Mercury Systems Reports First Quarter Results
Profitability improved, but operating cash flow turned negative and free cash outflow widened to $24 million.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Summary
Mercury Systems (NASDAQ: MRCY) reported first-quarter fiscal 2027 revenue of approximately $253 million, up 12.4% from a year earlier. For the quarter ended October 2, 2026, bookings rose 48.0% to $370 million, with orders equal to 1.46 times revenue. Backlog approached $2.1 billion, up 44.7%; over $1.0 billion represents orders expected to become revenue within the next 12 months.
GAAP net income was $13.088 million, versus a $12.515 million loss; diluted earnings per share improved to $0.21 from a $0.21 loss. Adjusted EBITDA, an adjusted measure of earnings before interest, taxes, depreciation and amortization, rose 58.6% to $56 million, with a 22.3% margin. Operating cash outflow was $13.966 million, versus a $2.182 million inflow. Mercury raised its fiscal 2027 outlook. Dave Farnsworth added the chief operating officer title to his chief financial officer role.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Hollow bars mark forward-looking points. How the balance works
Positive
- Major point. Forward-looking: it has not happened yet and may not happen.Fiscal 2027 outlook raised by Mercury following its first-quarter results.
- Moderate pointRevenue rose 12.4% year over year to approximately $253 million in fiscal Q1 2027.
- Moderate pointBookings grew 48.0% year over year to $370 million; orders were 1.46 times revenue.
- Moderate pointBacklog approached $2.1 billion at October 2, 2026, up 44.7% year over year.
- Moderate pointGAAP net income reached $13.088 million, versus a $12.515 million loss in fiscal Q1 2026.
- Moderate pointAdjusted EBITDA grew 58.6% year over year to $56 million, with a 22.3% margin.
- Moderate pointGross profit increased to $89.188 million from $62.899 million in fiscal Q1 2026.
- Moderate pointOperating income reached $18.534 million, versus an $8.597 million loss in fiscal Q1 2026.
- Moderate pointLong-term debt fell to $341.5 million from $441.5 million at July 3, 2026.
10 minor points
- Minor point. Forward-looking: it has not happened yet and may not happen.Over $1.0 billion of backlog represents orders expected to become revenue within the next 12 months.
- Minor pointDiluted EPS reached $0.21, versus a $0.21 loss per share in fiscal Q1 2026.
- Minor pointAdjusted EPS increased to $0.52 from $0.26 in fiscal Q1 2026.
- Minor pointNet debt declined 19% year over year to $232 million.
- Minor pointSelling, general and administrative expense declined to $43.029 million from $45.906 million year over year.
- Minor pointIntangible amortization declined to $9.303 million from $10.259 million in fiscal Q1 2026.
- Minor pointAcquisition and related expenses declined to $0.253 million from $0.563 million year over year.
- Minor pointInterest expense declined to $5.406 million from $7.886 million in fiscal Q1 2026.
- Minor pointOther expense, net, declined to $1.147 million from $2.080 million in fiscal Q1 2026.
- Minor pointStock option exercises generated $19.848 million in cash during fiscal Q1 2027.
Negative
- Moderate pointOperating cash flow turned negative: $13.966 million outflow versus $2.182 million inflow in fiscal Q1 2026.
- Moderate pointCash fell to $109.679 million from $214.306 million at July 3, 2026.
- Minor pointFree cash outflow widened to $24 million from $4 million in fiscal Q1 2026.
- Minor pointCapital expenditures increased to $10.413 million from $6.548 million in fiscal Q1 2026.
- Minor pointResearch and development expense increased to $16.051 million from $13.184 million year over year.
4 minor points
- Minor pointRestructuring and other charges increased to $2.018 million from $1.584 million year over year.
- Minor pointCost of revenues increased to $163.965 million from $162.310 million in fiscal Q1 2026.
- Minor pointInterest income declined to $1.327 million from $2.027 million in fiscal Q1 2026.
- Minor pointIncome tax expense was $0.220 million, versus a $4.021 million benefit in fiscal Q1 2026.
