© 2012 Mercury Computer Systems, Inc. Sidoti & Company, LLC 16 th Annual New York Conference March 20, 2012 Mark Aslett President & CEO Kevin Bisson SVP & CFO Exhibit 99.1 |
© 2012 Mercury Computer Systems, Inc. 2 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 2012 business performance and beyond and the Company’s plans for growth and improvement in profitability and cash flow. You can identify these statements by the use of the words “may,” “will,” “could,” “should,” “plans,” “expects,” “anticipates,” “continue,” “estimate,” “project,” “intend,” “likely,” “probable,” and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, general economic and business conditions, including unforeseen weakness in the Company’s markets, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, continued funding of defense programs, the timing of such funding, changes in the U.S. Government’s interpretation of federal procurement rules and regulations, market acceptance of the Company's products, shortages in components, production delays due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions and divestitures or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, changes to export regulations, increases in tax rates, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, unanticipated costs under fixed-price service and system integration engagements, and various other factors beyond our control. These risks and uncertainties also include such additional risk factors as are discussed in the Company's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2011. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. Use of Non-GAAP (Generally Accepted Accounting Principles) Financial Measures In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides adjusted EBITDA and free cash flow, which are non-GAAP financial measures. Adjusted EBITDA excludes certain non-cash and other specified charges. Free cash flow is defined as cash flow from operating activities less capital expenditures. In addition the use of a last twelve months (“LTM”) period is not in accordance with GAAP. The LTM period presented is the mathematical addition of the results of the third and fourth quarters of fiscal 2011 and the first and second quarters of fiscal 2012. The Company believes these non-GAAP financial measures are useful to help investors better understand its past financial performance and prospects for the future. However, the presentation of adjusted EBITDA and free cash flow is not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. Management believes the adjusted EBITDA and free cash flow financial measures assist in providing a more complete understanding of the Company’s underlying operational results and trends, and management uses these measures along with the corresponding GAAP financial measures to manage the Company’s business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals. A reconciliation of GAAP to non-GAAP financial results discussed in this presentation is contained in the Company’s most recent earnings release, which can be found on our website at www.mc.com/investor. |
© 2012 Mercury Computer Systems, Inc. • MRCY on NASDAQ • Real-time digital image, signal and sensor processing • Commercial-item company unique business model • Focused on DoD priorities • Deployed on ~300 programs with 25+ Primes • $229M FY11 revenues; 18% Adj. EBITDA margin; 730+ employees • LTM Defense revenue ~87%; 61% growth (13% CAGR) FY07–FY11 3 Best-of-breed provider of open, commercially developed application ready and multi-INT subsystems for the ISR market Introducing Mercury Computer Systems |
© 2012 Mercury Computer Systems, Inc. 4 • FY12 Defense budget approved - $530B base spending • FY13 Defense budget request announced - $525B base spending • Budget Control Act reduced FYDP spend growth vs 2012 request • Budget Control Act Jan 2013 sequester © 2012 Mercury Computer Systems, Inc. 4 Source: DOD Comptroller 2012 Budget Request Defense industry turning the page on a decade of war Slower growth in defense spending anticipated over next 5 years |
