What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2022-02-08 · 153 added, 132 removed, 595 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

December 31, 2021 July 2, 2021

April 1, 2022 July 2, 2021

Current assets:

Cash and cash equivalents $ 91,694 $ 113,839

Accounts receivable, net of allowance for credit losses of $ 1,833 and $ 1,720 at December 31, 2021 and July 2, 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 1,813 and $ 1,720 at April 1, 2022 and July 2, 2021, respectively

124,771 128,807

30 unchanged sentences

85,000,000 shares authorized;

55,583,012 and 55,241,120 shares issued and outstanding at December 31, 2021 and July 2, 2021, respectively

55,594,940 and 55,241,120 shares issued and outstanding at April 1, 2022 and July 2, 2021, respectively

Additional paid-in capital 1,131,017 1,109,434

Retained earnings 368,859 374,499

Accumulated other comprehensive loss ( 268 ) ( 339 )

Accumulated other comprehensive income (loss) 12 ( 339 )

Total shareholders’ equity 1,500,444 1,484,146

2 unchanged sentences

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

Net revenues $ 253,075 $ 256,857 $ 698,468 $ 673,154

8 unchanged sentences

Total operating expenses 89,799 83,911 271,392 223,814

(Loss) income from operations ( 387 ) 18,113 ( 5,962 ) 36,883

Income from operations 9,955 21,712 3,993 58,595

Interest income 110 34 124 166

1 unchanged sentence

Other expense, net ( 2,160 ) ( 200 ) ( 4,898 ) ( 2,027 )

(Loss) income before income taxes ( 2,794 ) 17,119 ( 10,375 ) 35,115

Income tax (benefit) provision ( 155 ) 4,433 ( 596 ) 6,631

Net (loss) income $ ( 2,639 ) $ 12,686 $ ( 9,779 ) $ 28,484

Basic net (loss) earnings per share $ ( 0.05 ) $ 0.23 $ ( 0.18 ) $ 0.52

Diluted net (loss) earnings per share $ ( 0.05 ) $ 0.23 $ ( 0.18 ) $ 0.51

Income (loss) before income taxes 6,241 20,997 ( 4,134 ) 56,112

Income tax provision 2,102 5,362 1,506 11,993

Net income (loss) $ 4,139 $ 15,635 $ ( 5,640 ) $ 44,119

Basic net earnings (loss) per share $ 0.07 $ 0.28 $ ( 0.10 ) $ 0.80

Diluted net earnings (loss) per share $ 0.07 $ 0.28 $ ( 0.10 ) $ 0.80

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 56,027 55,526 55,495 55,434

Comprehensive (loss) income:

Net (loss) income $ ( 2,639 ) $ 12,686 $ ( 9,779 ) $ 28,484

Comprehensive income (loss):

Net income (loss) $ 4,139 $ 15,635 $ ( 5,640 ) $ 44,119

Foreign currency translation adjustments 232 218 207 ( 541 )

Pension benefit plan, net of tax 48 30 144 92

Total other comprehensive (loss) income, net of tax ( 221 ) ( 627 ) 71 ( 697 )

Total comprehensive (loss) income $ ( 2,860 ) $ 12,059 $ ( 9,708 ) $ 27,787

Total other comprehensive income (loss), net of tax 280 248 351 ( 449 )

Total comprehensive income (loss) $ 4,419 $ 15,883 $ ( 5,289 ) $ 43,670

The accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

(In thousands)

For the Second Quarter Ended December 31, 2021

For the Third Quarter Ended April 1, 2022

Common Stock Additional

2 unchanged sentences

Comprehensive

(Loss) Income Total

Shareholders’

Shares Amount

Balance at October 1, 2021 55,501 $ 555 $ 1,111,613 $ 367,359 $ ( 47 ) $ 1,479,480

Balance at December 31, 2021 55,583 $ 556 $ 1,122,113 $ 364,720 $ ( 268 ) $ 1,487,121

Issuance of common stock under employee stock incentive plans 16 — — — — —

Issuance of common stock under employee stock purchase plan 54 1 2,515 — — 2,516

Purchase and retirement of common stock ( 4 ) — ( 217 ) — — ( 217 )

Stock-based compensation — — 9,121 — — 9,121

Net loss — — — ( 2,639 ) — ( 2,639 )

Other comprehensive loss — — — — ( 221 ) ( 221 )

Balance at December 31, 2021 55,583 $ 556 $ 1,122,113 $ 364,720 $ ( 268 ) $ 1,487,121

