Mercury Narrows Q1 Loss on Revenue Growth, SG&A Jumps

TL;DR

**MRCY's revenue growth is encouraging, but ballooning SG&A costs are a red flag, making this a 'wait and see' for profitability.**

AI Summary

Mercury Systems Inc. reported a net loss of $12.515 million for the first quarter ended September 26, 2025, an improvement from the $17.525 million net loss in the same period last year. Revenue increased by 10.16% to $225.209 million from $204.431 million year-over-year. Gross margin improved to $62.899 million from $51.790 million. However, total operating expenses rose to $71.496 million from $65.208 million, primarily driven by a significant increase in selling, general and administrative expenses to $45.906 million from $33.153 million. Research and development expenses decreased to $13.184 million from $18.383 million. The company's cash and cash equivalents decreased slightly to $304.716 million from $309.099 million at June 27, 2025. The net impact of changes in estimates for over-time contracts negatively affected loss from operations by $4.050 million and net loss by $2.957 million, or $0.05 per diluted share, for the quarter.

Why It Matters

This 10-Q reveals Mercury Systems is improving its top-line performance, with a 10.16% revenue increase, which is a positive signal for investors looking for growth in the defense sector. However, the substantial rise in selling, general and administrative expenses by over $12 million warrants close scrutiny, as it's eroding profitability despite better gross margins. For employees, continued revenue growth could indicate job stability, while customers benefit from the company's ongoing investment in mission-critical processing platforms. In a competitive market, managing operational costs will be key for Mercury to translate revenue gains into sustainable shareholder value.

Risk Assessment

Risk Level: medium — The company reported a net loss of $12.515 million for the quarter, indicating ongoing profitability challenges. A significant increase in selling, general and administrative expenses to $45.906 million, up from $33.153 million in the prior year, suggests potential cost control issues that could hinder future earnings despite revenue growth.

Analyst Insight

Investors should monitor Mercury Systems' next earnings call for management's explanation of the substantial increase in SG&A expenses and their plan to control these costs. While revenue growth is positive, the persistent net loss and rising operational expenses suggest a cautious approach; consider holding existing positions but deferring new investments until clearer profitability trends emerge.

Financial Highlights

debt To Equity

0.40

revenue

$225.209M

operating Margin

-3.82%

total Assets

$2,457.592M

total Debt

$591.500M

net Income

$(12.515)M

eps

$(0.21)

gross Margin

27.93%

cash Position

$304.716M

revenue Growth

+10.16%

Key Numbers

• $225.209M — Net Revenues (Increased from $204.431M in Q1 2024, showing 10.16% growth.)
• $(12.515)M — Net Loss (Improved from $(17.525)M in Q1 2024, narrowing the loss.)
• $62.899M — Gross Margin (Increased from $51.790M in Q1 2024, indicating better product profitability.)
• $45.906M — Selling, General and Administrative Expenses (Increased significantly from $33.153M in Q1 2024, impacting overall profitability.)
• $13.184M — Research and Development Expenses (Decreased from $18.383M in Q1 2024.)
• $(0.21) — Basic Net Loss Per Share (Improved from $(0.30) in Q1 2024.)
• $304.716M — Cash and Cash Equivalents (Slight decrease from $309.099M at June 27, 2025.)
• $4.050M — Negative Impact on Loss from Operations (Due to changes in estimates for over-time contracts in Q1 2025.)
• 59,426,779 — Shares Issued and Outstanding (As of September 26, 2025, an increase from 59,003,174 at June 27, 2025.)
• 13 weeks — Quarter Duration (Both Q1 2025 and Q1 2024 periods.)

Key Players & Entities

• MERCURY SYSTEMS INC (company) — registrant
• Nasdaq Global Select Market (regulator) — exchange where common stock is registered
• SEC (regulator) — Securities and Exchange Commission
• $225.209 million (dollar_amount) — net revenues for Q1 2025
• $204.431 million (dollar_amount) — net revenues for Q1 2024
• $12.515 million (dollar_amount) — net loss for Q1 2025
• $17.525 million (dollar_amount) — net loss for Q1 2024
• $45.906 million (dollar_amount) — selling, general and administrative expenses for Q1 2025
• $33.153 million (dollar_amount) — selling, general and administrative expenses for Q1 2024
• Andover, Massachusetts (location) — Company headquarters