5 • New DoD roles and missions announced • Smaller force structure to protect readiness • Increased investment in key areas e.g. ISR, EW • Build capacity and capability of international partners • Defense procurement reform also underway • 2012 election year © 2012 Mercury Computer Systems, Inc. … where there will be clear winners and losers 5 In the near term we believe the industry is entering an 18 month transition period … |
© 2012 Mercury Computer Systems, Inc. 6 Pure-play C4ISR, EW and defense electronics company entrenched on a diverse mix of programs aligned with DoD priorities Best-of-breed provider of specialized sensor processing subsystems to large defense Primes targeting platform upgrades Increased ISR usage, shift to onboard processing and exploitation and evolving EW threats driving greater demand for Mercury solutions Well positioned to benefit from DoD procurement reform, which is driving increased outsourcing by the large defense Primes Well-defined strategy with a demonstrated track record of double-digit defense revenue growth and improved profitability Successful transformation has positioned the business for strong organic growth augmented through strategic acquisitions Leading Market Position Differentiated Capabilities Favorable Macro Industry Trends Unique Business Model Proven Management Team Well Positioned for Growth Mercury investment highlights |
Mercury has strategically positioned its business to grow Growth strategy summary 1. Expand our capabilities and offerings along sensor chain 2. Expand market presence within defense electronics 3. Continue to grow our customer and program base 4. Capitalize on Prime outsourcing / supply chain consolidation 5. Acquire complementary companies 7 |
© 2012 Mercury Computer Systems, Inc. 8 Historically, Mercury focused on one element of sensor chain We are the leader in high-performance embedded computing RACE++ Boards From |
We now view our market opportunity as providing end-to-end open sensor processing subsystems – a much larger opportunity We are systematically growing our capabilities, services and offerings along the sensor chain organically and by acquisition Services and Systems Integration To RACE++ Boards From Open Sensor Processing Subsystems © 2012 Mercury Computer Systems, Inc. 9 |
© 2012 Mercury Computer Systems, Inc. 10 Mercury’s traditional market was narrowly defined as airborne radar processing … ... limiting our growth potential within the C4ISR market C4ISR IMINT $9,695M 25% C4I RADAR EW EO/IR |
Since then, we have systematically broadened our addressable market within C4ISR … … by investing in new products and capabilities C4ISR $9,695M 25% $6,755M 17% $7,801M 20% $10,737M 28% EW RADAR EO/IR C4I © 2012 Mercury Computer Systems, Inc. 11 S e n s o r , P r o g r a m a n d P l a t f o r m A g n o s t i c |
© 2012 Mercury Computer Systems, Inc. 12 We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I BAMS Global Hawk BAMS Global Hawk SEWIP SEWIP AEGIS AEGIS Ashore AEGIS AEGIS Ashore Guardrail Guardrail Patriot Patriot Predator Predator Reaper Gorgon Stare Reaper Gorgon Stare F-16 F-16 JCREW 3.3 JCREW 3.3 ADAS ADAS Shadow Shadow Global Hawk Global Hawk F-35 F-35 F-35 F-35 F-16 F-16 © 2012 Mercury Computer Systems, Inc. 12 |
13 • Countering rogue nations’ ballistic missile threats • Highest performance radar processor Application Ready Subsystem • 19 ship sets booked FY08-11 • $24M booked in FY11, $75M+ booked to date • Additional 35 ship sets scheduled through GFY16 • AMDR pushout likely • Additional upside 13 Aegis ballistic missile defense: SPY-1 BMD Radar Mercury’s largest single program in production to date © 2011 Mercury Computer Systems, Inc. |
14 Patriot missile defense: Next generation ground radar • Services-led design win – Prime outsourcing example • Sophisticated radar processor Application Ready Subsystem • Production awards received to date: $36M – UAE, Taiwan, Saudi Arabia • Potential future FMS awards – Up to 15 countries • MEADS funding termination • Major growth potential beginning in GFY13 with US Army Patriot upgrade Program in production; FMS and US Army upgrade driving growth © 2012 Mercury Computer Systems, Inc. |
