A month has gone by since the last earnings report for Mercury Systems (MRCY Quick QuoteMRCY - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.

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

Mercury Systems Q3 Earnings & Revenues Beat Estimates

Mercury Systems reported better-than-expected results in the third quarter of fiscal 2023, wherein both the top line and bottom line outpaced the Zacks Consensus Estimates.

The aerospace and defense tech firm reported non-GAAP earnings of 40 cents per share, beating the Zacks Consensus Estimate of 35 cents and came in within the company’s guidance range of 32-42 cents. The bottom line declined 29.8% year over year, mainly due to increased costs and higher interest expenses.

Mercury Systems’ third-quarter non-GAAP revenues increased 4% to $263.5 million compared with $253.1 million reported in the year-ago quarter. The top line surpassed the consensus mark of $252.9 million and was higher than the guided range of $255-$260 million.

Q3 in Details

Mercury Systems’ total bookings were $245 million, resulting in a 0.93 book-to-bill ratio.

The company ended the quarter with a backlog of $1.10 billion, up $103.2 million on a year-over-year basis. Within the next 12 months, products worth $695 million from this order backlog are expected to be shipped.

Mercury Systems’ gross profit was $90.3 million, down 9.5% year over year. Moreover, its gross margin contracted by 510 basis points (bps) to 34.3%.

Total operating expenses decreased 2% to $88.3 million. As a percentage of revenues, operating expenses declined 200 bps to 33.5% from 35.5% in the year-ago quarter.

Adjusted EBITDA plunged by 17.1% year over year to $43.5 million. The margin decreased by 420 bps to 16.5% due to a lower gross margin, partially offset by the reduction in operating expenses as a percentage of revenues.

Balance Sheet & Cash Flow

As of Mar 31, 2023, MRCY’s cash and cash equivalents were $64.4 million compared with $76.9 million as of Dec 30, 2022. The long-term debt as of Mar 31, 2023 was $511.5 million.

The company used $3.2 million and $33.9 million in cash for operational activities in the third quarter and first nine months of fiscal 2023, respectively. Mercury generated a negative free cash flow of $12.7 million and $63.8 million in the third quarter and first nine months of fiscal 2023, respectively.

Guidance

For the fourth quarter of fiscal 2023, Mercury Systems projects revenues between $269.3 million and $289.3 million. Adjusted EBITDA is anticipated between $49.6 million and $59.6 million. Adjusted earnings are projected in the range of 47-61 cents per share.

For fiscal 2023, Mercury Systems expects revenues between $990 million and 1.01 billion. It estimates adjusted EBITDA in the range of $160-$170 million.

Mercury forecasts fiscal 2023 adjusted earnings in the $1.36-$1.50 per share band.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -58.59% due to these changes.

VGM Scores

Currently, Mercury Systems has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Mercury Systems has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Mercury Systems is part of the Zacks Computer - Peripheral Equipment industry. Over the past month, Logitech (LOGI Quick QuoteLOGI - Free Report) , a stock from the same industry, has gained 1.9%. The company reported its results for the quarter ended March 2023 more than a month ago.

Logitech reported revenues of $960.08 million in the last reported quarter, representing a year-over-year change of -21.9%. EPS of $0.50 for the same period compares with $0.81 a year ago.

Logitech is expected to post earnings of $0.46 per share for the current quarter, representing a year-over-year change of -37.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -8.9%.

Logitech has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.