What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2024-02-06 · 166 added, 153 removed, 265 unchanged (55% of the section changed)

38 unchanged sentences

Additionally, order patterns do not necessarily correlate amongst customers and, therefore, we generally cannot identify sequential quarterly trends.

As of December 29, 2023, we had 2,550 employees.

As of March 29, 2024, we had 2,457 employees.

We employ hardware and software architects and design engineers, primarily engaged in engineering and research and product development activities to achieve our objectives to fully capitalize upon and maintain our technological leads in the high-performance, real-time sensor processing industry and in mission computing, platform management and other safety-critical applications.

6 unchanged sentences

We believe that these values will help our employees realize their full potentials at work to provide Innovation That Matters®.

Our consolidated revenues, net loss, diluted net loss per share, adjusted loss per share (“adjusted EPS”), and adjusted EBITDA for the second quarter ended December 29, 2023 were $197.5 million, ($45.6) million, ($0.79), ($0.42), and ($21.3) million, respectively.

Our consolidated revenues, net loss, diluted net loss per share, adjusted EPS, and adjusted EBITDA for the six months ended December 29, 2023 were $378.5 million, ($82.3) million, ($1.44), ($0.66), and ($19.4) million, respectively.

Our consolidated revenues, net loss, diluted net loss per share, adjusted loss per share (“adjusted EPS”), and adjusted EBITDA for the third quarter ended March 29, 2024 were $208.3 million, ($44.6) million, ($0.77), ($0.26), and ($2.4) million, respectively.

Our consolidated revenues, net loss, diluted net loss per share, adjusted EPS, and adjusted EBITDA for the nine months ended March 29, 2024 were $586.7 million, ($126.9) million, ($2.20), ($0.92), and ($21.7) million, respectively.

See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures.

RESULTS OF OPERATIONS:

There were 13 weeks included in the results of operations for 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.

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 second quarter ended December 29, 2023 compared to the second quarter ended December 30, 2022

The following table sets forth, for the second quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive Loss:

(In thousands) December 29, 2023 As a % of

Revenue December 30, 2022 As a % of

There were 13 weeks included in the results of operations for the third quarters ended March 29, 2024 and March 31, 2023, respectively.

There were 39 weeks during the nine months ended March 29, 2024 and March 31, 2023, respectively.

The results for the third quarter and nine months ended March 29, 2024 are not necessarily indicative of the results to be expected for the full fiscal year.

The third quarter ended March 29, 2024 compared to the third quarter ended March 31, 2023

The following table sets forth, for the third quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive (Loss) Income:

(In thousands) March 29, 2024 As a % of

Revenue March 31, 2023 As a % of

Net revenues $ 208,258 100.0 % $ 263,479 100.0 %

8 unchanged sentences

Total operating expenses 86,298 41.4 88,335 33.6

Loss from operations (53,929) (27.3) (7,547) (3.3)

(Loss) income from operations (45,656) (21.9) 1,954 0.7

Interest income 542 0.3 80 —

Interest expense (9,319) (4.5) (6,711) (2.5)

Other (expense) income, net (1,148) (0.5) 846 0.4

Other expense, net (2,784) (1.3) (613) (0.2)

Loss before income tax benefit (57,217) (27.5) (5,290) (2.0)

Income tax benefit (12,643) (6.1) (10,446) (4.0)

Net loss $ (45,581) (23.1) % $ (10,920) (4.8) %

Total revenues decreased $32.1 million, or 14.0%, to $197.5 million during the second quarter ended December 29, 2023, as compared to $229.6 million during the second quarter ended December 30, 2022.

Revenues decreased year over year as we continue to prioritize resources to execute our challenged programs, transition from our higher mix of development programs and aim to better align our operating cadence with prudent working capital management.

As a result, we are experiencing a temporary volume shift in our total revenue, especially our over time revenue which decreased by approximately $25.1 million.

Net (loss) income $ (44,574) (21.4) % $ 5,156 2.0 %

Total revenues decreased $55.2 million, or 20.9%, to $208.3 million during the third quarter ended March 29, 2024, as compared to $263.5 million during the third quarter ended March 31, 2023.

Revenues decreased year over year as we continue to prioritize resources to execute on our challenged programs.

As a result, we are experiencing a temporary volume shift in our total revenue, including our point in time revenue and over time revenue which decreased by approximately $39.5 million and $15.7 million, respectively.

Over time revenue represented 58% of total revenues during the third quarter ended March 29, 2024, as compared to 52% of total revenues during the third quarter ended March 31, 2023.

