What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2023-02-07 · 141 added, 138 removed, 584 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

December 30, 2022 July 1, 2022

March 31, 2023 July 1, 2022

Current assets:

Cash and cash equivalents $ 64,441 $ 65,654

Accounts receivable, net of allowance for credit losses of $ 2,070 and $ 2,074 at December 30, 2022 and July 1, 2022, respectively

Accounts receivable, net of allowance for credit losses of $ 1,090 and $ 2,074 at March 31, 2023 and July 1, 2022, respectively

125,562 144,494

15 unchanged sentences

Accrued compensation 26,704 44,813

Income taxes payable 13,421 —

Deferred revenues and customer advances 54,700 15,487

13 unchanged sentences

85,000,000 shares authorized;

56,365,078 and 55,679,747 shares issued and outstanding at December 30, 2022 and July 1, 2022, respectively

56,673,677 and 55,679,747 shares issued and outstanding at March 31, 2023 and July 1, 2022, respectively

Additional paid-in capital 1,187,335 1,145,323

5 unchanged sentences

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

Net revenues $ 263,479 $ 253,075 $ 720,646 $ 698,468

8 unchanged sentences

Total operating expenses 88,335 89,799 262,131 271,392

Loss from operations ( 7,547 ) ( 387 ) ( 14,741 ) ( 5,962 )

Income (loss) from operations 1,954 9,955 ( 12,787 ) 3,993

Interest income 80 110 329 124

Interest expense ( 6,711 ) ( 1,664 ) ( 17,848 ) ( 3,353 )

Other income (expense), net 846 ( 1,318 ) ( 2,799 ) ( 2,738 )

Loss before income taxes ( 13,071 ) ( 2,794 ) ( 28,428 ) ( 10,375 )

Income tax benefit ( 2,151 ) ( 155 ) ( 3,173 ) ( 596 )

Net loss $ ( 10,920 ) $ ( 2,639 ) $ ( 25,255 ) $ ( 9,779 )

Basic net loss per share $ ( 0.19 ) $ ( 0.05 ) $ ( 0.45 ) $ ( 0.18 )

Diluted net loss per share $ ( 0.19 ) $ ( 0.05 ) $ ( 0.45 ) $ ( 0.18 )

Other expense, net ( 613 ) ( 2,160 ) ( 3,412 ) ( 4,898 )

(Loss) income before income taxes ( 5,290 ) 6,241 ( 33,718 ) ( 4,134 )

Income tax (benefit) provision ( 10,446 ) 2,102 ( 13,619 ) 1,506

Net income (loss) $ 5,156 $ 4,139 $ ( 20,099 ) $ ( 5,640 )

Basic net earnings (loss) per share $ 0.09 $ 0.07 $ ( 0.36 ) $ ( 0.10 )

Diluted net earnings (loss) per share $ 0.09 $ 0.07 $ ( 0.36 ) $ ( 0.10 )

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 56,896 56,027 56,310 55,495

Comprehensive loss:

Net loss $ ( 10,920 ) $ ( 2,639 ) $ ( 25,255 ) $ ( 9,779 )

Comprehensive income (loss):

Net income (loss) $ 5,156 $ 4,139 $ ( 20,099 ) $ ( 5,640 )

Change in fair value of derivative instruments, net of tax ( 2,687 ) — 1,275 —

2 unchanged sentences

Total other comprehensive (loss) income, net of tax ( 2,661 ) 280 1,791 351

Total comprehensive loss $ ( 11,365 ) $ ( 2,860 ) $ ( 20,803 ) $ ( 9,708 )

Total comprehensive income (loss) $ 2,495 $ 4,419 $ ( 18,308 ) $ ( 5,289 )

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

2 unchanged sentences

(In thousands)

For the Second Quarter Ended December 30, 2022

For the Third Quarter Ended March 31, 2023

Common Stock Additional

4 unchanged sentences

Shares Amount

Balance at September 30, 2022 56,180 $ 562 $ 1,156,501 $ 371,439 $ 10,428 $ 1,538,930

Balance at December 30, 2022 56,365 $ 564 $ 1,173,026 $ 360,519 $ 9,983 $ 1,544,092

Issuance of common stock under employee stock incentive plans 225 2 ( 2 ) — — —

Issuance of common stock under employee stock purchase plan 57 1 2,392 — — 2,393

Issuance of common stock under defined contribution plan 84 1 4,189 — — 4,190

Retirement of common stock — — — — — —

Stock-based compensation — — 10,122 — — 10,122

Net loss — — — ( 10,920 ) — ( 10,920 )

