Q4 2026 Mercury Systems Inc Earnings Call Transcript
Key Points
- Record bookings of $660 million in Q4, up 93.1% year-over-year, and record backlog of over $1.9 billion, providing enhanced visibility.
- Record revenue of $290 million in Q4, with organic growth of 7.9% for the full year, driven by strong execution and supply chain alignment.
- Adjusted EBITDA margin expanded by 217 basis points year-over-year to 15.3%, with expectations for continued improvement.
- Free cash flow of $68 million for the year, leading to a 19.5% reduction in net debt, demonstrating improved working capital management.
- Increased FY27 organic growth outlook to approaching double-digits, with a target of low double-digits for FY28, reflecting strong demand signals.
- Strategic partnership with Palantir to leverage AI for improving material planning and factory operations, potentially enhancing backlog conversion and margins.
- International revenue declined approximately 15% year-over-year due to temporary slowdowns in deliveries from a contract manufacturer ramp-up.
- Q4 gross margin decreased to 30.6% from 31.0% in the prior year, impacted by program mix and higher net EAC changes.
- FY27 free cash flow conversion is expected to be below the 50% target at approximately 35%, with Q1 anticipated to be a larger outflow due to inventory investments.
- Operating expenses increased $13 million in Q4, driven by higher compensation and R&D costs, partially offsetting margin gains.
- GAAP net loss for FY26 was $30 million, though improved from the prior year, reflecting ongoing profitability challenges.
- The outlook does not incorporate potential tailwinds from increased defense budgets or multi-year agreements, which could be delayed or not materialize.
Good day, everyone, and welcome to the Mercury Systems fourth-quarter fiscal 2026 conference call. Today's call is being recorded.
At this time, for opening remarks and introductions, I'd like to turn the call over to the company's Vice President of Investor Relations, Tyler Hocho. Please go ahead, Mr. Hocho.
Good afternoon and thank you for joining us. With me today is our Chairman and Chief Executive Officer, Bill Bolhaus. And our Executive Vice President and CFO, Dave Farnsworth.
If you have not received a copy of the earnings press release we issued earlier this afternoon, you can find it on our website at mrcy.com. The slide presentation that we will be referencing to is posted on the investor relations section of the website under events and presentations.
Turning to slide 2 in the presentation, I'd like to remind you that today's presentation includes forward-looking statements. Including information regarding Mercury's financial outlook, future plans,
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