide 10: Pioneering a next generation defense electronics company
10 © 2014 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 pri
Slide 11: Mercury's vision
11 © 2014 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
Slide 12: Mercury Systems at a glance
12 © 2014 Mercury Systems, Inc. Mercury Systems at a glance Mercury Commercial Electronics (MCE) • RF and microwave solutions • Digital solutions • Secure processing subsystems • Sensor processing subsystems Select Customers $184.8M revenue / 560 employees * Mercury Defense Systems (MDS) • Electroni
Slide 13: Transformation from computer company to subsystems provider
13 © 2014 Mercury Systems, Inc. Acquire 19% Digitize 6% Process 57% Exploit 18% FY14 Defense Revenue (%) Our acquisitions have transformed Mercury from a computer company… …to a provider of secure and sensor processing subsystems Acquire 1% Digitize 7% Process 92% FY07 Defense Revenue (%)
Slide 14: US based design, manufacturing and integration footprint
14 © 2014 Mercury Systems, Inc. US based design, manufacturing and integration footprint… …is vital to supply chain trust and integrity MDS: Cypress, CA Develops integrated secure, EW and SIGINT subsystems, often including classified application-specific software and IP for the C4ISR and EW markets
Slide 15: Deployed on 300+ programs with 25+ Primes
15 © 2014 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton; NATO AGS Global Hawk AEGIS AEGIS Ashore Patriot F-16 F-35 Global Hawk SEWIP Badger/Buzzard F-15 AH-64 Apache F-35 Fury P-8 F-16 Reaper/Gorgon Stare
Slide 16: Pioneering a next generation defense electronics company
16 © 2014 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 pri
Slide 17: Defense will likely remain a $500B+ industry
17 © 2014 Mercury Systems, Inc. Despite the ongoing political and budget uncertainty… …Defense will likely remain a $500B+ industry Crowding Out of Defense Spending and Investment: Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs risin
Slide 18: Better Buying Power 3.0 recommendations
18 © 2014 Mercury Systems, Inc. • Continue to focus on improving affordability • Achieve dominant capabilities through innovation • Remove barriers to commercial technology utilization • Improve technology search and industry outreach • Increase use of prototyping and experimentation • Modular Open
Slide 19: The Three Nots
19 © 2014 Mercury Systems, Inc. ‘The Three Nots’ Katrina G. McFarland, Assistant Secretary of Defense (Acquisition) * Source: TechAmerica Foundation 50th Annual Vision Conference, October 28, 2014 Technological superiority is not assured R&D is not a variable cost Time is not recoverable
Slide 20: Commercial innovation outpaces DoD adoption
20 © 2014 Mercury Systems, Inc. High-tech commercial companies’ rate of innovation… …far outstrips the DoD’s ability to procure and adopt Commercial high tech companies are producing technologies 5x faster than Defense programs can adopt them 5X The DoD procurement process must match the speed at wh
Slide 21: Adversaries could gain 20x performance by first refresh
21 © 2014 Mercury Systems, Inc. By first refresh, adversaries could have a 20x increase… …in performance, posing a significant national security risk Full-Rate Production Technology Development Engineering Development Model Low-Rate Initial Production 1 2 3 4 5 6 7 8 9 10 11 P e rf o rmanc e Acquisi
Slide 22: Defense Business Board recommendations align with our business model
22 © 2014 Mercury Systems, Inc. • FAR Part 12 default for non-platform procurements • Require platform open architectures • Separate components procurement from platform • Separate component ‘buy’ decisions from primes • ‘Plug and play’ modularity of key components • Rebalance policies on intellectu
Slide 23: Unique capabilities aligned to industry growth drivers
23 © 2014 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 Pl
Slide 24: Pioneering a next generation defense electronics company
24 © 2014 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 pri
Slide 25: How we operate as a high-tech commercial company
25 © 2014 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 t
