Earnings Recap — Q4 FY2026
CY Q3 2026 · Reported August 18, 2026 · Beat 6 of last 6 quarters
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Mercury's record backlog and raised growth outlook signal sustained demand for mission-critical processing at the edge, a key component of the AI infrastructure buildout for defense applications. The Palantir partnership to apply AI software to factory operations could enhance backlog conversion and operational efficiency, potentially accelerating the deployment of AI-enabled defense systems.
Mercury Systems reported record Q4 FY2026 results with bookings of $660 million, backlog of $1.9 billion, and revenue of $290 million, all records. Adjusted EBITDA was $49 million with a 16.7% margin, and free cash flow was $29 million. Full-year revenue grew 7.9% organically, with adjusted EBITDA up 25.7% and adjusted EBITDA margin expanding 217 basis points to 15.3%. The quarter saw broad-based demand across CPA, effectors, airborne, space, and missile defense, including the largest CPA bookings quarter ever and significant memory procurement bookings. Management also announced a strategic agreement with Palantir to leverage AI software for material planning and factory operations.
Management raised FY2027 organic growth expectations to approaching double digits, with total revenue approaching $1.1 billion. They expect adjusted EBITDA margin in the high teens and adjusted EBITDA approaching $200 million, reflecting nearly 30% YoY growth. Q1 revenue is expected to be the lowest of the year, with margins increasing through the year. For FY2028, they provided reference points of low double-digit organic growth, adjusted EBITDA margin at the low end of the low-to-mid-20s target, and free cash flow conversion returning toward the 50% target. The outlook incorporates only a limited set of tailwinds that have materialized in firm bookings, excluding potential upside from additional production program tailwinds and the Palantir partnership. Management emphasized continued focus on backlog conversion, margin expansion, and free cash flow generation.
“We delivered Q4 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.”
on Q4 performance
“We are entering FY 2027 with a record backlog and well we believe is enhanced multiyear visibility. We have increased organic growth expectations, underpinned by our team's demonstrated strong performance our strategic positioning, which we believe is closely aligned with critical global defense priorities, and a favorable market backdrop with an anticipated 9.9% addressable market compound annual growth rate spelled out in more detail in our Form 10-K filing.”
on FY2027 outlook
“We recently announced a strategic agreement with Palantir to leverage AI software to enhance material planning and factory operations in an effort to improve backlog conversion and deliver critical technologies to the warfighter.”
on Palantir partnership
How should we think about the margin expansion trajectory into FY2027? Is it pricing, mix, or volume leverage?
Bill Ballhaus explained that margin expansion is a continuation of the progression of backlog margin, with lower-margin backlog burning down in the first part of the year and margins increasing through the year, expecting to operate in line with the target profile by the end of FY2027.
How much of the FY2027 revenue outlook reflects recent large framework agreements and European defense versus just better core business?
Bill Ballhaus said the outlook reflects broad-based demand and record bookings, with very few tailwinds incorporated. The increase in next-12-month backlog provides high visibility, but potential tailwinds in CPA, effectors, munitions, space, and missile defense are not yet included, nor are improvements in backlog conversion or the Palantir partnership.
International sales were down around 15% — any headwinds to call out?
Bill Ballhaus attributed the decline to a temporary slowdown in deliveries as they outsourced manufacturing to a contract manufacturer, which is a natural ramp-up issue. He expects it to be worked out over the next couple of quarters, with strong international demand and backlog.