![]() © 2012 Mercury Systems, Inc. Mercury Systems FY13 Investor Day Presentation November 13, 2012 New York, NY Exhibit 99.1 |
![]() 2 © 2012 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 improvement in profitability and cash flow. You can identify these statements by the use of the words “may,” “will,” “could,” “should,” “would,” “plans,” “expects,” “anticipates,” “continue,” “estimate,” “project,” “intend,” “likely,” “forecast,” “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, continued funding of defense programs, the timing of such funding, 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, 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, 2012. 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. 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 Appendix hereto. |
![]() 3 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview – Mark Aslett, President & CEO • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems • Mercury Intelligence Systems • Financial Review • Closing Remarks / Q&A |
![]() 4 © 2012 Mercury Systems, Inc. Introducing Mercury Systems • MRCY on NASDAQ • Real-time image, signal, Big Data processing subsystems • Commercial Item company; unique business model • Focused on Defense and Intelligence priorities • Deployed on ~300 programs with 25+ Primes • FY12 $245M revenues; 20% Adj. EBITDA margin. 800+ employees • Defense revenue 76% growth (15% CAGR) FY08–FY12 Best-of-breed provider of sensor and Big Data processing solutions |
![]() 5 © 2012 Mercury Systems, Inc. Mercury investor highlights Pure-play C4ISR electronics company embedded on a diverse mix of programs and platforms aligned with existing and emerging priorities Best-of-breed provider of open sensor and Big Data processing subsystems to defense Primes and to the Intelligence Community Increased ISR use, shift to onboard processing / exploitation, new EW threats and Big Data driving greater demand for Mercury solutions Well positioned to benefit from DoD procurement reform and slower defense spending, which are increasing outsourcing by 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 rebound in organic growth supplemented through strategic acquisitions |
![]() 6 © 2012 Mercury Systems, Inc. Notes: • FY10 EPS 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% . Benefit calculation takes tax credit of $15.6M /23M shares. • FY11 EPS includes the impact of 5.6M additional shares from our follow-on public stock offering on February 16, 2011. • FY12 EPS of $0.75 was positively influenced by $0.16 from the reversal of the LNX earnout. FY08 – FY12: Restored profitability and growth 76% defense revenue growth (15% CAGR) since FY08; 20% Adjusted EBITDA |
![]() 7 © 2012 Mercury Systems, Inc. We believe the defense industry will remain in transition for the next 6-12 months … • Reduced growth in base defense spending and lower OCO • Potential for sequestration beginning January 2013 – Soft sequestration already underway – Little guidance on nature and timing of sequestration resolution • 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 … due to budget and political uncertainty |
![]() 8 © 2012 Mercury Systems, Inc. A best-of-breed provider of commercially developed, open sensor and Big Data processing systems, software and services for critical commercial, defense and intelligence applications A best-of-breed provider of commercially developed, open sensor and Big Data processing systems, software and services for critical commercial, defense and intelligence applications Mercury’s vision |
![]() 9 © 2012 Mercury Systems, Inc. Mercury Systems strategy summary Market Expansion • Grow sensor processing by modality • Protect and grow Radar market footprint • Grow EW focused on RF / microwave • Expand into Intelligence Community • Big Data processing, analytics and analysis Evolve Business Model & Technology • Maintain Prime merchant supplier model • Direct / partner for Intelligence Community • Services-led customer engagement model • Open sensor and Big Data processing solutions • Long-term subsystem annuity revenues Organic Growth • Grow subsystem content via Prime outsourcing • Supplemental customer R&D funding • Prime RF supply chain consolidation • Penetrate new Prime customers and divisions • Penetrate programs in growth markets Complementary Acquisitions • Expand / scale sensor processing capabilities • Accelerate growth in programs and content • Exploit RF fragmentation / underutilization • Acquire IC / C4ISR classified domain expertise |
