MERCURY SYSTEMS INC - FORM 8-K - EX-99.1 - PRESENTATION MATERIALS DATED FEBRUARY 7, 2012

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8-K - FORM 8-K - MERCURY SYSTEMS INC	d293316d8k.htm

Cowen & Company

Annual Aerospace &

Defense Conference

February 7, 2012

Mark Aslett

President & CEO

Kevin Bisson

SVP & CFO

2012 Mercury Computer Systems, Inc.

Exhibit 99.1

Forward-Looking Safe Harbor Statement

2012 Mercury Computer Systems, Inc.

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.

Introducing Mercury Computer Systems

•

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

Best-of-breed provider of open, commercially developed

application ready and multi-INT subsystems for the ISR market

2012 Mercury Computer Systems, Inc.

•

FY12 Defense budget approved -

$525B base spending

•

FY13 Defense budget request announced –

$523B base spending

•

Budget Control Act reduced FYDP spend growth vs 2012 request

•

Budget Control Act Jan 2013 sequester on hold for now

•

New roles and missions will likely be manifested in FY13 budget

2012 Mercury Computer Systems, Inc.

Defense industry turning the page on a decade of war

Slower growth in defense spending anticipated over next 5 years

•

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

…

where there will be clear winners and losers

In the near term we believe the industry is entering

an 18 month transition period …

2012 Mercury Computer Systems, Inc.

2012 Mercury Computer Systems, Inc.

Mercury investment highlights

Pure-play C4ISR, EW and defense electronics company entrenched

on a diverse mix of programs aligned with DoD priorities

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

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

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 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

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

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 has strategically positioned its business to grow

Growth strategy summary

Expand our capabilities and offerings along sensor chain

Expand market presence within defense electronics

Continue to grow our customer and program base

Capitalize on Prime outsourcing / supply chain consolidation

Acquire complementary companies

2012 Mercury Computer Systems, Inc.

Historically, Mercury focused on one element of sensor chain

We are the leader in high-performance embedded computing

RACE++ Boards

From

2012 Mercury Computer Systems, Inc.

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

RACE++ Boards

From

Open Sensor Processing Subsystems

2012 Mercury Computer Systems, Inc.

Mercury’s traditional market was narrowly defined

as airborne radar processing …

... limiting our growth potential within the C4ISR market

C4ISR

IMINT

C4I

RADAR

EO/IR

$9,695M

25%

2012 Mercury Computer Systems, Inc.

C4ISR

$9,695M

25%

$6,755M

17%

$7,801M

20%

$10,737M

28%

Since then, we have systematically broadened our

addressable market within C4ISR …

Sensor, Program and Platform Agnostic

…

by investing in new products and capabilities

2012 Mercury Computer Systems, Inc.

RADAR

EO/IR

C4I

RADAR

EO/IR –

C4I

BAMS

Global Hawk

BAMS

Global Hawk

SEWIP

AEGIS

AEGIS Ashore

AEGIS

AEGIS Ashore

Guardrail

Patriot

Predator

Reaper

Gorgon Stare

Reaper

Gorgon Stare

F-16

JCREW 3.3

ADAS

Shadow

Global Hawk

F-35

F-16

We are deployed on 300+ programs with 25+ Primes

2012 Mercury Computer Systems, Inc.

FY13 program growth driver update

JCREW: Counter-IED

LRIP up to 1,350 systems beginning GFY13

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

2012 Mercury Computer Systems, Inc.

Primes reducing in-house engineering while

consolidating supply chain for subsystem

design & integration

RF component

/ assembly consolidation

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

2012 Mercury Computer Systems, Inc.

Primes retaining platform system design & integration

Embedded

computing consolidation

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

RF acquisition targets:

RF transmitters / receivers

Power amplifiers

Synthesizers

DRFM

Mission

Computing

and

Embedded

Security

Exploitation

and

Fusion

Tailored feeds

directly to field

forces or ECM

2012 Mercury Computer Systems, Inc.

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

2012 Mercury Computer Systems, Inc.

Financial Overview

2012 Mercury Computer Systems, Inc.

Defense revenue growth accelerating

Defense: 13% CAGR FY07-11; 14% growth in FY11

Notes:

FY07-10 figures adjusted for discontinued operations.