During the third quarter ended March 29, 2024, we experienced incremental cost growth across various programs with revenue recognized over time, including our challenged programs.

These adjustments in our estimates at completion represented technical and execution challenges we faced in the quarter, which resulted in a cumulative adjustment to reduce revenues.

Despite the cost growth we experienced on our programs, the trend in the cost growth of these programs has reduced significantly as we proactively retire risk across the portfolio.

Specifically, in regard to the challenged programs, we continue to complete and close out these programs, which will allow us to enhance our focus and drive revenue on other development and production programs.

We expect this trend to continue through the remainder of fiscal 2024.

Over time revenue represented 53% of total revenues during the second quarter ended December 29, 2023, as compared to 56% of total revenues during the second quarter ended December 30, 2022.

Specifically, with regard to our challenged programs which are recognized over time, we have recognized a majority of the revenue and related cost as we acquired material and applied labor over the period of performance to progress these programs in prior periods.

As we continue to resolve technical challenges and complete these programs, which consumes a significant amount of operational capacity, the remaining revenues on these challenged programs are recognized, however these revenues represent a very small proportion of the total contract value.

In addition, we adjusted our estimates at completion for incremental technical and execution costs in the quarter, especially as related to one of our challenged programs as well as certain other development and production programs resulting in a cumulative adjustment to reduce revenues in the second quarter.

In addition, as we transition our operating cadence with a goal of more properly balancing our material purchases with contract awards and resource availability to drive better working capital results, we are experiencing a near-term revenue timing dynamic.

We experienced decreases across each product grouping during the second quarter ended December 29, 2023 when compared to the prior period;

modules and sub-assemblies, components, and integrated subsystems, decreased $26.5 million, $3.7 million, and $1.9 million, respectively.

The decrease in total revenue was primarily driven by the radar, other sensor and

effector and electronic warfare end applications decreases of $30.5 million, $6.7 million, and $5.3 million, respectively, partially offset by increases to C4I end applications of $11.7 million.

The decrease in total revenue was also driven by lower Naval and Other platforms of $18.3 million and $17.9 million, respectively, partially offset by increases to airborne platforms of $4.9 million.

The largest program decreases were related to the AEGIS program, a secure processing program, and the THAAD program, partially offset by increases to a large C4I program and the F/A-18 program when compared to the prior period.

There were no programs comprising 10% or more of our revenues for the second quarters ended December 29, 2023 or December 30, 2022.

Revenue decreases were driven by the integrated subsystems and modules and sub-assemblies product groupings which decreased $52.8 million and $6.6 million, respectively, partially offset by an increase to the components grouping of $4.1 million during the third quarter ended March 29, 2024 when compared to the prior period.

The decrease in total revenue was primarily driven by the radar, C4I and electronic warfare end applications with decreases of $57.2 million, $19.6 million and $9.9 million, respectively, partially offset by increases to other sensor and effector end applications of $27.5 million.

The decrease in total revenue was also driven by lower Land, Airborne and Naval platforms of $37.8 million, $29.6 million and $11.3 million, respectively, partially offset by increases to Other platforms of $23.4 million.

The largest program decreases were related to secure processing programs, LTAMDS and Aegis, partially offset by increases to the MK21A program and the

Tranche 2 Tracking Layer program when compared to the prior period.

There were no programs comprising 10% or more of our revenues for the third quarters ended March 29, 2024 or March 31, 2023.

G ROSS M ARGIN

Gross margin was 16.0% for the second quarter ended December 29, 2023, a decrease of 1930 basis points from the 35.3% gross margin realized during the second quarter ended December 30, 2022.

The lower gross margin was driven by cost growth impacts and higher manufacturing adjustments, primarily related to inventory reserves and scrap.

The growth in estimated costs to complete during fiscal 2024 has significantly reduced the overall margins recognized on the affected programs through completion.

Program cost growth of approximately $30.6 million was recorded in the quarter resulting in an incremental impact of approximately $23.3 million to gross margin, or 1230 basis points, when compared to the prior period.

Approximately $13.7 million of total cost growth impact in the quarter was attributable to the approximately 20 challenged programs, of which $12.6 million related to one program.

The remaining $16.9 million was incurred across certain other development and production programs based on facts and circumstances in the quarter.

The decrease in gross margin was also attributable to higher manufacturing adjustments of approximately $13.3 million related to inventory reserves and scrap.

The increase in inventory reserves was related to specifically identified excess and obsolete inventory primarily resulting from a shift in customer demand for our next generation product offering.

