It has been about a month since the last earnings report for Mercury Systems (MRCY Quick QuoteMRCY - Free Report) . Shares have added about 10.3% 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 drivers.

Mercury Systems Q1 Earnings & Revenues Lag Estimates

Mercury Systems reported first-quarter fiscal 2024 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate.

The aerospace and defense tech firm reported a non-GAAP loss of 24 cents per share, in contrast to the Zacks Consensus Estimate of earnings of 16 cents per share. The bottom line declined 200% year over year, mainly due to increased costs and higher interest expenses.

Mercury Systems’ first-quarter non-GAAP revenues decreased 20.5% to $181 million compared with $227.6 million reported in the year-ago quarter. The top line missed the consensus mark of $218.2 million.

Q1 in Details

Mercury Systems’ total bookings were $191.5 million, resulting in a 1.06 book-to-bill ratio.

The company ended the quarter with a backlog of $1.15 billion, up $73.3 million on a year-over-year basis. Within the next 12 months, products worth $732.8 million from this order backlog are expected to be recognized.

Mercury Systems’ gross profit was $50.5 million, down 35.3% year over year. Moreover, its gross margin contracted by 640 basis points (bps) to 27.9%.

Total operating expenses increased 6.4% to $90.7 million. As a percentage of revenues, operating expenses increased 1,270 bps to 50.1% from 37.5% in the year-ago quarter.

Adjusted EBITDA plunged 93.7% year over year to $2 million. The margin decreased 1,260 bps to 1.1% due to a lower gross margin and higher operating expenses as a percentage of revenues.

Balance Sheet & Cash Flow

As of Sep 29, 2023, MRCY’s cash and cash equivalents were $89.4 million compared with $71.5 million as of Jun 30, 2023. The long-term debt as of Sep 29, 2023 was $576.5 million.

The company used $39.1 million in cash for operational activities in the first quarter of fiscal 2024 compared with $66.0 million in the first quarter of fiscal 2023. Mercury generated a negative free cash flow of $47.1 million in the first quarter compared with $73.4 million in the year-ago quarter.

Guidance

For fiscal 2024, Mercury Systems expects revenues between $950 million and 1 billion. It estimates adjusted EBITDA in the range of $160-$185 million.

Mercury forecasts fiscal 2023 adjusted earnings in the $1.19-$1.54 per share band.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -268.42% due to these changes.

VGM Scores

At this time, Mercury Systems has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, 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. Notably, Mercury Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.