What changed in this filing

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Item 1. Financial Statements

2024-02-06 compared with 2023-11-07 · 212 added, 122 removed, 505 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 29, 2023 June 30, 2023

December 29, 2023 June 30, 2023

Current assets:

Cash and cash equivalents $ 168,646 $ 71,563

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

Accounts receivable, net of allowance for credit losses of $ 737 and $ 1,335 at December 29, 2023 and June 30, 2023, respectively

82,737 124,729

Unbilled receivables and costs in excess of billings 388,555 382,558

Unbilled receivables and costs in excess of billings, net of allowance for credit losses of $ 2,313 and $ 0 at December 29, 2023 and June 30, 2023, respectively

351,003 382,558

Inventory 354,212 337,216

Prepaid income taxes 5,753 —

Prepaid expenses and other current assets 21,470 20,952

27 unchanged sentences

85,000,000 shares authorized;

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

57,563,733 and 56,961,665 shares issued and outstanding at December 29, 2023 and June 30, 2023, respectively

Additional paid-in capital 1,220,343 1,196,847

7 unchanged sentences

(In thousands, except per share data)

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Net revenues $ 197,463 $ 229,588 $ 378,454 $ 457,167

11 unchanged sentences

Interest expense ( 8,674 ) ( 6,590 ) ( 16,537 ) ( 11,137 )

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

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

Other (expense) income, net ( 1,148 ) 846 ( 2,922 ) ( 2,799 )

Loss before income tax benefit ( 63,722 ) ( 13,071 ) ( 113,457 ) ( 28,428 )

Income tax benefit ( 18,141 ) ( 2,151 ) ( 31,168 ) ( 3,173 )

10 unchanged sentences

Pension benefit plan, net of tax ( 57 ) 48 ( 113 ) 96

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

Total other comprehensive (loss) income, net of tax ( 5,512 ) ( 445 ) ( 3,406 ) 4,452

Total comprehensive loss $ ( 51,093 ) $ ( 11,365 ) $ ( 85,695 ) $ ( 20,803 )

3 unchanged sentences

(In thousands)

For the First Quarter Ended September 29, 2023

For the Second Quarter Ended December 29, 2023

Common Stock Additional

4 unchanged sentences

Shares Amount

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

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

Issuance of common stock under employee stock incentive plans 82 1 ( 1 ) — — —

Issuance of common stock under employee stock purchase plan 107 1 3,162 — — 3,163

Issuance of common stock under defined contribution plan 101 1 3,578 — — 3,579

Retirement of common stock — — ( 15 ) — — ( 15 )

Stock-based compensation — — 8,046 — — 8,046

Net loss — — — ( 45,581 ) — ( 45,581 )

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

Other comprehensive loss — — — — ( 5,512 ) ( 5,512 )

Balance at December 29, 2023 57,564 $ 576 $ 1,220,343 $ 275,150 $ 8,423 $ 1,504,492

For the Second Quarter Ended December 30, 2022

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

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

For the First Quarter Ended September 30, 2022

Issuance of common stock under employee stock incentive plans 59 1 ( 1 ) — — —

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

Issuance of common stock under defined contribution plan 69 — 3,269 — — 3,269

Stock-based compensation — — 10,865 — — 10,865

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

Other comprehensive loss — — — — ( 445 ) ( 445 )

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

For the Six Months Ended December 29, 2023

Common Stock Additional

4 unchanged sentences

Shares Amount

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 269 3 ( 3 ) — — —

Issuance of common stock under employee stock purchase plan 107 1 3,162 — — 3,163

Issuance of common stock under defined contribution plan 226 2 8,215 — — 8,217

Retirement of common stock — — ( 15 ) — — ( 15 )

Stock-based compensation — — 12,137 — — 12,137

Net loss — — — ( 82,289 ) — ( 82,289 )

Other comprehensive loss — — — — ( 3,406 ) ( 3,406 )

Balance at December 29, 2023 57,564 $ 576 $ 1,220,343 $ 275,150 $ 8,423 $ 1,504,492

For the Six Months Ended December 30, 2022

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive Income Total

Shareholders’

Shares Amount

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

Issuance of common stock under employee stock incentive plans 477 5 ( 5 ) — — —

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

Issuance of common stock under defined contribution plan 152 1 7,391 — — 7,392

3 unchanged sentences

Other comprehensive income — — — — 4,452 4,452

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

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

2 unchanged sentences

(In thousands)

First Quarters Ended

September 29, 2023 September 30, 2022

Six Months Ended

December 29, 2023 December 30, 2022

Cash flows from operating activities:

