0001049521-25-000062
SEC filingRevenue grew 10% YoY reflecting program execution; gross margin expanded 260 bps on favorable mix and lower adjustments.
For the first quarter ended September 26, 2025, Mercury Systems reported net revenues of $225.2 million, a 10.2% increase from $204.4 million in the prior-year quarter. The growth was primarily driven by execution on its program base and progression toward full rate production of common processing architecture programs. Revenue recognized at a point in time increased $25.2 million (52% of total vs 45% prior year), while over-time revenue decreased $4.5 million (48% of total vs 55% prior year).
Gross margin improved 260 basis points to 27.9%, up from 25.3% in the prior year. Favorable program mix, lower manufacturing adjustments of $7.4 million, and a $4.2 million improvement in net EAC impact (from -$8.3M to -$4.1M) drove the expansion. Operating expenses increased 9.6% to $71.5 million, largely due to a 38.4% rise in SG&A ($45.9 million vs $33.2 million), driven by higher compensation ($7.3M) and litigation and settlement expense ($6.0M, including $5.2M related to the former CEO dispute). Research and development expense decreased 28.3% to $13.2 million, reflecting headcount reductions of ~230 employees initiated in fiscal 2025. Net loss improved to $12.5 million (from $17.5 million), with diluted loss per share of $0.21 vs $0.30. On an adjusted basis, adjusted EPS was $0.26 vs $0.04, and adjusted EBITDA increased to $35.6 million from $21.5 million.
The company reports revenue by product grouping. Modules and sub-assemblies revenue increased $20.4 million, and components revenue increased $0.6 million, partially offset by a $0.2 million decrease in integrated solutions. By end application, growth was driven by C4I (+$26.2M) and other sensor and effector (+$3.4M), partially offset by declines in electronic warfare (-$5.3M) and radar (-$3.6M). By platform, Land (+$8.6M), Other (+$5.9M), Airborne (+$4.2M), and Space (+$3.1M) increased, while Naval decreased $1.0M. Key program increases included KC-46, a secure processing program, and F/A-18, partially offset by decreases in a secure processing program and F-16. No programs accounted for 10% or more of revenue in either period.
Management did not provide quantitative forward guidance but noted expected additional restructuring charges of $2.4 million in the second quarter related to a workforce reduction eliminating 42 international positions. The board authorized a new $200 million share repurchase program on November 3, 2025, with no expiration date. The company also amended its Revolver on November 4, 2025, extending maturity to 2030 and reducing facility size to $850 million; the outstanding balance was $591.5 million. Management believes existing cash, available Revolver, and cash from operations are sufficient for at least the next twelve months.
Cash and cash equivalents were $304.7M at September 26, 2025, down from $309.1M at June 27, 2025. Total debt remained flat at $591.5M under the revolving credit facility (capacity $900M, with $5.9M in letters of credit). Shareholders' equity was $1,475.0M, slightly up from $1,473.5M. Inventory increased to $340.2M from $332.9M, driven by work-in-process growth. Contract assets (unbilled receivables) declined to $274.8M from $278.5M. Contract liabilities decreased to $125.9M from $127.6M, with $39.6M recognized as revenue in the quarter. Remaining performance obligations stood at $782.6M, with 54% expected within 12 months.
The company had $209.5M in non-cancelable purchase commitments for inventory and services as of September 26, 2025. No timing breakdown was provided. Separately, the company disclosed a $32.5M settlement receivable/payable for the securities class action, and estimated a potential liability of $3M to $12M for former CEO arbitration, with $3M expected. A $450K settlement was reached for wage and hour claims.
On November 3, 2025, the Board authorized a new share repurchase program of up to $200M with no expiration. No dividends were paid or declared. Capital expenditures were $6.5M (2.9% of revenue). There were no debt borrowings or repayments during the quarter. On November 4, 2025, the company amended its revolver, extending maturity to 2030 and reducing facility size to $850M.
Mercury Systems operates as a single reportable segment. Revenue disaggregation by end user: domestic $187.9M (83%), international $37.3M. By end application: C4I $111.5M (49.5%), Sensor & Effector $81.0M (36%), Other $32.8M. By product grouping: integrated solutions $113.5M (50.4%), modules & sub-assemblies $66.2M (29.4%), components $45.5M (20.2%). By platform: airborne $94.7M, land $42.9M, naval $19.6M, space $18.5M, other $49.5M. Major customers: Lockheed Martin (13%), RTX (10%), Northrop Grumman (10%).
Mercury Systems' operating cash flow turned positive in Q1 FY2026, reaching $2.2M compared to a -$14.7M outflow in the prior year. This improvement was mainly driven by a $20.1M decrease in accounts receivable/unbilled receivables and a $20.9M increase in accounts payable/accrued expenses, offset by a $35.3M increase in prepaid expenses. Net loss improved to -$12.5M from -$17.5M, and non-cash adjustments (depreciation, stock compensation, deferred taxes) remained substantial.
Capital expenditures of $6.5M were consistent year-over-year, resulting in negative free cash flow (CFO minus capex) of -$4.4M. The company used no cash for financing activities and had no share repurchases or dividends. Cash and cash equivalents ended at $304.7M, down $4.4M from the prior quarter. The positive operating cash flow signals improved working capital management, but the company remains in a net loss position and continues to invest in capex.
Anomalies include a large swing in prepaid expenses ($35.3M use) and a significant reduction in deferred revenues/customer advances ($8.3M use). Overall, cash flow quality improved despite the net loss, but the business still relies on external capital or existing cash reserves to fund growth.