Mercury Systems, Inc. (MRCY): BCG Matrix [Dec-2025 Updated]

Honestly, you need a clear map for Mercury Systems, Inc.'s capital allocation right now, and the BCG Matrix delivers that by plotting market growth against share. We're seeing the future built on Stars like Advanced Processing Platforms, backed by a $1.40 billion backlog, while mature Cash Cows-generating $119.0 million in FY2025 Free Cash Flow from $912.0 million in revenue-keep the lights on. Still, we must address the Dogs dragging profitability, evidenced by the $37.9 million GAAP net loss, and decide how much to feed the high-potential Question Marks in AI and sensor fusion. Dive in below for the full, actionable breakdown of where Mercury Systems is winning and where it needs to pivot.

Background of Mercury Systems, Inc. (MRCY)

You're looking at Mercury Systems, Inc. (MRCY) as of late 2025, and the company has definitely turned a corner operationally. Mercury Systems, Inc. specializes in delivering mission-critical processing power for the aerospace and defense sectors globally. Their technology is deployed across more than 300 programs worldwide, which speaks to their deep integration in defense platforms.

For the full fiscal year 2025, which concluded on June 27, 2025, Mercury Systems posted total revenues of $912.0 million. That represented solid growth, up 9.2% compared to the prior fiscal year. The fourth quarter of fiscal 2025 itself was strong, bringing in $273.1 million in revenue, marking a 9.9% increase year-over-year for that period.

The demand side looks healthy, too. Full year fiscal 2025 bookings reached $1.03 billion, resulting in a healthy book-to-bill ratio of 1.13 for the year. This momentum carried forward, leaving Mercury Systems with a record backlog of $1.40 billion as of the end of the fiscal year.

Financially, the story in fiscal 2025 is one of margin improvement and strong cash generation. Adjusted EBITDA for the full year hit $119.4 million, yielding an adjusted EBITDA margin of 13.1%. More impressively, the company achieved a record free cash flow of $119.0 million for fiscal 2025, a significant jump from the prior year.

To give you a sense of the market's view as of November 2025, shares of Mercury Systems had surged by approximately 59% throughout 2025, placing it among the top performers in the defense stock group for the year. Still, you see some mixed signals, like a large insider sale worth over $75 million in early November 2025 by Jana Partners Management, which was trimming a position they had held since 2023.

Mercury Systems, Inc. (MRCY) - BCG Matrix: Stars

You're looking at the core growth engine of Mercury Systems, Inc. (MRCY) right now, the areas where high market share meets a rapidly expanding market-the Stars. These units are consuming cash to fuel their growth, but the order flow suggests they are leaders poised to become the next generation of Cash Cows.

The foundation for this Star category is built on significant forward visibility, evidenced by the company's financial position at the close of fiscal year 2025. The record backlog reached $1.40 billion as of June 27, 2025, marking a 6% increase year-over-year. This backlog is the direct result of strong demand in high-growth defense segments. For the fourth quarter of fiscal 2025, bookings hit a record $341.5 million, driving a healthy book-to-bill ratio of 1.25 for the quarter, and a full-year book-to-bill of 1.13. Anyway, this momentum translated to full-year revenue of $912.0 million, up 9.2% from fiscal 2024.

Here's a quick look at the financial performance underpinning the Star segment's strength:

Advanced Processing Platforms for Electronic Warfare (EW) and Radar are clear Stars. You see this in specific contract awards that leverage core technology. For instance, in Q4 FY25, Mercury Systems secured awards totaling $36.9 million specifically for ground-based radar programs that use their Common Processing Architecture and cybersecurity software. Also, the company is expanding production for radar and EW missions through two agreements with a European defense prime contractor, including a five-year agreement for sensor processing subsystems for airborne, land-based, and sea-based radar systems.

The focus on secure, trusted microelectronics is central to maintaining leadership in these high-growth areas. The multi-mission, multi-domain subsystem contract, awarded in September 2025, is a prime example. This multi-year, cost-plus-fixed-fee development contract will utilize the Mercury Processing Platform, incorporating advanced microelectronics packaging and thermal management. While the specific financial terms weren't disclosed, securing a multi-year development contract for a multi-mission, multi-domain system for a U.S. defense prime contractor signals a high-value, high-growth commitment from the customer.