Net loss $ ( 82,289 ) $ ( 25,255 )

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

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

Depreciation and amortization expense 44,885 50,934

Stock-based compensation expense 11,503 17,507

Share-based matching contributions on defined contribution plan 4,841 3,680

Stock-based matching contributions on defined contribution plan 7,652 6,427

Benefit for deferred income taxes ( 28,432 ) ( 22,334 )

1 unchanged sentence

Cash settlement for termination of interest rate swap 7,403 5,995

Changes in operating assets and liabilities, net of effects of businesses acquired:

Changes in operating assets and liabilities:

Accounts receivable, unbilled receivables, and costs in excess of billings 69,715 ( 30,876 )

7 unchanged sentences

Other non-current liabilities 1,078 ( 6,706 )

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

Net cash provided by (used in) operating activities 6,426 ( 30,647 )

Cash flows from investing activities:

3 unchanged sentences

Cash flows from financing activities:

Proceeds from employee stock plans 3,163 2,393

Borrowings under credit facilities 105,000 100,000

Payments under credit facilities — ( 40,000 )

Purchase and retirement of common stock ( 15 ) ( 63 )

Payments of deferred financing and offering costs ( 1,931 ) —

Net cash provided by financing activities 106,217 62,330

Effect of exchange rate changes on cash and cash equivalents 445 9

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

Net increase in cash and cash equivalents 97,083 11,290

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

2 unchanged sentences

Interest $ 16,113 $ 11,191

Income taxes $ 14,568 $ 4,131

Income taxes, net of refunds $ 14,881 $ 2,528

Supplemental disclosures—non-cash activities:

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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 results for the second quarter and six months ended December 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 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.

All references to the second quarter of fiscal 2024 are to the quarter ended December 29, 2023.

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

There were 26 weeks during the six months ended December 29, 2023 and December 30, 2022, respectively.

U SE OF E STIMATES

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The RPA is an uncommitted arrangement such that the Company is not obligated to sell any receivables and Bank of the West has no obligation to purchase any receivables from the Company.

Pursuant to the RPA, Bank of the West may purchase certain of the Company's customer receivables at a discounted rate, subject to a limit that as of any date, the total amount of purchased receivables held by Bank of the West, less the amount of all collections received on such receivables, may not exceed $ 20,000 .

Pursuant to the RPA, Bank of the West may pu rchase certain of the Company's customer receivables at a discounted rate, subject to a limit that as of any date, the total amount of purchased receivables held by Bank of the West, less the amount of all collections received on such receivables, may not exceed $ 20,000 .

The RPA has an indefinite term and the agreement remains in effect until it is terminated by either party.

Factoring under the RPA Agreement is treated as a true sale of accounts receivable by the Company.

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

The Company has continued involvement in servicing accounts receivable under the RPA, 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 .

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.

Proceeds for amounts factored by the Company are recorded as an incr ease 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 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.

The Company had $ 48,205 factored accounts receivables as of December 29, 2023 and incurred factoring fees of approximately $ 953 and $ 1,261 for the second quarter and six months ended December 29, 2023.

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

The Company records the fair value of its derivative financial instruments in its 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 (loss) (“OCI”).

1 unchanged sentence

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 September 29, 2023.

All derivatives for the Company qualified for hedge accounting as of December 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 42 % and 37 % of revenues for the first quarters ended September 29, 2023 and September 30, 2022 respectively.

Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 47 % and 45 % of revenues for the second quarter and six months ended December 29, 2023, respectively.

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 and December 30, 2022, respectively.

The Company also engages in 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 58 % and 63 % of total revenues for the first quarters ended September 29, 2023 and September 30, 2022, respectively.

Total revenue recognized over time was 53 % and 55 % of total revenues for the second quarters and six months ended December 29, 2023, respectively.

Total revenue recognized over time was 56 % and 60 % of total revenues for the second quarters and six months ended December 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.

18 unchanged sentences

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

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 .

The contract asset balances were $ 351,003 and $ 382,558 as of December 29, 2023 and June 30, 2023, respectively.

The contract asset balance decreased due to the successful execution and billings across multiple programs, as well as, cumulative adjustments from the cost growth impact and contract settlements during the six months ended December 29, 2023.

The contract liability balances were $ 81,596 and $ 57,142 as of December 29, 2023 and June 30, 2023, respectively.

The contract liability increased due to a higher volume of advanced milestone billing events as well as timing of revenue conversion across multiple programs.

Revenue recognized for the second quarter and six months ended December 29, 2023 that was included in the contract liability balance at June 30, 2023 was $ 10,228 and $ 31,243 , respectively.