© 2011 Mercury Computer Systems, Inc. SEWIP Block 2: Countering new emerging peer threats • Naval surface fleet EW upgrade: 100 ships • Delivered best-of-breed EW Application Ready Subsystem • Moving from EMD phase to LRIP in next 12 months • Production begins GFY15 • Upside opportunities with Block 1 upgrade and Block 3 • Lockheed and Raytheon partnering on SEWIP Block 3 Strong partnership with Prime driving Mercury content expansion 15 |
© 2011 Mercury Computer Systems, Inc. JCREW 3.3 (I1B1): Joint services CIED program of record Software defined jammer to defeat roadside bombs • 2013 Navy RDT&E budget: – GFY12 RDT&E funding $62M – Expect “milestone C” Q3 FY12 – GFY12 LRIP funding $61M – LRIP timing Q3 GFY12 – Q2 GFY14 – JCREW GFY13 RDT&E $71.3M • 2013 Navy production budget: – GFY12 CIED activities transition to JCREW 3.3 enduring program – Total USMC req’t: 3100 mounted, 790 man portable, 13 fixed sites – GFY13 USMC req’t: 1020 mounted, 790 man portable – Award Jul 13, 1st delivery Jan 14 – GFY13 production funding (Base & OCO) total $167.9M 16 Note: Mercury was not involved in prior generations Moving from RDT&E phase into Low Rate Initial Production |
Gorgon Stare Increment 2 New program win • Increment 2 – Total contract potential $22-26M – $18M booked H1 FY12 – Quick reaction capability; delivery in 18 months – New onboard processor and storage for advanced wide area sensors – Potential upside: flight systems and spares • Future Increments to GFY18 – Processor upgrades – Onboard multi-INT fusion – PED improvements 17 Several opportunities for growth over the next 3-6 years © 2012 Mercury Computer Systems, Inc. |
© 2012 Mercury Computer Systems, Inc. 18 JCREW 3.3 (I1B1): Counter-IED Program transitioning from RDT&E phase to LRIP Patriot: Missile Defense Potential U.S. Army upgrades beginning in GFY13 Aegis: Ballistic Missile Defense Well-defined upgrade provides foundational revenue SEWIP: Naval Electronic Warfare LRIP begins GFY13 Gorgon Stare: Wide-area airborne surveillance Received $18M for Increment 2 development FY13 program growth driver update |
© 2012 Mercury Computer Systems, Inc. 19 Outsourcing could substantially increase our market opportunity even with defense spending cuts • Reduce risk given firm-fixed price contracts • Address high-fixed cost operating model • Increase success rate on new programs and production recompetes • Develop differentiated, more affordable solutions with fewer internal R&D dollars • Compress upgrade development and deployment cycles • Consolidate supply base at subsystem level Mercury has strategically positioned its business to help RF component / assembly consolidation Embedded computing consolidation Primes retaining platform system design & integration Primes reducing in-house engineering while consolidating supply chain for subsystem design & integration |
© 2012 Mercury Computer Systems, Inc. 20 Exploitation and Fusion Tailored feeds directly to field forces or ECM RF acquisition targets: RF transmitters / receivers Power amplifiers Synthesizers DRFM Mission Computing and Embedded Security We are developing capabilities organically and are looking to supplement that through acquisitions ACS and MFS Acquisition Target Areas We view our market opportunity as providing end-to-end, open sensor processing subsystems to the Primes |
Positioned for growth in a changing industry • Focused on the right defense market segments • 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 the Primes for sensor subsystems • Strong defense revenue growth and improved profitability • Pursuing complementary acquisitions to accelerate growth 21 © 2012 Mercury Computer Systems, Inc. |
Financial Overview © 2012 Mercury Computer Systems, Inc. |
© 2012 Mercury Computer Systems, Inc. 23 Defense revenue growth accelerating Defense: 13% CAGR FY07-11 Notes: • 111 130 145 158 179 208 89 60 44 42 50 30 0 50 100 150 200 250 300 FY07 FY08 FY09 FY10 FY11 LTM Revenue ($M) Defense Commercial 201 190 189 200 229 238 FY07-10 figures adjusted for discontinued operations. 23 |