Slide 26: Business model built for speed, innovation and affordability
26 © 2014 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 – COTS lifecycle support
Slide 27: Defense electronics OEM buying criteria have evolved
27 © 2014 Mercury Systems, Inc. Due to affordability, Defense electronics OEM buying criteria has evolved… …from product procurement to pre-integrated outsourced subsystems All are critical to the outcome of the mission Modular Open Systems Architecture Designed and Made in USA Server-class Performa
Slide 28: Innovating in modular, open RFM and digital architectures
28 © 2014 Mercury Systems, Inc. We’re innovating in modular, open RFM and Digital System Architectures Uniquely positioned since acquisitions have provided end-to-end technology in house • Authored OpenVPX standard • RFM Digital MOSA Modular Open System Architecture Designed and Made in USA Server-c
Slide 29: Scalable US manufacturing in RF
29 © 2014 Mercury Systems, Inc. In RF, scalable US manufacturing key to further outsourcing and share gains DoD US design and manufacturing requirements reduce processing competition Modular Open System Architecture Designed and Made in USA • Processing supply chain integrity • Modern, scalable, red
Slide 30: Teraflop server-class processing line
30 © 2014 Mercury Systems, Inc. • Authored Open VPX standard • RFM Digital MOSA Modular Open System Architecture Designed and Made in USA • Processing supply chain integrity • Modern, scalable, redundant RFM manufacture and test Server-class Processing Performance Integrated Product Security End-to-
Slide 31: Third generation of integrated product security
31 © 2014 Mercury Systems, Inc. • Intel server class Teraflop embedded processing • SWaP optimized packaging • Multiple form factors driving TAM expansion • Authored OpenVPX standard • RFM Digital MOSA Modular Open System Architecture Designed and Made in USA Server-class Processing Performance Inte
Slide 32: Domain expertise and unique subsystem capabilities
32 © 2014 Mercury Systems, Inc. • Authored OpenVPX standard • RFM Digital MOSA Modular Open System Architecture Designed and Made in USA Server-class Processing Performance Integrated Product Security End-to-End Subsystem Capability • Broadband EW domain expertise • Pre-integrated end-to-end sensor
Slide 33: Combination of factors leads to a unique market position
33 © 2014 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 traditiona
Slide 34: Pioneering a next generation defense electronics company
34 © 2014 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 pri
Slide 35: Teraflop modules to blade servers
35 © 2014 Mercury Systems, Inc. Highly leveraged Teraflop modules to blade servers Rugged MOSA Teraflop server blade Rugged MOSA solution - servers for the tactical edge ATCA blade server
Slide 36: RFM subassemblies to pre-integrated sensor processing subsystems
36 © 2014 Mercury Systems, Inc. RFM subassemblies to pre-integrated sensor processing subsystems Integrated Microwave Assemblies MOSA Sensor Processing Subsystems RF & Microwave MOSA building blocks
Slide 37: Pioneering a next generation defense electronics company
37 © 2014 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 pri
Slide 38: Industry growth drivers translate into company growth drivers
38 © 2014 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 appli
Slide 39: Securing the mission
39 © 2014 Mercury Systems, Inc. …supporting FMS sales and protecting U.S. technology Securing the mission is vital to… • Capability of adversaries to exploit asymmetric advantages against ‒ Weapons and ISR systems ‒ C2 infrastructure • Rising interconnectedness and complexity of systems and systems
Slide 40: Security mandates expand our addressable market
40 © 2014 Mercury Systems, Inc. …to other onboard mission-critical compute applications Security mandates expand our addressable market… • Security requirements impacting defense industry right now • 2-3 year time-to-market advantage over traditional COTS competitors • Security rapidly becoming non-
Slide 41: RF and microwave outsourcing buying criteria change
