A month has gone by since the last earnings report for Mercury Systems (MRCY Quick QuoteMRCY - Free Report) . Shares have lost about 10.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mercury Systems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Mercury Systems Q4 Earnings and Revenues Top Estimates

Mercury Systems delivered solid fourth-quarter fiscal 2021 performance, wherein both earnings and revenues not only surpassed the respective Zacks Consensus Estimate but also improved year over year.

The technology services provider to the aerospace and defense industry reported non-GAAP earnings of 73 cents per share, which beat the Zacks Consensus Estimate of 67 cents per share. The bottom line came a penny higher than the year-ago quarter’s earnings of 72 cents per share.

The company’s quarterly non-GAAP revenues improved 15% year over year to $251 million surpassing the Zacks Consensus Estimate of $242.8 million. The company’s recently acquired businesses — Physical Optics Corporation and Pentek — cumulatively contributed $41 million to the fourth-quarter revenues.

Quarterly Details

Organic revenues, which accounted for 83.7% of total revenues, decreased by 3.4% to $210 million in the reported quarter.

Acquired revenues, representing 16.3% of total revenues, were $40.8 million in the quarter reported.

Mercury Systems’ total bookings were $260.2 million, resulting in a 1.04 book-to-bill ratio. The company’s largest bookings in the reported quarter were SEWIP, Filthy Buzzard, F-16 SABR, PGK and P-8.

The company ended the quarter with a backlog of $909.6 million, up by $78.5 million on a year-over-year basis. Within the next 12 months, products worth $530 million from this order backlog are expected to be shipped.

Operating Details

Mercury Systems’ gross profit increased to $102.8 million, up by 6.4% year over year. However, its gross margin contracted 340 basis points (bps) to 41%.

Adjusted EBITDA surged 19.2% year over year to $59.1 million.
Selling, general & administrative expenses as a percentage of revenues contracted 370 bps to 12.6%.

Research & development expenses as a percentage of revenues contracted 140 basis point to 11%.

Operating income for the quarter totaled $22.4 million. Operating margin contracted to 330 bps year over year to 8.9%.

Balance Sheet & Other Financial Details

As of Jul 2, 2021, Mercury Systems’ cash and cash equivalents were $113.8 million compared with $226.8 million on Jul 3, 2020. Long-term debt was $200 million in the quarter reported.

The company generated operating cash flow of $27.2 million during the fourth quarter and $97.2 million in the full fiscal 2021.

Free cash flow for the fourth quarter and fiscal 2021 were $97.2 million and $51.6 million, respectively.

The company’s largest revenue programs for fiscal 2021 were a classified radar program, LTAMDS, F-35, SEWIP and E-2D Hawkeye.

Full-Year Highlights

Mercury Systems reported revenues of $924 million in full-year fiscal 2021, up 16% year over year.

The gross margin contracted 310 basis points to 41.7%.

Adjusted earnings per share increased 5.2% year over year to $2.42.

Adjusted EBITDA increased by 14.6% year over year to $201.9 million.

Guidance

For the first quarter of fiscal 2022, the company projects revenues between $210 million and $220 million.

Adjusted EBITDA is anticipated between $36.8 million and $39.6 million. Adjusted earnings are projected to be 38-41 cents per share.

Mercury Systems expects fiscal 2022 revenues of $1-1.03 billion.

Adjusted EBITDA is expected to be $220-$227 million for the full fiscal 2022.

Adjusted earnings for fiscal 2022 are estimated to be $2.45-$2.55 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.