In addition, we are actively marketing and selling certain of our slow moving inventory with certain parts expected to be at a discount.

Gross margin was 19.5% for the third quarter ended March 29, 2024, a decrease of 1480 basis points from the 34.3% gross margin realized during the third quarter ended March 31, 2023.

The lower gross margin was driven by cost growth impacts to revenue programs recognized over time and higher manufacturing adjustments, including $11.1 million related to inventory reserves and scrap, as well as $4.9 million incremental warranty expense.

The increase in inventory reserves was primarily related to programs with end of life components, where design changes have occurred, as well as configuration changes necessary to drive efficient production in the common processing architecture.

The increase in scrap was primarily a result of higher levels of discrepant material especially as related to the common processing architecture across several of our remaining challenged programs.

We have several initiatives underway to address more efficient and cost-effective producibility of these subsystems.

Additionally, the growth in estimated costs to complete on our over time revenue programs during fiscal 2024 has significantly reduced the overall margins.

Net program cost growth of approximately $16.0 million was recorded in the quarter resulting in an incremental impact of approximately $8.7 million to gross margin, or 490 basis points, when compared to the prior period.

Approximately $6.5 million of total cost growth impact in the quarter was attributable to the challenged programs, of which $3.7 million related to one program.

The remaining $9.5 million was incurred across certain other development and production programs based on facts and circumstances in the quarter.

We had the following aggregate effects of favorable and unfavorable margin impacts as a result of changes in estimates across our portfolio for the period presented:

(in thousands) March 29, 2024 March 31, 2023

Gross favorable $ 9,667 $ 5,057

Gross unfavorable (25,644) (12,363)

Net impact of changes in estimates $ (15,977) $ (7,306)

The changes in estimates are assessed based on historical results and cumulative adjustments are recorded to recognize revenue to date based on changes in estimated margin on programs, factored for potential risks and opportunities.

We utilize the latest and best information available when revising our estimates and apply consistent judgement across the full portfolio of programs.

S ELLING , G ENERAL AND A DMINISTRATIVE

Selling, general and administrative expenses decreased $0.6 million, or 1.3%, to $44.5 million during the second quarter ended December 29, 2023, as compared to $45.1 million in the second quarter ended December 30, 2022.

The decrease was primarily driven by the reduction in force initiated on August 9, 2023, resulting in lower compensation costs including $2.5 million of stock compensation expense, $1.3 million of bonus expense, as well as a reduction in controllable spend.

These decreases were partially offset by contract asset write-offs of $4.8 million as a result of negotiating settlement terms with our customers to reduce scope, or otherwise exit contracts, especially as related to certain challenged programs.

Selling, general and administrative expenses decreased $1.4 million, or 3.2%, to $43.2 million during the third quarter ended March 29, 2024, as compared to $44.6 million in the third quarter ended March 31, 2023.

The decrease was primarily driven by the reduction in force initiated on January 12, 2024, resulting in lower compensation costs including $3.5 million of stock compensation expense, and $3.9 million of bonus, salary, and benefit expense.

These decreases were partially offset by contract asset reserves of $6.3 million as a result of ongoing negotiations of settlement terms with our customers to reduce scope, or otherwise exit contracts.

R ESEARCH AND D EVELOPMENT

Research and development expenses increased $1.6 million, or 5.8%, to $28.5 million during the second quarter ended December 29, 2023, as compared to $26.9 million during the second quarter ended December 30, 2022.

The increase during the second quarter ended December 29, 2023 was driven by higher compensation costs of $1.3 million and $1.2 million of incremental R&D spend on equipment and supplies and outside services, partially offset by lower bonus expense of $0.8 million as compared to the second quarter ended December 30, 2022.

Research and development expenses decreased $4.9 million, or 18.5%, to $21.6 million during the third quarter ended March 29, 2024, as compared to $26.5 million during the third quarter ended March 31, 2023.

The decrease during the third quarter ended March 29, 2024 was primarily driven by increased Customer Funded Research and Development ("CRAD") of $2.6 million as a result of a higher mix of development programs execution, as well as the reduction in force initiated on January 12, 2024, resulting in lower compensation costs including $2.7 million of salary, bonus, benefits and stock compensation expense.

Decreases were partially offset by $0.7 million of incremental R&D spend on on equipment, supplies and outside services as compared to the third quarter ended March 31, 2023.

A MORTIZATION OF I NTANGIBLE A SSETS

Amortization of intangible assets decreased $1.3 million to $12.3 million during the second quarter ended December 29, 2023, as compared to $13.5 million during the second quarter ended December 30, 2022, primarily due to the backlog intangible from our Avalex acquisition being fully amortized in fiscal 2023.

