Mercury Systems (MRCY) Q2 2025 earnings summary

Executive summary

• Q2 FY25 revenue increased 13% year-over-year to $223.1M, with bookings of $242.4M and a record backlog of $1.4B.

• Adjusted EBITDA reached $22.0M (9.9% margin), a turnaround from prior year losses, and free cash flow hit a record $81.9M, up $44M year-over-year.

• GAAP net loss narrowed to $17.6M from $45.6M year-over-year; adjusted EPS improved to $0.07 from $(0.42).

• Operational improvements included reduced operating expenses, improved program execution, and a shift toward production contracts.

• Net working capital reduced by $115M year-over-year, supporting robust free cash flow.

Financial highlights

• Q2 FY25 revenue: $223.1M, up $25.7M or 13% year-over-year, driven by $29M in accelerated point-in-time revenue.

• Bookings of $242.4M, book-to-bill ratio of 1.09 for the quarter and 1.12 trailing twelve months.

• Gross margin increased to 27.3% (up 1,130 bps) from 16% year-over-year, due to lower EAC change impacts and inventory reserves.

• Free cash flow was $81.9M, up from $37.5M year-over-year; operating cash flow reached $85.5M.

• Cash and equivalents at $242.6M; net debt at $349M, lowest since Q2 FY22.

Outlook and guidance

• FY25 revenue growth now expected to approach mid-single digits, revised up from prior flat guidance, due to accelerated deliveries.

• Adjusted EBITDA margins for FY25 expected in low double digits, with Q4 margins at the highest level.

• Free cash flow expected to be around break-even in the second half, after strong first-half performance.

• Long-term targets remain above-market top-line growth, adjusted EBITDA margins in low- to mid-20% range, and 50% free cash flow conversion.

• Management believes liquidity is sufficient for at least the next twelve months, supported by cash, revolver, and operating cash flow.