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Performance beat was driven by the successful acceleration of high-priority programs, pulling approximately $25 million of revenue and $15 million of adjusted EBITDA from Q4 into Q3.

Management is successfully transitioning the business from a high concentration of development programs to higher-volume production, evidenced by 17% year-over-year domestic revenue growth.

Operational improvements in supply chain management, specifically pulling material delivery dates 'to the left,' have increased backlog conversion speed and improved forecast visibility.

The company is consolidating subscale sites and expanding automated manufacturing capacity in Phoenix to support efficient scaling of common processing architecture programs.

Margin expansion of 360 basis points year-over-year was attributed to converting legacy lower-margin backlog and implementing a streamlined operating structure with lower headcount.

Record backlog approaching $1.6 billion reflects strong demand across core franchise programs in missiles, C4I, and space, with no single program exceeding 10% of the portfolio.

Full-year FY '26 revenue guidance was raised to 'approaching mid single digits' from 'low single digits' due to improved material staging and better-than-expected organic growth.

Management expects to reach a target profile of low-to-mid 20% adjusted EBITDA margins and 50% free cash flow conversion as production volumes continue to ramp.

Q4 bookings are projected to be the strongest of the year based on a robust pipeline, which management views as a leading indicator for growth beyond FY '26.

The company anticipates potential incremental tailwinds from global defense budget increases and domestic priorities like 'Golden Dome' to materialize by late calendar 2026.

Free cash flow is expected to remain positive for the full year, supported by the continued burn-down of older unbilled receivable balances.

Completed the acquisition of a critical manufacturing process technology provider to support key ramping production programs.

Reduced net working capital by 4.1% year-over-year, contributing to a $150 million payment against the company's revolver in Q4.

Inventory increased sequentially by $12 million, primarily in work-in-process, to support the shift toward point-in-time revenue recognition on production contracts.

Operating expenses decreased 14.3% year-over-year, reflecting efficiency improvements and headcount actions taken to align with a production-heavy business mix.

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Management explained that the typical Q4 margin 'step up' will be more gradual this year because they have successfully flattened the business linearity, resulting in a stronger Q3.

The shift reflects a smooth progression from development-heavy work to a steady high-single-digit top-line growth profile.

While older unbilled balances are being cleared, new production ramps are creating fresh unbilled balances due to timing, though terms are improved compared to legacy contracts.

Management emphasized that net working capital is down year-over-year despite 12% growth, indicating increased capital efficiency.

Current bookings do not yet reflect potential upside from major international or domestic rearmament priorities; these are viewed as additive to the current target profile.

Management expects these tailwinds to potentially manifest in the form of multiyear strategic agreements starting as early as the current quarter.

Mercury is leveraging its 'moat' in security standards to drive CPA into smaller form factors and secure chiplets, expanding the total addressable market.

The long-term goal is to provide the compute infrastructure for distributed AI across the battlespace.

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