FAQ

Risk Factors

• Reliance on Key Customers and Programs [high — operational]: The company's revenue is concentrated among a few key customers, particularly in the aerospace and defense sector. A significant portion of revenue is derived from a limited number of programs. Any adverse changes in these customer relationships or program cancellations could materially impact financial results.
• Supply Chain Disruptions and Component Availability [medium — operational]: The company relies on a complex global supply chain for critical components. Disruptions due to geopolitical events, natural disasters, or supplier issues can lead to production delays and increased costs. For example, the company's inventory increased to $340.246 million from $332.920 million, potentially indicating efforts to mitigate supply chain risks.
• Export Controls and Government Regulations [high — regulatory]: As a supplier to the aerospace and defense industry, the company is subject to stringent export control regulations and U.S. government procurement rules. Non-compliance could result in significant penalties, contract terminations, and reputational damage.
• Intense Competition and Technological Obsolescence [medium — market]: The markets for the company's products are highly competitive, with rapid technological advancements. Failure to innovate and adapt to new technologies could lead to a loss of market share and reduced profitability. The decrease in R&D expenses to $13.184 million from $18.383 million warrants close monitoring in this context.
• Impact of Contract Estimates and Changes [medium — financial]: Changes in estimates for over-time contracts can significantly impact reported results. In the first quarter, these changes negatively affected loss from operations by $4.050 million and net loss by $2.957 million ($0.05 per diluted share), highlighting the sensitivity of earnings to these accounting adjustments.
• Integration of Acquired Businesses [medium — operational]: The company has a history of acquisitions. The successful integration of these businesses is critical for realizing expected synergies and achieving strategic objectives. Failure to integrate effectively can lead to operational inefficiencies and financial underperformance.

Industry Context

Mercury Systems operates in the highly specialized aerospace and defense technology sector, focusing on mission-critical processing at the edge. The industry is characterized by long product development cycles, significant R&D investment, and a strong reliance on government contracts and major defense primes. Key trends include the increasing demand for advanced sensing, electronic warfare, and secure communication capabilities, driven by evolving geopolitical landscapes and technological advancements.

Regulatory Implications

The company faces significant regulatory scrutiny due to its defense sector focus. Compliance with export control laws (ITAR, EAR), cybersecurity mandates, and government contracting regulations is paramount. Non-compliance can lead to severe penalties, debarment from contracts, and reputational damage, impacting future business opportunities.

What Investors Should Do

1. Monitor SG&A Expense Growth
2. Assess R&D Investment Strategy
3. Evaluate Impact of Contract Estimate Changes
4. Track Inventory Levels

Key Dates

• 2025-09-26: End of First Quarter of Fiscal Year 2026 — Reporting period for the current 10-Q filing, showing revenue growth but continued net loss.
• 2025-06-27: End of Fiscal Year 2025 — Balance sheet comparison point for cash and cash equivalents and shares outstanding.
• 2024-09-27: End of First Quarter of Fiscal Year 2025 — Year-over-year comparison period for revenue, net loss, gross margin, and operating expenses.
• 2025-08-11: Filing of Fiscal Year 2025 Form 10-K — Provides audited financial statements and context for the current interim report.

Glossary

Unbilled receivables and costs in excess of billings

Represents revenue recognized on contracts where the company has incurred costs and earned revenue but has not yet billed the customer, or where costs incurred exceed amounts billed. This is common in long-term projects. (A significant current asset ($274.835 million), indicating substantial ongoing contract work.)

Goodwill

An intangible asset representing the excess of the purchase price of an acquired company over the fair value of its identifiable net assets. It reflects the value of brand reputation, customer relationships, etc. (A substantial asset ($938.093 million), indicating significant past acquisitions.)

Deferred revenues and customer advances

Represents payments received from customers for goods or services that have not yet been delivered or performed. It is a liability until the revenue is earned. (A current liability ($125.498 million), showing customer prepayments for future work.)

Over-time contracts

Contracts where revenue is recognized over the period the service is performed or the project progresses, rather than upon completion. Estimates are crucial for recognizing revenue and costs accurately. (Changes in estimates for these contracts had a material negative impact on the quarter's results.)

Operating lease right-of-use assets, net

Represents the right to use an asset for the lease term, recognized under ASC 842. It's an asset reflecting the value of the leased property. (A notable asset ($53.869 million) related to the company's leased facilities.)