![]() 10 © 2012 Mercury Systems, Inc. We are organizing around like capabilities to open additional growth opportunities Software, Services and Systems Integration Mercury Systems Mercury Systems is a best-of-breed provider of commercially developed, open sensor and Big Data processing systems, software and services for critical commercial, defense and intelligence applications. Sensor and Big Data Processing Technology and Systems Delivers innovative, commercially developed, open sensor and Big Data processing systems for critical commercial, defense and intelligence applications. We deliver solutions that are secure and based upon open architectures and widely adopted industry standards. We deliver rapid time-to-value and world-class service and support to our commercial and prime contractor customers. Mercury Commercial Electronics Mercury Defense Systems Delivers innovative, open sensor processing solutions to key prime contractors leveraging commercially available technologies and solutions from our Commercial Electronics business. Defense Systems leverages this technology to develop integrated sensor processing subsystems, often including classified application-specific software and IP for the C4ISR and EW markets. Mercury Intelligence Systems Delivers cutting-edge and technologically advanced hardware and software data processing solutions and predictive analytics capabilities to address Intelligence Community and Department of Defens e mission needs. Our unique approach and solutions facilitate the transformation of raw data into information and then to actionable intelligence. |
![]() 11 © 2012 Mercury Systems, Inc. 1. Expand our capabilities and offerings for sensor and Big Data processing 2. Grow business by sensor modality and within the Intelligence Community 3. Penetrate customers, programs and platforms through new design wins 4. Capitalize on Prime outsourcing and supply chain consolidation 5. Acquire to scale our sensor processing and intelligence businesses Growth strategy summary Mercury has strategically positioned its business to grow |
![]() 12 © 2012 Mercury Systems, Inc. We are the only commercial item company with the end-to-end capabilities and differentiated technology … … to build today’s sophisticated sensor processing subsystems targeting new platforms or upgrades Services and Systems Integration Open Sensor Processing Subsystems |
![]() 13 © 2012 Mercury Systems, Inc. RF DISTRIBUTION / CONDITIONING FREQUENCY DOWNCONVERSION TUNING / SYNTHESIS SYNTH TUNER RF In the ‘Acquire’ stage, we now have strong Microwave and RF capabilities critical to EW and SIGINT subsystems |
![]() 14 © 2012 Mercury Systems, Inc. FILTERING DIGITAL FILTERING / CONDITIONING ANALOG-TO-DIGITAL CONVERSION In the ‘Digitize’ stage, we have added to our Echotek capabilities through the Micronetics acquisition |
![]() 15 © 2012 Mercury Systems, Inc. Our processing capabilities encompass specialized FPGA sensor processing, Intel server-class DSP and leading GPU compute DIGITAL SIGNAL & IMAGE PROCESSING SENSOR-SPECIFIC PROCESSING FPGA / GPGPU / High Density Server / Low Density Server / Switch Fabric BIG DATA EXPLOITATION PROCESSING Integrated Product Security DATA DISTRIBUTION / SWITCHING |
![]() 16 © 2012 Mercury Systems, Inc. KOR provides EW exploitation (DRFM), while PDI adds Big Data processing, analytics and analysis for the IC BIG-DATA PROCESSING, ANALYTICS, ANALYSIS TRACKING, ID & DECEPTION MULTI-INT DATA FUSION & ANALYSIS |
![]() 17 © 2012 Mercury Systems, Inc. Micronetics brings high-power amplifiers as well as EW and communications subsystems expertise FREQUENCY UPCONVERSION / FILTERING TRANSMISSION DIGITAL-TO-ANALOG CONVERSION |
![]() 18 © 2012 Mercury Systems, Inc. 1. Expand our capabilities and offerings for sensor and Big Data processing 2. Grow business by sensor modality and within the Intelligence Community 3. Penetrate customers, programs and platforms through new design wins 4. Capitalize on Prime outsourcing and supply chain consolidation 5. Acquire to scale our sensor processing and intelligence businesses Growth strategy summary Mercury has strategically positioned its business to grow |
![]() 19 © 2012 Mercury Systems, Inc. Defense electronics is a $40B+ market Source: The Teal Group June 2011 |
![]() 20 © 2012 Mercury Systems, Inc. EW EW Radar Radar … drive demand for our onboard sensor processing solutions Increased demand for ISR and rapidly evolving threats … • More and better sensors. Overwhelming data. • EW: new and rapidly evolving threats • Radar: smaller, faster targets. New technologies • EO/IR: leap in resolution, onboard exploitation and real-time tactical access • C4I: Net-centric command, control and collaboration • Time to actionable intelligence key C4I C4I EO/IR EO/IR |
![]() 21 © 2012 Mercury Systems, Inc. We have systematically broadened our addressable market within C4ISR … … by investing in new products and capabilities Note: Mercury Systems FY12 total $245M. Excludes $15M of Commercial and $3M of other defense revenue. C4I C4I EW EW RADAR RADAR EO/IR EO/IR FY12 Revenue $16M $135M $42M $27M $7M % of Revenue 7% 59% 19% 12% 3% Y/Y Growth 536% 14% 20% 97% (15%) Sensor, Program, Platform and Prime Agnostic SONAR SONAR Mercury FY12 Defense Revenue by Market Segment |
![]() 22 © 2012 Mercury Systems, Inc. Micronetics strengthens and grows our EW business Note: Total FY12 revenues are as reported in the Company’s and Micronetics, Inc.’s fiscal 2012 Form 10-Ks, as applicable. |
![]() 23 © 2012 Mercury Systems, Inc. 1. Expand our capabilities and offerings for sensor and Big Data processing 2. Grow business by sensor modality and within the Intelligence Community 3. Penetrate customers, programs and platforms through new design wins 4. Capitalize on Prime outsourcing and supply chain consolidation 5. Acquire to scale our sensor processing and intelligence businesses Growth strategy summary Mercury has strategically positioned its business to grow |