Amortization of intangible assets decreased $1.3 million to $11.5 million during the third quarter ended March 29, 2024, as compared to $12.8 million during the third quarter ended March 31, 2023, primarily due to various developed technology intangibles being fully amortized in fiscal 2023.

R ESTRUCTURING AND O THER C HARGES

There was an immaterial amount of restructuring and other charges during the second quarter ended December 29, 2023.

Restructuring and other charges during the second quarter ended December 30, 2022 included $1.0 million of costs related to facility optimization efforts associated with 1MPACT, including $0.8 million related to lease asset impairment, as well as $0.6 million related to severance costs and the remaining $0.4 million related to third party consulting costs associated with 1MPACT.

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

All of the restructuring and other charges will be 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.

We incurred $9.8 million of restructuring and other charges during the third quarter ended March 29, 2024, as compared to $2.8 million during the third quarter ended March 31, 2023.

Restructuring and other charges during the third quarter ended March 29, 2024 includes $9.8 million for separation costs related to the reduction in workforce initiated January 12, 2024 impacting approximately 100 positions.

Restructuring and other charges during the third quarter ended March 31, 2023 includes $2.0 million related to severance costs and $0.8 million of costs related to facility optimization efforts associated with 1MPACT, including $0.5 million related to lease asset impairment.

A CQUISITION C OSTS AND O THER R ELATED E XPENSES

There was an immaterial amount of acquisition costs and other related expenses during the second quarter ended December 29, 2023.

The acquisition costs and other related expenses during the second quarter ended December 30, 2022 were primarily related to $0.6 million for third-party advisory fees in connection with engagements by activist investors and other acquisition related costs.

There was an immaterial amount of acquisition costs and other related expenses during the third quarter ended March 29, 2024.

The acquisition costs and other related expenses during the third quarter ended March 31, 2023 includes $1.3 million associated with the Board of Directors' review of strategic alternatives.

I NTEREST E XPENSE

We incurred $8.7 million of interest expense during the second quarter ended December 29, 2023, as compared to $6.6 million during the second quarter ended December 30, 2022.

We incurred $9.3 million of interest expense during the third quarter ended March 29, 2024, as compared to $6.7 million during the third quarter ended March 31, 2023.

The increase was driven by a higher interest rate and higher average outstanding borrowings during the period on our existing credit facility (the "Revolver").

O THER (E XPENSE ) I NCOME, N ET

Other expense, net was $1.1 million during the second quarter ended December 29, 2023, as compared to other income, net of $0.8 million during the second quarter ended December 30, 2022.

The second quarter ended December 29, 2023 includes litigation and settlement expenses of $1.4 million and $0.8 million of financing costs, partially offset by net foreign currency translation gains of $0.7 million and $0.4 million of other income.

The second quarter ended December 30, 2022 includes net foreign currency translation gains of $1.4 million offset by $0.5 million of financing costs.

O THER E XPENSE, N ET

Other expense, net was $2.8 million during the third quarter ended March 29, 2024, as compared to $0.6 million during the third quarter ended March 31, 2023.

The third quarter ended March 29, 2024 includes litigation and settlement expenses of $2.1 million, $0.8 million of financing costs and $0.2 million net foreign currency translation losses, partially offset by other income of $0.3 million.

The third quarter ended March 31, 2023 includes $0.6 million of financing costs, litigation and settlement expenses of $0.3 million, partially offset by net foreign currency translation gains of $0.3 million.

I NCOME T AXES

We recorded an income tax benefit of $18.1 million and $2.2 million on a loss before income taxes of $63.7 million and $13.1 million for the second quarters ended December 29, 2023 and December 30, 2022, respectively.

During the second quarters ended December 29, 2023 and December 30, 2022, we recognized a tax provision of $0.4 million and $0.1 million related to stock compensation shortfalls, respectively.

During the second quarter ended December 30, 2022, we recognized a tax benefit of $2.3 million 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 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 ended December 30, 2022 also differed from the federal statutory rate due to the release of previously unrecognized income tax benefits.

We recorded an income tax benefit of $12.6 million and $10.4 million on a loss before income taxes of $57.2 million and $5.3 million for the third quarters ended March 29, 2024 and March 31, 2023, respectively.

During the third quarters ended March 29, 2024 and March 31, 2023, we recognized a tax provision (benefit) of $0.8 million and $(0.1) million related to stock compensation shortfalls (windfalls), respectively.