41 © 2014 Mercury Systems, Inc. In RF and microwave outsourcing, the industry structure… …and funding environment have changed the buying criteria Product Price RF & Microwave Procurement Then Product Price RF & Microwave Outsourcing Now Product Performance Engineering Capability & Ability to Invest
Slide 42: Opportunity to grow RFM revenues from existing customers
42 © 2014 Mercury Systems, Inc. We have a significant opportunity to grow RFM revenues… …from existing customers on new and existing programs Note: FY14 total defense revenue from select customers Processing 94% RFM 5% Other 1% Raytheon Processing 18% RFM 82% Exelis Processing 90% RFM 9% Other 1% Lo
Slide 43: Outsourced, more affordable pre-integrated sensor processing subsystems
43 © 2014 Mercury Systems, Inc. All are critical to the broadband EW mission Product Performance R&D Investment ‘Trust’ Designed and Made in USA Modern, Scalable, Redundant Manufacture and Test RFM Digital Modular Open System Architecture Pre-Integrated Sensor Processing Subsystems Our goal is to pr
Slide 44: Expanding while moving up the value chain
44 © 2014 Mercury Systems, Inc. …and grow our business while moving up the value chain We have the capabilities and assets we need to expand… • Significant expansion of addressable market • 3-5x content in RFM vs. traditional processing • R&D for new capabilities to onboard outsourced designs, compe
Slide 45: Pioneering a next generation defense electronics company
45 © 2014 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 pri
Slide 46: Acquisitions broadened capabilities, expanding addressable market
46 © 2014 Mercury Systems, Inc. Phase 1 acquisitions broadened capabilities across sensor chain… …yielding 3x-5x total addressable market expansion Note: MICA Microwave and Micro-Con were previously acquired by Micronetics.
Slide 47: Consolidation and integration yields operating leverage
47 © 2014 Mercury Systems, Inc. Consolidation and integration yields operating leverage… …creating a scalable platform for continued growth RF & Microwave Solutions Digital Solutions Embedded Processing Mercury Commercial Electronics (MCE) Mercury Defense Systems (MDS) EW EO/IR SIGINT Test and Simul
Slide 48: Pursuing M&A to scale secure and sensor processing business
48 © 2014 Mercury Systems, Inc. Pursuing M&A to scale secure and sensor processing business… • Improved financials put Mercury back on M&A footing • Strengthened M&A team; Rebuilding pipeline • Focus on key business pillars: RF & Microwave; Processing • Scale, revenue and cost synergies are primary
Slide 49: Strategy and investments have positioned Mercury well
49 © 2014 Mercury Systems, Inc. © 2014 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 demon
Slide 50: Agenda
50 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Agenda • Strategy & Business Update • Program Update – Didier Thibaud President, Mercury Commercial Electronics (MCE) • Financial Update • AMC Overview & Tour • Q&A
Slide 51: Program focus driving substantial growth
51 © 2014 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 FR
Slide 52: New processing opportunities: Aegis SPY-1 Radar
52 © 2014 Mercury Systems, Inc. New processing opportunities driving potential growth Aegis SPY-1 Radar Integrated radar & missile system – sea-based element of Ballistic Missile Defense • 10+ year Lockheed Martin relationship • Navy required powerful, high-bandwidth embedded processing system • Dom
Slide 53: Aegis: Opportunity update
53 © 2014 Mercury Systems, Inc. Investments driving $600M+ opportunity Aegis: Opportunity update Processing R&D investments driving content expansion • Production program driving existing revenue • Program growth: FMS & domestic tech refresh • Grew opportunity 6x in 2 yrs • Converted 2.7x of possibl
Slide 54: SEWIP: Countering emerging peer threats
54 © 2014 Mercury Systems, Inc. Franchise program in production driving future growth SEWIP: Countering new emerging peer threats Upgrade legacy SLQ-32 EW system • 7+ year Lockheed Martin relationship • Largest Naval EW upgrade program • Block 2 enabled with innovative state-of-the-art digital recei
