Mercury Systems Books $660 Million in Fiscal Q4 but Margins Slip; Shares Close Lower

by Priya Raghunathan · August 19, 2026

Mid-Cap Companies Reporter, The SmallCap Signal

Mercury Systems (Nasdaq: MRCY) told investors on Tuesday evening that it had just finished what it called the best bookings quarter in its history. On Wednesday, the market spent the session arguing about whether that mattered more than the margin line, and the margin line won on points. Shares of the Andover, Massachusetts-based defense electronics supplier closed the Aug. 19 session at $101.25, down $3.75 or 3.6% from Tuesday's close of $105.00, according to market data compiled by StockAnalysis, after trading materially lower earlier in the day and in extended trading the night before.

The numbers behind the argument come from the company's fiscal fourth-quarter and full-year fiscal 2026 results, released Aug. 18. Mercury's fiscal year ended July 3, 2026. Fourth-quarter revenue was $289.8 million, up from $273.1 million in the year-earlier quarter. Bookings in the quarter were $660 million, producing a book-to-bill ratio of 2.28 — meaning Mercury signed more than two dollars of new orders for every dollar it recognized as revenue. Total backlog stood at $1.9 billion as of July 3, 2026.

The profitability picture ran the other way. On a GAAP basis, fourth-quarter net income was $0.8 million ($798,000 as reported), or $0.01 per diluted share, against $16.4 million and $0.27 per diluted share a year earlier. Adjusted earnings per share, a non-GAAP measure, came in at $0.37 versus $0.47 in the prior-year quarter. Adjusted EBITDA, also non-GAAP, was $48.5 million against $51.3 million, a margin of 16.7% versus 18.8%. Mercury does not print a gross margin percentage in the release; on the reported figures, gross profit of $88.6 million on $289.8 million of revenue works out to 30.6%, against 31.0% a year earlier.

That combination — a large revenue beat paired with a slight adjusted EPS shortfall — is what set up Wednesday's reaction. Benzinga's coverage of the release put the analyst consensus at $266.40 million in revenue and $0.38 in adjusted EPS; StockStory's tally of the same quarter put consensus revenue at $265.4 million and consensus adjusted EPS at $0.38 as well. Neither publisher identifies whose estimates it is aggregating or on what basis. On both tallies, Mercury cleared the top line by a wide margin and came in a penny under on adjusted EPS.

For the full fiscal year, revenue was $983.6 million against $912.0 million in fiscal 2025. Mercury still recorded a GAAP net loss of $29.7 million, or $0.50 per diluted share, though that was narrower than the prior year's $37.9 million loss and $0.65 per-share deficit. Adjusted EPS for fiscal 2026 was $1.06, compared with a negative $0.64 in fiscal 2025, and adjusted EBITDA rose to $150.2 million from $119.4 million. Full-year gross margin was 28.6% against 27.9%.

Cash generation was the other soft spot. Fourth-quarter operating cash flow improved to $42.2 million from $38.1 million, but free cash flow — a non-GAAP figure — slipped to $28.6 million from $34.0 million. For the year the gap was wider: operating cash flow of $102.4 million against $138.9 million in fiscal 2025, and free cash flow of $68.1 million versus $119.0 million. A company converting a rapidly growing backlog into product generally has to fund working capital first, and Mercury's fiscal 2026 cash statement shows exactly that shape.

Chief Executive Bill Ballhaus framed the quarter around the order book. "We delivered fourth quarter fiscal 2026 results that were ahead of our expectations, with record bookings, record backlog, record revenue, the highest EBITDA margin of the year, and robust free cash flow," he said in the Aug. 18 release. In the same statement he said the company was entering fiscal 2027 "with enhanced visibility" and was "increasing our outlook for organic growth" — without attaching a number to that sentence in the body of the announcement itself.

The specifics arrived in the accompanying presentation and on the earnings call. According to Investing.com's summary of the fiscal fourth-quarter slide deck, Mercury guided fiscal 2027 revenue to approach $1.1 billion and adjusted EBITDA to roughly $200 million, with adjusted EBITDA margin in the high teens. Benzinga reported that management raised its organic revenue growth target to low double digits and flagged that fiscal first-quarter growth would be in the high single digits year over year — the slowest quarter of the coming year.

The free cash flow guidance is the piece most worth reading twice. Investing.com's account of the deck has management forecasting full-year fiscal 2027 free cash flow conversion approaching 35%, below the company's stated 50% target, with a larger-than-normal outflow in the fiscal first quarter tied to material receipts supporting growth. In other words, Mercury is telling holders that the cash cost of growing into the backlog lands before the cash benefit does.

Management's explanation for the margin compression, as relayed in the same materials, is a mix story rather than a pricing story: older, lower-margin backlog is still working its way through the factory, while newer bookings are being written in line with target margins. Investing.com's account of the deck describes Mercury's stated long-term adjusted EBITDA margin target as low-to-mid 20%, but does not attach a margin range to the legacy backlog or to new orders specifically. That is a thesis about the future shape of the order book, and it is not verifiable from a single quarter's income statement. Fourth-quarter adjusted EBITDA margin of 16.7%, down from 18.8% a year earlier, is what the quarter actually produced.

There is real execution risk embedded in that bridge. Mercury has now posted GAAP net losses in each of the last two fiscal years, and the fiscal 2027 plan depends on burning through legacy contracts at depressed margins while simultaneously scaling output — the same operational pattern that produced the company's earlier profitability problems. A backlog of $1.9 billion is only as good as the margin at which it converts.

Mercury's market capitalization stood at roughly $6.09 billion at Wednesday's close on 60.14 million shares outstanding, according to StockAnalysis, placing it in the middle of the mid-cap defense supply chain. The stock's 52-week range runs from $62.78 to $128.45, a spread that captures how much of the equity's value has been riding on the margin recovery narrative rather than on revenue.

The next checkpoint is the fiscal first quarter, which management has already characterized as the year's weakest on both growth and cash. If the low-margin backlog theory is right, the improvement should be visible in the adjusted EBITDA margin line before it shows up anywhere else.