For the Second Quarter Ended January 1, 2021

Net income — — — 4,139 — 4,139

Other comprehensive income — — — — 280 280

Balance at April 1, 2022 55,595 $ 556 $ 1,131,017 $ 368,859 $ 12 $ 1,500,444

For the Third Quarter Ended April 2, 2021

Common Stock Additional

4 unchanged sentences

Shares Amount

Balance at October 2, 2020 55,045 $ 550 $ 1,082,044 $ 328,253 $ ( 2,955 ) $ 1,407,892

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

Issuance of common stock under employee stock incentive plans 35 1 10 — — 11

Issuance of common stock under employee stock purchase plan 46 — 3,184 — — 3,184

Stock-based compensation — — 7,455 — — 7,455

Net income — — — 15,635 — 15,635

Other comprehensive loss — — — — ( 627 ) ( 627 )

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

For the Six Months Ended December 31, 2021

Other comprehensive income — — — — 248 248

Balance at April 2, 2021 55,164 $ 552 $ 1,100,188 $ 356,574 $ ( 3,334 ) $ 1,453,980

For the Nine Months Ended April 1, 2022

Common Stock Additional

2 unchanged sentences

Comprehensive

(Loss) Income Total

Shareholders’

7 unchanged sentences

Other comprehensive income — — — — 351 351

Balance at December 31, 2021 55,583 $ 556 $ 1,122,113 $ 364,720 $ ( 268 ) $ 1,487,121

For the Six Months Ended January 1, 2021

Balance at April 1, 2022 55,595 $ 556 $ 1,131,017 $ 368,859 $ 12 $ 1,500,444

For the Nine Months Ended April 2, 2021

Common Stock Additional

11 unchanged sentences

Other comprehensive loss — — — — ( 449 ) ( 449 )

Balance at January 1, 2021 55,129 $ 551 $ 1,092,723 $ 340,939 $ ( 3,582 ) $ 1,430,631

Balance at April 2, 2021 55,164 $ 552 $ 1,100,188 $ 356,574 $ ( 3,334 ) $ 1,453,980

The accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

December 31, 2021 January 1, 2021

Nine Months Ended

April 1, 2022 April 2, 2021

Cash flows from operating activities:

26 unchanged sentences

Purchase and retirement of common stock ( 7,716 ) ( 66 )

Payments of deferred financing and offering costs ( 2,662 ) —

Net cash provided by financing activities 243,638 163,133

25 unchanged sentences

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended July 2, 2021 which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 17, 2021.

The results for the second quarter and six months ended December 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

The results for the third quarter and nine months ended April 1, 2022 are not necessarily indicative of the results to be expected for the full fiscal year.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation .

All references to the second quarter of fiscal 2022 are to the quarter ended December 31, 2021.

There were 13 weeks during the second quarters ended December 31, 2021 and January 1, 2021, respectively.

There were 26 weeks during the six months ended December 31, 2021 and January 1, 2021, respectively.

All references to the third quarter of fiscal 2022 are to the quarter ended April 1, 2022.

There were 13 weeks during the third quarters ended April 1, 2022 and April 2, 2021, respectively.

There were 39 weeks during the nine months ended April 1, 2022 and April 2, 2021, respectively.

U SE OF E STIMATES

7 unchanged sentences

The accounts of foreign subsidiaries are translated using exchange rates in effect at period-end for assets and liabilities and at average exchange rates during the period for results of operations.

The related translation adjustments are reported in Accumulated other comprehensive loss (“AOCL”) in shareholders’ equity.

The related translation adjustments are reported in Accumulated other comprehensive income (“AOCI”) in shareholders’ equity.

Gains (losses) resulting from non-U.S.

currency transactions are included in Other expense, net in the Consolidated Statements of Operations and Comprehensive (Loss) Income and were immaterial for all periods presented.

currency transactions are included in Other expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss) and were immaterial for all periods presented.

R EVENUE R ECOGNITION

9 unchanged sentences

Revenue recognized at a point in time generally relates to contracts that include a combination of components, modules and sub-assemblies, integrated subsystems and related system integration or other services.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 52 % and 49 % of revenues for the second quarter and six months ended December 31, 2021, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 61 % and 62 % of revenues for the second quarter and six months ended January 1, 2021, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 45 % and 48 % of revenues for the third quarter and nine months ended April 1, 2022, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 53 % and 59 % of revenues for the third quarter and nine months ended April 2, 2021, respectively.

The Company also engages in long-term contracts for development, production and service activities and recognizes revenue for performance obligations over time.

2 unchanged sentences

The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material contracts.

Total revenue recognized under long-term contracts over time was 48 % and 51 % of total revenues for the second quarter and six months ended December 31, 2021, respectively.

Total revenue recognized under long-term contracts over time was 39 % and 38 % of total revenues for the second quarter and six months ended January 1, 2021, respectively.

