Mercury Systems Inc
NASDAQ:MRCY
Mercury Systems Inc
Mercury Systems Inc., headquartered in Andover, Massachusetts, operates within the intricate world of defense and aerospace technology—domains where precision and reliability are paramount. Founded in 1981, the company navigated its journey through the rapidly evolving technological landscape by focusing on the integration of commercially available electronics into sophisticated defense systems. Mercury Systems is a pioneer in developing high-performance, secure processing technologies that address the needs of aerospace and defense clients. By bridging cutting-edge commercial electronics and the highly specialized requirements of defense applications, Mercury helps its clients reduce development costs and accelerate time-to-market, which are critical in the defense sector.
The company makes money primarily through the design and delivery of embedded, sensor, and safety-critical mission computing solutions. Its revenue streams are fueled by a robust portfolio of products and solutions that cater to enhancing radar, electronic warfare, and missile systems, among other defense applications. Mercury’s business model relies heavily on its ability to innovate, maintain close ties with key military and aerospace stakeholders, and provide solutions that are not only cost-effective but also resistant to obsolescence. This strategic approach allows Mercury Systems to remain an essential supplier to top defense contractors and government entities, ensuring steady financial performance amid the complexities of the modern geopolitical landscape.
Mercury Systems Inc., headquartered in Andover, Massachusetts, operates within the intricate world of defense and aerospace technology—domains where precision and reliability are paramount. Founded in 1981, the company navigated its journey through the rapidly evolving technological landscape by focusing on the integration of commercially available electronics into sophisticated defense systems. Mercury Systems is a pioneer in developing high-performance, secure processing technologies that address the needs of aerospace and defense clients. By bridging cutting-edge commercial electronics and the highly specialized requirements of defense applications, Mercury helps its clients reduce development costs and accelerate time-to-market, which are critical in the defense sector.
The company makes money primarily through the design and delivery of embedded, sensor, and safety-critical mission computing solutions. Its revenue streams are fueled by a robust portfolio of products and solutions that cater to enhancing radar, electronic warfare, and missile systems, among other defense applications. Mercury’s business model relies heavily on its ability to innovate, maintain close ties with key military and aerospace stakeholders, and provide solutions that are not only cost-effective but also resistant to obsolescence. This strategic approach allows Mercury Systems to remain an essential supplier to top defense contractors and government entities, ensuring steady financial performance amid the complexities of the modern geopolitical landscape.
Q2 Outperformance: Mercury Systems delivered second quarter results ahead of expectations, with revenue, adjusted EBITDA, and free cash flow all exceeding forecasts.
Backlog Growth: Backlog reached a record high, approaching $1.5 billion, up 8.8% year-over-year, supported by strong bookings and a book-to-bill ratio of 1.23.
Margin Expansion: Adjusted EBITDA margin improved by 300 basis points to 12.9% year-over-year, despite lower gross margin due to burning off low-margin backlog.
Positive Free Cash Flow: Free cash flow was $46 million for the quarter, well ahead of expectations, aided by significant reduction in net working capital.
Guidance Maintained: Full-year fiscal 2026 guidance remains unchanged, with low single-digit revenue growth expected and free cash flow still anticipated to be positive.
Margin Outlook: Q3 is expected to see lower revenue and margins due to timing of pull-forward deliveries, but Q4 is set to be the highest margin quarter of the year.
Operational Improvements: Ongoing facility automation, site consolidation, and cost controls continue to drive efficiency and margin gains.
Potential Upside: Management sees possible future tailwinds from increased U.S. and global defense spending, including programs like Golden Dome.