© 2012 Mercury Computer Systems, Inc. Profitability restored and improving Notes: • • • • (41) (5) 8 17 25 30 ($1.78) ($0.21) $0.35 $1.22 $0.71 $0.73 -50 -40 -30 -20 -10 0 10 20 30 FY07 FY08 FY09 FY10 FY11 LTM Operating Income $M Earnings per Share FY07 figures are as reported in the Company’s fiscal 2007 Form 10K and have not been restated for discontinued operations. FY08 – FY11 figures are as reported in the Company’s fiscal 2011 Form 10K. FY10 Earnings per Share of $1.22 were positively influenced by $0.68 from the partial reversal of the valuation allowance against deferred tax assets and an effective FY10 tax rate benefit of approximately 5%. FY11 and LTM EPS includes the impact of 5.6M additional shares from our follow-on public stock offering on February 16, 2011. 24 |
© 2012 Mercury Computer Systems, Inc. 25 Adjusted EBITDA at pro forma target Notes: • • 23 23 30 41 49 12% 12% 15% 18% 21% 0 10 20 30 40 50 60 FY08 FY09 FY10 FY11 LTM Adj. EBITDA ($M, %) EBITDA Margin % FY08 figures are as reported in the Company’s fiscal 2010 Form 10K. FY09-11 figures are as reported in the Company’s fiscal 2011 Form 10K. Adjusted EBITDA excludes interest income and expense, income taxes, depreciation, amortization of acquired intangible assets, restructuring expense, impairment of long-lived assets, acquisition and other related expenses, and stock-based compensation costs. |
26 • Engineering and supply chain transformation – Engineering methods – Investments in DFM – Operational efficiencies – Reduced lead times – Improved cost of quality – Outsourced manufacturing • Efficient working capital platform supports growth Note: Generating healthy free cash flow from operations - 30 -20 -10 0 10 20 30 40 FY07 FY08 FY09 FY10 FY11 LTM Free Cash Flow ($M) Operating cash flow Capital expenditures 14 11 16 31 (5) (4) (7) (9) 9 7 8 23 20 (10) (8) (18) 29 (9) Free cash flow is defined as cash provided by operating activities less capital expenditures. © 2012 Mercury Computer Systems, Inc. |
Balance sheet poised for investment No short and long term debt Other financing sources available: • $35M Operating line of credit (no drawdowns) © 2012 Mercury Computer Systems, Inc. 27 • $500M Shelf Registration Cash and Marketable Securities ($M) |
• ACS : MFS LTM revenue split 94% : 6% respectively • High mix, low volume • R&D delivering significant added value and returns • Increased lower margin engineering services and systems integration • Services-led design wins lead to long-term production subsystem annuity revenues (1) Other OPEX includes Amortization of Acquired Intangible Assets, Impairment of Goodwill and Long Lived Assets, Restructuring, Gain on Sale of Long Lived Assets, and Acquisition Costs and Other Related Expenses. Performing at target business model © 2012 Mercury Computer Systems, Inc. 28 GAAP FY08 FY09 FY10 FY11 LTM Target Business Model Revenue 100% 100% 100% 100% 100% 100% Gross Margin 58% 56% 56% 57% 58% 54+% SG&A and Other OPEX(1) 37% 29% 27% 26% 26% Low-mid 20’s R&D 24% 22% 21% 19% 20% High Teens Operating Income (3%) 4% 9% 11% 13% 12-13% Adj. EBITDA 12% 12% 15% 18% 21% 17-18% |
H1 FY12 year over year comparison (GAAP) GAAP H1 FY12 H1 FY11 Delta Revenue ($M) 117 108 9% Gross Margin % Revenue 60.5% 57.9% 260 bps Operating Expenses ($M) 54 51 3 Operating Income ($M) % Revenue 17 14.6% 12 10.9% 5 3.7 pts Adj EBITDA 28 20 8 EPS (Continuing Operations) $0.39 $0.37 $0.02 Op Cash Flow ($M) 15 17 (2) Bookings Total Backlog ($M) 12-mo Backlog($M) 121 123 109 100 97 82 21% 27% 32% Notes: • H1 FY12 tax rate 34%, H1 FY11 tax rate 30% © 2012 Mercury Computer Systems, Inc. 29 |
30 © 2012 Mercury Computer Systems, Inc. • Strong bookings growth and rebuilding backlog • Defense revenue growth accelerating • Profitability restored and improving • Generating healthy free cash flows from operations • Scalable working capital platform • Strong balance sheet with no debt • Performing at target business model Financial summary |