Mercury Systems, Inc.

Q4 FY26 bookings were approximately $660 million, up 93.1% year over year, with a book-to-bill of 2.28. Record backlog was over $1.9 billion, up $540 million or 38.4% year over year. Q4 revenue was nearly $290 million, up approximately $17 million or 6.1% organically. Q4 gross margin was 30.6% versus 31.0% last year; adjusted EBITDA was approximately $49 million versus $51 million, with margin of 16.7% versus 18.8%; adjusted EPS was $0.37 versus $0.47; and free cash flow was approximately $29 million versus $34 million. For FY26, bookings were approximately $1.5 billion, revenue was $984 million, gross margin was 28.6% versus 27.9%, adjusted EBITDA was $150 million versus $119 million, adjusted EPS was $1.06 versus $0.64, and free cash flow was approximately $68 million versus $119 million. Management expects FY27 revenue growth approaching double digits with total revenue approaching $1.1 billion, adjusted EBITDA approaching $200 million, and adjusted EBITDA margin in the high teens. Q1 FY27 revenue is expected to be the lowest of the year and up high single digits year over year, while FY27 free cash flow conversion is expected to approach 35% and be below the company’s 50% target.

Bill Ballhaus emphasized that Mercury is entering FY27 with record bookings, record backlog, and enhanced multiyear visibility, which is supporting a higher organic growth outlook. He said the business is progressing through lower-margin backlog early in FY27 and expects margins to improve through the year toward the company’s target profile, while also citing opportunities from defense budget tailwinds, CPA growth, and the Palantir AI partnership. His tone was upbeat and confident, but he repeatedly noted that many of the cited tailwinds are not yet included in guidance.

David Farnsworth highlighted the quarter’s hard numbers: Q4 gross margin of 30.6%, adjusted EBITDA of $49 million, adjusted EPS of $0.37, and free cash flow of $29 million. For FY26, he pointed to gross margin of 28.6%, adjusted EBITDA margin of 15.3%, adjusted EBITDA of $150 million, and free cash flow of $68 million, along with cash and cash equivalents of $214 million at year-end. He also noted net working capital of approximately $431 million, down $18 million year over year, and said capital spending is expected to be flat as the company invests in automation, footprint optimization, and inventory to support growth.

Analysts focused on how FY27 margin expansion will unfold, and management said it is mainly a function of backlog margin improving as lower-margin work rolls off and new bookings come in closer to target margins. They also asked about the larger FY27 revenue outlook, and management said it reflects broad-based demand and backlog visibility rather than a single framework or UCA agreement, with very little of the potential defense tailwinds embedded in guidance. Questions on Palantir, working capital, and CapEx led management to say the partnership is early but could help revenue, margins, and cash conversion, while CapEx should be flat and working capital investment may rise to support delivery timing and supply-chain flexibility.