Mercury Systems (NASDAQ: MRCY) reported record bookings and revenue for the fourth quarter of fiscal 2026, though margin pressure and a miss on adjusted earnings per share drove a sharp decline in its stock price.
The defense electronics and mission systems provider posted quarterly revenue of $290 million, exceeding analyst expectations by 9.2%. Bookings surged 93.1% year-over-year to a record $660 million, nearly doubling the previous high, while the book-to-bill ratio reached 2.28. Total backlog expanded 38.4% to over $1.9 billion, with the next-12-month backlog totaling $1 billion.
Adjusted EBITDA for the quarter fell to $49 million, translating to a 16.7% margin—down from 18.8% in the prior year period. Free cash flow was $29 million, while net debt decreased 19.5% year-over-year to $227 million. Adjusted earnings per share came in at $0.37, missing the $0.39 consensus estimate.
For the full fiscal year 2026, organic revenue grew 7.9% to $984 million. Adjusted EBITDA rose 25.7% to $150 million, with the margin improving by 217 basis points to 15.3%. Gross margin edged up 70 basis points to 28.6%, though free cash flow declined 43% to $68 million. Free cash flow conversion dropped to 45.3% of adjusted EBITDA from 99.7% in fiscal 2025. Domestic revenue accounted for 85.8% of total sales, growing 13% organically, while international revenue declined approximately 15%.
Chairman and CEO Bill Ballhaus highlighted the company’s strategic partnership with Palantir, stating it aims to "improve backlog conversion and deliver critical technologies to the warfighter."
Forward guidance for fiscal 2027 projects revenue approaching double digits year-over-year, near $1.1 billion, with adjusted EBITDA nearing $200 million and margins in the high-teens. Free cash flow conversion is expected to fall below 50%, approaching 35%, with Q1 likely to show a larger outflow than usual. Fiscal 2027 Q1 revenue is projected to rise in the high single digits year-over-year, while adjusted EBITDA margins are expected to align with the year-ago quarter. Initial fiscal 2028 targets include low double-digit organic growth, adjusted EBITDA margins near the low end of the target range, and a return toward a 50% free cash flow conversion rate.
Mercury Systems’ shares fell 7.4% to $105 in regular trading and dropped an additional 10.6% in after-hours trading, bringing the total decline to 17.1% from the prior day’s close of $113.36. The stock had delivered 57% returns over the past year and traded near its 52-week high of $128.45.