Total revenue recognized under long-term contracts over time was 55 % and 52 % of total revenues for the third quarter and nine months ended April 1, 2022, respectively.

Total revenue recognized under long-term contracts over time was 47 % and 41 % of total revenues for the third quarter and nine months ended April 2, 2021, respectively.

The Company generally does not provide its customers with rights of product return other than those related to assurance warranty provisions that permit repair or replacement of defective goods over a period of 12 to 36 months.

24 unchanged sentences

Contract balances are reported in a net position on a contract-by-contract basis.

The contract asset balances were $ 193,803 and $ 162,921 as of December 31, 2021 and July 2, 2021, respectively.

The contract asset balance increased due to growth in revenue recognized over time and timing of milestone billings under long-term contracts during the six months ended December 31, 2021.

The contract liability balances were $ 34,410 and $ 35,201 as of December 31, 2021 and July 2, 2021, respectively.

The decrease was due to timing of milestone billings across multiple programs.

Revenue recognized for the second quarter and six months ended December 31, 2021 that was included in the contract liability balance a t July 2, 2021 was $ 5,151 and $ 18,288 , respectively.

Revenue recognized for the second quarter and six months ended January 1, 2021 that was included in the contract liability balance at July 3, 2020 was $ 4,336 and $ 13,366 , respectively.

The contract asset balances were $ 242,304 and $ 162,921 as of April 1, 2022 and July 2, 2021, respectively.

The contract asset balance increased due to growth in revenue recognized over time as well as timing of milestone billings under long-term contracts during the nine months ended April 1, 2022.

The contract liability balances were $ 20,802 and $ 35,201 as of April 1, 2022 and July 2, 2021, respectively.

The decrease was due to the recognition of revenue across multiple programs.

Revenue recognized for the third quarter and nine months ended April 1, 2022 that was included in the contract liability balance a t July 2, 2021 was $ 6,263 and $ 24,551 , respectively.

Revenue recognized for the third quarter and nine months ended April 2, 2021 that was included in the contract liability balance at July 3, 2020 was $ 2,133 and $ 15,499 , respectively.

R EMAINING P ERFORMANCE O BLIGATIONS

1 unchanged sentence

The definition of remaining performance obligations excludes contracts with original expected durations of less than one year, as well as those contracts that provide the customer with the right to cancel or terminate the order with no substantial penalty, even if the Company’s historical experience indicates the likelihood of cancellation or termination is remote.

As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 441,675 .

As of April 1, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 453,850 .

The Company expects to recognize approximately 68 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

1 unchanged sentence

Weighted-average shares were calculated as follows:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

Basic weighted-average shares outstanding 55,590 55,146 55,495 55,033

1 unchanged sentence

Diluted weighted-average shares outstanding 56,027 55,526 55,495 55,434

Equity instruments to purchase 408 and 434 shares of common stock were not included in the calculation of diluted net earnings per share for the second quarter and six months ended December 31, 2021, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 114 and 2 shares of common stock were not included in the calculation of diluted net earnings per share for the second quarter and six months ended January 1, 2021, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 246 and 386 shares of common stock were not included in the calculation of diluted net earnings per share for the third quarter and nine months ended April 1, 2022, respectively, because the equity instruments were anti-dilutive.

Equity instruments to purchase 38 and 13 shares of common stock were not included in the calculation of diluted net earnings per share for the third quarter and nine months ended April 2, 2021, respectively, because the equity instruments were anti-dilutive.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

52 unchanged sentences

Net purchase price $ 89,182

The amounts above represent the preliminary fair value estimates as of December 31, 2021 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates .

The preliminary identifiable intangible asset estimate includes customer relationships of $ 18,450 with a useful life of 11 years, completed technology of $ 9,450 with a useful life of 10 years and backlog of $ 2,363 with a useful life of two years .

The amounts above represent the preliminary fair value estimates as of April 1, 2022 and are subject to subsequent adjustment as the Company obtains additional information during the measure ment period and finalizes its fair value estimates.

The preliminary identifiable intangible asset estimate includes customer relationships of $ 27,310 with a useful life of 20 years, completed technology of $ 7,260 with a useful life of 8 years and backlog of $ 410 with a useful life of 2 years.

Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

1 unchanged sentence

The goodwill from this acquisition is reported in the Microelectronics reporting unit.

The revenues and loss before income taxes from Atlanta Micro included in the Company's consolidated results for the second quarter ended December 31, 2021 were $ 1,617 and $( 220 ), respectively.

The revenues and loss before income taxes from Atlanta Micro included in the Company's consolidated results for the third quarter ended April 1, 2022 were $ 3,409 and $ 365 , respectively.

