Mercury Systems Q4 Earnings in Line, Revenues Top on Bookings

MRCY's Orders Strengthen Future Visibility

The fourth-quarter booking performance was broad-based across common processing architecture, effectors, airborne applications, space and missile defense. MRCY also posted its largest quarter ever for common processing architecture bookings, reflecting stronger activity as programs move toward production.

The company also secured a significant multiyear booking related to memory requirements for advanced defense platforms. Management said the customer is seeking to secure supply early, reflecting demand tied to future production needs.

Mercury Systems Expands Production Momentum

Revenue growth was driven by higher activity across the portfolio and increased production volumes. Overtime revenues rose 23.6% year over year, reaching its highest level in 15 quarters, with management linking the increase largely to improved material availability.

Domestic revenues, which represented approximately 85.8% of fiscal 2026 revenues, grew 13% organically year over year. Mercury Systems is also expanding capacity, automation and factory operations to support programs transitioning to higher-volume production.

MRCY's Margins Reflect Program Mix

Gross margin was 30.6%, down from 31% in the prior-year quarter. Management attributed the pressure primarily to program mix and approximately $4 million of higher net estimated-at-completion change impacts.

Operating expenses increased approximately $13 million year over year. Selling, general and administrative expenses rose about $10 million, while research and development costs increased roughly $4 million, with compensation-related costs, including stock-based compensation, driving much of the increase.

Adjusted EBITDA was $48.52 million, down from $51.27 million a year earlier, while adjusted EBITDA margin contracted to 16.7% from 18.8%. The company expects margins to improve as lower-margin legacy backlog is converted and newer bookings carry margins closer to its target profile.

Mercury Systems Advances Automation Efforts

MRCY is pursuing factory optimization initiatives to improve scalability and execution as production volumes rise. These efforts include capacity expansion, increased automation and consolidation of subscale sites.

Mercury Systems also entered a strategic agreement with Palantir to use artificial intelligence software for material planning and factory operations. Management expects the effort to help improve backlog conversion and delivery performance, although the fiscal 2027 outlook excludes any benefit from the partnership.

Mercury Systems Improves Its Balance Sheet

Cash flows from operating activities increased 10.7% year over year to $42.15 million, while free cash flow declined 15.9% to $28.57 million. 

MRCY ended the fourth quarter with $214.31 million in cash and cash equivalents, down from $331.8 million in the third quarter. Long-term debt declined to $441.5 million from $591.5 million after the company made a $150 million payment against its revolving credit facility.

MRCY Sets Higher Fiscal 2027 Targets

For fiscal 2027, MRCY expects revenues to approach $1.1 billion, with growth approaching double digits year over year. Adjusted EBITDA is expected to approach $200 million, with the margin in the high teens. Fiscal first-quarter revenues are expected to grow at a high-single-digit rate year over year.

Zacks Rank & Stocks to Consider

MRCY currently carries a Zacks Rank #3 (Hold).

ATI Inc ATI, AAR AIR and Astronics ATRO are some better-ranked stocks that investors can consider in the broader Zacks Aerospace sector. 

ATI Inc, AAR and Astronics sport a Zacks Rank #1 (Strong Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of ATI Inc have surged 97.3% in the year-to-date period. The Zacks Consensus Estimate for ATI Inc’s 2026 EPS is pegged at $4.81 and indicating an improvement of 48.46% year over year.

Shares of AAR have surged 80% in the year-to-date period. The Zacks Consensus Estimate for AAR 2026 EPS is pegged at $5.92 and indicating an improvement of 17.23% year over year.

Shares of Astronic have surged 90.5% in the year-to-date period.The Zacks Consensus Estimate for Astronics 2026 EPS is pegged at $2.55 and indicating an improvement of 52.69% year over year.

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research