During the third quarter ended March 31, 2023, we concluded our income tax audit with the Internal Revenue Service for fiscal years 2016 through 2018 and subsequently recognized a tax benefit of $1.3 million related to a release of income tax reserves for unrecognized income tax benefits.

The effective tax rate for the third quarters ended March 29, 2024 and March 31, 2023 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 third quarter ended March 31, 2023 also differed from the federal statutory rate due to the release of 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 us beginning in the fiscal year ended June 30, 2023.

As a result, we have recorded a deferred tax asset through the second quarter ended December 29, 2023 of $88.9 million.

During the second quarter ended December 29, 2023, we have made $0.3 million of tax payments related to this requirement.

Based on guidance issued during the year, we refined the amount of research and development expenditures capitalized and recorded certain current and deferred tax adjustments in the third quarter ended March 29, 2024.

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

Six months ended December 29, 2023 compared to the six months ended December 30, 2022

The following table sets forth, for the six month periods indicated, financial data from the Consolidated Statements of Operations and Comprehensive Loss:

(In thousands) December 29, 2023 As a % of

Revenue December 30, 2022 As a % of

Nine months ended March 29, 2024 compared to the nine months ended March 31, 2023

The following table sets forth, for the nine month periods indicated, financial data from the Consolidated Statements of Operations and Comprehensive (Loss) Income:

(In thousands) March 29, 2024 As a % of

Revenue March 31, 2023 As a % of

Net revenues $ 586,712 100.0 % $ 720,646 100.0 %

15 unchanged sentences

Net loss $ (126,863) (21.6) % $ (20,099) (2.8) %

Total revenues decreased $78.7 million, or 17.2%, to $378.5 million during the six months ended December 29, 2023, as compared to $457.2 million during the six months ended December 30, 2022.

Total revenues decreased $133.9 million, or 18.6%, to $586.7 million during the nine months ended March 29, 2024, as compared to $720.6 million during the nine months ended March 31, 2023.

As a result, we are observing a temporary volume shift in our total revenue, especially our over time revenue which decreased by approximately $63.8 million.

As a result, we are observing a temporary volume shift in our total revenue, including our point in time revenue and over time revenue which decreased by approximately $54.5 million and $79.4 million, respectively.

We expect this trend to continue through the remainder of fiscal 2024.

Over time revenue represented 55% of total revenues during the six months ended December 29, 2023, as compared to 60% of total revenues during the six months ended December 30, 2022.

Over time revenue represented 56% of total revenues during the nine months ended March 29, 2024, as compared to 57% of total revenues during the nine months ended March 31, 2023.

During the nine months ended March 29, 2024, we experienced incremental cost growth across various programs with revenue recognized over time, including our challenged programs.

For the challenged programs, which are recognized over time, we have recognized a majority of the revenue and related cost as we acquired material and applied labor over the period of performance to progress these programs in prior periods.

Despite the cost growth we experienced on our programs, the trend in the cost growth of these programs has reduced significantly as we proactively retire risk across the portfolio.

We experienced product grouping decreases driven by modules and sub-assemblies and integrated subsystems, which decreased $44.7 million and $35.9 million, respectively, partially offset by an increase in the components product grouping of $1.9 million.

The decrease in total revenue was primarily driven by the radar, electronic warfare and other end applications decreases of $55.3 million, $12.3 million, and $12.2 million, respectively, partially offset by increases to C4I end applications of $7.8 million.

We experienced decreases across each platform during the six months ended December 29, 2023 when compared to the prior period;

Other, Naval, Land and Airborne platforms decreased $36.6 million, $25.4 million, $11.0 million and $5.7 million, respectively.

The largest program decreases were related to the LTAMDS, AEGIS and P8 programs, partially offset by increases to a large C4I program and the F/A-18 program when compared to the prior period.

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

We experienced revenue decreases across all product grouping, integrated subsystems, modules and sub-assemblies and components which decreased $106.5 million, $26.2 million and $1.3 million, respectively.

The decrease in total revenue was primarily driven by the radar, electronic warfare and C4I end applications decreases of $112.5 million, $22.2 million, and $20.7 million, respectively, partially offset by increases to other sensor and effector end applications of $20.8 million.

We experienced decreases across each platform during the nine months ended March 29, 2024 when compared to the prior period;

Land, Airborne, Naval and Other platforms decreased $48.9 million, $44.2 million, $36.6 million, and $4.2 million, respectively.