2012 Mercury Computer Systems, Inc.

111

130

145

158

179

208

100

150

200

250

300

FY07

FY08

FY09

FY10

FY11

LTM

Revenue ($M)

Defense

Commercial

201

190

189

200

229

238

Profitability restored and improving

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%. Benefit calculation takes tax credit of $15.6M/23M shares.

FY11 and LTM EPS includes the impact of 5.6M additional shares from our follow-on public stock offering on February 16, 2011.

2012 Mercury Computer Systems, Inc.

(41)

(5)

($1.78)

($0.21)

$0.35

$1.22

$0.71

$0.73

-50

-40

-30

-20

-10

FY07

FY08

FY09

FY10

FY11

LTM

Operating Income $M

Earnings per Share

Notes:

Adjusted EBITDA at pro forma target

FY08 figures are as reported in the Company’s fiscal 2010 Form 10K. FY09-11 figures are 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.

2012 Mercury Computer Systems, Inc.

12%

15%

18%

21%

FY08

FY09

FY10

FY11

LTM

Adj. EBITDA ($M, %)

EBITDA Margin %

Notes:

Generating healthy free cash flow from operations

–

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.

2012 Mercury Computer Systems, Inc.

(10)

(8)

(5)

(4)

(7)

(9)

-30

-20

-10

FY07

FY08

FY09

FY10

FY11

LTM

Free Cash Flow ($M)

Operating cash flow

Capital expenditures

(18)

Engineering and supply chain

transformation

Efficient working capital

platform supports growth

Balance sheet poised for investment

Zero short and long term debt

Other financing sources available:

$500M Shelf Registration

$35M Operating line of credit

(no drawdowns)

2012 Mercury Computer Systems, Inc.

163

(70)

105

100

120

140

160

180

200

Q4'10 Ending

LNX Acq, Net

Stock Offering,

Net

FY11 Free Cash

Flow & Other

Q4'11 Ending

H1'12 Free Cash

Flow & Other

KOR Acq

Q2'12 Ending

Cash and Marketable Securities ($M)

(30)

Performing at target business model

•

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.

GAAP

FY08

FY09

FY10

FY11

LTM

Target

Business

Model

Revenue

100%

Gross

Margin

58%

56%

57%

58%

54+%

SG&A and

Other OPEX(1)

37%

29%

27%

26%

Low-mid

20’s

R&D

24%

22%

21%

19%

20%

High Teens

Operating

Income

(3%)

11%

13%

12-13%

Adj. EBITDA

12%

15%

18%

21%

17-18%

2012 Mercury Computer Systems, Inc.

H1 FY12 year over year comparison (GAAP)

GAAP

H1 FY12

H1 FY11

Delta

Revenue ($M)

117

108

Gross Margin

% Revenue

60.5%

57.9%

260 bps

Operating Expenses ($M)

Operating Income ($M)

% Revenue

14.6%

10.9%

3.7 pts

Adj EBITDA

EPS (Continuing Operations)

$0.39

$0.37

$0.02

Op Cash Flow ($M)

(2)

Bookings

Total Backlog ($M)

12-mo Backlog($M)

121

123

109

100

21%

27%

32%

Notes:

•

H1 FY12 tax rate 34%, H1 FY11 tax rate 30%

2012 Mercury Computer Systems, Inc.

Q3 FY12 guidance

Q3 FY11

Actual

Quarter Ending March 31, 2012

Low

High

Revenue

$60

$65

$68

GAAP EPS (Continuing)

$0.20

$0.09

$0.11

Adj EBITDA

$11.3

$9.1

$10.1

Note -

Adj EBITDA Adjustments:

Net income (Continuing)

5.4

2.8

3.4

Interest (income) expense, net

0.0

Income tax (benefit) expense

2.0

1.4

1.8

Depreciation

1.7

2.2

Amortization of acquired intangible assets

0.7

1.3

Restructuring

0.0

Impairment of long-lived assets

0.0

Acquisition related cost

0.1

0.0

Fair value adjustments from purchase accounting

0.1

0.0

Stock-based compensation cost

1.3

1.4

Adj EBITDA

$11.3

$9.1

$10.1

Fiscal 2011 and 2012 EPS includes the impact of 5.6M additional shares from our follow-on public stock offering on February 16, 2011.