News Explained
At
Key Figures
- Bookings
- $370 million
- Q1 FY27; up 48% year-over-year
- Book-to-bill
- 1.46
- Q1 FY27
- Backlog
- Approaching $2.1 billion
- At October 2, 2026; up 44.7% year-over-year
- Revenue
- $253 million
- Q1 FY27; up 12.4% year-over-year
- GAAP net income
- $13 million
- Q1 FY27; compared with a $13 million net loss in Q1 FY26
- Adjusted EBITDA
- $56 million
- Q1 FY27; up 58.6% year-over-year
- Adjusted EBITDA margin
- 22.3%
- Q1 FY27
- Free cash flow
- $(24) million
- Q1 FY27
Previous Earnings Reports
-
Prior-year Q1 revenue rose 10.2% and bookings reached $250.2M; backlog was $1.4B.
24h Move is the share-price change in the day after each event; other market factors may also have contributed.
Key Terms
book-to-bill financial
gaap financial
adjusted ebitda financial
free cash flow financial
AI-generated analysis. How Rhea-AI works. Not financial advice.
- Record Q1 FY27 Bookings of
$370 million grew48.0% year-over-year; book-to-bill of 1.46 - Record Backlog approaching
$2.1 billion ; up44.7% year-over-year - Record Q1 FY27 Revenue of approximately
$253 million ; up12.4% year-over-year - GAAP net income of
$13 million ; record Q1 adjusted EBITDA of$56 million grew58.6% year-over-year; and adjusted EBITDA margin of22.3% - Dave Farnsworth's title changed to Chief Financial Officer and Chief Operating Officer
ANDOVER, Mass., Nov. 10, 2026 (GLOBE NEWSWIRE) -- Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com), reported operating results for the first quarter of fiscal year 2027, ended October 2, 2026.
“We delivered strong first quarter fiscal 2027 results, with record first quarter bookings, revenue, and adjusted EBITDA, and record backlog," said Bill Ballhaus, Mercury’s Chairman and CEO. “Our first quarter results reflect robust organic growth and margins that are in-line with our target profile. Based on this solid execution, we are raising our outlook for fiscal year 2027."
“In the first quarter we delivered bookings of
First Quarter Fiscal 2027 Results
First quarter fiscal 2027 revenues were
Total bookings for the first quarter of fiscal 2027 were
GAAP net income and diluted earnings per share for the first quarter of fiscal 2027 were
First quarter fiscal 2027 adjusted EBITDA was
Cash flows (used in) provided by operating activities in the first quarter of fiscal 2027 were
Backlog
Mercury’s total backlog at October 2, 2026 was approaching
Other Matters
On November 10, 2026, Mercury formalized Dave Farnsworth's role as Chief Operating Officer, in addition to his responsibilities as Chief Financial Officer. Mr. Farnsworth has been effectively operating in this capacity for quite some time.
Conference Call Information
Management will host a conference call and simultaneous webcast at 5:00 p.m. ET on Tuesday, November 10, 2026, to discuss Mercury's quarterly financial results, business highlights and outlook. In addition, Company representatives may answer questions concerning business and financial developments and trends, the Company's view on earnings forecasts, and other business and financial matters affecting the Company, the responses to which may contain information that has not been previously disclosed.
To participate in the conference call Q&A as an analyst please register online at https://events.q4inc.com/analyst/478903701?pwd=p1C55pmZ or dial +1 833 461 5787 by phone using Meeting ID: 478903701. The live listen-only webcast and replay will be available ir.mrcy.com/events-presentations. A replay of the webcast will be available two hours after the call and archived on the same web page for six months.
Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides adjusted EBITDA, adjusted income, adjusted earnings per share (“adjusted EPS”) and free cash flow, which are non-GAAP financial measures. Adjusted EBITDA, adjusted income, and adjusted EPS exclude certain non-cash and other specified charges. The Company believes these non-GAAP financial measures are useful to help investors understand its past financial performance and prospects for the future. However, these non-GAAP measures should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. Management believes these non-GAAP measures assist in providing a more complete understanding of the Company’s underlying operational results and trends, and management uses these measures along with the corresponding GAAP financial measures to manage the Company’s business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals. A reconciliation of GAAP to non-GAAP financial results discussed in this press release is contained in the attached exhibits.
