Mercury Systems (MRCY) Q1 2026 earnings summary

Executive summary

• Q1 FY26 revenue reached $225.2 million, up 10.2% year-over-year, with adjusted EBITDA of $35.6 million and margin of 15.8%, a 530 bps increase year-over-year.

• Bookings totaled $250.2 million, resulting in a record backlog of $1.4 billion and a book-to-bill ratio of 1.11.

• Free cash outflow improved to $4.4 million, a $16.5 million year-over-year improvement, with $304.7 million in cash on hand at quarter end.

• Net loss narrowed to $12.5 million from $17.5 million in the prior year quarter, with adjusted EPS improving to $0.26 from $0.04.

• Continued focus on performance excellence, organic growth, margin expansion, and free cash flow improvement.

Financial highlights

• Gross margin improved to 27.9%, up 260 bps year-over-year, driven by favorable mix and lower manufacturing adjustments.

• Operating expenses increased to $71.5 million, mainly due to higher compensation and litigation costs.

• Research and development expenses decreased by $5.2 million due to headcount reductions and lower outside service costs.

• Adjusted EBITDA margin reached 15.8%, up 530 bps year-over-year.

• Free cash flow was $(4.4) million, improving by $16.5 million year-over-year.

Outlook and guidance

• Full-year FY26 revenue growth expected in low single digits; first half flat, second half increasing sequentially.

• Full-year adjusted EBITDA margin projected to approach mid-teens, with Q4 margins highest.

• Free cash flow expected to be positive for FY26, with stronger generation in the second half.

• Guidance excludes further acceleration of deliveries or upside from potential defense budget tailwinds.

• Management expects continued volatility in the federal contracting environment due to the ongoing U.S. government shutdown.