The platform-agnostic nature of Mercury Systems, Inc.'s technology allows it to capture growth across the defense budget uptick. The company's solutions are actively deployed across a wide footprint, which is a key indicator of market penetration and share:

• Products deployed in more than 300 programs.
• Solutions active across 35 countries.
• Secured a $22 million initial production contract for sensor processing subsystems to upgrade existing combat aircraft.
• Awarded a $12.3 million development contract for an avionics subsystem for a new U.S. military aircraft.

These wins confirm that Mercury Systems, Inc. is delivering the trusted, secure, mission-critical technologies that prime contractors need for next-generation platforms. That's what makes a Star; you're winning the next wave of platform upgrades.

Mercury Systems, Inc. (MRCY) - BCG Matrix: Cash Cows

You're looking at the bedrock of Mercury Systems, Inc. (MRCY)'s current financial stability. These are the established, long-running production programs, particularly in C4I (Command, Control, Communications, Computers, and Intelligence) and avionics, that consistently deliver predictable revenue streams. This stability is what allows the company to generate significant cash even while navigating development cycles in other parts of the portfolio.

The core defense-grade component and subsystem sales are directly responsible for underpinning the record $119.0 million in Free Cash Flow for fiscal year 2025 (FY2025). That's real cash generated from operations, less capital expenditures, which is a powerful indicator of a mature, high-market-share business unit. This cash generation is the engine that supports the entire enterprise.

These mature product lines form the foundation of the $912.0 million in full-year FY2025 revenue. This top line shows a stable 9.2% year-over-year growth, which, for a defense electronics supplier, signals strong market penetration in its established niches. These are the product lines that have achieved high market share and, consequently, require less aggressive capital investment for maintenance or market share defense.

Here's a quick look at the financial performance that defines this cash-generating segment for FY2025:

The nature of these Cash Cows means the focus shifts from aggressive expansion spending to efficiency. You see this reflected in the operational focus.

• Reduced operating expense enabling positive operating leverage.
• Gross margin in Q4 FY2025 reached 31%.
• Full-year FY2025 GAAP Net Income turned positive in Q4 at $16.4 million.
• Net working capital is down significantly from peak levels.

The goal here is to 'milk' these gains passively while ensuring infrastructure investments maintain efficiency. For instance, the Q4 FY2025 Adjusted EBITDA margin hit 18.8%, showing that even in a mature segment, operational discipline drives better cash flow conversion.

The cash flow conversion is key; the $119.0 million in Free Cash Flow for FY2025 is the pool of capital available for other strategic needs. What this estimate hides, though, is the GAAP bottom line, which was still a net loss of $37.9 million for the full year, meaning the Cash Cows are covering the losses and funding operations, but the company is still working to align GAAP profitability with its strong Free Cash Flow performance.

Finance: draft the 13-week cash view by Friday, focusing on the sustainability of the $34.0 million Q4 Free Cash Flow run rate.

Mercury Systems, Inc. (MRCY) - BCG Matrix: Dogs

The Dogs quadrant represents business units or product lines characterized by a low market share within a market segment experiencing low growth. For Mercury Systems, Inc., these units are primarily associated with older technology or contracts that are less differentiated and offer minimal future growth potential, tying up capital that could be better deployed elsewhere.

The financial reality of these legacy areas is evident in the company's overall performance, where the drag from lower-margin work is a key focus for management. The company reported a GAAP net loss of $37.9 million for the full fiscal year 2025 on total revenues of $912.0 million. This loss profile is partly attributable to the ongoing execution of older programs.

Management is actively working to shift the portfolio mix away from these less profitable areas. A primary strategic lever is backlog margin expansion, which involves burning down the existing lower margin backlog and replacing it with new bookings that align with the target margin profile. This suggests that a portion of the current $1.40 billion total backlog still carries margins that constrain near-term profitability.

Here's a quick look at the financial context where the 'Dogs' reside:

These legacy components often manifest as:

• Legacy, older-generation product lines or contracts with low technology differentiation.
• Portions of the backlog with margins below the company's target profile.
• Commoditized hardware or services facing intense competitive pressure.

