MERCURY SYSTEMS INC - FORM 8-K - EX-99.1 - PRESENTATION MATERIALS

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8-K - FORM 8-K - MERCURY SYSTEMS INC	d314649d8k.htm

2012 Mercury Computer Systems, Inc.

Sidoti & Company, LLC

Annual New York

Conference

March 20, 2012

Mark Aslett

President & CEO

Kevin Bisson

SVP & CFO

Exhibit 99.1

2012 Mercury Computer 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 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

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.

•

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.

Source: DOD Comptroller 2012 Budget Request

Defense industry turning the page on a decade of war

Slower

growth

defense

spending

anticipated

over

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

2012 Mercury Computer Systems, Inc.

…

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.

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

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

We now view our market opportunity as providing end-to-end

open

sensor

processing

subsystems

–

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.

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

$9,695M

25%

C4I

RADAR

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%

RADAR

EO/IR

C4I

2012 Mercury Computer Systems, Inc.

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.

We are deployed on 300+ programs with 25+ Primes

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

2012 Mercury Computer Systems, Inc.

•

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

Aegis ballistic missile defense: SPY-1 BMD Radar

Mercury’s largest single program in production to date

2011 Mercury Computer Systems, Inc.

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

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

–

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

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

Several opportunities for growth over the next 3-6 years

2012 Mercury Computer Systems, Inc.

2012 Mercury Computer Systems, Inc.

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.

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.

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

2012 Mercury Computer Systems, Inc.

Financial Overview

2012 Mercury Computer Systems, Inc.

2012 Mercury Computer Systems, Inc.

Defense revenue growth accelerating

Defense: 13% CAGR FY07-11

Notes:

•

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

FY07-10 figures adjusted for discontinued operations.

2012 Mercury Computer Systems, Inc.

Profitability restored and improving

Notes:

•

(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

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.

2012 Mercury Computer Systems, Inc.

Adjusted EBITDA at pro forma target

Notes:

•

12%

15%

18%

21%

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.

•

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

-20

-10

FY07

FY08

FY09

FY10

FY11

LTM

Free

Cash

Flow

($M)

Operating

cash

flow

Capital

expenditures

(5)

(4)

(7)

(9)

(10)

(8)

(18)

(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.

•

$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.

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%

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.

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

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