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.

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

As of December 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 657,598 .

The Company expects to recognize approximately 58 % of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.

7 unchanged sentences

Weighted-average shares were calculated as follows:

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Basic weighted-average shares outstanding 57,424 56,252 57,314 56,126

1 unchanged sentence

Diluted weighted-average shares outstanding 57,424 56,252 57,314 56,126

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.

Equity instruments to purchase 2,865 and 2,460 shares of common stock were not included in the calculation of diluted net loss per share for the second quarters and six months ended December 29, 2023, respectively, because the equity instruments were anti-dilutive.

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.

R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS

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

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (ASC 280):

Improvements to Reportable Segment Disclosures , an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU address improvements to reportable segment disclosure requirements, specifically requiring disclosure of significant segment expenses.

The amendment also extends certain annual disclosures to interim periods, and clarifies that single reportable segment entities must apply ASC 280 in its entirety, inclusive of this update.

This ASU is effective for fiscal years beginning after December 15, 2023, as well as all interim periods within fiscal years beginning after December 15, 2024, 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.

In December 2023, the FASB issued ASU No.

2023-09, Improvement to Income Tax Disclosures , an amendment of the FASB Accounting Standards Codification.

The amendments in this ASU enact new income tax disclosure requirements in addition to modifying existing requirements.

The amendment requires entities to categorize and provide greater disaggregation of information in the rate reconciliation and income taxes paid disclosures.

This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

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

R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS

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

2021-08, Business Combinations (Topic 805):

2021-08, Business Combinations (ASC 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , an amendment of the FASB Accounting Standards Codification.

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 .

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:

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

Fair Value Measurements

September 29, 2023 Level 1 Level 2 Level 3

December 29, 2023 Level 1 Level 2 Level 3

Interest rate swap $ 8,710 $ — $ 8,710 $ —

4 unchanged sentences

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.

As of December 29, 2023, the fair value of the September 2023 Swap was a liability of $ 8,710 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:

4 unchanged sentences

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.

As of June 30, 2023, the fair value of the Swap was an asset of $ 3,523 and was 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.

6 unchanged sentences

Inventory was comprised of the following:

September 29, 2023 June 30, 2023

December 29, 2023 June 30, 2023

Raw materials $ 227,072 $ 229,984

7 unchanged sentences

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

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.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year, and also assesses potential triggering events during interim reporting periods.

During the second quarter ended December 29, 2023, the Company assessed events and circumstances to consider its reporting units for a potential triggering event, including:

macroeconomic conditions, industry and market considerations, financial performance and expectations of projected financial performance and cash flows, changes in the Company's stock price in relation to the carrying value of its reporting units, among other relevant factors.

The Company concluded that there was no triggering event during the second quarter ended December 29, 2023 that would require an interim impairment test.

The Company will continue to monitor these events and circumstances in future periods and adverse changes to these events and circumstances could require the Company to perform an interim impairment test.

There has been no change to the carrying amount of goodwill during the six months ended December 29, 2023.

Restructuring

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:

For the six months ended December 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;

1 unchanged sentence

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.

2 unchanged sentences

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

Refer to Note N for further information regarding the workforce reduction announced during the third quarter of fiscal 2024.

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

3 unchanged sentences

Cash paid ( 7,390 )

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.

Balance at December 29, 2023 $ 3,687

The Company recorded an income tax benefit of $ 18,141 and $ 2,151 on a loss before income taxes of $ 63,722 and $ 13,071 for the second quarters ended December 29, 2023 and December 30, 2022, respectively.

The Company recorded an income tax benefit of $ 31,168 and $ 3,173 on a loss before income taxes of $ 113,457 and $ 28,428 for the six months ended December 29, 2023 and December 30, 2022, respectively.

During the second quarter and six months ended December 29, 2023, the Company recognized a tax provision of $ 431 and $ 1,646 related to stock compensation shortfalls, respectively, and during the second quarter and six months ended December 30, 2022 the Company recognized a tax provision of $ 134 and $ 1,745 related to stock compensation shortfalls, 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.

The effective tax rate for the second quarters and six months ended December 29, 2023 and December 30, 2022 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 and six months 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.

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, effective for the Company beginning in the fiscal year ended June 30, 2023.

As a result, the Company has recorded a deferred tax asset through the second quarter ended December 29, 2023 of $ 88,949 .

During the six months ended December 29, 2023, the Company has made $ 15,314 of tax payments related to this requirement.

The Company will continue to monitor guidance and any proposed regulations and adjust the estimates as necessary.