![]() 24 © 2012 Mercury Systems, Inc. We are deployed on 300+ programs with 25+ Primes RADAR EW EO/IR – C4I BAMS; NATO AGS Global Hawk BAMS; NATO AGS Global Hawk SEWIP SEWIP AEGIS AEGIS Ashore AEGIS AEGIS Ashore F-15 F-15 Patriot Patriot Black Hawk Black Hawk Reaper Gorgon Stare Reaper Gorgon Stare F-16 F-16 Badger/Buzzard Badger/Buzzard Shadow Shadow Global Hawk Global Hawk F-35 F-35 F-35 F-35 F-16 F-16 P-8 P-8 |
![]() 25 © 2012 Mercury Systems, Inc. Notes: Remaining potential values and timing reflect Management’s current estimates and are subject to change. ** Programs are currently being competed with multiple Primes. Key programs in production Mercury’s perspective on phase, timing and potential value |
![]() 26 © 2012 Mercury Systems, Inc. Notes: Remaining potential values and timing reflect Management’s current estimates and are subject to change. ** Programs are currently being competed with multiple Primes. Healthy mix of design wins Mercury’s perspective on phase, timing and potential value |
![]() 27 © 2012 Mercury Systems, Inc. 1. Expand our capabilities and offerings for sensor and Big Data processing 2. Grow business by sensor modality and within the Intelligence Community 3. Penetrate customers, programs and platforms through new design wins 4. Capitalize on Prime outsourcing and supply chain consolidation 5. Acquire to scale our sensor processing and intelligence businesses Growth strategy summary Mercury has strategically positioned its business to grow |
![]() ![]() ![]() 28 © 2012 Mercury Systems, Inc. • Restore affordability to defense goods and services procurement • Provide the warfighting capability we need with the dollars we have • Shorten procurement cycles; focus on upgrades to address urgent needs • Obtain greater efficiency, affordability and productivity in defense spending • Avoid program turbulence and maintain a vibrant and healthy defense industry Government Primes • Reduce risk given DoD shift to firm-fixed price contract awards • Primes shift from high fixed-cost to variable operating cost model • Affordably upgrade existing platforms with new capabilities • Compress development and deployment cycles • Differentiate solutions with fewer internal R&D dollars • Increase success rate on new programs and recompetes Slower defense spending growth and procurement reform are causing our customers to outsource more We have strategically positioned Mercury to assist © 2012 Mercury Systems, Inc. |
![]() 29 © 2012 Mercury Systems, Inc. Our business model is aligned to the needs of our customers … as they outsource more work to companies like Mercury Primes Primes, IC Traditional Prime Model and Competition COTS Boards “Plug-n-Pray” 36+ months Time to Market COTS COTS COTS Classified Prime/Gov’t IP Application Ready Subsystem and Modular Building Blocks 12 months Time to Market RF IF Proc Sensor and Big Data Processing Solutions 12 months Time to Market Classified Prime/Gov’t IP Defense and Intelligence Systems Mercury Systems Commercial Electronics Application Ready Subsystem from Commercial Electronics |
![]() 30 © 2012 Mercury Systems, Inc. Outsourcing could substantially increase our market opportunity even with slower growth in defense spending 10% additional outsourcing doubles our market opportunity 25% additional outsourcing quadruples our market opportunity Sources: The Teal Group June 2011; Management estimates of outsourcing potential |
![]() 31 © 2012 Mercury Systems, Inc. 1. Expand our capabilities and offerings for sensor and Big Data processing 2. Grow business by sensor modality and within the Intelligence Community 3. Penetrate customers, programs and platforms through new design wins 4. Capitalize on Prime outsourcing and supply chain consolidation 5. Acquire to scale our sensor processing and intelligence businesses Growth strategy summary Mercury has strategically positioned its business to grow |
![]() 32 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History – Gerry Haines, SVP Corporate Development • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems • Mercury Intelligence Systems • Financial Review • Closing Remarks / Q&A |
![]() 33 © 2012 Mercury Systems, Inc. … resulting in a unique microwave and digital platform We’ve completed Phase 1 of our M&A strategy … • Expanded capabilities across sensor processing chain • Expanded addressable market by acquiring IC / classified domain expertise • Disciplined evaluation: – Growth supported by market- based program assumptions – Demonstrated profitability and cash generation – Revenue and cost synergies – Immediately EBITDA accretive – GAAP EPS accretive within reasonable period – At or above target model for Adjusted EBITDA % over time |
