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Performance excellence initiatives drove record Q4 results, characterized by the highest overtime revenue in 15 quarters as supply chain alignment improved to support organic growth.

Strategic positioning is shifting from development-heavy programs to higher-volume production, resulting in 13% organic growth within the domestic business segment.

Record bookings of $660 million in Q4, nearly double the previous record, were driven by broad-based demand across common processing architecture (CPA), effectors, and space applications.

Management attributes margin expansion to the ongoing conversion of legacy lower-margin backlog and the addition of new bookings aligned with a low-to-mid-20s EBITDA target profile.

The company entered a strategic agreement with Palantir to leverage AI software for enhancing material planning and factory operations to accelerate backlog conversion.

Operating leverage is improving as the company consolidates subscale sites and increases automation to align headcount with a production-centric business mix.

International revenue declined 15% due to temporary delivery slowdowns associated with transitioning manufacturing to a contract partner, though international backlog remains strong.

FY 2027 revenue is expected to approach $1.1 billion, representing growth that is approaching double digits., with Q1 anticipated as the lowest revenue and margin quarter of the year.

Management increased the long-term organic revenue growth target to low double digits, supported by a billion dollars in next-12-month backlog coverage.

FY 2027 free cash flow conversion is projected at 35%, below the 50% long-term target, due to intentional investments in inventory to support defense spending tailwinds.

FY 2028 reference points anticipate organic growth in the low double digits and adjusted EBITDA margins reaching the low end of the 20-25% target profile.

Current guidance excludes potential upside from uncontracted tailwinds in munitions and missile defense, as well as efficiency gains from the Palantir partnership.

Net working capital was reduced by $18 million year-over-year, contributing to a $150 million payment against the revolving credit facility to lower net debt.

A significant multiyear booking was secured for memory components to support future production requirements across advanced defense platforms.

Management noted that next-12-month backlog coverage is higher than typical due to customers consolidating multiyear quantities into single large orders.

The shareholder settlement was finalized in Q4, resulting in a sequential decrease in prepaid assets and accrued expenses.

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Management expects margins to increase sequentially as they burn down legacy lower-margin backlog in the first half of the year.

By the end of FY 2027, the company expects to be operating in line with its target profile due to improved pricing in the new backlog.

The primary goal is to accelerate the delivery of technology to the warfighter by improving factory operations and material planning.

While early, management expects the partnership to drive top-line growth through faster deliveries and improve margins via positive operating leverage.

Mercury is seeing new customer interest in smaller form factors for CPA, which could expand the addressable market to armored vehicles and unmanned vessels.

Management believes their unique security apparatus provides a competitive advantage in penetrating markets where high-performance processing is required at the edge.

Several multiyear agreements are in the pipeline but have not yet materialized into firm bookings or the current financial outlook.

Management expects more clarity on the timing and funding of these potential tailwinds during the first and second quarters of the new fiscal year.