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MERCURY SYSTEMS INC (MRCY) Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 delivered record bookings of $341.5M (book-to-bill 1.25), record backlog of $1.40B, revenue of $273.1M, GAAP diluted EPS of $0.27, adjusted EPS of $0.47, and adjusted EBITDA of $51.3M; gross margin reached 31.0% and free cash flow was $34.0M .
  • Results materially beat Wall Street consensus: revenue by ~$28.7M, adjusted EPS by ~$0.25, and adjusted EBITDA by $16.7M, underpinned by accelerated customer deliveries ($30M revenue, ~$15M adjusted EBITDA) *.
  • Management reiterated margin expansion and cash conversion priorities; FY26 color: low-single-digit revenue growth, adjusted EBITDA margin approaching mid-teens, positive free cash flow, first half relatively flat with margin inflecting in H2 and strongest in Q4 .
  • Near-term catalysts: backlog mix improvement, continued acceleration of deliveries, CPA wins and international production agreements, plus potential tailwinds from “Golden Dome” priorities, though not embedded in FY26 commentary yet .

What Went Well and What Went Wrong

What Went Well

  • Record Q4 bookings ($341.5M) and record backlog ($1.40B), with 12‑month backlog at $807.8M; book-to-bill 1.25 demonstrates healthy demand and conversion .
  • Margin and cash improvements: adjusted EBITDA margin 18.8% (up >700 bps QoQ), gross margin 31% (+160 bps YoY), free cash flow $34.0M; Q4 adjusted EPS $0.47 versus $0.23 prior year .
  • Management execution quote: “Focus on accelerating customer deliveries generated approximately $30M of revenue and approximately $15M of adjusted EBITDA planned for FY26,” driving top-line and margin upside in Q4 .

What Went Wrong

  • Operating cash flow down YoY (Q4: $38.1M vs $71.8M), and free cash flow down YoY (Q4: $33.98M vs $61.41M), as timing effects reversed exceptionally strong prior-year cash generation .
  • Continued drag from older, lower-margin backlog; management expects margins to progress over “several quarters” as mix improves, not a binary step-up .
  • Revenue timing: accelerated deliveries pulled ~$30M from FY26 into Q4 FY25, creating a first-half FY26 headwind and implying a relatively flat H1 before improvement in H2 .

Financial Results

MetricQ4 2024Q2 2025Q3 2025Q4 2025
Revenue ($USD Millions)$248.6 $223.1 $211.4 $273.1
GAAP Net Income ($USD Millions)$(10.8) $(17.6) $(19.2) $16.4
GAAP Diluted EPS ($USD)$(0.19) $(0.30) $(0.33) $0.27
Adjusted EPS ($USD)$0.23 $0.07 $0.06 $0.47
Gross Margin (%)29.5% 27.3% 27.0% 31.0%
Adjusted EBITDA ($USD Millions)$31.2 $22.0 $24.7 $51.3
Adjusted EBITDA Margin (%)12.5% 9.9% 11.7% 18.8%
Operating Cash Flow ($USD Millions)$71.8 $85.5 $30.0 $38.1
Free Cash Flow ($USD Millions)$61.4 $81.9 $24.1 $34.0

KPIs and Order Book

KPIQ4 2024Q2 2025Q3 2025Q4 2025
Bookings ($USD Millions)$284.4 $242.4 $200.4 $341.5
Book-to-Bill (x)1.14 1.09 0.95 1.25
Backlog ($USD Millions)$1,325.7 $1,354.9 $1,340.9 $1,404.9
12-Month Backlog ($USD Millions)$758.9 $789.9 $787.6 $807.8
Cash and Cash Equivalents ($USD Millions)$180.5 $242.6 $269.8 $309.1
Net Debt ($USD Millions)—$349 $322 $282

Comparison vs S&P Global Consensus

MetricQ3 2025 ConsensusQ3 2025 ActualQ4 2025 ConsensusQ4 2025 Actual
Revenue ($USD Millions)$204.25M*$211.36M $244.45M*$273.11M
Primary EPS ($USD)$0.0706*$0.06 $0.2244*$0.47
EBITDA ($USD Millions)$23.05M*$24.69M $34.54M*$51.27M

Values retrieved from S&P Global*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/OutcomeChange
Adjusted EBITDA Margin (%)Q4 FY25“Approaching mid-teens” 18.8% actual Raised vs prior commentary (outperformed)
Free Cash Flow ($USD)Q4 FY25“Around breakeven” $34.0M actual Raised vs prior commentary (outperformed)
Revenue Growth (YoY)FY25“Approaching mid-single digits” 9.2% actual (Revenue $912.0M vs $835.3M) Above prior commentary
Revenue Growth (YoY)FY26Not provided previouslyLow single-digits; H1 relatively flat, H2 up; Q4 margin highest New color provided
Adjusted EBITDA Margin (%)FY26Not provided previouslyApproaching mid-teens (low double-digit H1, expand in H2) New color provided
Free Cash FlowFY26Not provided previouslyPositive; H2 > H1 New color provided

