$280,000.
That was Mercury Systems’ operating income for the twelve months ended July 3, 2026, after a $19.6 million loss in the comparable year. Revenue rose 7.9% to $983.6 million, and gross margin widened to 28.6% from 27.9%. The result put reported operating income near break-even.
The cash statement is less tidy. Operating cash flow fell 26.3% to $102.4 million, cash declined to $214.3 million, and capital spending rose 73.2% to $34.3 million. Shares fell 7.2% at the latest close, to $105.22, after gaining 57.8% over the prior twelve months. The filing does not attach a cause to the one-day move.
Mercury says the gross-margin improvement came from manufacturing, not a pricing miracle. The company also says headcount reductions helped lower expenses, with about 270 employees cut across fiscal 2025 and 2026.
"The higher gross margin was primarily driven by lower manufacturing variances of $15.8 million, partially offset by higher scrap, inventory reserves, and warranty provisions of $3.8 million, $2.3 million, and $1.1 million, respectively."
10-K 2026-08-18
In plain English, production ran more efficiently, but the cost ledger still had some rough edges. Operating expenses also benefited from $13.1 million of savings tied to the workforce reductions, while compensation expense rose $20.5 million, including $10.5 million of stock compensation.
The investment load is the harder part to compress into an earnings headline. Mercury’s net property and equipment rose only $6.973 million, despite $34.301 million of capital expenditures, because depreciation offset much of the spending. Inventory reached $367.0 million, up 10.2%, faster than revenue. The company does not say why the inventory balance grew.
Its explanation for the cash decline points elsewhere: lower inventory-related inflows, lower deferred revenue and customer advances, lower prepaid expenses and other current assets, and less depreciation and amortization added back to earnings.
"The reduced inflow during fiscal 2026 was primarily due to lower inventory of $27.4 million, lower deferred revenues and customer advances of $26.0 million, lower prepaid expenses and other current assets of $12.2 million, and a lower inflow from depreciation and amortization expense of $9.3 million."
10-K 2026-08-18
The figures leave Mercury with a specific trade-off. Its reported operating margin moved from negative 2.2% to essentially zero, but free-cash-flow margin declined by 6.1 percentage points as investment consumed more revenue. A company can get closer to accounting break-even and still have less cash available at the end of the year. Finance has always enjoyed this little prank.
The revenue increase was not evenly spread across every application. Mercury cited growth in other sensors and effectors, radar, electronic warfare, and C4I, with the first two contributing $46.9 million and $19.1 million respectively, partly offset by a $12.2 million decline in other applications.
The next Mercury report that lays out operating cash flow alongside capex and inventory will put the current trade-off on a comparable line: improving operating income against a heavier cash and investment burden.
Mercury’s year ended with operating income near break-even, higher inventory and capital spending, and lower operating cash flow.