The revenues and loss before income taxes from Atlanta Micro included in the Company's consolidated results for the nine months ended April 1, 2022 were $ 5,026 and $ 585 , respectively.

A VALEX A CQUISITION

On September 27, 2021, the Company signed a definitive agreement to acquire Avalex Technologies (“Avalex”) for a purchase price of $ 155,000 , subject to net working capital and net debt adjustments.

On November 5, 2021, the transaction closed and the Company acquired Avalex.

On November 5, 2021, the transaction

closed and the Company acquired Avalex.

Based in Gulf Breeze, Florida, Avalex is a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders, and warning systems.

20 unchanged sentences

Net purchase price $ 153,994

T he amounts above represent the preliminary fair value estimates as of April 1, 2022 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates.

The preliminary identifiable intangible asset estimate includes customer relationships of $ 41,880 with a useful life of 9 years, completed technology of $ 14,430 with a useful life of 7 years and backlog of $ 5,050 with a useful life of one year .

3 unchanged sentences

The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes.

As of December 31, 2021, the Company ha d $ 82,700 of goodwill deductible for tax purposes.

The revenues and loss before income taxes from Avalex included in the Company's consolidated results for the second quarter ended December 31, 2021 were $ 4,427 and $( 1,097 ), respectively.

As of April 1, 2022, the Company had $ 80,786 of goodwill deductible for tax purposes.

The revenues and income before income taxes from Avalex included in the Company's consolidated results for the third quarter and ended April 1, 2022 were $ 8,908 and $ 726 , respectively.

The revenues and loss before income taxes from Avalex included in the Company's consolidated results for the nine months ended April 1, 2022 were $ 13,335 and $ 370 , respectively.

P ENTEK A CQUISITION

25 unchanged sentences

Net purchase price $ 65,001

The preliminary identifiable intangible asset estimate includes customer relationships of $ 15,560 with a useful life of 21 years, completed technology of $ 6,340 with a useful life of seven years and backlog of $ 2,210 with a useful life of one year .

The amounts above represent the preliminary fair value estimates as of April 1, 2022 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates.

The preliminary identifiable intangible asset estimate includes customer relationships of $ 15,560 with a useful life of 21 years, completed technology of $ 6,340 with a useful life of 7 years and backlog of $ 2,210 with a useful life of one year .

Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.

3 unchanged sentences

The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes.

As of December 31, 2021, the Company ha d $ 29,216 of goodwill deductible for tax purposes.

As of April 1, 2022, the Company ha d $ 28,893 of goodwill deductible for tax purposes.

P HYSICAL O PTICS C ORPORATION A CQUISITION

32 unchanged sentences

The Company determined the carrying value of long-term debt approximated fair value due to variable interest rates charged on the borrowings, which reprice frequently.

As of December 31, 2021 , the Company had no material fin ancial instruments required to be measured at fair value.

As of April 1, 2022, the Company had no material financial instruments required to be measured at fair value.

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value, and consists of materials, labor and overhead.

4 unchanged sentences

Inventory was comprised of the following:

December 31, 2021 July 2, 2021

April 1, 2022 July 2, 2021

Raw materials $ 167,403 $ 141,774

16 unchanged sentences

In the first quarter ended October 1, 2021, the Company assigned goodwill to the new reporting units based on the relative fair value of transferred operations.

The following table sets forth the changes in the carrying amount of goodw ill for the six months ended December 31, 2021 :

The following table sets forth the changes in the carrying amount of goodw ill for the nine months ended April 1, 2022 :

Balance at July 2, 2021 $ 804,906

3 unchanged sentences

Goodwill arising from the Atlanta Micro acquisition 58,014

Balance at December 31, 2021 $ 942,346

Balance at April 1, 2022 $ 937,752

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.

Restructuring

During the six months ended December 31, 2021, the Company incurred $ 16,076 of restructuring and other charges.

Restructuring and other charges of $ 8,667 related to third-party consulting costs associated with 1MPACT.

The remaining $ 7,409 related to severance costs associated with the elimination of approximately 100 employees in manufacturing, SG&A and R&D based on changes in the business environment and to align with the internal organizational changes completed under 1MPACT.

All of the restructuring and other charges are classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive (Loss) Income and any remaining severance obligations are expected to be paid within the next twelve months.

Restructuring and Other Charges

During the nine months ended April 1, 2022, the Company incurred $ 22,424 of restructuring and other charges.

Restructuring and other charges during the nine months ended April 1, 2022 primarily related to 1MPACT including $ 14,149 of third-party consulting costs, as well as $ 7,515 of severance costs associated with the elimination of approximately 110 positions across manufacturing, SG&A and R&D based on ongoing talent and workforce optimization efforts.