The largest program decreases were related to the LTAMDS, Aegis and THAAD programs, partially offset by

increases to the SCAR and MK21A programs when compared to the prior period.

There were no programs comprising 10% or more of our revenues for the nine months ended March 29, 2024 or March 31, 2023.

G ROSS M ARGIN

Gross margin was 21.7% for the six months ended December 29, 2023, a decrease of 1310 basis points from the 34.8% gross margin realized during the six months ended December 30, 2022.

The lower gross margin was driven by cost growth impacts and higher manufacturing adjustments, primarily related to inventory reserves, scrap and certain other non-recurring cost adjustments.

The growth in estimated costs to complete during fiscal 2024 has significantly reduced the overall margins recognized on the affected programs through completion.

Program cost growth of approximately $48.0 million was recorded in the six months resulting in an incremental impact of approximately $27.9 million to gross margin, or 840 basis points, when compared to the prior period.

Approximately, $19.3 million of total cost growth impact in the six months was attributable to the approximately 20 challenged programs, of which a total of $17.7 million related to two programs.

The remaining $28.7 million was incurred across certain other development and production programs based on facts and circumstances in the quarter.

The decrease in gross margin was also attributable to higher manufacturing adjustments of approximately $18.1 million related to inventory reserves and scrap.

The increase in inventory reserves was related to specifically identified excess and obsolete inventory primarily resulting from a shift in customer demand for our next generation product offering.

In addition, we are actively marketing and selling certain of our slow moving inventory with certain parts expected to be at a discount.

Gross margin was 20.9% for the nine months ended March 29, 2024, a decrease of 1370 basis points from the 34.6% gross margin realized during the nine months ended March 31, 2023.

The lower gross margin was driven by cost growth impacts to revenue programs recognized over time and higher manufacturing adjustments, including $29.2 million related to inventory reserves and scrap, certain other non-recurring cost adjustments, as well as, $4.9 million warranty expense.

The increase in scrap was primarily a result of higher levels of discrepant material especially as related to the common processing architecture across several of our remaining challenged programs.

We have several initiatives underway to address more efficient and cost-effective producibility of these subsystems.

Additionally, the growth in estimated costs to complete on our over time revenue programs during fiscal 2024 has significantly reduced the overall margins.

Net program cost growth of approximately $63.9 million was recorded in the nine months resulting in an incremental impact of approximately $36.6 million to gross margin, or 710 basis points, when compared to the prior period.

Approximately, $25.8 million of total cost growth impact in the nine months was attributable to the challenged programs, of which a total of $18.9 million related to two programs.

The remaining $38.2 million was incurred across certain other development and production programs based on facts and circumstances in the quarter.

We had the following aggregate effects of favorable and unfavorable margin impacts as a result of changes in estimates across our portfolio for the period presented:

(in thousands) March 29, 2024 March 31, 2023

Gross favorable $ 14,441 $ 10,015

Gross unfavorable (78,391) (37,342)

Net impact of changes in estimates $ (63,950) $ (27,327)

We utilize the latest and best information available when revising our estimates and apply consistent judgement across the full portfolio of programs.

S ELLING , G ENERAL AND A DMINISTRATIVE

Selling, general and administrative expenses decreased $3.7 million, or 4.4%, to $80.3 million during the six months ended December 29, 2023, as compared to $84.0 million during the six months ended December 30, 2022.

The decrease was primarily driven by the reduction in force initiated on August 9, 2023, resulting in lower compensation costs including $5.7 million of lower stock compensation and $4.1 million of lower bonus expense.

Selling, general and administrative expenses decreased $5.2 million, or 4.0%, to $123.4 million during the nine months ended March 29, 2024, as compared to $128.6 million during the nine months ended March 31, 2023.

The decrease was primarily driven by the reduction in force initiated on August 9, 2023 and on January 12, 2024, resulting in lower compensation costs of $16.3 million including stock compensation, bonus, benefits and salary expense.

These decreases were partially offset by contract asset write-offs and reserves of $11.1 million as a result of ongoing negotiations of settlement terms with our customers to reduce scope, or otherwise exit contracts, especially as related to certain challenged programs.

R ESEARCH A ND D EVELOPMENT

Research and development expenses increased $5.7 million, or 10.4%, to $60.3 million during the six months ended December 29, 2023, as compared to $54.7 million during the six months ended December 30, 2022.

The increase was primarily due to an increase in compensation costs of $4.8 million, incremental R&D spend on equipment, supplies and outside services totaling $2.9 million, partially offset by lower bonus expense of $2.3 million as compared to the six months ended December 30, 2022.

