Mercury Systems, Inc. (MRCY) saw its stock slide sharply after the defense technology company reported mixed financial results for its fourth quarter and full fiscal year 2026. During the regular session, shares closed at $105.00, down 7.37%. The selling then intensified after the bell, with the stock dropping another 14.29% to $90.00 in after-hours trading. The decline came despite record quarterly revenue, bookings and backlog, together with stronger expectations for organic growth. Mercury, headquartered in Andover, Massachusetts, supplies the secure, software-defined electronics and processing subsystems used in radar, electronic warfare and other defense platforms, and its fiscal year ends in June, so fiscal 2026 covers roughly the twelve months through mid-2026.

Record Fourth-Quarter Revenue and Bookings

Mercury Systems reported fourth-quarter fiscal 2026 revenue of $290 million, up from $273 million one year earlier. The 6.1% year-over-year increase set a new company record for quarterly sales. Total bookings also climbed to a record $660 million during the quarter, rising 93% from the previous year and nearly doubling Mercury Systems' previous quarterly record. The surge in orders produced a quarterly book-to-bill ratio of 2.28 and pushed total backlog above $1.9 billion at fiscal year-end. A book-to-bill above 1.0 indicates orders outpacing the revenue recognized in the period, so a reading of 2.28 means Mercury booked well over twice what it shipped in the quarter. The order boom came amid rising defense budgets in Washington and across NATO, where allies agreed at their June 2025 summit in The Hague to move toward 5% of GDP in annual defense and security spending by 2035.

Quarterly profitability, however, weakened compared with the same period last year. GAAP net income fell to $1 million from $16 million, while diluted EPS declined to $0.01 from $0.27. Adjusted EPS also dropped to $0.37 from $0.47. The softer bottom line came even as quarterly revenue reached the highest level in the company's history.

Full-Year Revenue Rises as Earnings Improve

For fiscal 2026, Mercury Systems generated $984 million in revenue, up from $912 million in fiscal 2025. Total bookings for the year reached $1.5 billion, producing a full-year book-to-bill ratio of 1.57. Adjusted EBITDA increased to $150 million from $119 million during the previous fiscal year.

The company also narrowed its annual GAAP net loss to $30 million from $38 million, improving GAAP loss per share to $0.50 from a loss of $0.65 one year earlier. Adjusted EPS reached $1.06, reversing an adjusted loss of $0.64 per share in fiscal 2025.

Still, annual cash generation weakened despite the improved operating performance. Operating cash flow declined to $102 million from $139 million in fiscal 2025, and free cash flow fell to $68 million from $119 million over the same period.

Record Backlog Underpins the Fiscal 2027 Outlook

Mercury Systems ended fiscal 2026 with backlog exceeding $1.9 billion, strengthening revenue visibility entering the new fiscal year. Backlog — contracted orders not yet recognized as revenue — is a closely watched visibility metric for long-cycle defense suppliers, which convert orders into sales as hardware ships over multi-year program timelines. The backlog increased by approximately $540 million compared with the previous year, and about $1.0 billion of that total should convert into revenue during the next 12 months.

Fourth-quarter operating cash flow reached $42 million, compared with $38 million in the prior-year period. Quarterly free cash flow, however, declined to $29 million from $34 million, and adjusted EBITDA slipped to $49 million from $51 million despite the higher quarterly revenue.

Mercury Systems enters fiscal 2027 with stronger demand signals and a larger order base across its defense technology operations. The company also increased its outlook for organic growth based on recent execution and demand trends. Nevertheless, MRCY's after-hours drop followed weaker quarterly earnings and lower annual cash flow, even as revenue, bookings and backlog reached record levels.

Source: Blockonomi