Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Jefferies 2014 Global Industrials Conference
32 slides from Mercury Systems's conference presentation, Aug 13, 2014
Slide 1: Jefferies 2014 Global Industrials Conference
© 2014 Mercury Systems, Inc. Mark Aslett President and CEO Kevin Bisson SVP and CFO August 13, 2014 Jefferies 2014 Global Industrials Conference
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 business performance and the Company’s plans for growth and
Slide 3: Introducing Mercury Systems
3 © 2014 Mercury Systems, Inc. Commercial provider of sensor processing subsystems & solutions Introducing Mercury Systems • MRCY on NASDAQ 1998 • Real-time sensor processing subsystems • High tech company; Scalable business model • Focused on Defense and Intelligence priorities • Deployed on ~300 p
Slide 4: Mercury investor highlights
4 © 2014 Mercury Systems, Inc. Leading Market Position Pure-play defense electronics company embedded on important programs and platforms aligned to DoD priorities Scalable Business Model Scalable engineering and manufacturing platform positioned to drive increased affordability and rapid time to ma
Slide 5: Defense will likely remain a $500B+ industry
5 © 2014 Mercury Systems, Inc. Defense will likely remain a $500B+ industry… …despite the ongoing political and budget uncertainty Crowding Out Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs rising Procurement Reform Firm-fixed-price
Slide 6: Mercury has unique and differentiated capabilities today
6 © 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 Pla
Slide 7: We work with all the major primes
7 © 2014 Mercury Systems, Inc. We work with all the major primes – they’re telling us: “As we pivot to the Pacific the threats, missions and conops are technically more challenging and costly.” “The DoD is funding less R&D and is expecting industry to invest more themselves.” Growth Costs Margin “I
Slide 8: We have addressed these challenges and opportunities
8 © 2014 Mercury Systems, Inc. We have addressed these challenges and opportunities… …with capabilities and strategies to drive growth and returns Innovation Capability Scalability Affordability
Slide 9: Industry-leading processing product portfolio
9 © 2014 Mercury Systems, Inc. Industry-leading processing product portfolio addresses need to collect, process and analyze sensor data in real-time • State-of-the-art specialized Intel server-class processing for sensor and mission computing • Pioneered GPU use for on-board big data exploitation •
Slide 10: Well positioned to benefit from AESA radar, EW and ISR upgrades
10 © 2014 Mercury Systems, Inc. Well positioned to benefit from AESA radar, electronic warfare, electronic countermeasure and ISR sensor upgrades • RF and microwave industry structure broken • Customers looking for a “better alternative” • Acquired three companies in RF, microwave and EW • Unique en
Slide 11: Capturing more RF and microwave content
11 © 2014 Mercury Systems, Inc. …our business by capturing more RF and microwave content We have the capabilities and assets we need to expand… • Significant expansion of addressable market • RF/Microwave 3-5x content vs. traditional processing • R&D for new capabilities, to onboard outsourced desig
Slide 12: A new model in the RF and microelectronics industry
12 © 2014 Mercury Systems, Inc. We’re creating a new model in the RF and microelectronics industry and a better alternative for our customers • Built a second world-class microelectronics facility; leverages ~$20M investment by prior owner • Built-in plant redundancy from a single supplier simplifie
Slide 13: Substantial changes occurring within our customers
13 © 2014 Mercury Systems, Inc. Despite record earnings, high yields and large buy-backs… … there are substantial changes occurring within our customers “Reducing costs is another element of our approach to affordability… includes reduction of $1.2B in annual cost over the past two years, while rema
Slide 14: Customers seeking more affordable sensor processing solutions
14 © 2014 Mercury Systems, Inc. Our customers are seeking more affordable sensor processing solutions • State-of-the-art portfolio and lower cost engineering design services improve affordability • Pre-integrated sensor processing subsystems require less customer or government R&D • Sensor, program
Slide 15: Deployed on 300+ programs with 25+ Primes
15 © 2014 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton; NATO AGS Global Hawk SEWIP AEGIS AEGIS Ashore F-15 Patriot AH-64 Apache Reaper Gorgon Stare F-16 Badger/Buzzard Fury Global Hawk F-35 F-35 F-16 P-8
Slide 16: Key program update