Research and development expenses increased $0.7 million, or 0.9%, to $81.9 million during the nine months ended March 29, 2024, as compared to $81.2 million during the nine months ended March 31, 2023.

The increase was primarily due to incremental R&D spend on equipment, supplies and outside services totaling $4.7 million, partially offset by increased CRAD of $3.9 million as a result of a higher mix of development programs execution compared to the nine months ended March 31, 2023.

R ESTRUCTURING A ND O THER C HARGES

Restructuring and other charges were $9.5 million during the six months ended December 29, 2023, as compared to $3.6 million during the six months ended December 30, 2022.

During the six months ended December 29, 2023 we initiated several immediate cost savings measures that simplify our organizational structure, facilitate clearer accountability, and align our priorities, including:

Restructuring and other charges were $19.4 million during the nine months ended March 29, 2024, as compared to $6.4 million during the nine months ended March 31, 2023.

During the nine months ended March 29, 2024 we initiated several immediate cost savings measures that simplify our organizational structure, facilitate clearer accountability, and align our priorities, including:

(i) embedding the 1MPACT value creation initiatives and execution into our operations;

2 unchanged sentences

On July 20, 2023, we executed the plan to embed the 1MPACT value creation initiatives into operations, and on August 9, 2023, we approved and initiated a workforce reduction that, together with the 1MPACT related action, eliminated approximately 150 positions resulting in $9.5 million of severance costs.

Restructuring and other charges during the six months ended December 30, 2022 primarily related to 1MPACT including $1.7 million of third party consulting costs, $1.0 million of costs for facility optimization efforts including $0.8 million related to lease asset impairment, as well as $0.8 million of severance costs associated with the elimination of approximately 10 positions.

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

On January 12, 2024, we initiated and approved a workforce reduction that eliminated approximately 100 positions resulting in $9.8 million of severance costs.

Restructuring and other charges during the nine months ended March 31, 2023 primarily related to 1MPACT including $2.8 million of severance costs, $1.8 million of third party consulting costs, $1.8 million of costs for facility optimization efforts, including $1.3 million related to lease asset impairment.

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

A CQUISITION C OSTS AND O THER R ELATED E XPENSES

Acquisition costs and other related expenses were $1.2 million during the six months ended December 29, 2023, as compared to $3.4 million during the six months ended December 30, 2022.

The acquisition costs and other related expenses we incurred during the six months ended December 29, 2023 includes $0.3 million related to the conclusion of the Board of Directors' review of strategic alternatives, as well as $0.3 million for third-party advisory fees in connection with engagements

by activist investors.

Acquisition costs during the six months ended December 30, 2022 were primarily related to $2.5 million for third party advisory fees in connection with engagements by activist investors and other acquisition related costs.

Acquisition costs and other related expenses were $1.4 million during the nine months ended March 29, 2024, as compared to $5.0 million during the nine months ended March 31, 2023.

The acquisition costs and other related expenses we incurred during the nine months ended March 29, 2024 includes $0.5 million related to run-rate amortization of fair value adjustments from purchase accounting, $0.3 million related to the conclusion of the Board of Directors' review of strategic alternatives, as well as $0.3 million for third-party advisory fees in connection with engagements by activist investors.

Acquisition costs during the nine months ended March 31, 2023 were primarily related to $2.5 million for third party advisory fees in connection with engagements by activist investors and $1.3 million associated with the Board of Directors' review of strategic alternatives.

I NTEREST E XPENSE

We incurred $16.5 million of interest expense during the six months ended December 29, 2023, as compared to $11.1 million during the six months ended December 30, 2022.

The increase was driven by an increase in interest rate and higher average borrowings outstanding on our Revolver as compared to the six months ended December 30, 2022.

We incurred $25.9 million of interest expense during the nine months ended March 29, 2024, as compared to $17.8 million during the nine months ended March 31, 2023.

The increase was driven by a higher interest rate and higher average borrowings outstanding on our Revolver as compared to the nine months ended March 31, 2023.

O THER E XPENSE , N ET

Other expense, net increased $0.1 million to $2.9 million during the six months ended December 29, 2023 as compared to $2.8 million during the six months ended December 30, 2022.

There was $1.9 million of litigation and settlement costs, $1.4 million of financing costs and $0.3 million of net foreign currency translation losses, partially offset by other income of $0.7 million.

during the six months ended December 29, 2023.

There was $1.4 million of litigation and settlement costs, $1.1 million of financing costs and $0.4 million of net foreign currency translation losses during the six months ended December 30, 2022.