![]() 34 © 2012 Mercury Systems, Inc. Micronetics acquisition case study Now part of Mercury Commercial Electronics (1) As of March 31, 2012. Financial Summary (1) Financial Summary (1) Revenue Revenue Select Customers Select Customers Select Programs Select Programs $46 million Description Description Investment Thesis Investment Thesis • Acquisition creates a unique, scalable microwave, RF and digital solutions platform • Fills key capability gaps in RF and completes Phase I of acquisition agenda • Expands Mercury footprint with key customers (Exelis and BAE) and on key EW programs Sensor Processing Chain Sensor Processing Chain • Ownership: Public (NOIZ) • HQ: Hudson, NH • Founded: 1975 • Manufactures microwave and RF components and subsystems used in commercial wireless, defense and aerospace products • Includes EW & SATCOM Adj. EBITDA Adj. EBITDA ~16% - 17% • SEWIP • F-15 EW • SIRFC/AIDEWS • Commercial SATCOM • Closed Aug 2012 • Transaction value = $76.4M • Immediately accretive to EBITDA Transaction Transaction |
![]() 35 © 2012 Mercury Systems, Inc. Phase 2 will focus on scaling our sensor processing subsystems and intelligence businesses • Enable growth in programs and content – Fastest approach to build EBITDA • Emphasize opportunities to address underutilization and industry fragmentation – Greater opportunity for synergies • Will pursue smaller acquisitions opportunistically – Continue to add to core capabilities along sensor chain – Expand addressable market by acquiring IC / C4ISR domain expertise • Balance sheet and capital structure supports M&A agenda – $500M universal shelf – $200M senior unsecured revolving credit line closed October 2012 Well positioned to augment organic growth through acquisitions when market conditions improve |
![]() 36 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems • Mercury Intelligence Systems • Financial Review • Closing Remarks / Q&A |
![]() 37 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics – Didier Thibaud, President • Mercury Defense Systems • Mercury Intelligence Systems • Financial Review • Closing Remarks / Q&A |
![]() ![]() ![]() 38 © 2012 Mercury Systems, Inc. Mercury Commercial Electronics at a glance Select Programs Select Programs Description Description Capabilities Capabilities Select Customers Select Customers ** Program being competed with multiple Primes • Commercial item business • Focused on HLS, ISR, EW and Big Data processing • Lead open architecture and industry standard adoption • Develop differentiated sensor chain building blocks • Deliver services-led Application Ready Subsystems • RF and microwave solutions – Wideband and high-power RF – Wideband, fast, low-noise tuners • Digital solutions – RF and A/D matched with extremely dense FPGA processing – Expertise in integrating and optimizing RF and digital electronics • Embedded processing solutions – High density computing using server class Intel, GPU and storage – Secure systems and advanced packaging |
![]() 39 © 2012 Mercury Systems, Inc. Micronetics increases MCE’s revenues in RF/Microwave by 184% Note: Total FY12 Micronetics revenues as reported in Micronetics, Inc.’s fiscal 2012 Form 10-K. * Excludes sales to affiliate entities. |
![]() 40 © 2012 Mercury Systems, Inc. We have positioned Commercial Electronics as the best-of-breed outsourcing partner to the Primes … • Minimize risk through Application Ready Subsystems (ARS) • Drive affordability: modular building blocks with R&D leveraged across programs • Innovate through technology leadership giving customers competitive advantage • Lead open architecture industry standards • Positioned to be the outsourcing partner and trusted advisor in sensor chain processing Primes Primes Mercury Commercial Electronics Commercially Developed Modular Building Blocks & Open Middleware 12 months Time to Market RF Open Middleware IF Proc Open Architecture Sensor Processing Subsystem 12 months Time to Market Application Ready Software Toolkit Application Ready Subsystem … for commercially-developed, open sensor processing subsystems |
![]() 41 © 2012 Mercury Systems, Inc. Mercury’s largest single program in production to date Aegis ballistic missile defense: SPY-1 BMD Radar Countering rogue nations’ ballistic missile threats • Highest performance radar processor Application Ready Subsystem • $9M booked in FY12, $85M+ booked to date • Additional 27 ship sets expected through GFY16 • AMDR selection in FY13 – SPY-1 replacement Radar – FY16 introduction – Partnering with LM |
![]() 42 © 2012 Mercury Systems, Inc. Program in production; FMS and US Army upgrade driving growth 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: $41M – UAE, Taiwan, Saudi Arabia • Potential future FMS awards – Up to 15 countries including Turkey, Qatar, Kuwait, etc • US Army Patriot upgrade could begin in GFY13 – First PO received for US Army |
![]() 43 © 2012 Mercury Systems, Inc. Strong partnership with Prime driving Mercury content expansion SEWIP: Countering new emerging peer threats Delivered best-of-breed RF, microwave and digital receiver subsystems • Naval surface fleet EW upgrade: 100+ ships • Upgrade to AN/SLQ-32 passive detection • Block 2: – Opportunity to expand through LNX & Micronetics – Entering LRIP; production begins GFY15 • Block 3: – Electronic attack – Lockheed and Raytheon partnering – Upside opportunity due to strategic supplier relationship with Lockheed on Block 2 |
![]() 44 © 2012 Mercury Systems, Inc. Acquisition strategy is driving growth in EW and enabling access to new customers and programs Electronic warfare system upgrade for F-15 C/D Micronetics EW design win • Provides fighter jets with advanced radar warning and countermeasure capabilities • F-15 electronic upgrades for FMS and USAF • RF & microwave content • Contract from RSAF for 84 new F-15 C/D and 70 upgrade kits • Received $11.7M in Q1 FY13 • New award expected in FY13 |
