Mercury Systems Inc · NASDAQ:MRCY
Mercury Systems — Non-Deal Roadshow (February 2017)
37 slides from Mercury Systems's roadshow presentation, Feb 8, 2017
Slide 1: William Blair Midwest Road Show
© 2017 Mercury Systems, Inc. William Blair Midwest Road Show Mark Aslett President and CEO Gerry Haines Executive Vice President and CFO February 8-9, 2017
Slide 2: Forward-looking safe harbor statement
2 © 2017 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 fiscal 2017 business performance and beyond and the Company
Slide 3: Pioneering a next generation defense electronics company
3 © 2017 Mercury Systems, Inc. …to address the industry's challenges and opportunities Pioneering a next generation defense electronics company… • High-tech commercial business model • Secure processing subsystems • Serving defense Prime contractor outsourcing needs • Deployed on 300+ programs with
Slide 4: Investor highlights
4 © 2017 Mercury Systems, Inc. Investor highlights Proven Management Team Pure play aerospace and defense electronics company. Embedded on key growth programs aligned to DoD priorities Leading Positions on Well-funded Platforms Pacific pivot and third offset, aging platform modernization, foreign an
Slide 5: We are deployed on 300+ programs with 25+ Primes
5 © 2017 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I Triton Aegis Patriot F-16 F-35 Global Hawk SEWIP Badger/Buzzard F-15 AH-64 Apache P-8 MMA KC-46 F-16 Reaper/Gorgon Stare MISSILES & MUNITIONS MALD-J SM2/3/6 Paveway SDB II PGK F-35
Slide 6: Mercury's vision
6 © 2017 Mercury Systems, Inc. Mercury’s vision is to be the… Leading commercial provider of secure sensor and mission processing subsystems
Slide 7: Acquisitions have transformed Mercury into a commercial provider
7 © 2017 Mercury Systems, Inc. …provider of secure sensor and mission processing subsystems Acquisitions have transformed Mercury into a commercial… • Acquired capabilities significantly expand addressable market • Moved up the value chain • Model facilitates greater customer outsourcing • Accelerat
Slide 8: Five major trends shaping the defense industry
8 © 2017 Mercury Systems, Inc. Five major trends shaping the defense industry Crowding Out of Defense Spending and Investment: Rising interest rates, healthcare and social spending; MilPer expense growth, aging military platforms’ O&M costs rising Challenging Global Security Environment: Resurgent R
Slide 9: Defense budget outlook improved
9 © 2017 Mercury Systems, Inc. Defense budget outlook improved New administration expected to better support Defense Sources: National Defense Authorization Act of 2016, GFY2017 President’s Budget Request. Both the House and Senate authorized President’s requested $524b for GFY17. Numbers may not ad
Slide 10: Capabilities aligned to DoD investment priorities
10 © 2017 Mercury Systems, Inc. Mercury’s capabilities and opportunity for growth… …are aligned to DoD investment priorities Pacific Pivot & Third Offset: Platforms need improved sensors, autonomy, electronic protection and attack, on-board exploitation. Greater demand for onboard processing Aging P
Slide 11: Defense industry's largest secular growth opportunity
11 © 2017 Mercury Systems, Inc. …is the Defense industry's largest secular growth opportunity Captive outsourcing by Defense prime contractors… • 2017 A&D electronics is $97 billion market • US Defense is nearly half of total market at $43B • Global Tier 2 compute & RF $31B; US $13B • Small percenta
Slide 12: Mercury's addressable market increased ~8x
12 © 2017 Mercury Systems, Inc. Mercury’s addressable market increased ~8x supporting continued… …above industry average growth, returns and future acquisitions Sources: RSAdvisors research & analysis. Mercury market expansion reflects the Company’s acquisitions and expanded offerings from R&D inves