Slide 55: SEWIP: Opportunity update
55 © 2014 Mercury Systems, Inc. Investments driving close to $1B opportunity SEWIP: Opportunity update Acquisitions and AMC investment driving content expansion • Next big growth driver • Program growth: Block 2 FRP, Small Ship Derivative, FMS, Block 3 • Grew opportunity 2x in 2 yrs • Converted 1.7x
Slide 56: F-35 Joint Strike Fighter
56 © 2014 Mercury Systems, Inc. Airborne processing leadership driving highest revenue opportunity F-35 Joint Strike Fighter • Mercury’s multiprocessor technology leadership key factor in program selection • IP licensing of multiprocessor architecture and software • Well-positioned for future tech r
Slide 57: F-35: Opportunity update
57 © 2014 Mercury Systems, Inc. Investments driving $1.9B+ opportunity F-35: Opportunity update Acquisitions, AMC and processing R&D investments driving content expansion • Next major content expansion opportunity • Incumbent processing technology provider • Organic R&D investments driving multiple
Slide 58: Filthy Badger / Buzzard
58 © 2014 Mercury Systems, Inc. Filthy Badger / Buzzard Electronic attack systems for Navy/AF vulnerability assessment and tactics training • 20+ year US Navy relationship • Leader in digital radio frequency memory (DRFM) technologies • Expect new Badger IDIQ CY15 • Buzzard: Next-generation advanced
Slide 59: Patriot missile defense: next-generation ground radar
59 © 2014 Mercury Systems, Inc. Program in production; FMS and US Army upgrade driving growth Patriot missile defense: Next-generation ground radar AN/MPQ-53 phased array radar long-range theater air defense • 7+ year collaboration with Raytheon • Radar Digital Processor upgrade provides new PAC-3 i
Slide 60: MQ-9 Gorgon Stare Increment 2
60 © 2014 Mercury Systems, Inc. Increased production units and improvements planned MQ-9 Gorgon Stare Increment 2 Persistent wide-area multi-INT airborne surveillance • Highest performance airborne EO/IR system • Quick-reaction: delivered 7 systems in 24 months • Architected and integrated state-of-
Slide 61: Key programs pipeline value
61 © 2014 Mercury Systems, Inc. 2,620 1,593 1,959 20 1,244 432 1,291 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Nov 2012 2013 Increase 2014 Increase Nov 2014 Key Programs Pipeline Value ($M) Processing RF/Microwave 4,579 Probable Possible Possible Acquisitions and investments drivin
Slide 62: Agenda
62 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Agenda • Strategy & Business Update • Program Update • Financial Update – Gerry Haines CFO • AMC Overview & Tour • Q&A
Slide 63: Business model creates opportunity for growth and improved returns
63 © 2014 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 desig
Slide 64: Business model characteristics and benefits
64 © 2014 Mercury Systems, Inc. Engineered into military platforms lasting decades High barriers to entry with annuity revenue stream Commercially designed and made in the USA Few if any competitors meet all new buying criteria Merchant supplier of sensor processing subsystems Product competitors re
Slide 65: Business model characteristics and benefits
65 © 2014 Mercury Systems, Inc. Pre-integrated sensor processing subsystems Engineered into military platforms lasting decades High barriers to entry with annuity revenue stream Commercially designed and made in the USA Few if any competitors meet all new buying criteria Merchant supplier of sensor
Slide 66: Business model characteristics and benefits
66 © 2014 Mercury Systems, Inc. Pre-integrated sensor processing subsystems Primes outsourcing to reduce in-house integration Engineered into military platforms lasting decades High barriers to entry with annuity revenue stream 15 – 20% of revenue on research and development Commercially designed an
Slide 67: Business model characteristics and benefits
67 © 2014 Mercury Systems, Inc. Pre-integrated sensor processing subsystems Primes outsourcing to reduce in-house integration Engineered into military platforms lasting decades High barriers to entry with annuity revenue stream 15 – 20% of revenue on research and development Value-based innovation.
