Mercury Systems’ fourth quarter results were met with a negative market reaction, despite the company surpassing Wall Street’s expectations on both revenue and non-GAAP profit. Management attributed the outperformance to accelerated customer deliveries and robust booking activity, including significant franchise program extensions and new design wins in key growth markets. CEO William L. Ballhaus highlighted that operational execution, particularly in accelerating hardware shipments and improving working capital, played a central role in achieving record first-half revenue. Management also acknowledged that much of the quarter’s growth was influenced by pulling forward deliveries initially planned for later periods, which impacted both top-line results and near-term margin dynamics.
Is now the time to buy MRCY? Find out in our full research report (it’s free for active Edge members).
Mercury Systems (MRCY) Q4 CY2025 Highlights:
- Revenue: $232.9 million vs analyst estimates of $210.9 million (4.4% year-on-year growth, 10.4% beat)
- Adjusted EPS: $0.16 vs analyst estimates of $0.06 (significant beat)
- Adjusted EBITDA: $30.02 million vs analyst estimates of $21.25 million (12.9% margin, 41.2% beat)
- Operating Margin: -4.6%, in line with the same quarter last year
- Backlog: $1.5 billion at quarter end, up 7.1% year on year
- Organic Revenue rose 3.9% year on year (beat)
- Market Capitalization: $5.12 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Mercury Systems’s Q4 Earnings Call
- Peter Arment (Baird): Asked about the timeline for burning off low-margin backlog. CEO William L. Ballhaus explained that while some low-margin backlog will persist through 2027, its impact diminishes each quarter as new, higher-margin bookings replace it.
- Kenneth George Herbert (RBC): Questioned why guidance was not raised despite consistent outperformance. Ballhaus replied that the ability to accelerate deliveries depends on supply chain material availability, making it difficult to confidently project further upside into future quarters.
- Kyle Walters (Jefferies): Inquired about the persistence of net EAC (Estimate at Completion) adjustments and their effect on margins. CFO David E. Farnsworth said these are now at normal levels and will decline as older programs finish.
- Michael Ciarmoli (Truist): Sought clarity on the drag from allocating capacity to unbilled programs. Farnsworth acknowledged ongoing efforts to reduce net working capital but declined to quantify the revenue impact of these allocations.
- Noah Poponak (Goldman Sachs): Asked about the international revenue mix and margin outlook. Farnsworth estimated international revenue at about 15% of the total and pointed to continued cost reduction and operational leverage as key drivers for margin expansion.
Catalysts in Upcoming Quarters
Going forward, the StockStory team will be monitoring (1) Mercury Systems’ pace of converting low-margin backlog and replacing it with higher-margin bookings, (2) the ramp-up of new production capacity for common processing architecture programs, and (3) the realization of potential upside from increased U.S. and international defense budgets, especially large program awards like Golden Dome. Progress in reducing working capital and executing facility consolidations will also be key areas to watch.
Mercury Systems currently trades at $85.30, down from $99.28 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
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