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY25, Q3 FY25)Current Period (Q4 FY25)Trend
Accelerated deliveries~$30M pulled into Q2; focus on just-in-time materials and milestone billing ~$30M revenue and ~$15M adjusted EBITDA pulled from FY26 into Q4 Continues; execution muscle strengthening
Backlog margin mixBookings accretive; margins to progress gradually; Q4 margins “approaching mid-teens” Gross margin 31% (+160 bps YoY), adjusted EBITDA margin 18.8%; backlog margin improving Improving mix; margin expansion ahead
CPA (Common Processing Architecture)Ramp of CPA production; competitive take-away due to security requirements $36.9M CPA radar awards; margin-supportive bookings Expansion; supports margin targets
Free cash flow and working capitalRecord FCF in Q2 ($81.9M); net working capital down; target ~35–40% of revenue over time Q4 FCF $34.0M; net debt down to $282M; continued allocation of capacity to unbilled programs to drive FCF Sustained focus; balance sheet strengthening
International demandEuropean production agreements for radar/EW (HDS6605 boards, MMICs) Continued international engagements; early Q4 wins highlighted Positive; capacity and agreements expanding
Golden Dome & policy tailwindsNoted as potential; not embedded in guidance Positive tailwinds; footprint aligns to layers; timing TBD, excluded from FY26 outlook Potential upside; watch bookings
Tariffs/macroManaging supply chain and costs; milestone invoicing building deferred No material tariff impact in FY25; exclusions cover BOM; sourcing okay Neutral; monitoring

Management Commentary

  • CEO: “Record quarterly bookings of $342M and a 1.25 book to bill resulting in a record backlog of $1,400M… Q4 revenue of $273M… Q4 adjusted EBITDA of $51M…and free cash flow of $34M… We ended Q4 with $309M of cash on hand.” .
  • CEO on execution: “Focus on accelerating customer deliveries generated approximately $30M of revenue and approximately $15M of adjusted EBITDA planned for FY26.” .
  • CFO on margin drivers: “Gross margin for the fourth quarter increased approximately 160 basis points to 31%… driven by favorable program mix and a reduction in net EAC change impacts… Operating expenses decreased ~25% YoY.” .
  • CEO on FY26 outlook: “Annual revenue growth of low single digits… adjusted EBITDA margin approaching mid teens… free cash flow positive… first half relatively flat, then expanding in the second half with Q4 margin highest.” .

Q&A Highlights

  • Capacity allocation to unbilled programs: Management expects the headwind to diminish through FY26; benefit is primarily free cash flow, not revenue, due to prior revenue recognition on those programs .
  • Working capital normalization: Target ~35% of revenue longer term (from ~49% currently), supporting recurring ~50% FCF conversion from EBITDA over time .
  • Bookings and margin trajectory: CPA awards ($36.9M) and backlog margin accretion underpin the path to low-to-mid 20% adjusted EBITDA margins over several quarters, not in one step .
  • Revenue pacing FY26: First half relatively flat given Q4 pull-forward; improvement into H2; Q4 FY26 margin expected highest .
  • Golden Dome: Potential acceleration/increased quantities on existing systems aligned to architecture layers; timing TBD and excluded from FY26 color .
  • Tariffs: No material FY25 impact; exclusions mitigate BOM exposure; sourcing stable .

Estimates Context

  • Q4 FY25 beats: Revenue $273.1M vs $244.5M consensus; adjusted EPS $0.47 vs $0.224 consensus; adjusted EBITDA $51.3M vs $34.5M consensus, reflecting accelerated deliveries and favorable mix *.
  • Q3 FY25: Revenue beat ($211.4M vs $204.3M), EPS slightly below ($0.06 vs $0.071), EBITDA above ($24.7M vs $23.0M), consistent with progressive margin improvement *.
  • Coverage breadth: # of estimates for Q4 FY25—Revenue (7), EPS (8); for Q3 FY25—Revenue (8), EPS (7) [GetEstimates]*.

Values retrieved from S&P Global*

Key Takeaways for Investors

  • Clear beat-and-raise quarter on execution: Revenue, adjusted EPS, and adjusted EBITDA materially beat consensus; margin and cash trends are improving, supported by backlog mix and accelerated deliveries *.
  • Watch the H1 FY26 digestion: ~$30M of Q4 pull-forward creates a flat H1 setup before H2 margin and volume improvement; positioning into Q4 FY26 strongest margins .
  • Margin path intact: Backlog accretion, CPA wins, streamlined OpEx, and lower EAC impacts underpin progression toward low-to-mid 20% adjusted EBITDA over several quarters .
  • Cash engine strengthening: Ongoing working capital reduction (toward ~35–40% of revenue) and capacity allocation to unbilled programs support sustained FCF, with net debt down to $282M .
  • Upside optionality: European production agreements and potential Golden Dome quantity accelerations are not in FY26 color; incremental bookings could catalyze narrative and estimates .
  • Risk checks: Older low-margin backlog still burns in FY26; cash timing remains lumpy; but EAC impacts declining and milestone billing building deferred revenue provide offsets .
  • Trading implication: Near-term momentum from estimate beats and margin expansion; monitor bookings cadence, H2 margin trajectory, and any Golden Dome-driven awards as potential re-rating events .

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