TLDR
- Mercury Systems (MRCY) rose 3.4% to $86.38 in premarket trading Wednesday after closing up 4.9% the day before.
- First-quarter revenue hit $253 million and adjusted EPS was 52 cents, both above estimates.
- Backlog reached a record $2.1 billion on $370 million in new bookings.
- J.P. Morgan upgraded the stock to Overweight with a $102 price target.
- Cash burn grew, with free cash outflow widening to $24.4 million.
Mercury Systems (MRCY) was moving higher Wednesday morning. The stock rose 3.4% to $86.38 in premarket trading.
That came after a 4.9% gain in the previous session. Through Tuesday’s close, the stock was up 14% for the year.
The push follows the company’s fiscal first-quarter report, released Tuesday after the close. The numbers topped Wall Street’s targets on both lines.
Revenue rose 12.4% to $253 million. Analysts had expected $245 million.
Adjusted earnings came in at 52 cents a share. The consensus was 30 cents.
Orders did the heavy lifting. Mercury booked about $370 million in new business, up 48% from a year ago.
Backlog Hits a New High
That pushed backlog up 44.7% to nearly $2.1 billion, a record. More than $1 billion of it is expected to turn into revenue over the next 12 months.
The book-to-bill ratio landed at 1.46. In plain terms, new orders ran well ahead of the revenue booked.
Missile, radar and electronic warfare parts drove much of the demand. The “other sensor and effector” category grew 33% from a year ago.
That segment covers guidance electronics and seeker parts that steer missiles in flight. Prime contractors are ramping up missile production, and Mercury sells to them.
J.P. Morgan analyst Seth Seifman estimates Lockheed Martin, Northrop Grumman and Raytheon buy about $95 million a quarter combined. That is more than 35% of Mercury’s revenue.
Profits improved too. Net income was $13.1 million, compared with a loss of $12.5 million a year earlier.
Adjusted EBITDA rose 58.6% to $56.4 million, a margin of 22.3%. Gross margin reached 35.2%, its best level since the second quarter of 2023.
Seifman called the margin recovery the “most striking aspect” of the report. He upgraded the stock to Overweight from Neutral and set a $102 price target.
He cited restored confidence in management and strong bookings. He expects double-digit sales growth in fiscal 2027.
The Cash Flow Catch
Not everything looked as strong. Mercury used $14 million in operating cash, versus $2 million generated a year earlier.
Free cash outflow widened to $24.4 million from $4.4 million. Higher capital spending played a part.
Cash and equivalents ended the quarter at $109.7 million, down from $214.3 million at the start of the fiscal year. Long-term debt fell by $100 million to $341.5 million.
Management raised its fiscal 2027 outlook, though no updated numbers came with the earnings release. Revenue is now expected to grow in the double digits, up from a prior view of “approaching double digits.”
Total revenue is expected to approach $1.1 billion. The company also added chief operating officer to the title of CFO Dave Farnsworth.