Net income — — — 5,156 — 5,156

Other comprehensive loss — — — — ( 2,661 ) ( 2,661 )

Balance at December 30, 2022 56,365 $ 564 $ 1,173,026 $ 360,519 $ 9,983 $ 1,544,092

For the Second Quarter Ended December 31, 2021

Balance at March 31, 2023 56,674 $ 567 $ 1,187,335 $ 365,675 $ 7,322 $ 1,560,899

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

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 Six Months Ended December 30, 2022

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 Nine Months Ended March 31, 2023

Common Stock Additional

12 unchanged sentences

Other comprehensive income — — — — 1,791 1,791

Balance at December 30, 2022 56,365 $ 564 $ 1,173,026 $ 360,519 $ 9,983 $ 1,544,092

For the Six Months Ended December 31, 2021

Balance at March 31, 2023 56,674 $ 567 $ 1,187,335 $ 365,675 $ 7,322 $ 1,560,899

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

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

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

2 unchanged sentences

(In thousands)

Six Months Ended

December 30, 2022 December 31, 2021

Nine Months Ended

March 31, 2023 April 1, 2022

Cash flows from operating activities:

28 unchanged sentences

Purchase and retirement of common stock ( 63 ) ( 7,716 )

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

Net cash provided by financing activities 62,330 243,638

Effect of exchange rate changes on cash and cash equivalents 121 ( 404 )

Net increase (decrease) in cash and cash equivalents 11,290 ( 8,670 )

Net decrease in cash and cash equivalents ( 1,213 ) ( 22,145 )

Cash and cash equivalents at beginning of period 65,654 113,839

5 unchanged sentences

Non-cash investing activity:

Purchases of property and equipment incurred but not yet paid $ 5,105 $ 4,615

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

16 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 1, 2022 which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 16, 2022.

The results for the second quarter and six months ended December 30, 2022 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 March 31, 2023 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 2023 are to the quarter ended December 30, 2022.

There were 13 weeks during the second quarters ended December 30, 2022 and December 31, 2021, respectively.

There were 26 weeks during the six months ended December 30, 2022 and December 31, 2021, respectively.

All references to the third quarter of fiscal 2023 are to the quarter ended March 31, 2023.

There were 13 weeks during the third quarters ended March 31, 2023 and April 1, 2022, respectively.

There were 39 weeks during the nine months ended March 31, 2023 and April 1, 2022, respectively.

U SE OF E STIMATES

9 unchanged sentences

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

currency transactions are included in Other expense, net in the Consolidated Statements of Operations and Comprehensive Loss 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.

A CCOUNTS R ECEIVABLE

13 unchanged sentences

The Company has continued involvement in servicing accounts receivable under the Purchase Agreement, but no retained interests related to the factored accounts receivable.

On March 14, 2023, the Company amended the RPA to increase the capacity from $ 20,000 to $ 30,600 .

Proceeds for amounts factored by the Company are recorded as an increase to cash and a reduction to accounts receivable outstanding in the Consolidated Balance Sheets.

Cash Flows attributable to factoring are reflected as cash flows from operating activities in the Company's Consolidated Statements of Cash Flows.

Factoring fees are included as selling, general and administrative expenses in the Company's Consolidated Statements of Operations and Comprehensive Loss.

The Company factored accounts receivables and incurred factoring fees of approximately $ 20,000 and $138, respectively for the second quarter and six months ended December 30, 2022.

The Company did not factor any accounts receivable or incur any factoring fees for the second quarter and six months ended December 31, 2021.

Factoring fees are included as selling, general and administrative expenses in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company had $ 24,502 factored in accounts receivables as of March 31, 2023 and incurred factoring fees of approximately $ 179 and $ 317 for the third quarter and nine months ended March 31, 2023, respectively.

The Company did not factor any accounts receivable or incur any factoring fees for the third quarter and nine months ended April 1, 2022.

The Company records the fair value of its derivative financial instruments in its condensed consolidated financial statements in Other non-current assets, or Other non-current liabilities depending on their net position, regardless of the purpose or intent for holding the derivative contract.

Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of Other comprehensive income (“OCI”).