The continued execution of these older, low-margin contracts through fiscal year 2026 is anticipated to temporarily constrain earnings growth until the business mix fully transitions to higher-value orders. The company's long-term sales growth has averaged only 2.7% compounded annually over the past five years, which is sluggish and indicative of maturity or lack of differentiation in certain segments.

From a strategic standpoint, these units are prime candidates for divestiture or aggressive restructuring, as expensive turn-around plans for true Dogs rarely yield the necessary return on investment. The focus on simplification and driving organic growth to realize positive operating leverage suggests a clear intent to shed non-core assets or product lines that do not align with the future focus on embedded processing and open-architecture solutions, which are driving higher-margin revenue.

The objective for these areas is minimization, not investment. You should watch for management commentary regarding the completion or exit from specific legacy programs, as this directly impacts the timeline for achieving targeted adjusted EBITDA margins in the low to mid 20% range.

Mercury Systems, Inc. (MRCY) - BCG Matrix: Question Marks

You're looking at the areas within Mercury Systems, Inc. (MRCY) where the company is betting big on future growth, but where market share capture is still uncertain. These are the Question Marks-they demand cash to fuel development in high-growth segments, but haven't yet delivered consistent profit.

Emerging AI-powered integrated threat detection and sensor fusion solutions, a high-growth market where Mercury Systems is investing R&D.

Mercury Systems, Inc. is actively pouring resources into capabilities like artificial intelligence ($\text{AI}$) to maintain its technological lead in real-time sensor processing and mission computing. For fiscal year 2025, total expenditures for research and development amounted to $67.6 million. This investment is aimed at developing new products and enhancing existing hardware and software, specifically targeting emerging needs in areas like $\text{AI}$. The broader aerospace and defense electronics market is estimated to be $157 billion in 2025, with the Tier 2 segment, where Mercury participates, estimated at $51 billion. Capturing share here is critical, but the high R&D spend reflects the cash burn associated with these nascent, high-potential product lines.

New avionics subsystem development for new U.S. military aircraft, like the $12.3 million contract for a Communication Management Unit control head.

A concrete example of this investment strategy is the development work secured in July 2025. Mercury Systems, Inc. received a three-year development contract valued at $12.3 million to create a Communication Management Unit ($\text{CMU}$) control head for a new U.S. military aircraft. This represents a new product introduction within the Displays and Networking product line, involving a new customer. These development efforts consume cash upfront, necessary to secure a foothold in a future high-volume production program, which is the classic Question Mark dynamic.

Cybersecurity software and services for aerospace and defense, a rapidly expanding but highly competitive space.

The focus on security is also driving significant near-term bookings, though market share is still being established against competitors. In the fourth quarter of fiscal 2025, the company secured awards totaling $36.9 million for ground-based radar programs that leverage their cybersecurity software. Additionally, a $22 million initial production contract was awarded for sensor processing subsystems to upgrade existing combat aircraft, showing progress in transitioning new tech to production. The company is explicitly investing in insider trust, cybersecurity, and trusted microelectronics as part of its strategy.

New product introductions (NPIs) in the product model business that require significant investment to gain critical market share.

The overall financial profile for fiscal year 2025 shows the cost of pursuing these growth avenues. While full-year revenue grew to $912.0 million, a 9.2% increase year-over-year, the company still recorded a GAAP net loss of $(37.9) million. This net loss, despite the revenue growth and a backlog of $1.4 billion as of June 27, 2025, clearly illustrates that these new, high-growth initiatives are currently cash-consuming, fitting the Question Mark profile perfectly. You need to watch the market share gains closely, because if these investments don't translate into higher margins and positive net income soon, these units risk becoming Dogs.

Here's the quick math on the fiscal 2025 performance that frames the cash consumption:

The strategy here is clear: invest heavily in the $67.6 million R&D budget and secure development contracts like the $12.3 million avionics deal to convert these Question Marks into Stars. What this estimate hides is the specific profitability of the individual product lines driving the $912.0 million revenue, but the overall net loss suggests the newer segments are not yet self-funding.

• Invest to gain market share quickly.
• Monitor R&D effectiveness against bookings.
• Assess margin profile of new contracts.
• High growth market potential exists.

Finance: draft 13-week cash view by Friday.