R EVOLVING C REDIT F ACILITY

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.

As of December 29, 2023, the Company's outstanding balance of unamortized deferred financing costs was $ 4,811 , 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 and includes the costs incurred in conjunction with the November 2023 amendment to the Revolver.

On November 7, 2023, 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 proactively executed Amendment No.

5 to the Revolver, as amended to date, with a syndicate of commercial banks and Bank of America, N.A acting as the administrative agent allowing for a temporary increase in the Consolidated Total Net Leverage Ratio covenant requirement from 4.50 to 5.25 for the second quarter ended December 29, 2023.

In conjunction with Amendment No.

5 to the Revolver, the Company incurred $ 1,931 of new unamortized deferred financing costs that will be amortized over the remaining term of the Revolver.

Refer to exhibit 10.1 on Form 8-K filed by the Company with the SEC on November 7, 2023.

During the second quarter and six months ended December 29, 2023, the Company borrowed $ 40,000 and $ 105,000 , respectively.

As of December 29, 2023, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $ 616,500 against the Revolver, resulting in interest expense of $ 8,674 and $ 16,537 for the second quarter and six months ended December 29, 2023.

The borrowing capacity as defined under the Revolver as of December 29, 2023 is approximately $ 750,000 , less outstanding borrowings of $ 616,500 .

There were outstanding letters of credit of $ 963 as of December 29, 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 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 Plan's funded status at December 29, 2023 was a net liability of $ 4,431 , which is recorded in Other non-current liabilities on the Consolidated Balance Sheet.

The Company recorded a net loss of $ 57 and $ 113 in AOCI during the second quarter and six months ended December 29, 2023.

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 recognized net periodic benefit costs of $ 208 and $ 415 associated with the Plan for the second quarter and six months ended December 29, 2023, respectively.

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's total expected employer contributions to the Plan during fiscal 2024 are $ 1,133 .

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

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.

The Company had $ 3,270 and $ 2,705 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at December 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 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.

During the second quarter and six months ended December 29, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $ 2,811 and $ 7,652 , as compared to $ 3,822 and $ 6,427 during the second quarter and six months ended December 30, 2022.

Stock-Based Compensation

S TOCK I NCENTIVE P LANS

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.

At December 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.

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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 598 available shares for future grant under the 2018 Plan at September 29, 2023.

There were 4,110 available shares for future grant under the 2018 Plan at December 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.

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The Company monitors the probability of achieving the performance targets on a quarterly basis and may adjust periodic stock compensation expense accordingly based on its determination of the likelihood for reaching targets.

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

The performance targets generally include the achievement of financial performance goals, either on an absolute basis or relative to a peer group of companies.

Payouts under performance-based restricted stock awards may also be subject to modification based on Mercury’s total shareholder return relative to the component companies within the Spade Defense Index.

E MPLOYEE S TOCK P URCHASE P LAN

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.

At December 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 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.

There were 107 and 57 shares issued under the ESPP during the six months ended December 29, 2023 and December 30, 2022, respectively.

Shares available for future purchase under the ESPP totaled 60 at December 29, 2023.

S TOCK O PTION A ND A WARD A CTIVITY

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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.

Outstanding at December 29, 2023 934 $ 12.71 $ 45.00 3.18 —

Exercisable at December 29, 2023 — $ — $ — — —

There were no options vested or exercised during the second quarter ended December 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.

As of December 29, 2023, there was $ 10,609 of total unrecognized compensation cost related to non-vested options granted that is expected to be recognized over a weighted-average period 3.18 years from December 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

Second Quarter Ended

December 29, 2023

Expected volatility 45 %

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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.

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.

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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.

There were 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:

5 unchanged sentences

Forfeited ( 337 ) 50.31

Outstanding at September 29, 2023 2,085 $ 44.28

Outstanding at December 29, 2023 1,931 $ 43.57

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 $ 1,188 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.