![]() 45 © 2012 Mercury Systems, Inc. • Provides advanced radar warning, situational awareness, jamming and EW • Target rotary and fixed-wing aircraft (AH-64, F-16, CV22, MH-60, POD) • Positioned for US upgrade programs • Providing several microwave assemblies per system • In production, $5M-$10M/yr Acquisition strategy driving growth in EW and opening access to new platforms Exelis SIRFC and AIDEWS Micronetics EW design win |
![]() 46 © 2012 Mercury Systems, Inc. Raytheon Advanced Distributed Aperture System (ADAS - DVE) Delivered first system for Technology Demonstration phase Expected Program of Record to start end of GFY14 Northrop Grumman F-16 SABR New AESA radar upgrade design win with one of the Prime contenders Taiwan awarded 145 F-16 Radar to Lockheed Martin Major new design win summary JCREW: Counter-IED Funding delays impacting JCREW I1B1 Boeing P8-MMA New design wins providing Radar and sonar processing Flight testing, in LRIP phase – 117 planes plus FMS opportunities E2D Advanced Hawkeye New Radar design win with one of the Prime contenders Program aims to build 75 new aircraft |
![]() 47 © 2012 Mercury Systems, Inc. Summary – Well positioned for market rebound • Short-term challenges due to macro environment • Well positioned on key programs and platforms • Unique strategy with capabilities covering the full sensor chain • Unique and differentiated open architecture building blocks • New capabilities in RF driving expansion in EW market • Outsourcing partner to Primes for sensor processing subsystems |
![]() 48 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems – Kevin Carnino, President • Mercury Intelligence Systems • Financial Review • Closing Remarks / Q&A |
![]() 49 © 2012 Mercury Systems, Inc. Mercury Defense Systems at a glance Select Programs Select Programs Select Customers Select Customers Description Description Capabilities Capabilities • Delivers innovative, open sensor processing solutions to key Prime contactors • Leverages commercially available technologies and solutions from Commercial Electronics business • Develops integrated sensor processing subsystems, often with classified application-specific software and IP for the C4ISR and EW markets • Filthy Badger • Filthy Buzzard • Gorgon Stare • Eurofighter • Patriot III • Advanced Radar Environment Simulator (ARES) • Electronic Warfare (EW) – Electronic countermeasure (ECM) subsystems for airborne and surface-based installations • Signals Intelligence (SIGINT) – Small UAV payloads for communications DF and signal intercept • Electro-Optical / Infrared (EO/IR) – Real-time, on-board image processing, storage and exploitation systems for UAV applications • Test and Simulation – Advanced RF-based environment simulators used to validate, verify and test radar sensors and platforms |
![]() 50 © 2012 Mercury Systems, Inc. • Direct customer collaboration to develop mission-unique subsystems • Leveraging commercially developed technologies – Quicker program execution – Proven technologies – More affordable • Mature capabilities for critical EW markets • Directs customer needs into MCE IR&D • Compliant government program/contract management Mercury Commercial Electronics Primes Primes Sensor Processing Solutions 12+ months Time to Market Open Architecture Sensor Processing Subsystem 12 months Time to Market Mercury Defense Systems Application Ready Subsystem Classified Prime/Gov’t IP Application Ready Subsystem Defense Systems expands Mercury’s addressable market through C4ISR and EW domain expertise Risk reduction, schedule mitigation and affordability |
![]() 51 © 2012 Mercury Systems, Inc. Filthy Badger / Buzzard: vulnerability assessment / training New EW design win in MDS (KOR) • Electronic attack systems produced for Navy/AF vulnerability assessment and tactics training • $65M Filthy Badger IDIQ renewal expected • Next-generation DRFM, Filthy Buzzard in development • $58M BOA for Filthy Buzzard received Q1 FY13 • MCE providing microwave products for both programs Mercury is covering full spectrum of EW through KOR acquisition |
![]() 52 © 2012 Mercury Systems, Inc. Several opportunities for growth over the next 3-6 years Gorgon Stare Increment 2 Nation’s premier EO/IR wide area surveillance system • Increment 2 – New onboard processor and storage for advanced wide-area sensors – Quick-reaction capability; delivery in 18 months – Total contract potential $31-$35M – $25M booked FY12 • Future increments to GFY18 – Processor upgrades – Onboard multi-INT fusion • MCE providing state of the art ruggedized processing architecture |
![]() 53 © 2012 Mercury Systems, Inc. MCE’s processor architectures essential for enhanced capabilities Radar and EW test and simulation Enhanced capabilities for AESA and SAR testing • Produces realistic environments for radar and EW testing and evaluation • Significantly reduces program cost by minimizing flight time • Used by key Primes and government agencies • Programs of interest: – Patriot missile production – Eurofighter development and production – Advanced Radar Environment Simulator (ARES); joint services test capability A B |