Slide 68: Business model characteristics and benefits
68 © 2014 Mercury Systems, Inc. Pre-integrated sensor processing subsystems Primes outsourcing to reduce in-house integration 15 – 20% of revenue on research and development Value-based innovation. Modular design and reuse Affordable and innovative platform modernization DoD going direct to industry
Slide 69: Business model characteristics and benefits
69 © 2014 Mercury Systems, Inc. 15 – 20% of revenue on research and development Value-based innovation. Modular design and reuse Affordable and innovative platform modernization DoD going direct to industry to eliminate profit hops Mercury’s business model and capabilities create a unique opportunit
Slide 70: FY09-FY12 revenue summary by market
70 © 2014 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 ($M) Defense Commercial 189 200 229 237
Slide 71: Adjusted EBITDA CAGR of 28% FY09-FY12
71 © 2014 Mercury Systems, Inc. Adjusted EBITDA CAGR of 28% FY09-FY12 Achieved historic target business model in FY11 Notes: • FY09 figures are as reported in the Company’s fiscal 2010 Form 10K. FY10-12 figures are reported in the Company’s fiscal 2014 Form 10K. • Adjusted EBITDA is Income from cont
Slide 72: FY13-14 restructuring and integration plans
72 © 2014 Mercury Systems, Inc. FY13-14 restructuring and integration plans Accelerating achievement of target business model FISCAL 2013 • Restructuring actions align cost base with new environment FISCAL 2014 • 12-month Acquisition Integration Plan (through mid-FY2015) – Facilities consolidation i
Slide 73: Financial improvement in FY14
73 © 2014 Mercury Systems, Inc. Financial improvement in FY14 Returned to growth; adjusted EBITDA more than doubled GAAP ($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
Slide 74: Second half FY14 financial momentum
74 © 2014 Mercury Systems, Inc. Second half FY14 financial momentum GAAP ($M) FY14 H1 FY14 H2 Change Bookings 92.6 154.2 67% Revenue 101.7 107.1 5% Gross Margin % 45% 46% 1 pt Operating Expenses OpEx less restructuring (% of revenue) ⁽²⁾ 51.6 51% 50.5 42% (2%) (9) pts EPS (continuing) (0.10) (0.03)
Slide 75: Momentum continues in Q1 FY15
75 © 2014 Mercury Systems, Inc. Momentum continues in Q1 FY15 GAAP ($M) FY14 Q1 FY15 Q1 Change Bookings 45.2 85.1 88% Revenue 50.7 54.1 7% Gross Margin % 43% 44% 1 pt Operating Expenses OpEx less restructuring (% of revenue) ⁽²⁾ 25.6 51% 23.3 41% (9%) (10) pts EPS (continuing) (0.07) 0.02 0.09 Adj.
Slide 76: Record backlog in Q1 FY15
76 © 2014 Mercury Systems, Inc. Record backlog in Q1 FY15 136% 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 84 109 144 180 87 97 136 174 205 0 50 100 150 200 250 FY11 FY
Slide 77: Q2 FY15 guidance
77 © 2014 Mercury Systems, Inc. Q2 FY15 guidance (as of November 12th) Q2 FY14 Quarter Ending December 31, 2014 YoY Change Actual Low High Revenue $51 $54 $58 6%-14% GAAP EPS (Continuing) ($0.02) $0.01 $0.05 +$0.03 to +$0.07 Adj EBITDA $5.2 $7.4 $9.8 40%-88% Adj EBITDA Adjustments: Income (loss) fro
Slide 78: FY15 guidance
78 © 2014 Mercury Systems, Inc. FY15 guidance (as of November 12th) FY14 Year Ending June 30, 2015 YoY Change Actual Low High Revenue $209 $228 $236 9%-13% GAAP EPS (Continuing) ($0.13) $0.26 $0.32 +$0.39 to +$0.45 Adj EBITDA $23.5 $39.0 $43.0 66%-83% Adj EBITDA Adjustments: Income (loss) from conti
Slide 79: Current target business model
79 © 2014 Mercury Systems, Inc. GAAP FY14 FY15⁽¹⁾ Revenue 100% 100% 100% Gross Margin 45% 46-47% 45-50% SG&A 26% 22-23% Low 20’s R&D 17% 14-15% 11-13% Amortization 3% 3% 2-3% Adj EBITDA 11% 17-18% 18-22% Current Target Business Model Achievement of target business model for FY15 Notes: (1) FY15 perc
Slide 80: Accelerating revenue growth and operating leverage