16 © 2014 Mercury Systems, Inc. FY13 FY14 FY15 FY16 Production Years Relevance Possible Pivot Upgrade FMS Total ($M) SEWIP Block 2 FRP: FY15-23 209-345 SEWIP Expansion FRP: FY15-23 110-120 SEWIP Deriv.** FRP: FY17-23 104-166 SEWIP Block3** LRIP: FY16 FRP: FY18-26 161-334 Badger/B
Slide 17: Strategy, acquisitions and investments positioned us well
17 © 2014 Mercury Systems, Inc. Strategy, acquisitions and investments positioned us well… …to drive growth and improved returns for our customers Innovation: We’ve invested in innovations that expand our addressable market and facilitate low-risk growth tied to specialized sensor processing upgrade
Slide 18: Financial Overview
TM © 2014 Mercury Systems, Inc. Financial Overview
Slide 19: Revenue summary by market
19 © 2014 Mercury Systems, Inc. Revenue summary by market Defense revenue CAGR of 14% FY08-FY12 Notes: • FY08-10 and FY12 figures adjusted for discontinued operations. 130 145 158 181 222 60 44 42 48 15 0 50 100 150 200 250 FY08 FY09 FY10 FY11 FY12 Revenue ($M) Defense Commercial 190 189 200 229 237
Slide 20: Adjusted EBITDA more than doubled FY08-FY12
20 © 2014 Mercury Systems, Inc. Adjusted EBITDA more than doubled FY08-FY12 Achieved historic target business model in FY12 Notes: • FY08-FY09 figures are as reported in the Company’s fiscal 2010 Form 10K. FY10-11 figures are as reported in the Company’s fiscal 2012 Form 10K. FY12 figures are report
Slide 21: Financial improvement in FY14
21 © 2014 Mercury Systems, Inc. Financial improvement in FY14 Adjusted EBITDA more than doubled GAAP ($M) 12 Months Ended FY13 FY14 % Change Bookings 209.7 246.8 18% Revenue 194.2 208.7 7% Gross Margin % 40% 45% 5 pts Operating Expenses 103.1 102.1 (1%) EPS (continuing) (0.46) (0.13) 72% Adj. EBITDA
Slide 22: Solid balance sheet with ample liquidity
22 © 2014 Mercury Systems, Inc. Solid balance sheet with ample liquidity No debt and unused $200M credit facility Notes: 1) Acquired Micronetics, Inc. for $72M in Q1 FY13. 2) Discontinued operations numbers are MIS. FY13 FY14 (In millions) Actual Actual ASSETS Cash & Investments 39.1 47.3 Accounts r
Slide 23: Second half FY14 financial momentum
23 © 2014 Mercury Systems, Inc. Second half FY14 financial momentum GAAP ($M) FY14 H1 FY14 H2 % Change Bookings 92.6 154.2 67% Revenue 101.7 107.1 5% Gross Margin % 45% 46% 1 pt EPS (continuing) (0.10) (0.03) 70% Adj. EBITDA 8.5 15.0 75% Operating Cash Flow 9.5 4.7 (51%)
Slide 24: FY14-15 integration plan
24 © 2014 Mercury Systems, Inc. FY14-15 integration plan Accelerating achievement of target business model • 12 month plan through mid-fiscal 2015 • Integration plan components – Facilities consolidation centering on new AMC in Hudson, NH to create a scalable manufacturing platform – Centralized adm
Slide 25: Record backlog in FY14
25 © 2014 Mercury Systems, Inc. Record backlog in FY14 Significant growth since FY12; well-positioned entering FY15 105 87 97 136 174 0 20 40 60 80 100 120 140 160 180 200 FY10 FY11 FY12 FY13 FY14 Mercury Ending Backlog ($M)
Slide 26: FY15 guidance
26 © 2014 Mercury Systems, Inc. FY15 guidance (as of August 5th) 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 obliga
Slide 27: Q1 FY15 guidance
27 © 2014 Mercury Systems, Inc. Q1 FY15 guidance (as of August 5th) 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 obl
Slide 28: Current Target Business Model
28 © 2014 Mercury Systems, Inc. GAAP FY14 FY15 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% Operating Income (1) (1%) 5-8% 12-13% Adj EBITDA 11% 17-18% 18-22% Current Target Business Model Achievement of target business
Slide 29: Financial summary
29 © 2014 Mercury Systems, Inc. © 2014 Mercury Systems, Inc. Financial summary • Successfully returned business to growth in FY14 • Improved FY14 performance from increased operating leverage — 5 point improvement in gross margin — Doubling of Adjusted EBITDA — Significant operating cash flow • Fron
Slide 30: Appendix
TM © 2014 Mercury Systems, Inc. Appendix
Slide 31: Adjusted EBITDA reconciliation
31 © 2014 Mercury Systems, Inc. Adjusted EBITDA reconciliation Years Ended June 30, (000'S) 2008 2009 2010 2011 2012 2013 2014 Income (loss) from continuing operations $ (4,437) $ 7,909 $ 28,069 $ 18,507 $ 22,323 $ (13,782) $ (4,072) Interest expense (income), net (3,129) 492 (151) 45 27 31 40 Incom
Slide 32: Free cash flow reconciliation
32 © 2014 Mercury Systems, Inc. Free cash flow reconciliation Years Ended June 30 2008 2009 2010 2011 2012 2013 2014 Cash flows from operating activities $ 13,726 $ 11,199 $ 15,708 $ 31,474 $ 31,869 $ (1,871) $ 14,241 Capital expenditures (4,625) (4,126) (7,334) (8,825) (9,427) (3,880) (6,701) Free
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