Notes:

2012 Mercury Computer Systems, Inc.

FY12 financial guidance

•

Revenue growth of 10%

•

Gross margin approximating 55%

•

Adjusted EBITDA of 18%

•

GAAP EPS of $0.59 to $0.61 per share

2012 Mercury Computer Systems, Inc.

Guidance: Strong performance track record

Reported

Guidance

Reported

Guidance

Reported

Guidance

Reported

Guidance

2008

Revenue

($M)

49.2

48.0

52.6

51.0

56.5

53.0-55.0

55.2

53.0-56.0

EPS ($)

0.09

(0.08)

0.04

(0.05)

0.04

(0.04)-0.00

0.01

(0.05)-0.01

2009

Revenue

($M)

49.1

47.0-49.0

50.7

47.0-49.0

50.6

48.0-50.0

48.4

46.0-48.0

EPS ($)

0.07

(0.07)-(0.03)

0.03

(0.05)-0.00

0.20

0.05-0.09

0.13

0.05-0.08

2010

Revenue

($M)

47.4

43.0-45.0

45.2

40.0-42.0

43.6

41.0-43.0

63.6

58.0-60.0

EPS ($)

0.19

0.03-0.08

0.08

(0.08)-(0.04)

0.16

(0.15)-(0.11)

0.77

0.25-0.28

2011

Revenue

($M)

52.1

48.0-50.0

55.5

54.0-55.0

59.9

58.0-60.0

61.2

57.0-59.0

EPS ($)

0.16

0.03-0.06

0.22

0.10-0.12

0.20

0.16-0.18

0.14

0.11-0.13

2012

Revenue

($M)

49.1

54.0-56.0

68.0

67.0-69.0

65.0-68.0

EPS ($)

0.09

0.10-0.12

0.30

0.24-0.27

0.09-0.11

Non-GAAP

GAAP

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

2012 Mercury Computer Systems, Inc.

Appendix

2012 Mercury Computer Systems, Inc.

Adjusted EBITDA reconciliation

Years Ended June

30,

(000'S)

2008

2009

2010

2011

LTM

Income (loss) from continuing operations

$ (4,437)

$ 7,909

$ 28,069

$ 18,507

$ 21,340

Interest expense (income), net

(3,129)

492

(151)

Income tax expense (benefit)

3,710

109

(9,377)

8,060

10,429

Depreciation

7,372

5,640

5,147

6,364

7,144

Amortization of acquired intangible assets

5,146

2,414

1,710

1,984

2,856

Restructuring

4,454

1,712

231

—

Impairment of long-lived assets

561

—

211

150

Acquisition costs and other related expenses

—

412

723

Fair value adjustments from purchase accounting

—

(219)

(241)

Stock-based compensation costs

8,848

4,582

4,016

5,580

6,509

Adjusted EBITDA

$ 22,525

$ 22,858

$ 29,856

$ 40,883

$ 48,919

2012 Mercury Computer Systems, Inc.

Free cash flow reconciliation

2012 Mercury Computer Systems, Inc.

Years Ended June

2007

2008

2009

2010

2011

LTM

Cash flows from operating activities

$ (10,313)

$ 13,726

$ 11,199

$ 15,708

$ 31,474

$ 29,268

Capital expenditures

(8,109)

(4,625)

(4,126)

(7,334)

(8,825)

(8,798)

Free cash flow

$ (18,422)

$ 9,101

$ 7,073

$ 8,374

$ 22,649

$ 20,470

MERCURY SYSTEMS INC - FORM 8-K - EX-99.1 - PRESENTATION MATERIALS DATED FEBRUARY 7, 2012 - February 7, 2012

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