Changes in the fair value of cash flow hedges that qualify for hedge accounting treatment are recorded in OCI and reclassified into earnings in the same line item on the Consolidated Statements of Operations and Comprehensive Income as the impact of the hedged transaction when the underlying contract matures and, for interest rate exposure derivatives, over the term of the corresponding debt instrument.

Changes in the fair value of cash flow hedges that qualify for hedge accounting treatment are recorded in OCI and reclassified into earnings in the same line item on the Consolidated Statements of Operations and Comprehensive Income (Loss) as the impact of the hedged transaction when the underlying contract matures and, for interest rate exposure derivatives, over the term of the corresponding debt instrument.

Changes in the fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur.

All derivatives for the Company qualified for hedge accounting as of December 30, 2022.

All derivatives for the Company qualified for hedge accounting as of March 31, 2023.

R EVENUE R ECOGNITION

6 unchanged sentences

Each promised good or service within a contract is accounted for separately under the guidance of ASC 606 if they are distinct.

Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single

performance obligation with other goods or services that together meet the criteria for being distinct.

Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single performance obligation with other goods or services that together meet the criteria for being distinct.

The appropriate allocation of the transaction price and recognition of revenue is then determined for the bundled performance obligation.

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 44 % and 40 % of revenues for the second quarter and six months ended December 30, 2022, respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 52 % and 49 % 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 48 % and 43 % of revenues for the third quarter and nine months ended March 31, 2023, 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 % for the third quarter and nine months ended April 1, 2022, respectively.

The Company also engages in over time 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 over time was 56 % and 60 % of total revenues for the second quarters and six months ended December 30, 2022, respectively.

Total revenue recognized over time was 48 % and 51 % of total revenues for the second quarter and six months ended December 31, 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.

Total revenue recognized over time was 52 % and 57 % of total revenues for the third quarters and nine months ended March 31, 2023, respectively.

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

The Company accrues for anticipated warranty costs upon product shipment.

20 unchanged sentences

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

The contract asset balances were $ 333,491 and $ 303,356 as of December 30, 2022 and July 1, 2022, respectively.

The contract asset balance increased due to growth in revenue recognized under over time contracts, as well as the timing of program milestone billings during the second quarter ended December 30, 2022.

The contract liability balances were $ 39,888 and $ 15,966 as of December 30, 2022 and July 1, 2022, respectively.

The contract asset balances were $ 376,722 and $ 303,356 as of March 31, 2023 and July 1, 2022, respectively.

The contract asset balance increased due to growth in revenue recognized under over time contracts, as well as the timing of program milestone billings during the third quarter ended March 31, 2023.

The contract liability balances were $ 55,276 and $ 15,966 as of March 31, 2023 and July 1, 2022, respectively.

The increase was due to a higher volume of advance milestone billing events as well as timing of revenue conversion across multiple programs.

Revenue recognized for the second quarter and six months ended December 30, 2022 that was included in the contract liability balance at July 1, 2022 was $ 3,068 and $ 7,737 , respectively.

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

Revenue recognized for the third quarter and nine months ended March 31, 2023 that was included in the contract liability balance at July 1, 2022 was $ 2,681 and $ 10,418 , respectively.

Revenue recognized for the third quarter and nine months ended April 1, 2022 that was included in the contract liability balance at July 2, 2021 was $ 6,263 and $ 24,551 , 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 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 580,318 .

As of March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 505,791 .

The Company expects to recognize approximately 63 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

L ONG -L IVED A SSETS

Long-lived assets primarily include property and equipment, intangible assets and ROU assets.

Long-lived assets primarily include property and equipment, intangible assets and right-of-use ("ROU") assets.

The Company regularly evaluates its long-lived assets for events and circumstances that indicate a potential impairment in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”).

2 unchanged sentences

If impairment is indicated, the asset is written down to its estimated fair value.

As part of the Company's assessment over the future benefit of certain long-lived assets in the second quarter ended December 30, 2022, the Company identified an immaterial correction of an error in the useful lives assigned to certain leasehold improvements resulting in a cumulative adjustment to depreciation expense of $ 3.1 million recorded during the second quarter and six months ended December 30, 2022.

This resulted in a cumulative adjustment to depreciation expense of approximately $ 3,100 , which was recorded during the second quarter ended December 30, 2022.

W EIGHTED -A VERAGE S HARES

Weighted-average shares were calculated as follows:

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

Basic weighted-average shares outstanding 56,511 55,590 56,310 55,495

1 unchanged sentence

Diluted weighted-average shares outstanding 56,896 56,027 56,310 55,495

Equity instruments to purchase 511 and 300 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 30, 2022, respectively, because the equity instruments were anti-dilutive.

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 792 and 1,873 shares of common stock were not included in the calculation of diluted net earnings per share for the third quarter and nine months ended March 31, 2023, 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.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

7 unchanged sentences

This ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period.

The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

The impact to the Company's consolidated financial statements and related disclosures of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in fiscal 2023 and beyond.

R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS

77 unchanged sentences

The Company is amortizing the amount over 15 years for tax purposes.

As of December 30, 2022, the Compan y had $ 77,459 of goodwill deductible for tax purposes.

As of March 31, 2023, the Compan y had $ 76,068 of goodwill deductible for tax purposes.

Fair Value of Financial Instruments

Fair Value Measurements

December 30, 2022 Level 1 Level 2 Level 3

March 31, 2023 Level 1 Level 2 Level 3

Interest rate swap $ 3,244 $ — $ 3,244 $ —

5 unchanged sentences

The fair value of the Swap is estimated using a discounted cash flow analysis based on the contractual terms of the derivative, leveraging observable inputs other than quoted prices, such as interest rates.

As of December 30, 2022, the fair value of the Swap was a liability of $ 220 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

As of March 31, 2023, the fair value of the Swap was a liability of $ 3,244 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

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 30, 2022 July 1, 2022

March 31, 2023 July 1, 2022

Raw materials $ 235,668 $ 178,410

7 unchanged sentences

Accordingly, these were determined to be the Company's reporting units.

The following table sets forth the changes in the carrying amount of goodw ill for the six months ended December 30, 2022 :

The following table sets forth the changes in the carrying amount of goodw ill for the nine months ended March 31, 2023 :

Balance at July 1, 2022 $ 937,880

1 unchanged sentence

Goodwill adjustment for the Atlanta Micro acquisition 147

Balance at December 30, 2022 $ 938,093

Balance at March 31, 2023 $ 938,093

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

Restructuring

During the second quarter ended and six months ended December 30, 2022, the Company incurred $ 2,069 and $ 3,577 of restructuring and other charges, respectively.

During the third quarter and nine months ended March 31, 2023, the Company incurred $ 2,778 and $ 6,355 of restructuring and other charges, respectively.

The Company incurs restructuring and other charges in connection with management's decision to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain Company facilities, businesses and product lines.

3 unchanged sentences

These costs are associated with this discrete transformation initiative and are non-routine and may not be indicative of ongoing results.

Restructuring and other charges for the second quarter ended December 30, 2022 primarily related to 1MPACT including $ 1,039 of costs for facility optimization efforts, including $ 783 related to lease asset impairment, $ 595 of severance costs, as well as $ 435 of third-party consulting costs.

Restructuring and other charges for the six months ended December 30, 2022 primarily related to 1MPACT including $ 1,739 of third-party consulting costs, $ 1,039 of costs for facility optimization efforts, including $ 783 related to lease asset impairment, as well as $ 799 of severance costs.

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

Restructuring and other charges for the third quarter ended March 31, 2023 primarily related to $ 1,977 of severance costs, 1MPACT related costs consisting of $ 786 of costs for facility optimization efforts, including $ 556 related to lease asset impairment, as well as $ 15 of third party consulting costs.

Restructuring and other charges for the nine months ended March 31, 2023 primarily related to $ 2,776 of severance costs, 1MPACT related costs consisting of $ 1,825 of costs for facility optimization efforts, including $ 1,339 related to lease asset impairment, as well as $ 1,754 of third party consulting costs.

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 restructuring obligations are expected to be paid within the next twelve months.

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

5 unchanged sentences

Cash paid ( 5,312 ) ( 448 ) ( 5,760 )

Balance at December 30, 2022 $ 1,185 $ 62 $ 1,247

The Company recorded an income tax benefit of $ 2,151 and $ 155 on a loss before income taxes of $ 13,071 and $ 2,794 for the second quarters ended December 30, 2022 and December 31, 2021, respectively.

The Company recorded an income tax benefit of $ 3,173 and $ 596 on a loss before income taxes of $ 28,428 and $ 10,375 for the six months ended December 30, 2022 and December 31, 2021, respectively.

During the second quarter ended December 30, 2022, the Company recognized a tax benefit of $ 2,348 related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the statute of limitations.

During the six months ended December 30, 2022 and December 31, 2021, the Company recognized a tax provision of $ 1,745 and $ 878 related to stock compensation shortfalls, respectively.

The effective tax rate for the second quarters ended December 30, 2022 and December 31, 2021 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, stock compensation shortfalls and state taxes.

The effective tax rate for the second quarter ended December 30, 2022 also differed from the federal statutory rate due to the release of income tax reserves for previously unrecognized income tax benefits.

Balance at March 31, 2023 $ 2,186 $ 38 $ 2,224

The Company recorded an income tax (benefit) provision of $( 10,446 ) and $ 2,102 on a (loss) income before income taxes of $( 5,290 ) and $ 6,241 for the third quarters ended March 31, 2023 and April 1, 2022, respectively.

The Company recorded an income tax (benefit) provision of $( 13,619 ) and $ 1,506 on a loss before income taxes of $ 33,718 and $ 4,134 for the nine months ended March 31, 2023 and April 1, 2022, respectively.

For the third quarter ended March 31, 2023, the Company calculated the U.S.

income tax benefit using the discrete method which assumes the nine month period was the annual period as this was more appropriate given the facts and circumstances.

The Company determined that the application of the estimated annual effective tax rate (“AETR”) method generally required by ASC 740 is impractical given that normal deviations in the projected close to break-even pre-tax net income (loss) could result in a disproportionate and unreliable effective tax rate under the AETR method.

The tax benefit for the third quarter ended March 31, 2023 also includes a true-up to the prior quarters due to the change in methodology.

During the third quarter ended March 31, 2023, the Company concluded its income tax audit with the Internal Revenue Service for fiscal years 2016 through 2018 and recognized a tax benefit of $ 1,335 related to a release of income tax reserves for unrecognized income tax benefits.

During the nine months ended March 31, 2023, the Company recognized a tax benefit of $ 3,683 related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the statute of limitations.

During the nine months ended March 31, 2023 and April 1, 2022, the Company recognized a tax provision of $ 1,655 and $ 906 related to stock compensation shortfalls, respectively.

The effective tax rate for the third quarter and nine months ended March 31, 2023 and April 1, 2022 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation and state taxes.

The effective tax rate for the third quarter and nine months ended March 31, 2023 also differed from the federal statutory rate due to the release of income tax reserves for unrecognized income tax benefits.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022.

3 unchanged sentences

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 December 30, 2022, the Company's outstanding balance of unamortized deferred financing costs was $ 3,994 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensi ve Loss on a straight line basis over the term of the Revolver.

During the second quarter ended December 30, 2022, the Company borrowed $ 40,000 against the Revolver, which was subsequently repaid within the quarter.

As of December 30, 2022, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 511,500 against the Revolver, resulting in interest expense of $ 6,590 and $ 11,137 fo r the second quarter and six months ended December 30, 2022.

There were outstanding letters of cre dit of $ 963 a s of December 30, 2022.

As of March 31, 2023, the Company's outstanding balance of unamortized deferred financing costs was $ 3,681 , 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.

As of March 31, 2023, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 511,500 against the Revolver, resulting in interest expense of $ 6,711 and $ 17,848 for the third quarter and nine months ended March 31, 2023.

The Company had a total of approximately $ 1,000,000 of the Revolver available as of March 31, 2023, less outstanding borrowings of $ 511,500 .

There were outstanding letters of cre dit of $ 963 a s of March 31, 2023.

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 30, 2022 was a net liability of $ 4,647 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 48 and $ 96 in AOCI during the second quarter and six months ended December 30, 2022.

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

The Company recognized net periodic benefit costs of $ 220 and $ 441 associated with the Plan for the second quarter and six months ended December 30, 2022, respectively.

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, respectively.

The Plan's funded status at March 31, 2023 was a net liability of $ 4,589 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net gain of $ 46 and $ 142 in AOCI during the third quarter and nine months ended March 31, 2023.

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

The Company recognized net periodic benefit costs of $ 230 and $ 671 associated with the Plan for the third quarter and nine months ended March 31, 2023, respectively.

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, respectively.

The Company's total expected employer contributions to the Plan during fiscal 2023 are $ 1,093 .

2 unchanged sentences

The Company may also make optional contributions to the plan for any plan year at its discretion.

The Company had $ 965 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at December 30, 2022.

The Company had $ 1,868 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at March 31, 2023.

Stock-based 401(k) matching compensation cost is measured based on the value of the matching amount and is recognized as expense as incurred.

During the second quarter ended December 30, 2022, the Company recognized share-based matching contributions related to the 401(k) plan of $ 2,748 as compared to $ 1,711 of cash match during the second quarter ended December 31, 2021.

During the six months ended December 30, 2022, the Company recognized share-based matching contributions related to the 401(k) plan of $ 6,427 as compared to $ 3,822 of cash match during the six months ended December 31, 2021.

During the third quarter ended March 31, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $ 3,288 as compared to $ 2,145 of cash match during the third quarter ended April 1, 2022.

During the nine months ended March 31, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $ 9,715 as compared to $ 5,966 of cash match during the nine months ended April 1, 2022.

Shareholders' Equity

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On December 27, 2021, the Company's Board of Directors authorized and declared a dividend of one preferred share purchase right (a “Right”), payable on January 10, 2022, for each outstanding share of common stock par value $ 0.01 per share to the stockholders of record on that date.

Each Right entitles the registered holder to purchase from the Company a unit of Series A Junior Preferred Stock, par value $ 0.01 per share, of the Company at a designated price per unit, subject to adjustment.

The Rights will initially trade with, and will be inseparable from, the shares of common stock.

Each Right entitled the registered holder to purchase from the Company a unit of Series A Junior Preferred Stock, par value $ 0.01 per share, of the Company at a designated price per unit, subject to adjustment.

The Rights initially trade with, and are inseparable from, the shares of common stock.

On June 24, 2022, the Company amended the Rights Agreement, dated as of December 27, 2021, to increase the ownership threshold for a person to be an “Acquiring Person” (as defined in the Rights Agreement) from 7.5 % of common stock to 10 % of common stock ( 10 % of common stock to 20 % of common stock in the case of a passive institutional investor).

Additional details about the Rights Agreement are contained in the Current Reports on Form 8-K filed by the Company with the SEC on December 29, 2021 and June 24, 2022.

On October 26, 2022 the Stockholder Rights Plan expired.

On October 26, 2022 the Stockholder Rights Plan and the Rights thereunder expired.

Stock-Based Compensation

S TOCK I NCENTIVE P LANS

At December 30, 2022, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 7,862 shares, including 3,000 shares approved by the Company's shareholders on October 28, 2020 and 2,000 shares approved for future grant under the 2018 Plan by the Company's shareholders on October 26, 2022.

At March 31, 2023, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 7,862 shares, including 3,000 shares approved by the Company's shareholders on October 28, 2020 and 2,000 shares approved for future grant under the 2018 Plan by the Company's shareholders on October 26, 2022.

The 2018 Plan shares available for issuance also include 948 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”).

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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 2,054 available shares for future grant under the 2018 Plan at December 30, 2022.

There were 2,690 available shares for future grant under the 2018 Plan at March 31, 2023.

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.

Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets.

Performance awards vest based on the

requisite service period subject to the achievement of specific financial performance targets.

Based on the performance targets, some of these awards require graded vesting which results in more rapid expense recognition compared to traditional time-based vesting over the same vesting period.

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E MPLOYEE S TOCK P URCHASE P LAN

At December 30, 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.

At March 31, 2023, 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 57 and 54 shares issued under the ESPP during the six months quarters ended December 30, 2022 and December 31, 2021, respectively.

Shares available for future purchase under the ESPP totaled 256 at December 30, 2022.

There were 57 and 54 shares issued under the ESPP during the nine months ended March 31, 2023 and April 1, 2022, respectively.

Shares available for future purchase under the ESPP totaled 256 at March 31, 2023.

S TOCK A WARD A CTIVITY

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Forfeited ( 214 ) 55.74

Outstanding at December 30, 2022 1,947 $ 55.52

Outstanding at March 31, 2023 1,658 $ 55.08

S TOCK -B ASED C OMPENSATION E XPENSE

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

The Company had $ 1,710 and $ 1,229 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended December 30, 2022 and July 1, 2022, 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 $ 1,893 and $ 1,229 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended March 31, 2023 and July 1, 2022, 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:

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 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

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

Cost of revenues $ 630 $ 467 $ 1,666 $ 1,348

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Europe Asia Pacific Eliminations Total

SECOND QUARTER ENDED DECEMBER 30, 2022

THIRD QUARTER ENDED MARCH 31, 2023

Net revenues to unaffiliated customers $ 252,945 $ 10,525 $ 9 $ — $ 263,479

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Net revenues $ 254,739 $ 10,551 $ 9 $ ( 1,820 ) $ 263,479

SECOND QUARTER ENDED DECEMBER 31, 2021

THIRD QUARTER ENDED APRIL 1, 2022

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

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

SIX MONTHS ENDED DECEMBER 30, 2022

NINE MONTHS ENDED MARCH 31, 2023

Net revenues to unaffiliated customers $ 690,922 $ 29,708 $ 16 $ — $ 720,646

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Net revenues $ 692,795 $ 30,106 $ 16 $ ( 2,271 ) $ 720,646

SIX MONTHS ENDED DECEMBER 31, 2021

NINE MONTHS ENDED APRIL 1, 2022

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

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

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

$ 238,159 $ 227,254 $ 648,948 $ 603,094

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

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

$ 83,853 $ 50,033 $ 180,968 $ 160,109

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

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

Components (1)

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

Second Quarters Ended Six Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

$ 126,674 $ 126,176 $ 364,968 $ 353,730

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Europe Asia Pacific Eliminations Total

December 30, 2022 $ 118,299 $ 3,690 $ — $ — $ 121,989

March 31, 2023 $ 116,212 $ 3,270 $ — $ — $ 119,482

July 1, 2022 $ 122,712 $ 4,476 $ 3 $ — $ 127,191

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 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Lockheed Martin Corporation 12 % * 14 % 10 %

Third Quarters Ended Nine Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

Raytheon Technologies 18 % 15 % 14 % 15 %

Navy 11 % 14 % 11 % 15 %

Lockheed Martin Corporation 13 % * 14 % *

Northrop Grumman 11 % * 11 % *

Navy * 14 % 10 % 15 %

42 % 29 % 49 % 30 %

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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 quarters and six months ended December 30, 2022 and December 31, 2021.

There were no programs comprising 10% or more of the Company's revenues for the third quarters and nine months ended March 31, 2023 and April 1, 2022.

Commitments and Contingencies

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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 alleges in its demand letter that the operations of a predecessor company to Mercury which 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.

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P URCHASE C OMMITMENTS

As of December 30, 2022, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations.

As of March 31, 2023, 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 $ 142,698 .

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The Company received the cash settlement of $ 5,995 and these proceeds are classified within Operating Activities of the Consolidated Statements of Cash Flows.

During the third quarter and nine months ended March 31, 2023, the Company amortized $ 339 and $ 678 , respectively, of the gain, which is included within Other comprehensive income (loss).

Following the termination of the initial Swap the Company entered a new Swap agreement (“the Swap”) on September 29, 2022 with JPMorgan.

The Swap fixes $ 300,000 of the total $ 511,500 existing borrowings of outstanding borrowings under the Revolver at a rate of 3.79 %.

As of December 30, 2022, the fair value of the hedge was a liability of $ 220 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

During the second quarter ended December 30, 2022, the Company amortized $ 339 of the previous unrealized gain, which is included within Other comprehensive loss.

As of March 31, 2023, the fair value of the hedge was a liability of $ 3,244 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

The market risk associated with the Company’s derivative instrument is the result of interest rate movements that are expected to offset the market risk of the underlying arrangement.

The counterparty to the Swap is JPMorgan.

Based on the credit ratings of the Company’s counterparty as of December 30, 2022, nonperformance is not perceived to be a material risk.

Based on the credit ratings of the Company’s counterparty as of March 31, 2023, nonperformance is not perceived to be a material risk.

Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency.

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Subsequent Events

On January 31, 2023, the Company announced that Michael Ruppert, Executive Vice President, Chief Financial Officer, and Treasurer, will step down from the Company, effective February 17, 2023.

Michelle McCarthy, Senior Vice President, Chief Accounting Officer, will serve as Mercury's interim Chief Financial Officer.

On January 31, 2023, the Board of Directors announced the decision to initiate a review of strategic alternatives to enhance shareholder value, including a potential sale of the Company.

There can be no assurance that any transaction will be approved or consummated.

Additional details are contained in the Current Report on Form 8-K filed by the Company with the SEC on January 31, 2023.

The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosures.

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