In addition, the nine months ended April 1, 2022 includes $ 760 of costs for facility optimization efforts associated with 1MPACT, including $ 544 related to lease asset impairment.

All of the restructuring and other charges are classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) and any remaining severance obligations are expected to be paid within the next twelve months.

The restructuring liability is classified as Accrued expenses in the Consolidated Balance Sheets.

The following table presents the detail of activity for the Company’s restructuring plans:

The following table presents the detail of activity for the Company’s liability for restructuring and other charges:

Severance Facilities

& Other Total

Balance at July 2, 2021 $ 1,006 $ — $ 1,006

1 unchanged sentence

Cash paid ( 4,688 ) — ( 4,688 )

Balance at December 31, 2021 $ 5,705

The Company recorded an income tax (benefit) provision of $( 155 ) and $ 4,433 on a (loss) income before income taxes of $( 2,794 ) and $ 17,119 for the second quarters ended December 31, 2021 and January 1, 2021, respectively.

The Company recorded an income tax (benefit) provision of $( 596 ) and $ 6,631 on (loss) income before income taxes of $( 10,375 ) and $ 35,115 for the six months ended December 31, 2021 and January 1, 2021, respectively.

During the second quarters ended December 31, 2021 and January 1, 2021, the Company recognized a discrete tax provision (benefit) of $ 163 and $( 130 ) related to stock-based compensation shortfalls and windfalls, respectively.

During the six months ended December 31, 2021 and January 1, 2021, the Company recognized a discrete tax provision (benefit) of $ 878 and $( 2,610 ) related to stock-based compensation shortfalls and windfalls, respectively.

The effective tax rate for the second quarters and six months ended December 31, 2021 and January 1, 2021 differed from the Federal statutory rate primarily due to Federal and State research and development credits, non-deductible compensation, stock-based compensation, and state taxes.

In addition, during the second quarter ended December 31, 2021, the Company had certain unbenefited deferred tax assets.

During the second quarter ended December 31, 2021, the Company recorded an unrecognized tax benefit of $ 693 related to acquired research and development carryforward credits.

Balance at April 1, 2022 $ 3,833 $ 216 $ 4,049

The Company recorded an income tax provision of $ 2,102 and $ 5,362 on income before income taxes of $ 6,241 and $ 20,997 for the third quarters ended April 1, 2022 and April 2, 2021, respectively.

The Company recorded an income tax provision of $ 1,506 and $ 11,993 on (loss) income before income taxes of $( 4,134 ) and $ 56,112 for the nine months ended April 1, 2022 and April 2, 2021, respectively.

During the third quarters ended April 1, 2022 and April 2, 2021, the Company recognized a discrete tax provision (benefit) of $ 28 and $( 175 ) related to stock-based compensation shortfalls and windfalls, respectively.

During the nine months ended April 1, 2022 and April 2, 2021, the Company recognized a discrete tax provision (benefit) of $ 906 and $( 2,785 ) related to stock-based compensation shortfalls and windfalls, respectively.

The effective tax rate for the third quarters and nine months ended April 1, 2022 and April 2, 2021 differed from the Federal statutory rate primarily due to Federal and State research and development credits, non-deductible compensation, stock-based compensation, and state taxes.

In addition, during the third quarter ended April 1, 2022, the Company had certain unbenefited deferred tax assets.

During the third quarter ended April 1, 2022, there were no material changes to the Company's unrecognized tax positions.

Within the calculation of the Company's annual effective tax rate, the Company has used assumptions and estimates that may change as a result of future guidance and interpretation from the Internal Revenue Service (“IRS”).

R EVOLVING C REDIT F ACILITY

On September 28, 2018, the Company amended the Revolver to increase and extend the borrowing capacity to a $ 750,000 , 5-year revolving credit line, with the maturity extended to September 28, 2023.

As of December 31, 2021, the Company's outstanding balance of unamortized deferred financing costs was $ 2,353 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive (Loss) Income on a straight line basis over the term of the Revolver.

As of December 31, 2021, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 451,500 against the Revolver, resulting in interest expense of $ 1,094 and $ 1,689 for the second quarter and six months ended December 31, 2021, respectively.

There were outstanding letters of credit of $ 963 as of December 31, 2021.

On February 28, 2022, the Company amended the Revolver to increase and extend the borrowing capacity to a $ 1,100,000 , 5-year revolving credit line, with the maturity extended to February 28, 2027.

As of April 1, 2022, the Company's outstanding balance of unamortized deferred financing costs was $ 4,629 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss) on a straight line basis over the term of the Revolver.

The Revolver has a 5-year maturity and will mature on February 28, 2027.