Slide 13: Business model built for speed, innovation and affordability
13 © 2017 Mercury Systems, Inc. …as customers seek affordable outsourced pre-integrated subsystems Business model built for speed, innovation and affordability… • Traditional COTS board model broken (“Plug-n-Pray”) – Product procurement cost low – Large hidden integration costs – Lower Prime IR&D sp
Slide 14: Only high-tech commercial company with the technology and domain expertise
14 © 2017 Mercury Systems, Inc. Highest Safety Design Assurance Levels (DAL) SPEED SWaP SOFTWARE SECURITY Highest Performance Processing Best Size, Weight and Power (SWaP) Industry-leading Embedded Security Most Advanced Open Middleware SAFETY Only high-tech commercial company with the technology… …
Slide 15: Disciplined and focused M&A strategy
15 © 2017 Mercury Systems, Inc. We will continue to execute on a disciplined and focused M&A strategy Platform Management Mission Management Comms EW Radar EO/IR Acoustics Avionics / Vetronics Command & Control / Battle Management Dedicated Communications Electronic Warfare Radar Electro Optical / I
Slide 16: Strategy and investments have positioned Mercury well
16 © 2017 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 • Substantial total addressable market expansion enabling future growth • Low-risk c
Slide 17: Financial Overview
© 2017 Mercury Systems, Inc. Financial Overview Gerry Haines Executive Vice President & CFO
Slide 18: The evolution of Mercury Systems
18 © 2017 Mercury Systems, Inc. The evolution of Mercury Systems 77% Share price $19.09 $33.72 108% Market Capitalization $665 $1,383 162% Enterprise Value $583 $1,528 39% Revenue(1) $243 $337 48% Adj. EBITDA(1) $50 $74 16% Adj. EPS(1) $0.91 $1.06 V al u ati o n Ope ra ti o na l In millions, except
Slide 19: Mercury's financial profile puts it in a unique category
19 © 2017 Mercury Systems, Inc. 1,027 Mercury’s financial profile puts it in a unique category ALL NYSE AND NASDAQ COMPANIES WITH MARKET CAPITALIZATION BETWEEN $750mm - $3bn ~21% Adj. EBITDA CY15 ~10% CY13-15 ~25% LTM 9/30/2016 24 Companies 94 Companies 218 Companies EBITDA Margin >20% CY15 Revenue
Slide 20: Strong revenue growth and operating leverage
20 © 2017 Mercury Systems, Inc. Strong revenue growth and operating leverage… 20% revenue and 73% Adj. EBITDA CAGR FY13-FY17E …yielded dramatic growth in adjusted EBITDA Notes: (1) Fiscal years ended June 30; FY13-16 figures are as reported in the Company’s Form 10-Ks. (2) Estimate based upon guidan
Slide 21: FY13-FY16 backlog CAGR of 28%
21 © 2017 Mercury Systems, Inc. FY13-FY16 backlog CAGR of 28%... …yielded record backlog and revenue coverage exiting FY16 109 144 166 239 278 27 30 41 49 40 136 174 208 288 319 0 50 100 150 200 250 300 350 FY13 FY14 FY15 FY16 Q2 FY17 Mercury Ending Backlog ($M) 12-Month Ending Backlog > 12-Month Ba
Slide 22: Acquisitions and investments driving significant opportunity growth
22 © 2017 Mercury Systems, Inc. …which in turn is driving strong actual results Acquisitions and investments driving significant opportunity growth… • Acquired businesses brought wide array of programs and capabilities • Content expansion drives outsized growth • New design wins have expanded progra
Slide 23: Strong LTM performance
23 © 2017 Mercury Systems, Inc. Strong LTM performance 39% revenue and 48% adjusted EBITDA growth YoY In millions, except percentage and per share data LTM Q2FY16 LTM Q2FY17(2) Change Backlog $204.8 $318.8 56% Revenue $242.5 $337.0 39% Gross Margin(2) 48% 46% (2) pts Operating Expenses(2) $93.6 $129
Slide 24: Q2 FY17 vs. Q2 FY16