![]() 54 © 2012 Mercury Systems, Inc. FELCO: Onboard Multi-INT Exploitation for UAVs Collaboration with ITT Exelis Mercury processors New design win summary New program pursuits Low-altitude UAV DF/Intercept System Enables cross-cueing of EO/IR sensors in real time Mercury-developed system Test and Simulation: Radar and EW Environment Simulators Enhanced testing for AESA and SAR-capable sensors Classified domestic and international programs |
![]() 55 © 2012 Mercury Systems, Inc. Summary – MDS brings value to Mercury by: • Expanding Mercury’s addressable market by focusing on EW, SIGINT and EO/IR systems domain expertise • Leveraging MCE’s technology to develop integrated, open architecture mission level solutions for the C4ISR market • Reducing customers’ program risk with rapid solution development and domain-based systems engineering expertise • Experienced managing classified applications, government programs and contracts |
![]() 56 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems • Mercury Intelligence Systems – Matt Hughes, President • Financial Review • Closing Remarks / Q&A |
![]() ![]() ![]() ![]() 57 © 2012 Mercury Systems, Inc. Mercury Intelligence Systems at a glance Capabilities Capabilities Description Description Select Markets Select Markets Select Customers Select Customers • Delivers technologically advanced hardware and software data processing solutions • Provides predictive analytics capabilities to address IC and DoD mission needs • Unique approach for transforming raw data into information and then to actionable intelligence • Cloud infrastructure expertise • Ingest and management of Big Data • Predictive analytics • Multi-discipline intelligence analysis • Software design and systems architecture • 10,000 sq feet TS/SCI accredited development lab • 85% of personnel have TS/SCI clearances • Locations: Aurora, CO; Augusta, GA; Rome, NY; Omaha, NE; Kunia, HI; San Antonio, TX; Kandahar, AF • Classified cloud-based fusion and exploitation programs • Infrastructure modernization within the IC • National-level systems designed to support strategic and tactical customers • Affordable Big Data solutions for Service cryptologic elements (Army, Navy, Air Force) • Tactical systems with AFRL and ONI “Cloud Afloat” |
![]() 58 © 2012 Mercury Systems, Inc. Intelligence Community Big Data challenges • Enormous amounts of data generated daily by individuals, systems and adversaries • Current collection exceeds the capacity of traditional databases and software tools • Increasingly complex legal and data security needs • Estimated $80B spent annually in IC data collection, analysis and dissemination within the intelligence life cycle Legacy intelligence systems cannot meet 21st century needs ORGANIZE ANALYZE DECIDE Sensor Data Web Data Documents Event Data Data storage and retrieval – access control Data processing, reduction and tagging Analytics Visualization |
![]() ![]() 59 © 2012 Mercury Systems, Inc. Mercury Intelligence Systems: Cradle-to-grave Big Data management for the IC Mercury combines best-of-breed solutions with skilled community experts to transform perishable data into persistent intelligence Processing Big Data • Turning data into information • Off-line forensics analysis • Real-time information discovery • Pattern of life identification and analysis – Anomaly detection – Statistical analysis Predictive Analytics • Transforming information into intelligence – Derive meaning, context and intent – Requires a human to interpret Multi-Discipline Intelligence Analysis • Mercury high performance processing solutions – Real-time, high- volume • Big Data life cycle – Data ingest – Analytics and storage – Visualization • Structured and unstructured data • Providing decision makers with actionable intelligence • Avoid strategic surprise |
![]() 60 © 2012 Mercury Systems, Inc. Unique solutions positioned to meet increasing demand Commercial Electronics and Intelligence Systems: Enabling confidence in and protection of our sensitive data • Real-time nature of IC requirements stresses traditional methods • MCE provides best-in-class computing power, cutting edge security and speed to today’s problems • Intelligence Systems brings MCE processing performance to bear on the traditionally “closed” IC customer • Uniquely designed systems for challenging intelligence problems Mercury Commercial Electronics Primes Intelligence Community Big Data Processing Solutions 12+ months Time to Market Open Architecture Big Data Processing Subsystem 12 months Time to Market Mercury Intelligence Systems Application Ready Subsystem Classified Prime/Gov’t IP Application Ready Subsystem |
![]() 61 © 2012 Mercury Systems, Inc. Leveraged technology driving new growth opportunities New market opportunities in Big Data processing: Data security and verification • Big Data processing technology demonstrator • High-bandwidth network analysis can be applied to other missions • Unique balance of high- performance, real-time processing, I/O and security critical to IC solutions • Architecture fully leveraged from sensor processing • Now have customer access with Intelligence Systems |