Interest Rates and Fees

Borrowings under the Revolver bear interest, at the Company’s option, at floating rates tied to Secured Overnight Financing Rate ("SOFR") or the prime rate plus an applicable percentage in the case of dollar denominated loans or, in the case of certain other currencies, such alternative floating rates as agreed.

The interest rate applicable to outstanding loans has initially been set at SOFR plus 1.250 % and in future fiscal quarters will be established pursuant to a pricing grid based on the Company’s total net leverage ratio.

In addition to interest on the aggregate outstanding principal amounts of any borrowings, the Company will also pay a quarterly commitment fee on the unutilized commitments under the Revolver, which fee has initially been set at 0.20 % per annum and in future fiscal quarters will be established pursuant to a pricing grid based on the Company’s total net leverage ratio.

The Company will also pay customary letter of credit and agency fees.

Covenants and Events of Default

The Revolver provides for customary negative covenants, including, among other things and subject to certain significant exceptions, restrictions on the incurrence of debt or guarantees, the creation of liens, the making of certain investments, loans and acquisitions, mergers and dissolutions, the sale of assets including capital stock of subsidiaries, the payment of dividends, the repayment or amending of junior debt, altering the business conducted, engaging in transactions with affiliates and entering into agreements limiting subsidiary dividends and distributions.

The Revolver also requires the Company to comply with certain financial covenants, including a quarterly minimum consolidated cash interest charge ratio test and a quarterly maximum consolidated total net leverage ratio test.

The Revolver also provides for customary representations and warranties, affirmative covenants and events of default (including, among others, the failure to make required payments of principal and interest, certain insolvency events, and an event of default upon a change of control).

If an event of default occurs, the lenders under the Revolver will be entitled to take various actions, including the termination of unutilized commitments, the acceleration of amounts outstanding under the Revolver and all actions permitted to be taken by a secured creditor.

Guarantees and Security

The Company’s obligations under the Revolver are guaranteed by certain of the Company’s material domestic wholly-owned restricted subsidiaries (the “Guarantors”).

The obligations of both the Company and the Guarantors are secured by a perfected security interest in substantially all of the assets of the Company and the Guarantors, in each case, now owned or later acquired, including a pledge of all of the capital stock of substantially all of the Company’s domestic wholly-owned restricted subsidiaries and 65 % of the capital stock of certain of its foreign restricted subsidiaries, subject in each case to the exclusion of certain assets and additional exceptions.

As of April 1, 2022, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 451,500 against the Revolver, resulting in interest expense of $ 1,664 and $ 3,353 for the third quarter and nine months ended April 1, 2022, respectively.

There were outstanding letters of credit of $ 963 as of April 1, 2022.

Employee Benefit Plan

5 unchanged sentences

The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions of the projected benefit obligation of the Plan.

The Plan's funded status at December 31, 2021 was a net liability of $ 9,833 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 48 and $ 96 in AOCL during the second quarter and six months ended December 31, 2021.

The Company recorded a net gain of $ 31 and $ 62 in AOCL during the second quarter and six months ended January 1, 2021.

The Company recognized net periodic benefit costs of $ 269 and $ 538 associated with the Plan for the second quarter and six months ended December 31, 2021.

The Company recognized net periodic benefit costs of $ 420 and $ 833 associated with the Plan for the second quarter and six months ended January 1, 2021, respectively.

The Plan's funded status at April 1, 2022 was a net liability of $ 9,661 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 48 and $ 144 in AOCI during the third quarter and nine months ended April 1, 2022.

The Company recorded a net gain of $ 30 and $ 92 in AOCI during the third quarter and nine months ended April 2, 2021.

The Company recognized net periodic benefit costs of $ 267 and $ 805 associated with the Plan for the third quarter and nine months ended April 1, 2022.

The Company recognized net periodic benefit costs of $ 420 and $ 1,253 associated with the Plan for the third quarter and nine months ended April 2, 2021, respectively.

The Company's total expected employer contributions to the Plan during fiscal 2022 are $ 1,165 .

19 unchanged sentences

S TOCK I NCENTIVE P LANS

At December 31, 2021, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 6,782 shares, including 710 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”) and 3,000 shares approved by the Company's shareholders on October 28, 2020.

At April 1, 2022, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 6,782 shares, including 710 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”) and 3,000 shares approved by the Company's shareholders on October 28, 2020.

The 2018 Plan replaced the 2005 Plan.

3 unchanged sentences

Stock options must be granted with an exercise price of not less than 100% of the fair value of the Company’s common stock on the date of grant and the options generally have a term of seven years .

There were 3,380 shares available for future grant under the 2018 Plan at December 31, 2021.

There were 366 shares available for future grant under the 2018 Plan at April 1, 2022.

As part of the Company's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 2018 Plan.

