Mercury's Q3 2025 Earnings Call: Unpacking Contradictions in LTAMDS Progress, Cash Flow, and Margin Expectations

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Financial Stability and Growth:
- Mercury Systems reported revenue of $211 million for Q3, with year-to-date revenue growth of 8.9% year-over-year.
- The growth was driven by strong execution across its broad portfolio of production and development programs, resulting in backlog growth of 4% year-over-year.

Free Cash Flow Improvement:
- The company experienced a significant improvement in free cash flow, with $24 million in Q3, up $50 million year-over-year.
- This improvement was due to reduced net working capital, with a decrease of $148 million year-over-year, attributed to better program execution and delivery timing.

Adjusted EBITDA Margin Expansion:
- Mercury's adjusted EBITDA margin increased to 11.7%, up substantially year-over-year.
- This was achieved through a focus on reducing operating expenses and bringing in new bookings that align with targeted margin profiles.

Organic Growth and Bookings:
- Q3 bookings were $200 million, resulting in a backlog of $1.340 billion, up 4% year-over-year.
- The growth in bookings was driven by significant contract awards, including production contracts for common processing architecture, and follow-on orders from key programs like the F-35.