Year-Over-Year Comparison

Compared to the prior year's first quarter, Mercury Systems Inc. demonstrated revenue growth of 10.16%, reaching $225.209 million. While the net loss narrowed to $12.515 million from $17.525 million, this improvement was overshadowed by a significant increase in operating expenses, particularly SG&A, which rose by over 38%. Gross margin improved, but the surge in operating costs led to a wider loss from operations. Cash reserves saw a slight decrease, and shares outstanding increased marginally.

Key Financial Figures

• $0.01 — ich Registered Common Stock, par value $0.01 per share MRCY Nasdaq Global Select Mar

Filing Documents

• mrcy-20250926.htm (10-Q) — 965KB
• amendmentno1toceoemploym.htm (EX-10.2) — 7KB
• a4achangeinctrlseverance.htm (EX-10.3) — 61KB
• xexecutiveseverancelette.htm (EX-10.4) — 3KB
• compensationpolicyfornon.htm (EX-10.5) — 4KB
• a2026annualboardmemberrs.htm (EX-10.6) — 5KB
• a2026annualboardmemberds.htm (EX-10.7) — 5KB
• a2026rankfilersusrsurf26.htm (EX-10.8) — 8KB
• a2026dcmpmatchingawardsd.htm (EX-10.9) — 5KB
• mrcy-09262025xexx311.htm (EX-31.1) — 9KB
• mrcy-09262025xexx312.htm (EX-31.2) — 9KB
• mrcy-09262025xexx321.htm (EX-32.1) — 5KB
• a2026annualboardmemberds001.jpg (GRAPHIC) — 200KB
• a2026annualboardmemberds002.jpg (GRAPHIC) — 145KB
• a2026annualboardmemberrs001.jpg (GRAPHIC) — 193KB
• a2026annualboardmemberrs002.jpg (GRAPHIC) — 147KB
• a2026dcmpmatchingawardsd001.jpg (GRAPHIC) — 212KB
• a2026dcmpmatchingawardsd002.jpg (GRAPHIC) — 94KB
• a2026rankfilersusrsurf26001.jpg (GRAPHIC) — 215KB
• a2026rankfilersusrsurf26002.jpg (GRAPHIC) — 264KB
• a2026rankfilersusrsurf26003.jpg (GRAPHIC) — 77KB
• a4achangeinctrlseverance001.jpg (GRAPHIC) — 235KB
• a4achangeinctrlseverance002.jpg (GRAPHIC) — 318KB
• a4achangeinctrlseverance003.jpg (GRAPHIC) — 292KB
• a4achangeinctrlseverance004.jpg (GRAPHIC) — 323KB
• a4achangeinctrlseverance005.jpg (GRAPHIC) — 294KB
• a4achangeinctrlseverance006.jpg (GRAPHIC) — 215KB
• a4achangeinctrlseverance007.jpg (GRAPHIC) — 255KB
• a4achangeinctrlseverance008.jpg (GRAPHIC) — 264KB
• a4achangeinctrlseverance009.jpg (GRAPHIC) — 232KB
• a4achangeinctrlseverance010.jpg (GRAPHIC) — 300KB
• a4achangeinctrlseverance011.jpg (GRAPHIC) — 238KB
• a4achangeinctrlseverance012.jpg (GRAPHIC) — 307KB
• a4achangeinctrlseverance013.jpg (GRAPHIC) — 110KB
• a4achangeinctrlseverance014.jpg (GRAPHIC) — 43KB
• a4achangeinctrlseverance015.jpg (GRAPHIC) — 306KB
• a4achangeinctrlseverance016.jpg (GRAPHIC) — 322KB
• a4achangeinctrlseverance017.jpg (GRAPHIC) — 281KB
• a4achangeinctrlseverance018.jpg (GRAPHIC) — 211KB
• amendmentno1toceoemploym001.jpg (GRAPHIC) — 221KB
• amendmentno1toceoemploym002.jpg (GRAPHIC) — 244KB
• amendmentno1toceoemploym003.jpg (GRAPHIC) — 56KB
• compensationpolicyfornon001.jpg (GRAPHIC) — 173KB
• compensationpolicyfornon002.jpg (GRAPHIC) — 92KB
• xexecutiveseverancelette001.jpg (GRAPHIC) — 210KB
• 0001049521-25-000062.txt ( ) — 16059KB
• mrcy-20250926.xsd (EX-101.SCH) — 43KB
• mrcy-20250926_cal.xml (EX-101.CAL) — 53KB
• mrcy-20250926_def.xml (EX-101.DEF) — 230KB
• mrcy-20250926_lab.xml (EX-101.LAB) — 614KB
• mrcy-20250926_pre.xml (EX-101.PRE) — 421KB
• mrcy-20250926_htm.xml (XML) — 786KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Consolidated Financial Statements (unaudited)