![]() 62 © 2012 Mercury Systems, Inc. Summary – MIS brings value to Mercury by: • Offering unique cradle-to-grave capabilities for processing Big Data in the IC • Knowing how to transform data into intelligence with speed, agility and security • Being uniquely positioned to bring MCE’s best-in-class technology to bear on IC challenges • Bringing Mercury’s best-in-class speed and agility to bear on protecting our national security |
![]() 63 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems • Mercury Intelligence Systems • Financial Review – Kevin Bisson, CFO • Closing Remarks / Q&A |
![]() 64 © 2012 Mercury Systems, Inc. Revenue summary by market Notes: • Total FY08 – FY12 revenues are as reported in the Company’s fiscal 2012 Form 10-K. • Mercury Systems FY12 pro forma MDS revenues include KOR revenues for the period of December 30, 2011 – June 30, 2012 and Mercury Federal Systems for fiscal 2012. • Mercury Systems FY12 pro forma MIS revenues include PDI revenues for the period of December 30, 2011 – June 30, 2012. |
![]() 65 © 2012 Mercury Systems, Inc. Defense revenue growth acceleration 15% CAGR since FY08 FY08 FY09 FY10 FY11 FY12 FY08-12 CAGR ACS & MFS Defense 130.3 144.8 157.5 180.4 210.1 YOY Growth % 11% 9% 15% 16% 13% KOR Electronics 11.9 Paragon Dynamics 7.9 Total Defense 130.3 144.8 157.5 180.4 229.9 YOY Growth % 11% 9% 15% 27% 15% ACS Commercial 59.9 44.2 42.3 48.3 15.0 YOY Growth % (26%) (4%) 14% (69%) (29%) Total Mercury 190.2 188.9 199.8 228.7 244.9 YOY Growth % (1%) 6% 14% 7% 7% Notes: • Total FY08 – FY12 revenues are as reported in the Company’s fiscal 2012 Form 10-K. • Revenues from KOR and PDI reflect a partial period, December 30, 2011 – June 30, 2012 |
![]() 66 © 2012 Mercury Systems, Inc. FY08 – FY12: Improved financial performance GAAP FY08 Actual FY09 Actual FY10 Actual FY11 Actual FY12 Actual Bookings ($M) 199 210 206 202 231 Revenue ($M) 190 189 200 229 245 Gross Margin % Revenue 57.8% 55.8% 56.3% 56.8% 55.6% Operating Expenses ($M) Amort/Acq. Costs Restructuring Expense 115 5 4 98 2 2 95 2 105 2 106 5 3 Operating Income ($M) % Revenue (5) (2.8%) 8 4.1% 17 8.7% 25 10.9% 30 12.3% EPS (Continuing) EPS (Amort/Acq. Costs) ($0.21) $0.35 $1.22 $0.71 ($0.06) $0.75 ($0.12) Adj EBITDA ($M) % Revenue 23 11.8% 23 12.1% 30 14.9% 41 17.9% 49 20.0% Operating Cash Flow ($M) 14 11 16 31 32 |
![]() 67 © 2012 Mercury Systems, Inc. Profitability restored and improved Notes: • FY08-12 figures are as reported in the Company’s fiscal 2012 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 FY12 EPS includes the impact of 5.6M additional shares from our follow-on public stock offering on February 16, 2011. |
![]() 68 © 2012 Mercury Systems, Inc. Adjusted EBITDA above historic target business model Notes: • 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, fair value adjustments from purchase accounting, and stock-based compensation costs. |
![]() 69 © 2012 Mercury Systems, Inc. Healthy free cash flow from operations • Engineering and supply chain transformation – Engineering methods – Investments in DFM – Operational efficiencies – Reduced lead times – Improved cost of quality – Outsourced manufacturing Note: • Free cash flow is defined as cash provided by operating activities less capital expenditures. • Efficient working capital platform supports growth |
![]() 70 © 2012 Mercury Systems, Inc. Strong balance sheet with sufficient liquidity Zero debt and expanded revolving credit line • $500M Shelf Registration • $200M senior unsecured revolving line of credit (no drawdowns) Other financing sources available |
![]() 71 © 2012 Mercury Systems, Inc. Summary of new revolving credit line terms Currently undrawn Borrower Mercury Systems, Inc. Facility $200.0M senior unsecured revolving credit facility Accordion Up to $50.0M in the form of an incremental revolving credit facility or term loan Use of Proceeds Working capital, acquisitions and general corporate purposes Security Unsecured; negative pledge on assets Maturity 5 years from the Closing Date (October 12, 2017) Borrowing Rates & Commitment Fees Borrowing Rates – based on leverage: – LIBOR Spread: 150-225 bps – Base Rate Spread: 50-125 bps Commitment Fees: 25-30 bps Financial Covenants Leverage Ratio: 3.50x Interest Coverage Ratio: 3.00x |
![]() 72 © 2012 Mercury Systems, Inc. Achieved historic target business model GAAP FY08 FY09 FY10 FY11 FY12 Target Business Model Revenue 100% 100% 100% 100% 100% 100% Gross Margin 58% 56% 56% 57% 56% 54+% SG&A and other OPEX(1) 37% 29% 27% 26% 25% Low-mid 20’s R&D 24% 22% 21% 19% 19% High Teens Operating Income (3%) 4% 9% 11% 12% 12-13% Adj. EBITDA 12% 12% 15% 18% 20% 17-18% (1) Other OPEX includes Amortization of Acquired Intangible Assets, Impairment of Goodwill and Long Lived Assets, Change in the fair value of the liability related to the LNX earn-out, Restructuring, Gain on Sale of Long Lived Assets, and Acquisition Costs and Other Related Expenses. |
![]() 73 © 2012 Mercury Systems, Inc. Defense industry conditions are currently challenging • Adversely impacting financial results • Restructurings lead to $25M of recurring annualized savings • Forecasting more conservatively • Focused on managing controllable items • Sufficient liquidity and improved financial flexibility Substantial operating leverage when defense market rebounds |