80 © 2014 Mercury Systems, Inc. Accelerating revenue growth and operating leverage 9-13% revenue growth yields 66-83% increase in FY15 Adj. EBITDA Notes: (1) The guidance included herein is as of November 12, 2014. 194 209 228 5% $9.9M 11% $23.5M 17%-18% $39M-$43M 0 50 100 150 200 250 FY13 FY14 FY15
Slide 81: Solid balance sheet with zero debt
81 © 2014 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. (In millions) FY13 Actual FY14 Actual Q1 FY15 Actual ASSETS Cash & cash equivalents 39.1 47.3 48.9 Accounts recei
Slide 82: Poised for profitable growth
82 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Poised for profitable growth • Growth and profitability accelerating in FY15 • Integration plan yields $16M in gross annualized savings • Strategy, operational discipline, yield significant operating leverage • Record backlog drives achiev
Slide 83: Agenda
83 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Agenda • Strategy & Business Update • Program Update • Financial Update • AMC Overview & Tour – Kevin Beals VP & GM, RF & Microwave Solutions – Anthony Sweeney VP, RF & Microwave Operations • Q&A
Slide 84: Creating a new model in RF and microelectronics
84 © 2014 Mercury Systems, Inc. Creating a new model in RF and microelectronics Mercury is uniquely positioned to address these challenges Lack of scope Many suppliers lack advanced engineering design, automated manufacturing and test capabilities to effectively onboard outsourced development and pr
Slide 85: AMC facilities: one-stop shopping from design through FRP
85 © 2014 Mercury Systems, Inc. …providing one-stop shopping from design services through FRP Our AMC facilities are a manifestation of new model… • Plant redundancy simplifies supply chain, enables greater outsourcing • World-class microelectronics facilities leverage $20M investment by prior owner
Slide 86: Facilities consolidation creates leverage and scalability
86 © 2014 Mercury Systems, Inc. …resulting in high quality solutions well received by customers Facilities consolidation creates leverage and scalability… • Five manufacturing operations consolidated into flagship facility • Co-location of design and manufacturing enables more efficient information
Slide 87: Unique commercial provider across the sensor chain
87 © 2014 Mercury Systems, Inc. Mission-specific solutions Unique commercial provider across the sensor chain Hudson AMC is physical representation of sensor chain Microwave, RF, and IF technology solutions SWAP-optimized servers and innovative IP Digital Storage solutions Multi- proce or modules Mi
Slide 88: Only mid-sized RFM manufacturer combining design-for-automation and packaging
88 © 2014 Mercury Systems, Inc. We’re the only mid-sized RFM manufacturer combining world-class design-for-automation services… …with advanced packaging technologies for rugged deployment Automated manufacturing and test provides high scalability, lower cost and repeatable results with low variabili
Slide 89: Summary
89 © 2014 Mercury Systems, Inc. Summary • Dual best-of-breed AMC facilities are right-sized and ready to meet outsourcing needs • Low risk, redundant manufacturing capability supports critical programs • Seamless facilities consolidation creates leverage, providing one-stop shopping from design serv
Slide 90: Appendix
© 2014 Mercury Systems, Inc. Appendix
Slide 91: Adjusted EBITDA reconciliation
91 © 2014 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000'S) 2009 2010 2011 2012 2013 2014 2015 - Low 2015 - High $ 7,909 $ 28,069 $ 18,507 $ 22,323 $ (13,782) $ (4,072) $ 8,300 $ 10,700 492 (151) 45 27 31 40 — — 109 (9,377) 8,060 8,991 (10,501) (1,841) 3,600 5,200 5,640 5,147 6,364 7,837
Slide 92: Glossary
92 © 2014 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 Surv
Slide 93: Sales-related definitions
93 © 2014 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