Item 1. Consolidated Financial Statements (unaudited) 3 Consolidated Balance Sheets as of September 26, 2025 and June 27, 2025 3 Consolidated Statements of Operations and Comprehensive Loss for the first quarters ended September 26, 2025 and September 27, 2024 4 Consolidated Statements of Shareholders' Equity for the first quarters ended September 26, 2025 and September 27, 2024 5 Consolidated Statements of Cash Flows for the first quarters ended September 26, 2025 and September 27, 2024 6

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk 33

Controls and Procedures

Item 4. Controls and Procedures 33

OTHER INFORMATION

PART II. OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 34

Risk Factors

Item 1A. Risk Factors 34

Other Information

Item 5. Other Information 34

Exhibits

Item 6. Exhibits 36

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS MERCURY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (Unaudited) September 26, 2025 June 27, 2025 Assets Current assets: Cash and cash equivalents $ 304,716 $ 309,099 Accounts receivable, net of allowance for credit losses of $ 1,832 and $ 1,767 at September 26, 2025 and June 27, 2025, respectively 92,648 109,588 Unbilled receivables and costs in excess of billings, net of allowance for credit losses of $ 5,311 for both September 26, 2025 and June 27, 2025 274,835 278,475 Inventory 340,246 332,920 Prepaid income taxes 1,389 457 Prepaid expenses and other current assets 70,789 27,639 Total current assets 1,084,623 1,058,178 Property and equipment, net 102,634 101,440 Goodwill 938,093 938,093 Intangible assets, net 200,407 210,611 Operating lease right-of-use assets, net 53,869 52,264 Deferred tax assets 72,861 69,016 Other non-current assets 5,105 5,162 Total assets $ 2,457,592 $ 2,434,764 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 97,814 $ 79,116 Accrued expenses 75,331 43,143 Accrued compensation 23,540 51,321 Deferred revenues and customer advances 125,498 126,797 Total current liabilities 322,183 300,377 Income taxes payable 4,046 4,046 Long-term debt 591,500 591,500 Operating lease liabilities 53,630 52,738 Other non-current liabilities 11,224 12,642 Total liabilities 982,583 961,303 Commitments and contingencies (Note M) Shareholders' equity: Preferred stock, $ 0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.01 par value; 85,000,000 shares authorized; 59,426,779 and 59,003,174 shares issued and outstanding at September 26, 2025 and June 27, 2025, respectively 594 590 Additional paid-in capital 1,301,397 1,287,478 Retained earnings 169,380 181,895 Accumulated other comprehensive income 3,638 3,498 Total shareholders' equity 1,475,009 1,473,461 Total

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data) (Unaudited) A. Description of Business Mercury Systems, Inc. (the Company) is a global technology company that delivers mission-critical processing to the edge—where signals and data are collected—to solve the most pressing aerospace and defense challenges. Mercury's products and solutions are deployed in more than 300 programs, and across 35 countries. The Company is headquartered in Andover, Massachusetts, and has over 20 locations worldwide. The Mercury Processing Platform is the unique advantage the Company provides to its customers. It comprises the innovative technologies the Company has developed and acquired for more than 40 years that bring integrated, mission-critical processing to the edge. The Company's processing platform spans the full breadth of signal processing—from radio frequency ("RF") front end to the human-machine interface—to rapidly convert meaningful data, gathered in the most remote and hostile environments, into critical decisions. It allows the Company to offer standard products and custom solutions from silicon to system scale, including components, modules, subsystems, and systems and it embodies the customer-centric approach the Company takes to delivering capabilities that are mission-ready, trusted and secure, software-defined, and open and modular. B. Summary of Significant Accounting Policies B ASIS OF P RESENTATION The accompanying consolidated financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States of America for interim financial information and with the instructions to the Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted pursuant to those rules and regulations; however, in the opinion of management the financial i

View Full Filing

View this 10-Q filing on SEC EDGAR