Mercury Systems – Innovation that Matters®
Mercury Systems is a global leader in aerospace and defense electronics, providing breakthrough capabilities in signal and data processing. With a four-decade legacy of innovation that spans silicon to systems and radio frequency front ends to effectors, we accelerate commercial technology adoption to deliver powerful and secure mission-critical processing solutions to the edge. We are headquartered in Andover, Massachusetts, and have multiple locations worldwide. Our end-to-end processing ecosystem, the Mercury Processing Platform, is built on technologies we have developed and acquired over 40 years. Our technologies are available as standard products or custom solutions from silicon to system scale to ensure interoperability, reduced complexity, optimized performance and speed development. To learn more, visit mrcy.com. (Nasdaq: MRCY)
Investors and others should note that we announce material financial information using our website (www.mrcy.com), SEC filings, press releases, public conference calls, webcasts, and social media, including X (X.com/mrcy) and LinkedIn (www.linkedin.com/company/mercury-systems). Therefore, we encourage investors and others interested in Mercury to review the information we post on the social media and other communication channels listed on our website.
Forward-Looking Safe Harbor Statement
This press release contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including those relating to the Company's focus on enhanced execution of the Company's strategic plan. You can identify these statements by the words “may,” “will,” “could,” “should,” “would,” “plans,” “expects,” “anticipates,” “continue,” “estimate,” “project,” “intend,” “likely,” “forecast,” “probable,” “potential,” and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, cost increases, our inability to increase production and deliver products on time and with appropriate quality, continued funding of defense programs, the timing and amounts of such funding, general economic and business conditions, including unforeseen weakness in the Company’s markets, effects of any U.S. federal government shutdown or extended continuing resolution, effects of increasingly volatile geopolitical events and regional conflicts, competition, changes in technology and methods of marketing, delays in or cost increases related to completing development, engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in, or in the U.S. government’s interpretation of, federal export control or procurement rules and regulations, including tariffs, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of the Company's products, shortages or delays in receiving components, supply chain delays or volatility for critical components, production delays or unanticipated expenses including due to quality issues or manufacturing execution issues, failure to meet contractual performance specifications, adherence to required manufacturing standards, capacity underutilization, increases in scrap or inventory write-offs, failure to achieve or maintain manufacturing quality certifications, such as AS9100, failure to achieve or maintain qualified business systems, such as those required by the DFARS, adverse findings in government audits or investigations, the impact of supply chain disruption, inflation and labor shortages, among other things, on program execution and the resulting effect on customer satisfaction, inability to fully realize the expected benefits from acquisitions, restructurings and operational efficiency initiatives or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, effects of shareholder activism, increases in interest rates, changes to industrial security and cyber-security regulations and requirements and impacts from any cyber or insider threat events, including the risks from heightened, persistent, and increasingly sophisticated nation-state level cyberattacks and emerging threats associated with agentic AI-enabled cyber tools, changes in tax rates or tax regulations, changes to interest rate swaps or other cash flow hedging arrangements, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, litigation, including the state law claim related to our settled federal securities class action lawsuit, unanticipated costs under fixed-price service and system integration engagements, and various other factors beyond our control. These risks and uncertainties also include such additional risk factors as are discussed in the Company's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended July 3, 2026 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
Contact:
Tyler Hojo, CFA, Senior Vice President, Strategy and Corporate Development
Mercury Systems, Inc.