The Company had $ 1,848 and $ 1,215 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended December 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 Loss:

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Cost of revenues $ 4 $ 237 $ 820 $ 1,036

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Europe Asia Pacific Eliminations Total

FIRST QUARTER ENDED SEPTEMBER 29, 2023

SECOND QUARTER ENDED DECEMBER 29, 2023

Net revenues to unaffiliated customers $ 183,162 $ 14,295 $ 6 $ — $ 197,463

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Net revenues $ 184,448 $ 14,499 $ 6 $ ( 1,490 ) $ 197,463

FIRST QUARTER ENDED SEPTEMBER 30, 2022

SECOND QUARTER ENDED DECEMBER 30, 2022

Net revenues to unaffiliated customers $ 219,155 $ 10,431 $ 2 $ — $ 229,588

1 unchanged sentence

Net revenues $ 219,087 $ 10,599 $ 2 $ ( 100 ) $ 229,588

SIX MONTHS ENDED DECEMBER 29, 2023

Net revenues to unaffiliated customers $ 355,043 $ 23,399 $ 12 $ — $ 378,454

Inter-geographic revenues 3,005 296 — ( 3,301 ) —

Net revenues $ 358,048 $ 23,695 $ 12 $ ( 3,301 ) $ 378,454

SIX MONTHS ENDED DECEMBER 30, 2022

Net revenues to unaffiliated customers $ 437,977 $ 19,183 $ 7 $ — $ 457,167

Inter-geographic revenues 79 372 — ( 451 ) —

Net revenues $ 438,056 $ 19,555 $ 7 $ ( 451 ) $ 457,167

The Company offers a broad family of products and processing solutions designed to meet the full range of requirements in compute-intensive, signal processing, image processing and command and control applications.

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

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

$ 181,822 $ 204,959 $ 328,289 $ 410,789

8 unchanged sentences

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

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

$ 13,254 $ 43,707 $ 41,813 $ 97,115

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

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Components (1)

16 unchanged sentences

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

First Quarters Ended

September 29, 2023 September 30, 2022

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

$ 124,835 $ 119,944 $ 232,569 $ 238,294

8 unchanged sentences

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

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

December 29, 2023 $ 112,008 $ 2,353 $ 114,361

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

1 unchanged sentence

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

First Quarters Ended

September 29, 2023 September 30, 2022

Lockheed Martin Corporation 13 % 16 %

Second Quarters Ended Six Months Ended

December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Navy 10 % 11 % * 11 %

RTX Corporation * 12 % 10 % 12 %

L3Harris * * 10 % *

Raytheon Technologies 11 % 13 %

Lockheed Martin Corporation * 12 % * 14 %

Northrop Grumman * 11 % * 10 %

10 % 46 % 20 % 47 %

* 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 first quarters ended September 29, 2023 and September 30, 2022.

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

Commitments and Contingencies

1 unchanged sentence

The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of business.

Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to any matters currently pending against the Company and intends to defend itself vigorously.

Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to those matters currently pending against the Company and intends to defend itself vigorously.

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.

10 unchanged sentences

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.

The Board accepted his 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.

1 unchanged sentence

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.

An arbitrator was appointed on November 29, 2023, and the arbitration trial has been scheduled for mid-December 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.

2 unchanged sentences

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.

On December 13, 2023, a securities class action complaint was filed against the Company, Mark Aslett, and Michael Ruppert in the U.S.

District Court for the District of Massachusetts.

The complaint asserts Section 10(b) and 20(a) securities fraud claims on behalf of a purported class of purchasers and sellers of the Company's stock from December 7, 2020, through June 23, 2023.

The complaint alleges that the Company's public disclosures in SEC filings and on earnings calls were false and/or misleading.

Subject to the terms of the Company's by-laws and applicable Massachusetts law, Mr.

Aslett, the Company's former Chief Executive Officer, and Mr.

Ruppert, the Company's former Chief Financial Officer, are indemnified by the Company for this matter.

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

It is too early to determine what responsibility, if any, the Company will have for this matter.

I NDEMNIFICATION O BLIGATIONS

3 unchanged sentences

P URCHASE C OMMITMENTS

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.

As of December 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 $ 122,449 .

7 unchanged sentences

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 was scheduled to mature 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 %.

2 unchanged sentences

The Company received the cash settlement of $ 7,403 and these proceeds are classified within Operating Activities of the Consolidated Statements of Cash Flows.

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.

As of December 29, 2023, the fair value of the September 2023 Swap was a liability of $ 8,710 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.

During the second quarter and six months ended December 29, 2023, the Company amortized a total of $ 881 and $ 1,220 , respectively, of the gain associated with the interest swaps terminated on September 29, 2022 and September 28, 2023, which is included within Other comprehensive loss.

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 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.

Based on the credit ratings of the Company’s counterparty as of December 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.

4 unchanged sentences

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.

On January 12, 2024, the Company initiated and approved a workforce reduction that will eliminate approximately 100 positions, resulting in expected restructuring charges of approximately $ 10,000 - $ 12,000 .

These charges are for employee separation costs and will be classified as Restructuring and other charges within the Consolidated Statements of Operations and Comprehensive Loss for the fiscal quarter ending March 29, 2024.

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