3 unchanged sentences

The performance targets generally include the achievement of internal performance targets in relation to a peer group of companies.

On February 7, 2022, the Company’s Board of Directors approved an equity retention plan at the recommendation of the Company’s Human Capital and Compensation Committee, after consultation with its independent compensation consultant.

Employees participating in the equity retention plan were granted their annual equity awards for fiscal 2023 on February 15, 2022, which is approximately six months earlier than the Company’s typical annual cycle for such grants.

On February 15, 2022, the Human Capital and Compensation Committee expanded the scope of the equity retention plan by approving a pool of restricted stock unit awards for non-executive employees.

These awards were intended to recognize the recipients’ substantial contributions, to retain and motivate the recipients in the current challenging industry environment and labor market, and to reinforce the alignment of the recipients’ interests with the Company’s shareholders.

The vesting of such awards was conditioned on shareholder approval of sufficient additional shares for the 2018 Plan for the Company to deliver the shares to satisfy the awards, and with awards expiring on the seventh anniversary of the grant date if shareholder approval is not obtained prior to such date.

E MPLOYEE S TOCK P URCHASE P LAN

At December 31, 2021, the aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 2,300 shares, including 500 shares approved by the Company's shareholders on October 28, 2020.

At April 1, 2022, the aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 2,300 shares, including 500 shares approved by the Company's shareholders on October 28, 2020.

Under the ESPP, rights are granted to purchase shares of common stock at 85 % of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period.

The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10 % of an employee’s compensation as defined in the ESPP.

There were 54 and 46 shares issued under the ESPP during the six months ended December 31, 2021 and January 1, 2021, respectively.

Shares available for future purchase under the ESPP totaled 374 at December 31, 2021.

There were 54 and 46 shares issued under the ESPP during the nine months ended April 1, 2022 and April 2, 2021, respectively.

Shares available for future purchase under the ESPP totaled 374 at April 1, 2022.

S TOCK A WARD A CTIVITY

6 unchanged sentences

Forfeited ( 203 ) 67.61

Outstanding at December 31, 2021 1,255 $ 64.31

Outstanding at April 1, 2022 2,297 $ 57.59

S TOCK - BASED C OMPENSATION E XPENSE

The Company recognizes expense for its share-based payment plans in the Consolidated Statements of Operations and Comprehensive (Loss) Income in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).

The Company had $ 1,087 and $ 796 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended December 31, 2021 and July 2, 2021, respectively.

The Company recognizes expense for its share-based payment plans in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).

The Company had $ 1,318 and $ 796 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended April 1, 2022 and July 2, 2021, respectively.

Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period, net of estimated forfeitures.

The following table presents share-based compensation expenses included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

The following table presents share-based compensation expenses included in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) :

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

Cost of revenues $ 467 $ 559 $ 1,348 $ 1,223

12 unchanged sentences

Europe Asia Pacific Eliminations Total

SECOND QUARTER ENDED DECEMBER 31, 2021

THIRD QUARTER ENDED APRIL 1, 2022

Net revenues to unaffiliated customers $ 243,100 $ 9,216 $ 759 $ — $ 253,075

1 unchanged sentence

Net revenues $ 242,371 $ 10,040 $ 759 $ ( 95 ) $ 253,075

SECOND QUARTER ENDED JANUARY 1, 2021

THIRD QUARTER ENDED APRIL 2, 2021

Net revenues to unaffiliated customers $ 246,231 $ 10,482 $ 144 $ — $ 256,857

1 unchanged sentence

Net revenues $ 246,282 $ 11,216 $ 144 $ ( 785 ) $ 256,857

SIX MONTHS ENDED DECEMBER 31, 2021

NINE MONTHS ENDED APRIL 1, 2022

Net revenues to unaffiliated customers $ 666,336 $ 31,211 $ 921 $ — $ 698,468

1 unchanged sentence

Net revenues $ 668,754 $ 33,363 $ 921 $ ( 4,570 ) $ 698,468

SIX MONTHS ENDED JANUARY 1, 2021

NINE MONTHS ENDED APRIL 2, 2021

Net revenues to unaffiliated customers $ 639,851 $ 32,957 $ 346 $ — $ 673,154

14 unchanged sentences

The following table presents the Company's net revenue by end user for the periods presented:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

$ 227,254 $ 217,255 $ 603,094 $ 577,093

8 unchanged sentences

The following table presents the Company's net revenue by end application for the periods presented:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

$ 50,033 $ 81,481 $ 160,109 $ 238,650

13 unchanged sentences

The following table presents the Company's net revenue by product grouping for the periods presented:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

Components (1)

14 unchanged sentences

The following table presents the Company's net revenue by platform for the periods presented:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