978-967-3676
Mercury Systems and Innovation That Matters are registered trademarks of Mercury Systems, Inc. Other product and company names mentioned may be trademarks and/or registered trademarks of their respective holders.
| MERCURY SYSTEMS, INC. | ||||||||
| UNAUDITED CONSOLIDATED BALANCE SHEETS | ||||||||
| (In thousands) | ||||||||
| October 2, | July 3, | |||||||
| 2026 | 2026 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 109,679 | $ | 214,306 | ||||
| Accounts receivable, net | 80,772 | 69,222 | ||||||
| Unbilled receivables and costs in excess of billings, net | 290,348 | 285,760 | ||||||
| Inventory | 398,570 | 366,968 | ||||||
| Prepaid income taxes | 1,683 | 2,258 | ||||||
| Prepaid expenses and other current assets | 36,114 | 34,925 | ||||||
| Total current assets | 917,166 | 973,439 | ||||||
| Property and equipment, net | 110,320 | 108,413 | ||||||
| Goodwill | 941,637 | 942,419 | ||||||
| Intangible assets, net | 166,517 | 175,820 | ||||||
| Operating lease right-of-use assets, net | 44,079 | 47,713 | ||||||
| Deferred tax asset | 67,333 | 67,188 | ||||||
| Other non-current assets | 8,847 | 7,784 | ||||||
| Total assets | $ | 2,255,899 | $ | 2,322,776 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 96,212 | $ | 91,041 | ||||
| Accrued expenses | 30,986 | 32,991 | ||||||
| Due to factoring facility | 6,979 | 391 | ||||||
| Accrued compensation | 32,270 | 54,537 | ||||||
| Deferred revenues and customer advances | 150,181 | 149,565 | ||||||
| Total current liabilities | 316,628 | 328,524 | ||||||
| Income taxes payable | 3,487 | 3,487 | ||||||
| Long-term debt | 341,500 | 441,500 | ||||||
| Operating lease liabilities | 41,994 | 45,829 | ||||||
| Other non-current liabilities | 5,614 | 5,977 | ||||||
| Total liabilities | 709,223 | 825,318 | ||||||
| Shareholders’ equity: | ||||||||
| Preferred stock | — | — | ||||||
| Common stock | 607 | 596 | ||||||
| Additional paid-in capital | 1,370,452 | 1,333,410 | ||||||
| Retained earnings | 165,310 | 152,222 | ||||||
| Accumulated other comprehensive income | 10,307 | 11,230 | ||||||
| Total shareholders’ equity | 1,546,676 | 1,497,458 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,255,899 | $ | 2,322,776 | ||||
| MERCURY SYSTEMS, INC. | ||||||||
| UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (In thousands, except per share data) | ||||||||
| First Quarters Ended | ||||||||
| October 2, 2026 | September 26, 2025 | |||||||
| Net revenues | $ | 253,153 | $ | 225,209 | ||||
| Cost of revenues(1) | 163,965 | 162,310 | ||||||
| Gross margin | 89,188 | 62,899 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative(1) | 43,029 | 45,906 | ||||||
| Research and development(1) | 16,051 | 13,184 | ||||||
| Amortization of intangible assets | 9,303 | 10,259 | ||||||
| Restructuring and other charges | 2,018 | 1,584 | ||||||
| Acquisition costs and other related expenses | 253 | 563 | ||||||
| Total operating expenses | 70,654 | 71,496 | ||||||
| Income (loss) from operations | 18,534 | (8,597 | ) | |||||
| Interest income | 1,327 | 2,027 | ||||||
| Interest expense | (5,406 | ) | (7,886 | ) | ||||
| Other expense, net | (1,147 | ) | (2,080 | ) | ||||
| Income (loss) before income tax provision (benefit) | 13,308 | (16,536 | ) | |||||
| Income tax provision (benefit) | 220 | (4,021 | ) | |||||
| Net income (loss) | $ | 13,088 | $ | (12,515 | ) | |||
| Basic net earnings (loss) per share | $ | 0.22 | $ | (0.21 | ) | |||
| Diluted net earnings (loss) per share | $ | 0.21 | $ | (0.21 | ) | |||
| Weighted-average shares outstanding: | ||||||||
| Basic | 60,121 | 59,191 | ||||||
| Diluted | 61,623 | 59,191 | ||||||
| (1) Includes stock-based compensation expense, allocated as follows: | ||||||||
| Cost of revenues | $ | 1,146 | $ | 1,760 | ||||
| Selling, general and administrative | $ | 9,299 | $ | 6,296 | ||||
| Research and development | $ | 1,726 | $ | 1,517 | ||||
| MERCURY SYSTEMS, INC. | ||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| First Quarters Ended | ||||||||
| October 2, 2026 | September 26, 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 13,088 | $ | (12,515 | ) | |||
| Depreciation and amortization | 17,789 | 18,913 | ||||||
| Other non-cash items, net | 17,096 | 12,720 | ||||||
| Changes in operating assets and liabilities | (61,939 | ) | (16,936 | ) | ||||
| Net cash (used in) provided by operating activities | (13,966 | ) | 2,182 | |||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (10,413 | ) | (6,548 | ) | ||||
| Net cash used in investing activities | (10,413 | ) | (6,548 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from stock option exercise | 19,848 | — | ||||||
| Payments under credit facilities | (100,000 | ) | — | |||||
