MRCY

Mercury Systems is a defense-electronics supplier (processing subsystems, sensors/effectors, C4I) in the midst of a genuine operational turnaround after a difficult stretch of program write-downs and losses. FY2025 shows the recovery taking hold: revenue grew 9.2% to $912M, gross profit jumped 29.9% to $254M as gross margin recovered to 27.9%, and the net loss narrowed sharply to -$37.9M from -$138M the prior year. Most striking is the cash conversion — operating cash flow swung to a positive $139M, up 130% — as management worked down the bloated working capital and inventory tied to troubled fixed-price programs.

The turnaround was driven by aggressive cost action: the MD&A details workforce reductions (around 145 positions in January 2025 on top of ~350 in FY2024) that cut SG&A 7.4% and R&D 33.3%, plus the divestiture of the Switzerland manufacturing operations. The balance sheet is sound — cash rose 71.2% to $309M and liabilities/equity is just 0.65x — though the company still carried $591.5M of revolver borrowings and remains GAAP-unprofitable at the operating line (-2.2% margin). Management also flags ongoing risk from net unfavorable changes in estimates ($21.1M net unfavorable in FY2025, improved from $73.2M) on its program portfolio and potential FY2026 tariff pressure on gross margins.