24 © 2017 Mercury Systems, Inc. Q2 FY17 vs. Q2 FY16 Notes: (1) Q2FY16 figures are as reported in the Company’s Form 10-Q and Q2FY17 figures are as reported in the Company’s most recent earnings release. (2) Includes $0.9 million negative impact of inventory valuation step-up from purchase accounting
Slide 25: Q3 FY17 guidance vs. Q3 FY16 actual
25 © 2017 Mercury Systems, Inc. Q3 FY17 guidance vs. Q3 FY16 actual Notes: (1) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any
Slide 26: FY17 annual guidance
26 © 2017 Mercury Systems, Inc. FY17 annual guidance Notes: (1) FY16 figures are as reported in the Company’s Form 10-K. (2) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of
Slide 27: New target business model beginning FY17
27 © 2017 Mercury Systems, Inc. New target business model beginning FY17 Notes: (1) FY15 and FY16 figures are as reported in the Company’s Form 10-K , except as noted below in footnote 3. (2) The guidance included herein is from the Company’s most recent earnings release and is as of the date of tha
Slide 28: Conservative balance sheet
28 © 2017 Mercury Systems, Inc. Conservative balance sheet Ample liquidity, unused $100M credit facility, $172M Universal Shelf capacity Notes: (1) Reflects use of approximately $39 million in connection with acquisition of CES completed in Q2 of fiscal 2017. Excludes $216M of proceeds received from
Slide 29: We actively develop potential acquisition targets across all channels
29 © 2017 Mercury Systems, Inc. We actively develop potential acquisition targets across all channels Acquisition Close Date Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Size $31mm $70mm $75mm $10mm $300mm $39mm Strong Strategic Rationale Expand Addressable Market Re
Slide 30: Poised for continued, profitable growth
30 © 2017 Mercury Systems, Inc. • Improved defense environment, fast-moving streams enhance opportunities • Acquisitions have transformed top and bottom lines • Broader base of larger, more diversified programs • Record backlog enhances forward visibility, facilitates operational execution • Sustain
Slide 31: Appendix
© 2017 Mercury Systems, Inc. Appendix
Slide 32: Q3 FY17 guidance (as of January 23rd)
32 © 2017 Mercury Systems, Inc. Q3 FY17 guidance (as of January 23rd) Notes: (1) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming a
Slide 33: FY17 guidance (as of January 23rd)
33 © 2017 Mercury Systems, Inc. FY17 guidance (as of January 23rd) Notes: (1) The guidance included herein is from the Company’s most recent earnings release and is as of the date of that release. The Company is neither reconfirming such guidance as of the date of this presentation nor assuming any
Slide 34: Adjusted EPS reconciliation
34 © 2017 Mercury Systems, Inc. Adjusted EPS reconciliation Notes: (1) Numbers shown are in cents. (2) Upon the adoption of FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company recognized $1,100 of excess tax benefits in FY16. The tax benefit (provision) impacts wer
Slide 35: Adjusted EBITDA reconciliation
35 © 2017 Mercury Systems, Inc. Adjusted EBITDA reconciliation (000's) FY13 FY14 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 FY16 Q1 FY17 Q2 FY17 Income (loss) from continuing operations⁽¹⁾ $(13,782) $ (4,072) $ 14,429 $ 2,856 $ 5,040 $ 4,357 $ 7,489 $ 19,742 $ 3,819 $ 5,204 Interest expense (income), net
Slide 36: Sales-related definitions
36 © 2017 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
Slide 37: Glossary
37 © 2017 Mercury Systems, Inc. Glossary AEGIS Aegis Ballistic Missile Defense System ECM Electronic Countermeasures OpenVPX System-level specification for VPX, initiated by Mercury AESA Active Electronically Scanned Array EO/IR Electro-optical / Infrared PBR President's Budget Request AIDEWS Advanc