| Net cash used in financing activities | (80,152 | ) | — | |||||
| Effect of exchange rate changes on cash and cash equivalents | (96 | ) | (17 | ) | ||||
| Net decrease in cash and cash equivalents | (104,627 | ) | (4,383 | ) | ||||
| Cash and cash equivalents at beginning of period | 214,306 | 309,099 | ||||||
| Cash and cash equivalents at end of period | $ | 109,679 | $ | 304,716 | ||||
UNAUDITED SUPPLEMENTAL INFORMATION RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands, except per share data)
Adjusted EBITDA, a non-GAAP measure for reporting financial performance, excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. Management believes that exclusion of these items assists in providing a more complete understanding of the Company’s underlying results and trends, and management uses these measures along with the corresponding GAAP financial measures to manage the Company’s business, to evaluate its performance compared to prior periods and the marketplace, and to establish operational goals. The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below:
Other non-operating adjustments. The Company records other non-operating adjustments such as gains or losses on foreign currency remeasurement, investments and fixed asset sales or disposals among other adjustments. These adjustments may vary from period to period without any direct correlation to underlying operating performance.
Interest income and expense. The Company receives interest income on investments and incurs interest expense on loans, financing leases and other financing arrangements. These amounts may vary from period to period due to changes in cash and debt balances and interest rates driven by general market conditions or other circumstances which may be outside of the normal course of the Company’s operations.
Income taxes. The Company’s GAAP tax expense can fluctuate materially from period to period due to tax adjustments that are not directly related to underlying operating performance or to the current period of operations.
Depreciation. The Company incurs depreciation expense related to capital assets purchased to support the ongoing operations of the business. These assets are recorded at cost or fair value and are depreciated using the straight-line method over the useful life of the asset. Purchases of such assets may vary significantly from period to period and without any direct correlation to underlying operating performance.
Amortization of intangible assets. The Company incurs amortization of intangible assets primarily as a result of acquired intangible assets such as backlog, customer relationships and completed technologies but also due to licenses, patents and other arrangements, including the implementation costs of cloud computing arrangements. These intangible assets are valued at the time of acquisition or upon receipt of right to use the asset, amortized over the requisite life and generally cannot be changed or influenced by management after acquisition.
Restructuring and other charges. The Company incurs restructuring and other charges in connection with management’s decisions to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain Company facilities, businesses and lines of business. The Company’s adjustments reflected in restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities or other transformation activities, including the analysis, evaluation, and planning of information system upgrades and/or deployments. Management believes these items are non-routine and may not be indicative of ongoing operating results.
Impairment of long-lived assets. The Company incurs impairment charges of long-lived assets based on events that may or may not be within the control of management. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results.
Acquisition, financing and other third party costs. The Company incurs transaction costs related to acquisition and potential acquisition opportunities, such as legal, accounting, and other third party advisory fees. The Company may also incur third party costs, such as legal, banking, communications, proxy solicitation, and other third party advisory fees in connection with engagements by activist investors or unsolicited acquisition offers. Although the Company may incur such third party costs and other related charges and adjustments, it is not indicative that any transaction will be consummated. Additionally, the Company incurs unused revolver and bank fees associated with maintaining its credit facility as well as non-cash financing expenses associated with obtaining its credit facility. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results.
