Mercury Systems lifts outlook as backlog nears $2.1 billion

Mercury Systems posted record fiscal first-quarter 2027 revenue of $253 million, up 12.4% from $225 million a year earlier, as demand for aerospace and defense electronics strengthened.

Mercury Systems reported first-quarter bookings of $370 million, up 48% and a first-quarter record. The bookings produced a book-to-bill ratio of 1.46.

Mercury Systems' total backlog approached $2.1 billion at October 2, up approximately $637 million, or 44.7%, from a year earlier.

What drove the record quarter?

Mercury Systems reported 48% bookings growth, 12.4% revenue growth and a 44.7% year-over-year backlog increase. Mercury Systems said the combination of higher bookings and near-term backlog improved visibility into production demand across its defense and aerospace programs.

Bill Ballhaus, Chairman and Chief Executive Officer of Mercury Systems, said: “We delivered strong first quarter fiscal 2027 results, with record first quarter bookings, revenue, and adjusted EBITDA, and record backlog. Our first quarter results reflect robust organic growth and margins that are in-line with our target profile.”

Mercury Systems reported GAAP net income of $13 million, or $0.21 per diluted share, compared with a prior-year net loss of $13 million, or $0.21 per share.

Mercury Systems also reported adjusted earnings that doubled to $0.52 per share from $0.26. Adjusted EBITDA rose 58.6% to a first-quarter record $56 million from $36 million.

The 58.6% adjusted EBITDA increase outpaced Mercury's 12.4% revenue growth. Mercury Systems attributed the adjusted EBITDA margin's expansion to 22.3% to higher revenue, improved execution and a more favorable operating cost structure.

Mercury Systems' quarter combined record bookings, revenue and adjusted EBITDA with a return to GAAP profitability.

How much backlog is near-term revenue?

Mercury Systems expects more than $1 billion of total backlog to convert into revenue during the next 12 months.

Mercury Systems' backlog provides near-term visibility, but the pace of conversion will decide how quickly that visibility becomes reported revenue and cash.

What does Mercury Systems sell?

Mercury Systems develops mission-critical processing technology for aerospace and defense customers.

Its products are used in sensor processing, command and control, communications, electronic warfare and other applications requiring secure and rugged computing.

Mercury's product set centers on secure, rugged processing for aerospace and defense workloads.

What did cash flow show?

Mercury Systems used $14 million of cash in operating activities during the quarter.

Free cash flow was also negative as Mercury Systems supported working capital requirements associated with its higher backlog and production schedule.

Mercury Systems reported cash and cash equivalents of approximately $109.7 million at quarter-end.

Mercury Systems' higher earnings came with negative free cash flow as its higher backlog and production schedule absorbed working capital.

What did the raised outlook require?

Mercury Systems raised its fiscal 2027 outlook following the stronger-than-expected start to the year.

Mercury Systems' management expects continued organic growth and margins consistent with its longer-term operating targets.

The raised outlook puts the next emphasis on execution rather than demand: Mercury Systems must turn its backlog into revenue while managing cash and margins.

What has to go right next?

Mercury Systems said continued performance will depend on converting backlog into revenue while managing program schedules, supply chains, working capital and customer funding.

Mercury Systems now has nearly $2.1 billion of backlog, more than $1 billion expected to convert within 12 months and a raised fiscal 2027 outlook.

The next test is whether Mercury Systems can turn that visibility into revenue and cash while keeping program schedules, funding and working capital on track.