Mercury Systems, Inc.

Q3 FY26 revenue was $235.8 million, up 11.5% organically year over year. GAAP net loss was about $3 million, or $0.04 per share, versus a $19 million loss, or $0.33 per share, a year ago. Adjusted EBITDA was $36.1 million, up 46.2% year over year, with adjusted EBITDA margin of 15.3%, up 360 bps. Gross margin was 29.3%, up 230 bps year over year. Bookings were $348.3 million with a 1.48 book-to-bill, and backlog was nearly $1.6 billion, up $240 million or 17.9% year over year. Free cash flow was an outflow of $1.8 million, and cash on hand was $332 million. For FY26, management raised revenue growth expectations to approaching mid-single digits from low single digits, expects full-year adjusted EBITDA margin in the mid-teens, and expects free cash flow to be positive in Q4.

Bill Ballhaus framed the quarter as evidence that Mercury is transitioning from a development-heavy mix toward higher-rate production, which is improving both growth and margin profile. He repeatedly emphasized strong demand signals, better backlog conversion, and a more predictable business after efforts to stage material earlier and pull supply-chain timing forward. His tone was upbeat but measured: he said the company is making meaningful progress toward its long-term target profile, while also seeing potential upside from defense-budget tailwinds and priorities like Golden Dome.

Dave Farnsworth highlighted continued operating leverage, with operating expenses down about $11 million, or 14.3%, year over year due mainly to lower restructuring and other charges, SG&A, and R&D. He said gross margin improved because of lower net EAC change impacts of nearly $2 million and lower net manufacturing adjustments of about $4 million, partly offset by about $3 million of higher inventory reserves. He also pointed to balance-sheet improvement: cash and cash equivalents of $332 million, net working capital of about $434.4 million down $18.7 million year over year, net debt of $259.7 million, and a $150 million revolver payment in the fourth quarter. He noted free cash flow was a slight outflow in Q3, but the company still expects positive free cash flow for the year and in Q4.

Analysts focused on whether Q4 margins would step up as usual, and management said the business is now seeing a smoother revenue/margin progression rather than the larger seasonal jump seen in prior years. They also asked about strong bookings by program area; management declined to size individual missile exposure but said demand is broad-based across missiles, C4I, space, radar, and sensors, with no single program above 10% of sales. On receivables and working capital, management said modest unbilled-receivable movement was mostly timing and ramp-related, not a change in demand, and reiterated that they are burning down older balances while supporting new production ramps. Questions on IBAS, Golden Dome, and LTAMDS were met with comments that these and other defense priorities could be additive tailwinds, but none are yet reflected in bookings or the outlook.