Fair value adjustments from purchase accounting. As a result of applying purchase accounting rules to acquired assets and liabilities, certain fair value adjustments are recorded in the opening balance sheet of acquired companies. These adjustments are then reflected in the Company’s income statements in periods subsequent to the acquisition. In addition, the impact of any changes to originally recorded contingent consideration amounts are reflected in the income statements in the period of the change. Management believes these items are outside the normal operations of the Company and are not indicative of ongoing operating results.
Litigation and settlement income and expense. The Company periodically receives income and incurs expenses related to pending claims and litigation and associated legal fees and potential case settlements and/or judgments. Although the Company may incur such costs and other related charges and adjustments, it is not indicative of any particular outcome until the matter is fully resolved. Management believes these items are outside the normal operations of the Company’s business, often occur in periods other than the period of activity, and are not indicative of ongoing operating results. The Company periodically receives warranty claims from customers and makes warranty claims towards its vendors and supply chain. Management believes the expenses and gains associated with these recurring warranty items are within the normal operations and operating cycle of the Company’s business. Therefore, management deems no adjustments are necessary unless under extraordinary circumstances.
Stock-based and other non-cash compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of revenues, selling, general and administrative expense and research and development expense. The Company also incurs non-cash based compensation in the form of pension related expenses and matching contributions to its defined contribution plan. Although stock-based and other non-cash compensation is an expense of the Company and viewed as a form of compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of the Company’s shares, risk-free interest rates and the expected term and forfeiture rates of the awards, as well as pension actuarial assumptions. Management believes that exclusion of these expenses allows comparisons of operating results to those of other companies, both public, private or foreign, that disclose non-GAAP financial measures that exclude stock-based compensation and other non-cash compensation.
Mercury uses adjusted EBITDA as an important indicator of the operating performance of its business. Management excludes the above-described items from its internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to the Company’s board of directors, determining a portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in the Company’s operations, and allocating resources to various initiatives and operational requirements. The Company believes that adjusted EBITDA permits a comparative assessment of its operating performance, relative to its performance based on its GAAP results, while isolating the effects of charges that may vary from period to period without direct correlation to underlying operating performance. The Company believes that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making. The Company believes that trends in its adjusted EBITDA are valuable indicators of its operating performance.
Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. The Company expects to continue to incur expenses similar to the adjusted EBITDA financial adjustments described above, and investors should not infer from the Company’s presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.
The following table reconciles the most directly comparable GAAP financial measure to the non-GAAP financial measure.
| First Quarters Ended | ||||||||
| October 2, 2026 | September 26, 2025 | |||||||
| Net income (loss) | $ | 13,088 | $ | (12,515 | ) | |||
| Other non-operating adjustments, net | 584 | 748 | ||||||
| Interest expense, net | 4,079 | 5,859 | ||||||
| Income tax provision (benefit) | 220 | (4,021 | ) | |||||
| Depreciation | 8,486 | 8,654 | ||||||
| Amortization of intangible assets | 9,303 | 10,259 | ||||||
| Restructuring and other charges | 2,018 | 1,584 | ||||||
| Impairment of long-lived asset | — | — | ||||||
| Acquisition, financing and other third party costs | 750 | 1,317 | ||||||
| Fair value adjustments from purchase accounting | 131 | 131 | ||||||
| Litigation and settlement expense, net | 545 | 7,224 | ||||||
| Stock-based and other non-cash compensation expense | 17,191 | 16,328 | ||||||
| Adjusted EBITDA | $ | 56,395 | $ | 35,568 | ||||
Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs, and, therefore, has not been calculated in accordance with GAAP. Management believes free cash flow provides investors with an important perspective on cash available for investment and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. The Company believes that trends in its free cash flow are valuable indicators of its operating performance and liquidity.
Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. The Company expects to continue to incur expenditures similar to the free cash flow financial adjustment described above, and investors should not infer from the Company’s presentation of this non-GAAP financial measure that these expenditures reflect all of the Company's obligations which require cash.
The following table reconciles the most directly comparable GAAP financial measure to the non-GAAP financial measure.
| First Quarters Ended | ||||||||
| October 2, 2026 | September 26, 2025 | |||||||
| Net cash (used in) provided by operating activities | $ | (13,966 | ) | $ | 2,182 | |||
| Purchases of property and equipment | (10,413 | ) | (6,548 | ) | ||||
| Free cash flow | $ | (24,379 | ) | $ | (4,366 | ) | ||
Adjusted income and adjusted earnings per share (“adjusted EPS”) are non-GAAP measures for reporting financial performance, exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. Management believes that exclusion of these items assists in providing a more complete understanding of the Company’s underlying results and trends and allows for comparability with its peer company index and industry. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. The Company uses these measures along with the corresponding GAAP financial measures to manage the Company’s business and to evaluate its performance compared to prior periods and the marketplace. The Company defines adjusted income as income before other non-operating adjustments, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, and stock-based and other non-cash compensation expense. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision(1). Adjusted EPS expresses adjusted income on a per share basis using weighted average diluted shares outstanding.
The following table reconciles the most directly comparable GAAP financial measures to the non-GAAP financial measures.
| First Quarters Ended | ||||||||||||||||
| October 2, 2026 | September 26, 2025 | |||||||||||||||
| Net income (loss) and earnings (loss) per share | $ | 13,088 | $ | 0.21 | $ | (12,515 | ) | $ | (0.21 | ) | ||||||
| Other non-operating adjustments, net | 584 | 748 | ||||||||||||||
| Amortization of intangible assets | 9,303 | 10,259 | ||||||||||||||
| Restructuring and other charges | 2,018 | 1,584 | ||||||||||||||
| Impairment of long-lived assets | — | — | ||||||||||||||
| Acquisition, financing and other third party costs | 750 | 1,317 | ||||||||||||||
| Fair value adjustments from purchase accounting | 131 | 131 | ||||||||||||||
| Litigation and settlement expense, net | 545 | 7,224 | ||||||||||||||
| Stock-based and other non-cash compensation expense | 17,191 | 16,328 | ||||||||||||||
| Impact to income taxes(1) | (11,605 | ) | (9,516 | ) | ||||||||||||
| Adjusted income and adjusted earnings per share | $ | 32,005 | $ | 0.52 | $ | 15,560 | $ | 0.26 | ||||||||
| Diluted weighted-average shares outstanding | 61,623 | 60,140 | ||||||||||||||
| (1) Impact to income taxes is calculated by recasting income before income taxes to include the items involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The recalculation also adjusts for any discrete tax provision or benefit related to the items. | ||||||||||||||||
| (2) Adjusted earnings per share is calculated using diluted shares whereas Net loss per share is calculated using basic shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the first quarter ended September 26, 2025. | ||||||||||||||||
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were Mercury Systems' fiscal Q1 2027 earnings?
Mercury Systems reported GAAP net income of $13.088 million and diluted earnings per share of $0.21 for the quarter ended October 2, 2026. A year earlier, it reported a $12.515 million net loss and a $0.21 diluted loss per share. Adjusted EPS increased to $0.52 from $0.26.
How large was Mercury Systems' backlog in fiscal Q1 2027?
Mercury Systems' backlog approached $2.1 billion at October 2, 2026, up 44.7% year over year. Over $1.0 billion represents orders expected to be recognized as revenue within the next 12 months.
How did changes in operating assets and liabilities affect Mercury Systems' fiscal Q1 2027 cash flow?
Changes in operating assets and liabilities used $61.939 million of cash in fiscal Q1 2027, compared with $16.936 million a year earlier. Total operating cash flow was a $13.966 million outflow, versus a $2.182 million inflow in fiscal Q1 2026.