![]() 74 © 2012 Mercury Systems, Inc. Updated business model raises Adjusted EBITDA target In a more normalized industry environment (1) Other OPEX includes, Impairment of Goodwill and Long Lived Assets, Change in the fair value of the liability related to the LNX earn-out, Restructuring, Gain on Sale of Long Lived Assets, and Acquisition Costs and Other Related Expenses. (2) Amortization includes fair value adjustment from purchase accounting and $4.9M LNX earnout reversal in FY12. GAAP FY12 Historic Target Business Model Current Target Business Model Revenue 100% 100% 100% Gross Margin 56% 54+% 45-50% SG&A and other OPEX (1) 25% Low-mid 20’s Low 20’s R&D 19% High Teens 11-13% Amortization (2) 0% — 2-3% Operating Income 12% 12-13% 12-13% Adj EBITDA 20% 17-18% 18-22% |
![]() 75 © 2012 Mercury Systems, Inc. Financial summary • 15% Defense revenue CAGR FY08-FY12 • Profitability restored and improved • Converted earnings growth to healthy free cash flows • Strong balance sheet; zero debt • $200M revolving credit facility and $500M universal shelf • Exceeded historic target model; new targets established • Reduced cost structure due to challenging industry environment |
![]() 76 © 2012 Mercury Systems, Inc. Agenda • Corporate Overview • Acquisition Strategy and Recent History • Keynote: Pierre Chao, Renaissance Advisors • Mercury Commercial Electronics • Mercury Defense Systems • Mercury Intelligence Systems • Financial Review • Closing Remarks / Q&A |
![]() 77 © 2012 Mercury Systems, Inc. Well positioned for market rebound • Focused on important defense and intelligence priorities • 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 Primes for open sensor subsystems • Pursuing acquisitions to gain additional capability and scale |
![]() © 2012 Mercury Systems, Inc. Appendix |
![]() 79 © 2012 Mercury Systems, Inc. Adjusted EBITDA reconciliation Years Ended June 30 (000'S) 2008 2009 2010 2011 2012 Income (loss) from continuing operations $ (4,437) $ 7,909 $ 28,069 $ 18,507 $ 22,619 Interest expense (income), net (3,129) 492 (151) 45 27 Income tax expense (benefit) 3,710 109 (9,377) 8,060 9,152 Depreciation 7,372 5,640 5,147 6,364 7,859 Amortization of acquired intangible assets 5,146 2,414 1,710 1,984 3,799 Restructuring 4,454 1,712 231 — 2,821 Impairment of long-lived assets 561 — 211 150 — Acquisition costs and other related expenses — — — 412 1,219 Fair value adjustments from purchase accounting — — — (219) (5,238) Stock-based compensation costs 8,848 4,582 4,016 5,580 6,616 Adjusted EBITDA $ 22,525 $ 22,858 $ 29,856 $ 40,883 $ 48,874 |
![]() 80 © 2012 Mercury Systems, Inc. Free cash flow reconciliation Years Ended June 30 2008 2009 2010 2011 2012 Cash flows from operating activities $ 13,726 $ 11,199 $ 15,708 $ 31,474 $ 31,869 Capital expenditures (4,625) (4,126) (7,334) (8,825) (9,427) Free cash flow $ 9,101 $ 7,073 $ 8,374 $ 22,649 $ 22,442 |
![]() 81 © 2012 Mercury Systems, Inc. Glossary ADAS Advanced Distributed Aperture System EMD Engineering and Manufacturing Development MMSP Multimission Signal Processor AEGIS Aegis Ballistic Missile Defense System EO/IR Electro-optical / Infrared OpenVPX System-level specification for VPX, initiated by Mercury AESA Active Electronically Scanned Array EW Electronic Warfare ONI Office of Naval Intelligence AFRL Air Force Research Laboratory FELCO Federated Embedded Intel-Server for Collaborative Operations QRC Quick Reaction Capability AIDEWS Advanced Integrated Defensive Electronic Warfare Suite FMS Foreign Military Sales RF Radio Frequency AMDR Air and Missile Defense Radar FPGA Field Programmable Gate Array SABR Scalable Agile Beam Radar ARES Advanced Radar Environment Simulator FRP Full Rate Production SAR Synthetic Aperture Radar ASIP Airborne Signals Intelligence Payload GPU Graphics Processing Unit SEWIP Surface Electronic Warfare Improvement Program BAMS Broad Area Maritime Surveillance HLS Homeland Security SIGINT Signals Intelligence BMD Ballistic Missile Defense IC Intelligence Community SIRFC Suite of Integrated RF Countermeasures BOA Basic Ordering Agreement IDIQ Indefinite Quantity / Indefinite Delivery SSEE Ships Signal Exploitation Equipment C4ISR Command, Control, Communications, Computers, Intelligence, Surveillance, Reconnaissance INT Intelligence SSI Services & Systems Integration Group COMINT Communications Intelligence I/O Input / Output SWaP Size Weight and Power COTS Commercial off-the Shelf JCREW Joint Counter Radio Controlled Improvised Explosive Device Electronic Warfare TD Technology Demonstration DEWS Digital Electronic Warfare System JSF Joint Strike Fighter TR Tech Refresh DF Direction Finding LRIP Low-Rate Initial Production TS/SCI Top Secret / Sensitive Compartmented Information DFM Design for Manufacturing MCE Mercury Commercial Electronics UAE United Arab Emirates DRFM Digital Radio Frequency Memory MDS Mercury Defense Systems UAS Unmanned Aircraft System DSP Digital Signal Processing MIS Mercury Intelligence Systems UAV Unmanned Aerial Vehicle DVE Degraded Visual Environment MMA Multimission Maritime Aircraft VADER Vehicle and Dismount Exploitation Radar |