$ 126,176 $ 120,640 $ 353,730 $ 299,551

9 unchanged sentences

Europe Asia Pacific Eliminations Total

December 31, 2021 $ 122,708 $ 4,672 $ 5 $ — $ 127,385

April 1, 2022 $ 121,294 $ 4,412 $ 3 $ — $ 125,709

July 2, 2021 $ 123,009 $ 5,509 $ 6 $ — $ 128,524

1 unchanged sentence

Customers comprising 10% or more of the Company’s revenues for the periods shown are as follows:

Second Quarters Ended Six Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Third Quarters Ended Nine Months Ended

April 1, 2022 April 2, 2021 April 1, 2022 April 2, 2021

Raytheon Technologies 15 % 18 % 15 % 22 %

Navy 14 % * 15 % *

Northrop Grumman Corporation 10 % * * *

Lockheed Martin Corporation

* 14 % * 15 %

Navy 14 % 16 % 15 % *

29 % 48 % 30 % 37 %

1 unchanged sentence

While the Company typically has customers from which it derives 10% or more of its revenue, the sales to each of these customers are spread across multiple programs and platforms.

There were no programs comprising 10% or more of the Company's revenues for the second quarter and six months ended December 31, 2021 and January 1, 2021.

There were no programs comprising 10% or more of the Company's revenues for the third quarter and nine months ended April 1, 2022 and April 2, 2021.

Commitments and Contingencies

6 unchanged sentences

The sales representative agreement provided for termination by either party upon 30 days written notice with ERA entitled to commissions for orders obtained by ERA with product shipment occurring prior to termination.

The Company responded to the complaint on July 28, 2021.

The Company believes the claims in the complaint are without merit and intends to defend itself vigorously.

The Company responded to the complaint in July 2021 and the arbitration proceeding has been scheduled for September 2022.

The Company believes the claims in the complaint are without merit and we intend to defend ourselves vigorously.

On December 7, 2021, counsel for National Technical Systems, Inc.

(“NTS”) sent the Company an environmental demand letter pursuant to Massachusetts General Laws Chapter 21E, Section 4A, and CERCLA 42 U.S.C.

Section 9601, related to a site that NTS formerly owned at 533 Main Street, Acton, Massachusetts.

Section 9601, related to a site that NTS formerly owned at 533 Main Street, Acton, MA.

NTS received a Notice of Responsibility from the Massachusetts Department of Environmental Protection (“MassDEP”) alleging trichloroethene, freon and 1,4-dioxane contamination in the groundwater emanating from NTS’s former site.

NTS alleges in its demand letter that the operations of a predecessor company to Mercury that was acquired in the Company’s acquisition of the Microsemi carve-out business that once owned and operated a facility at 531 Main Street, Acton, Massachusetts contributed to the groundwater contamination.

NTS is seeking payment by the Company of NTS’s costs for any required environmental remediation.

In November 2021, the Company responded to a request for information from MassDEP regarding the detection of PFAS (per- and polyfluoroakyl substances) in the Acton, Massachusetts Water District’s Conant public water supply wells near the former facility at 531 Main Street, Acton, Massachusetts at a level above the standard that MassDEP published for PFAS in October 2020.

In April 2022, the Company engaged in a meet and confer session with NTS pursuant to Massachusetts General Laws Chapter 21E, Section 4A to discuss the status of the environmental review performed by NTS and its licensed site professional.

In addition in November 2021, the Company responded to a request for information from MassDEP regarding the detection of PFAS (per- and polyfluoroakyl substances) in the Acton, MA Water District’s Conant public water supply wells near the former facility at 531 Main Street, Acton, MA at a level above the standard that MassDEP published for PFAS in October 2020.

It is too early to determine what responsibility, if any, the Company may have for these matters.

4 unchanged sentences

P URCHASE C OMMITMENTS

As of December 31, 2021, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

As of April 1, 2022, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

The purchase commitments covered by these agreements are for less than one year and aggregate to $ 187,927 .

4 unchanged sentences

Subsequent Events

On February 7, 2022, the Board of Directors approved an equity retention plan for Mercury’s executive leadership team and over 100 additional leaders.

Employees participating in the equity retention plan will be granted equity awards on February 15, 2022.

Consistent with the Company’s prior practice for granting equity awards, the number of shares to be granted on February 15, 2022 will be determined by dividing the target value for grantees by the average closing price of Mercury’s common stock during the 30 calendar days prior to February 15, 2022.

However, if the average closing price is lower than $55.00 per share, then a minimum of $ 55.00 per share will be used to calculate the number of shares to be granted.

Additional details about the equity retention plan are contained in the Current Report on Form 8-K filed by the Company with the SEC on February 8, 2022.

The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issued.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements