What changed in this filing

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Item 1. Financial Statements

2023-11-07 compared with 2023-05-09 · 229 added, 327 removed, 398 unchanged (58% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

March 31, 2023 July 1, 2022

September 29, 2023 June 30, 2023

Current assets:

Cash and cash equivalents $ 89,369 $ 71,563

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

Accounts receivable, net of allowance for credit losses of $ 820 and $ 1,335 at September 29, 2023 and June 30, 2023, respectively

91,448 124,729

1 unchanged sentence

Inventory 362,910 337,216

Prepaid income taxes 3,588 7,503

Prepaid expenses and other current assets 22,422 20,952

4 unchanged sentences

Operating lease right-of-use assets, net 60,877 63,015

Deferred tax asset 39,919 27,099

Other non-current assets 4,446 8,537

5 unchanged sentences

Accrued compensation 17,717 30,419

Income taxes payable — 13,874

Deferred revenues and customer advances 58,116 56,562

Total current liabilities 205,318 233,264

Deferred income taxes 6,451 32,398

Income taxes payable 5,166 5,166

3 unchanged sentences

Total liabilities 859,952 824,682

Commitments and contingencies (Note N)

Commitments and contingencies (Note L)

Shareholders’ equity:

4 unchanged sentences

85,000,000 shares authorized;

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

57,273,559 and 56,961,665 shares issued and outstanding at September 29, 2023 and June 30, 2023, respectively

Additional paid-in capital 1,205,573 1,196,847

5 unchanged sentences

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

Third Quarters Ended Nine Months Ended

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

First Quarters Ended

September 29, 2023 September 30, 2022

Net revenues $ 180,991 $ 227,579

8 unchanged sentences

Total operating expenses 90,728 85,289

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

Loss from operations ( 40,201 ) ( 7,194 )

Interest income 103 29

1 unchanged sentence

Other expense, net ( 1,774 ) ( 3,645 )

(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 )

Loss before income taxes ( 49,735 ) ( 15,357 )

Income tax benefit ( 13,027 ) ( 1,022 )

Net loss $ ( 36,708 ) $ ( 14,335 )

Basic net loss per share $ ( 0.64 ) $ ( 0.26 )

Diluted net loss per share $ ( 0.64 ) $ ( 0.26 )

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 57,105 55,931

Comprehensive income (loss):

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

Comprehensive loss:

Net loss $ ( 36,708 ) $ ( 14,335 )

Change in fair value of derivative instruments, net of tax 1,742 4,420

1 unchanged sentence

Pension benefit plan, net of tax ( 56 ) 48

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

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

Total other comprehensive income, net of tax 2,106 4,897

Total comprehensive loss $ ( 34,602 ) $ ( 9,438 )

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

2 unchanged sentences

(In thousands)

For the Third Quarter Ended March 31, 2023

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

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 defined contribution plan 84 1 4,189 — — 4,190

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

Net income — — — 5,156 — 5,156

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

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

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income Total

Shareholders’

Shares Amount

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 — — — — —

Retirement of common stock ( 4 ) — ( 217 ) — — ( 217 )

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

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

For the First Quarter Ended September 29, 2023

Common Stock Additional

4 unchanged sentences

Shares Amount

Balance at July 1, 2022 55,680 $ 557 $ 1,145,323 $ 385,774 $ 5,531 $ 1,537,185

Balance at June 30, 2023 56,962 $ 570 $ 1,196,847 $ 357,439 $ 11,829 $ 1,566,685

Issuance of common stock under employee stock incentive plans 187 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 125 1 4,637 — — 4,638

Retirement of common stock ( 1 ) — ( 63 ) — — ( 63 )

Stock-based compensation — — 4,091 — — 4,091

1 unchanged sentence

Other comprehensive income — — — — 2,106 2,106

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

Balance at September 29, 2023 57,274 $ 573 $ 1,205,573 $ 320,731 $ 13,935 $ 1,540,812

For the First Quarter Ended September 30, 2022

Common Stock Additional

2 unchanged sentences

Comprehensive

(Loss) Income Total

Shareholders’

2 unchanged sentences

Issuance of common stock under employee stock incentive plans 418 4 ( 4 ) — — —

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

Issuance of common stock under defined contribution plan 83 1 4,122 — — 4,123

Retirement of common stock ( 1 ) — ( 63 ) — — ( 63 )

2 unchanged sentences

Other comprehensive income — — — — 4,897 4,897

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

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

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

2 unchanged sentences

(In thousands)

Nine Months Ended

March 31, 2023 April 1, 2022

First Quarters Ended

September 29, 2023 September 30, 2022

Cash flows from operating activities:

Net loss $ ( 36,708 ) $ ( 14,335 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense 22,692 23,701

14 unchanged sentences

Other non-current liabilities ( 2,834 ) ( 2,996 )

Net cash (used in) provided by operating activities ( 33,864 ) 566

Net cash used in operating activities ( 39,068 ) ( 66,039 )

Cash flows from investing activities:

Acquisition of business, net of cash acquired — ( 243,255 )

Purchases of property and equipment ( 8,015 ) ( 7,328 )

2 unchanged sentences

Cash flows from financing activities:

Proceeds from employee stock plans 2,393 2,516

Borrowings under credit facilities 65,000 60,000

Payments under credit facilities ( 40,000 ) —

Purchase and retirement of common stock — ( 63 )

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

Net cash provided by financing activities 65,000 59,937

Effect of exchange rate changes on cash and cash equivalents ( 111 ) ( 293 )

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

Net increase (decrease) in cash and cash equivalents 17,806 ( 13,673 )

Cash and cash equivalents at beginning of period 71,563 65,654

12 unchanged sentences

Mercury Systems, Inc.

is a technology company that delivers commercial innovation to rapidly transform the global aerospace and defense industry.

is a technology company that delivers processing power for the most demanding aerospace and defense missions.

Headquartered in Andover, Massachusetts, the Company's end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments.

Mercury's Processing Platform includes signal solutions, display, software applications, networking, storage and secure processing.

The Company's innovative solutions are mission-ready, trusted and secure, software-defined and open and modular (the Company's differentiators), to meet customers’ most-pressing high-tech needs, including those specific to the aerospace and defense community.

Investors and others should note that the Company announces material financial information using its website ( www.mrcy.com ), Securities and Exchange Commission (“SEC”) filings, press releases, public conference calls, webcasts, and social media, including Twitter ( twitter.com/mrcy and twitter.com/mrcy_CEO ) and LinkedIn ( www.linkedin.com/company/mercury-systems ).

Therefore, the Company encourages investors and others interested in Mercury to review the information the Company posts on the social media and other communication channels listed on its website.

Processing technologies that comprise the Company's platform include signal solutions, display, software applications, networking, storage and secure processing.

Summary of Significant Accounting Policies

3 unchanged sentences

however, in the opinion of management the financial information reflects all adjustments, consisting of adjustments of a normal recurring nature, necessary for fair presentation.

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 third quarter and nine months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full fiscal year.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended June 30, 2023 which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 15, 2023.

The results for the first quarter ended September 29, 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 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.

All references to the first quarter of fiscal 2024 are to the quarter ended September 29, 2023.

There were 13-weeks during the first quarters ended September 29, 2023 and September 30, 2022, respectively.

U SE OF E STIMATES

1 unchanged sentence

Actual results could differ from those estimates.

B USINESS C OMBINATIONS

The Company utilizes the acquisition method of accounting under ASC 805, Business Combinations , (“ASC 805”), for all transactions and events in which it obtains control over one or more other businesses, to recognize the fair value of all assets and liabilities acquired, even if less than one hundred percent ownership is acquired, and in establishing the acquisition date fair value as the measurement date for all assets and liabilities assumed.

The Company also utilizes ASC 805 for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in business combinations.

F OREIGN C URRENCY

Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, France, Spain and Canada.

Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, Spain and Canada.

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 income (loss) (“AOCI”) 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 Income (Loss) and were immaterial for all periods presented.

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

A CCOUNTS R ECEIVABLE

14 unchanged sentences

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

On June 21, 2023, the Company further amended the RPA with BMO Harris Bank (as successor in interest to Bank of the West) to increase the capacity from $ 30,600 to $ 60,000 .

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 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.

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

The Company had $ 28,826 factored in accounts receivables as of September 29, 2023 and incurred factoring fees of approximately $ 308 fo r the first quarter ended September 29, 2023.

The Company did not factor any accounts receivable or incur any factoring fees for the first quarter ended September 30, 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 (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 value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of Other comprehensive income (loss) (“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 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 March 31, 2023.

All derivatives for the Company qualified for hedge accounting as of September 29, 2023.

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 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.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 42 % and 37 % of revenues for the first quarters ended September 29, 2023 and September 30, 2022 respectively.

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

These over time contracts involve the design, development, manufacture, or modification of complex modules and sub-assemblies or integrated subsystems and related services.

1 unchanged sentence

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

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 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 generally over a period of 12 to 36 months.

Total revenue recognized over time was 58 % and 63 % of total revenues for the first quarters ended September 29, 2023 and September 30, 2022, respectively.

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

The Company accrues for anticipated warranty costs upon product shipment.

The Company does not consider activities related to such assurance warranties, if any, to be a separate performance obligation.

The Company does not consider activities related to

such assurance warranties, if any, to be a separate performance obligation.

The Company does offer separately priced extended warranties which generally range from 12 to 36 months that are treated as separate performance obligations.

5 unchanged sentences

All revenues are reported net of government assessed taxes (e.g., sales taxes or value-added taxes).

Refer to Note M for disaggregation of revenue for the period.

Refer to Note K for disaggregation of revenue for the period.

C ONTRACT B ALANCES

10 unchanged sentences

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

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 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.

The contract asset balances were $ 388,555 and $ 382,558 as of September 29, 2023 and June 30, 2023, respectively.

The contract asset balance increased due to the timing of revenue on certain large overtime contracts as compared to timing of hardware delivery and related billing events on long-standing contract asset balances during the first quarter ended September 29, 2023.

The contract liability balances were $ 58,569 and $ 57,142 as of September 29, 2023 and June 30, 2023, respectively.

Revenue recognized for the first quarter ended September 29, 2023 that was included in the contract liability balance at June 30, 2023 was $ 21,015 .

Revenue recognized for the first quarter ended September 30, 2022 that was included in the contract liability balance at July 2, 2022 was $ 4,669 .

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

As of September 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 557,347 .

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

5 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.

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:

Third Quarters Ended Nine Months Ended

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

First Quarters Ended

September 29, 2023 September 30, 2022

Basic weighted-average shares outstanding 57,105 55,931

1 unchanged sentence

Diluted weighted-average shares outstanding 57,105 55,931

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.

Equity instruments to purchase 1,912 and 416 shares of common stock were not included in the calculation of diluted net loss per share for the first quarters ended September 29, 2023 and September 30, 2022, respectively, because the equity instruments were anti-dilutive.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

In October 2021, the FASB issued ASU No.

The Company has evaluated recently issued accounting pronouncements and determined there are no recently issued accounting pronouncements that require disclosure.

R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS

Effective July 1, 2023, the company adopted ASU No.

2021-08, Business Combinations (Topic 805):

1 unchanged sentence

The amendments in this ASU address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers .

Under current U.S.

GAAP, an acquirer generally recognizes assets and liabilities assumed in a business combination, including contract assets and liabilities arising from revenue contracts with customers, at fair value on the acquisition date.

2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under Topic 606.

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

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

Effective July 2, 2022, the Company adopted ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.

Effective July 2, 2022, the Company adopted ASU No.

2020-06, Debt - Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU simplify the accounting for convertible debt securities.

This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.

Effective December 1, 2022, the Company adopted ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU extend the sunset date under Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected LIBOR cessation date of June 30, 2023.

This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.

A TLANTA M ICRO A CQUISITION

On November 29, 2021, the Company acquired Atlanta Micro, Inc.

(“Atlanta Micro”) for a purchase price of $ 90,000 , prior to net working capital and net debt adjustments.

Based in Norcross, Georgia, Atlanta Micro is a leading designer and manufacturer of high-performance RF modules and components, including advanced monolithic microwave integrated circuits (“MMICs”) which are critical for high-speed data acquisition applications including electronic warfare, radar and weapons.

The Company funded the acquisition through the Company's existing revolving credit facility (the “Revolver”).

On March 28, 2022, the Company and former owners of Atlanta Micro agreed to post closing adjustments totaling $ 58 , which increased the Company's net purchase price.

The following table presents the net purchase price and the fair values of the assets and liabilities of Atlanta Micro:

Consideration transferred

Cash paid at closing $ 91,438

Working capital and net debt adjustment ( 416 )

Less cash acquired ( 1,782 )

Net purchase price $ 89,240

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable 1,568

Inventory 4,475

Fixed assets 434

Other current and non-current assets 2,079

Accounts payable ( 529 )

Accrued expenses ( 845 )

Other current and non-current liabilities ( 11,174 )

Fair value of net tangible assets acquired ( 2,210 )

Fair value of identifiable intangible assets 34,980

Goodwill 58,252

Fair value of net assets acquired 91,022

Less cash acquired ( 1,782 )

Net purchase price $ 89,240

On November 29, 2022, the measurement period for Atlanta Micro expired.

The identifiable intangible assets include 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 two years .

The goodwill of $ 58,252 largely reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to the Company’s existing products and markets and is not deductible for tax purposes.

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

A VALEX A CQUISITION

On September 27, 2021, the Company signed a definitive agreement to acquire Avalex Technologies, LLC.

(“Avalex”) for a purchase price of $ 155,000 , prior to net working capital and net debt adjustments.

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.

The Company funded the acquisition with the Revolver.

On March 17, 2022, the Company and former owner of Avalex agreed to post closing adjustments totaling $ 151 , which increased the Company's net purchase price.

The following table presents the net purchase price and the fair values of the assets and liabilities of Avalex:

Consideration transferred

Cash paid at closing $ 157,367

Working capital and net debt adjustment ( 1,034 )

Less cash acquired ( 2,188 )

Net purchase price $ 154,145

Fair value of tangible assets acquired and liabilities assumed

Accounts receivable 5,363

Inventory 7,141

Fixed assets 1,245

Other current and non-current assets 5,228

Accounts payable ( 1,755 )

Accrued expenses ( 1,421 )

Other current and non-current liabilities ( 4,788 )

Fair value of net tangible assets acquired 13,201

Fair value of identifiable intangible assets 61,360

Goodwill 81,772

Fair value of net assets acquired 156,333

Less cash acquired ( 2,188 )

Net purchase price $ 154,145

On November 5, 2022, the measurement period for Avalex expired.

The identifiable intangible assets include 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 .

The goodwill of $ 81,772 largely reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to the Company’s existing products and markets.

The goodwill from this acquisition is reported in the Mission Systems reporting unit, formerly referred to as the Processing reporting unit.

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

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

This adoption did not have an impact to the Company's consolidated financial statements or related disclosures.

Fair Value of Financial Instruments

The following table summarizes the Companies' financial instruments measured at fair value on a recurring basis as of September 29, 2023:

Fair Value Measurements

March 31, 2023 Level 1 Level 2 Level 3

September 29, 2023 Level 1 Level 2 Level 3

Interest rate swap $ 1,548 $ — $ 1,548 $ —

2 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.

During the first quarter ended September 30, 2022, the Company entered into an interest rate hedging agreement (the “Swap”).

Refer to Note O for further information regarding the Swap.

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 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.

During the first quarter ended September 29, 2023, the Company entered into an interest rate hedging agreement (the “September 2023 Swap”).

The fair value of the September 2023 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 September 29, 2023, the fair value of the September 2023 Swap was a liability of $ 1,548 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

The following table summarizes the Companies' financial instruments measured at fair value on a recurring basis as of June 30, 2023:

Fair Value Measurements

June 30, 2023 Level 1 Level 2 Level 3

Interest rate swap $ 3,523 $ — $ 3,523 $ —

Total assets measured at fair value $ 3,523 $ — $ 3,523 $ —

The fair value of interest rate hedging agreement entered on September 29, 2022 ("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 June 30, 2023, the fair value of the Swap was an asset of $ 3,523 and is included within Other non-current assets in the Company's Consolidated Balance Sheets.

The Company terminated the Swap during the first quarter ended September 29, 2023.

Refer to Note M for further information regarding the September 2023 Swap and the termination of the Swap.

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:

March 31, 2023 July 1, 2022

September 29, 2023 June 30, 2023

Raw materials $ 235,921 $ 229,984

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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 nine months ended March 31, 2023 :

Balance at July 1, 2022 $ 937,880

Goodwill adjustment for the Avalex acquisition 66

Goodwill adjustment for the Atlanta Micro acquisition 147

Balance at March 31, 2023 $ 938,093

There has been no change to the carrying amount of goodw ill during the first quarter ended September 29, 2023.

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

Restructuring

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.

During the first quarter ended September 29, 2023, the Company initiated several immediate cost savings measures that simplify the Company’s organizational structure, facilitate clearer accountability, and align to the Company’s priorities, including:

(i) embedding the 1MPACT value creation initiatives and execution into the Company’s operations;

(ii) streamlining organizational structure and removing areas of redundancy between corporate and divisional organizations;

and (iii) reducing selling, general, and administrative headcount and rebalancing discretionary and third party spending to better align with the Company’s priority areas.

On July 20, 2023, the Company executed the plan to embed the 1MPACT value creation initiatives into operations, and on August 9, 2023, the Company approved and initiated a workforce reduction that, together with the 1MPACT related action, eliminated approximately 150 positions resulting in $ 9,546 of severance costs.

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.

The Company's adjustments reflected in restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post acquisition integration activities.

Consistent with the Company's definition of restructuring and other charges, 1MPACT is an organizational redesign program initiated on the heels of a series of acquisitions since 2014 rather than a single, discrete acquisition.

Since the inception of 1MPACT, the Company has selectively engaged with leading consultants to accelerate solution design and implementation for the highest value workstreams.

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 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.

All of the restructuring and other charges are classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive 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.

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

Severance & Related Facilities

& Other Total

Balance at July 1, 2022 $ 4,722 $ — $ 4,722

Severance & Related

Balance at June 30, 2023 $ 1,529

Restructuring charges 9,546

Cash paid ( 4,087 )

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.

The Company expects the impact of this legislation to be immaterial.

Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes.

Balance at September 29, 2023 $ 6,988

The Company recorded an income tax benefit of $ 13,027 and $ 1,022 on a loss before income taxes of $ 49,735 and $ 15,357 for the first quarters ended September 29, 2023 and September 30, 2022, respectively.

For the first quarter ended September 29, 2023, the Company calculated the U.S.

income tax benefit using the discrete method as though the three-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 FASB ASC 740, Income Taxes 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 effective tax rate for the first quarter ended September 29, 2023 differed from the federal statutory rate primarily due to federal and state research and development credits and state taxes.

The effective tax rate for the first quarter ended September 30, 2022 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation and state taxes.

During the first quarters ended September 29, 2023 and September 30, 2022, the Company recognized a tax provision of $ 1,215 and $ 1,611 related to stock compensation shortfalls, respectively.

R EVOLVING C REDIT F ACILITY

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 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.

On February 28, 2022, the Company amended the revolving credit facility (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 September 29, 2023, the Company's outstanding balance of unamortized deferred financing costs was $ 3,211 , which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive Loss on a straight line basis over the term of the Revolver.

As of September 29, 2023, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 576,500 against the Revolver, resulting in interest expense of $ 7,863 for the first quarter ended September 29, 2023.

The borrowing capacity as defined under the Revolver as of September 29, 2023 is approximately $ 766,500 , less outstanding borrowings of $ 576,500 .

There were outstanding letters of credit of $ 963 as of September 29, 2023.

Employee Benefit Plan

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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 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 Plan's funded status at September 29, 2023 was a net liability of $ 4,073 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net loss of $ 56 in AOCI during the first quarter ended September 29, 2023.

The Company recorded a net gain of $ 48 in AOCI during the first quarter ended September 30, 2022.

The Company recognized net periodic benefit costs of $ 207 associated with the Plan for the first quarter ended September 29, 2023.

The Company recognized net periodic benefit costs of $ 221 associated with the Plan for the first quarter ended September 30, 2022.

The Company's total expected employer contributions to the Plan during fiscal 2024 are $ 1,125 .

The Company maintains a qualified 401(k) plan (the “401(k) Plan”) for its U.S.

Effective in the first quarter of fiscal 2023, the Company increased the rate of its matching contributions from 3 % to 6 % of participants' eligible annual compensation and changed the form of these contributions from cash to Company stock.

employees and matches participants' eligible annual compensation up to 6 % in Company stock.

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

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

The Company had $ 2,501 and $ 2,705 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at September 29, 2023 and June 30, 2023, respectively.

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 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

S TOCKHOLDER R IGHTS P LAN

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 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 and the Rights thereunder expired.

During the first quarter ended September 29, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $ 4,841 as compared to $ 3,680 during the first quarter ended September 30, 2022.

Stock-Based Compensation

S TOCK I NCENTIVE P LANS

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.

At September 29, 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.

On October 25, 2023, the Company's shareholders approved an additional 3,450 shares to be added to the 2018 plan.

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

There were 598 available shares for future grant under the 2018 Plan at September 29, 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 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.

At September 29, 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 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

The following table summarizes the status of the Company’s non-vested restricted stock awards and deferred stock awards since July 1, 2022:

There were no shares issued under the ESPP during the first quarters ended September 29, 2023 and September 30, 2022, respectively.

Shares available for future purchase under the ESPP totaled 168 at September 29, 2023.

S TOCK O PTION A ND A WARD A CTIVITY

On August 15, 2023, the Company announced that William L.

Ballhaus was appointed as the Company’s President and Chief Executive Officer.

Ballhaus received an onboarding grant of premium-priced stock options ("New Hire Option") under the 2018 Plan.

The Company and Mr.

Ballhaus are parties to an employment agreement, which is included in exhibit 10.1 on Form 8-K filed by the Company with the SEC on August 15, 2023.

The New Hire Option is granted in four (4) tranches as follows:

(w) 233,500 shares of the Company’s common stock with an exercise price equal to $ 42.00 (“Tranche 1”);

(x) 233,500 shares of the Company’s common stock with an exercise price equal to $ 43.00 (“Tranche 2”);

(y) 233,500 shares of the Company’s common stock with an exercise price equal to $ 46.00 (“Tranche 3”);

and (z) 233,500 shares of the Company’s common stock with an exercise price equal to $ 49.00 (“Tranche 4”).

Tranche 1 and Tranche 2 shall become vested and exercisable on the third anniversary of August 17, 2023 ("the Initial Grant Date") (subject to the Executive’s continued employment through such date) and shall expire on the four th anniversary of the Initial Grant Date.

Tranche 3 and Tranche 4 shall become vested and exercisable on the four th anniversary of the Initial Grant Date (subject to the Executive’s continued employment through such date) and shall expire on the fifth anniversary of the Initial Grant Date.

The following table summarizes activity of the Company's stock option plans since June 30, 2023:

Options Outstanding

Shares Weighted Average

Fair Value Weighted Average

Exercise Price Weighted Average

Contractual Term

(Years) Aggregate

Intrinsic Value as of 9/29/23

Outstanding at June 30, 2023 — $ — $ — — —

Granted 934 12.71 45.00

Exercised — —

Outstanding at September 29, 2023 934 $ 12.71 $ 45.00 3.42 —

Exercisable at September 29, 2023 — $ — $ — — —

There was no options vested or exercised during the first quarter ended September 29, 2023.

Non-vested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions.

As of September 29, 2023, there was $ 11,351 of total unrecognized compensation cost related to non-vested options granted that is expected to be recognized over a weighted-average period 3.42 years from September 29, 2023.

The Company uses the Black-Scholes valuation model for estimating the fair value on the date of grant of stock options.

The Company calculated the fair values of the options grants using the following weighted-average assumptions:

First Quarter Ended

September 29, 2023

Expected volatility 45 %

Expected term 4 years

Risk-free interest rate 4.44 %

Expected dividend yield — %

Weighted-average grant date fair value per share $ 12.71

The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock for a period equal to the expected life of the option.

The expected life of options has been determined using the average of the contractual term and the weighted average vesting term of the options.

The risk-free interest rate is based on a zero-coupon U.S.

treasury instrument whose term is consistent with the expected life of the stock options.

The Company has not paid and does not anticipate paying cash dividends on its shares of common stock;

therefore, the expected dividend yield is assumed to be zero.

The Company applied an estimated annual forfeiture rate based on historical averages in determining the expense recorded in each period.

There was no stock options granted during fiscal year ended June 30, 2023.

The following table summarizes the status of the Company’s non-vested restricted stock awards and deferred stock awards since June 30, 2023:

Non-vested Restricted Stock Awards

Shares Weighted Average

Outstanding at July 1, 2022 2,305 $ 57.47

Outstanding at June 30, 2023 1,339 $ 54.45

Granted 1,131 36.90

1 unchanged sentence

Forfeited ( 198 ) 52.88

Outstanding at March 31, 2023 1,658 $ 55.08

Outstanding at September 29, 2023 2,085 $ 44.28

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 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.

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 $ 1,188 and $ 1,215 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended September 29, 2023 and June 30, 2023, 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 Income (Loss):

Third Quarters Ended Nine Months Ended

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

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

First Quarters Ended

September 29, 2023 September 30, 2022

Cost of revenues $ 816 $ 799

6 unchanged sentences

Operating segments are defined as components of an enterprise evaluated regularly by the Company's chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance.

During the first quarter of fiscal 2022, the Company announced its 1MPACT value creation initiative to promote scale as the organization continues to grow.

The Company evaluated this internal reorganization under FASB ASC 280, Segment Reporting (“ASC 280”) to determine whether this change has impacted the Company's single operating and reportable segment.

The Company concluded this change had no effect given the CODM continues to evaluate and manage the Company on the basis of one operating and reportable segment.

The Company evaluated its internal organization under FASB ASC 280, Segment Reporting (“ASC 280”) to determine whether there has been a change to its conclusion of a single operating and reportable segment.

The Company concluded there has been no changes given the CODM continues to evaluate and manage the Company on the basis of one operating and reportable segment.

The Company utilized the management approach for determining its operating segment in accordance with ASC 280.

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Europe Asia Pacific Eliminations Total

THIRD QUARTER ENDED MARCH 31, 2023

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

Inter-geographic revenues 1,794 26 — ( 1,820 ) —

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

THIRD QUARTER ENDED APRIL 1, 2022

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

Inter-geographic revenues ( 729 ) 824 — ( 95 ) —

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

NINE MONTHS ENDED MARCH 31, 2023

FIRST QUARTER ENDED SEPTEMBER 29, 2023

Net revenues to unaffiliated customers $ 171,881 $ 9,104 $ 6 $ — $ 180,991

1 unchanged sentence

Net revenues $ 173,600 $ 9,196 $ 6 $ ( 1,811 ) $ 180,991

NINE MONTHS ENDED APRIL 1, 2022

FIRST QUARTER ENDED SEPTEMBER 30, 2022

Net revenues to unaffiliated customers $ 218,822 $ 8,752 $ 5 $ — $ 227,579

4 unchanged sentences

The Company’s products are typically compute-intensive and require extremely high bandwidth and high throughput.

These processing solutions often must also meet significant SWaP constraints for use in aircraft, unmanned aerial vehicles, ships and other platforms and be ruggedized for use in harsh environments.

These processing solutions often must also meet significant size, weight and power ("SWaP") constraints for use in aircraft, unmanned aerial vehicles, ships and other platforms and be ruggedized for use in harsh environments.

The Company's products transform the massive streams of digital data created in these applications into usable information in real time.

The systems can scale from a few processors to thousands of processors.

In recent years, the Company completed a series of acquisitions that augmented its technological capabilities, applications and end markets.

In recent years, the Company completed a series of acquisitions that changed its technological capabilities, applications and end markets.

As these acquisitions and changes occurred, the Company's proportion of revenue derived from the sale of components in different technological areas, and modules, sub-assemblies and integrated subsystems which combine technologies into more complex diverse products has shifted.

4 unchanged sentences

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

Third Quarters Ended Nine Months Ended

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

First Quarters Ended

September 29, 2023 September 30, 2022

$ 146,467 $ 205,830

8 unchanged sentences

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

Third Quarters Ended Nine Months Ended

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

First Quarters Ended

September 29, 2023 September 30, 2022

$ 28,559 $ 53,408

13 unchanged sentences

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

Third Quarters Ended Nine Months Ended

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

First Quarters Ended

September 29, 2023 September 30, 2022

Components (1)

16 unchanged sentences

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

Third Quarters Ended Nine Months Ended

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

First Quarters Ended

September 29, 2023 September 30, 2022

$ 107,734 $ 127,260

8 unchanged sentences

The geographic distribution of the Company’s identifiable long-lived assets is summarized as follows:

Europe Asia Pacific Eliminations Total

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

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

September 29, 2023 $ 114,041 $ 3,133 $ 117,174

June 30, 2023 $ 116,381 $ 3,173 $ 119,554

Identifiable long-lived assets exclude right-of-use assets, goodwill, and intangible assets.

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

Third Quarters Ended Nine Months Ended

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

Raytheon Technologies 18 % 15 % 14 % 15 %

First Quarters Ended

September 29, 2023 September 30, 2022

Lockheed Martin Corporation 13 % 16 %

L3Harris 12 % *

Raytheon Technologies 11 % 13 %

Northrop Grumman * 10 %

Navy * 14 % 10 % 15 %

42 % 29 % 49 % 30 %

* Indicates that the amount is less than 10% of the Company's revenue for the respective period.

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 third quarters and nine months ended March 31, 2023 and April 1, 2022.

There were no programs comprising 10% or more of the Company's revenues for the first quarters ended September 29, 2023 and September 30, 2022.

Commitments and Contingencies

3 unchanged sentences

The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company's cash flows, results of operations, or financial position.

In June 2021, Embedded Reps of America, LLC (“ERA”), a former sales representative, and James Mazzola, a principal of ERA, filed for binding arbitration related to the termination of ERA’s sales representative agreement raising multiple claims that aggregate to approximately $ 9,000 in direct damages, with treble damages requested on a number of those claims.

ERA was a sales representative of Themis Computer (“Themis”) when Themis was acquired by Mercury.

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 in July 2021.

An arbitration proceeding was held during September 2022, with final motions in October 2022 and oral arguments in November 2022.

The arbitrator issued its final ruling in January 2023, awarding ERA $ 72 in damages and fees.

In December 2021, counsel for National Technical Systems, Inc.

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.

1 unchanged sentence

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 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.

NTS alleges in its demand letter that the operations of a predecessor company to the Company 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 from the Company of NTS’s costs for any required environmental remediation.

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, 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.

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

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, Massachusetts Water District’s Conant public water supply wells near the former facility at 531 Main Street, Acton, Massachusetts at a level above standard that MassDEP published for PFAS in October 2020.

The Company has not been contacted by NTS or MassDEP since the dates discussed above.

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

On June 19, 2023, the Board of Directors received notice of the Company's former CEO’s resignation from the positions of President and Chief Executive Officer.

The Board accepted the resignation effective June 24, 2023.

In the notice, the former CEO claimed entitlement to certain benefits, including equity vesting, severance, and other benefits, under the change in control severance agreement (the “CIC Agreement”) because the former CEO had resigned with good reason during a potential change in control period.

The Company disputes these claims and maintains that the former CEO resigned without good reason.

On September 19, 2023, the former CEO filed for binding arbitration under the employment rules of the American Arbitration Association (“AAA”).

The Company responded and asserted its counterclaims in a filing with the AAA on November 1, 2023.

The response by the former CEO is due in mid-November 2023, with further proceedings to be scheduled during 2024.

The Company intends to contest vigorously the claims under the CIC Agreement and believes that the Company has strong arguments that the former CEO’s claims lack merit.

If the arbitrator rules in the Company's favor, the Company may still need to pay the former CEO’s reasonable legal fees and compensation during the dispute.

If instead the arbitrator rules for the former CEO, the Company could be liable for up to approximately $ 12,900 , based on the closing price of the Company's common stock on June 26, 2023, plus legal fees and expenses and compensation during dispute, for accelerated equity vesting, severance, and other benefits under the CIC Agreement.

The Company categorically denies any wrongdoing or liability under the CIC Agreement, but the outcome of potential arbitration is inherently uncertain.

Accordingly, it is reasonably possible that the Company will incur a liability in this matter, and the Company estimates the potential range of exposure from $ 0 to $ 12,900 , plus costs and attorneys’ fees and compensation to our former CEO during the dispute.

I NDEMNIFICATION O BLIGATIONS

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P URCHASE C OMMITMENTS

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.

As of September 29, 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 $ 128,696 .

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The Company utilizes interest rate derivatives to mitigate interest rate exposure with respect to its financing arrangements.

On September 7, 2022, the Company entered into an interest rate Swap (the “initial Swap”) with JP Morgan Chase Bank, N.A.

(“JPMorgan”) for a notional amount of $ 300,000 in order to fix the interest rate associated with a portion of the total $ 511,500 existing borrowings on the Revolver.

The initial Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge.

The initial Swap matures on February 28, 2027, coterminous with the maturity of the Revolver.

The initial Swap established a fixed interest rate on the first $ 300,000 of the Company's outstanding borrowings against the Revolver obligation at 3.25 %.

On September 29, 2022, the Company terminated the initial Swap.

At the time of termination, the fair value of the initial Swap was an asset of $ 5,995 .

On September 29, 2022, the Company entered into the Swap with JP Morgan Chase Bank, N.A.

("JPMorgan") for a notional amount of $ 300,000 in order to fix the interest rate associated with a portion of the total $ 511,500 existing borrowings on the Revolver at the time of the Swap.

The Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge.

The Swap matures on February 28, 2027, coterminous with the maturity of the Revolver.

The Swap established a fixed interest rate on the first $ 300,000 of the Company's outstanding borrowings against the Revolver obligation at 3.79 %.

On September 28, 2023, the Company terminated the Swap.

At the time of termination, the fair value of the Swap was an asset of $ 7,403 .

The Company received the cash settlement of $ 7,403 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 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.

Following the termination of the Swap, the Company entered into the September 2023 Swap agreement on September 28, 2023 with JPMorgan for a notional amount of $ 300,000 in order to fix the interest rate associated with a portion of the total $ 576,500 existing borrowings on Company's Revolver at 4.66 %.

The September 2023 Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge.

The September 2023 Swap matures on February 28, 2027, coterminous with the maturity of the Revolver.

As of September 29, 2023, the fair value of the September 2023 Swap was a liability of $ 1,548 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

During the first quarter ended September 29, 2023, the Company amortized $ 339 of the previous unrealized gain associated with an interest swap entered into on September 7, 2022 and terminated on September 29, 2022, which is included within Other comprehensive income.

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 March 31, 2023, nonperformance is not perceived to be a material risk.

The counterparty to the September 2023 Swap is JPMorgan.

Based on the credit ratings of the Company’s counterparty as of September 29, 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

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.

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

Due to the uncertainty surrounding a government shutdown or prolonged continuing resolution and the potential impact on the second quarter and fiscal 2024 results, the Company has proactively executed an amendment to its Revolver allowing for a temporary increase in the Consolidated Total Net Leverage Ratio covenant requirement from 4.50 to 5.25 for the second quarter.

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