Other expense, net increased $2.3 million to $5.7 million during the nine months ended March 29, 2024 as compared to $3.4 million during the nine months ended March 31, 2023.

There was $4.0 million of litigation and settlement costs, $2.1 million of financing costs and $0.5 million of net foreign currency translation losses, partially offset by other income of $0.9 million during the nine months ended March 29, 2024.

There was $1.7 million of both financing costs and litigation and settlement costs, respectively, during the nine months ended March 31, 2023.

I NCOME T AXES

We recorded an income tax benefit of $31.2 million and $3.2 million on a loss before income taxes of $113.5 million and $28.4 million for the six months ended December 29, 2023 and December 30, 2022, respectively.

During the six months quarters ended December 29, 2023 and December 30, 2022, we recognized a tax provision of $1.6 and $1.7 million related to stock compensation shortfalls, respectively.

During the six months ended December 30, 2022, we recognized a tax benefit of $2.3 million 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 quarter ended December 30, 2022 also differed from the federal statutory rate due to the release of previously unrecognized income tax benefits.

We recorded an income tax benefit of $43.8 million and $13.6 million on a loss before income taxes of $170.7 million and $33.7 million for the nine months ended March 29, 2024 and March 31, 2023, respectively.

During the nine months ended March 29, 2024 and March 31, 2023, we recognized a tax provision of $2.4 and $1.7 million related to stock compensation shortfalls, respectively.

During the nine months ended March 31, 2023, we concluded our income tax audit with the Internal Revenue Service for fiscal years 2016 through 2018 and subsequently recognized a tax benefit of $1.3 million related to a release of income tax reserves for unrecognized income tax benefits.

The effective tax rate for the nine months ended March 29, 2024 and March 31, 2023 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 nine months ended March 31, 2023 also differed from the federal statutory rate due to the release of unrecognized income tax benefits.

As a result, we have recorded a deferred tax asset through the second quarter ended December 29, 2023 of $88.9 million.

During the six months ended December 29, 2023, we have made $15.3 million of tax payments related to this requirement.

As a result, we have recorded a deferred tax asset through the nine months ended March 29, 2024 of $58.3 million.

Based on some guidance issued during the year, we refined the amount of research and development expenditures capitalized and recorded certain current and deferred tax adjustments in the third quarter ended March 29, 2024.

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

18 unchanged sentences

On February 28, 2022, we amended the Revolver to increase and extend the borrowing capacity to a $1.1 billion, 5-year revolving credit line, with the maturity extended to February 28, 2027.

The borrowing capacity as defined under the Revolver as of December 29, 2023 is approximately $750.0 million, less outstanding borrowings of $616.5 million.

The borrowing capacity as defined under the Revolver as of March 29, 2024 is approximately $750.0 million, less outstanding borrowings of $616.5 million.

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, we 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.

As of December 29, 2023, the Company was in compliance with all covenants and conditions under the Revolver and expects to be within our covenant and conditions for the remainder of the year.

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

As part of Amendment No.

5, the Company agreed to a temporary reduction of Revolver capacity to $750.0 million through the earlier of May 15, 2024 or the filing of the compliance certificate for the period ended March 29, 2024.

Upon the earlier of May 15, 2024 or the filing of the compliance certificate for the period ended March 29, 2024 the borrowing capacity will increase to approximately $1,069.8 million, less outstanding borrowings of $616.5 million.

During the third quarter ended March 29, 2024, we did not have any additional borrowings.

During the nine months ended March 29, 2024, we borrowed $105.0 million.

As of March 29, 2024, the Company was in compliance with all covenants and conditions under the Revolver and expects to be within our covenant and conditions for the remainder of the year.

Receivables Purchase Agreement

5 unchanged sentences

On June 21, 2023, we further amended the RPA with BMO Harris Bank (as successor in interest to Bank of the West) to increase the capacity from $30.6 million to $60.0 million.

We factored accounts receivable and incurred factoring fees of approximately $48.2 million and $1.3 million, respectively, for the six months ended December 29, 2023.

We factored accounts receivable and incurred factoring fees of approximately $20.0 million and $0.1 million respectively, for the six months ended December 30, 2022.

As of and For the Six Months Ended,

(In thousands) December 29, 2023 December 30, 2022

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

We factored accounts receivable and incurred factoring fees of approximately $44.2 million and $1.6 million, respectively, for the nine months ended March 29, 2024.

We factored accounts receivable and incurred factoring fees of approximately $24.5 million and $0.3 million respectively, for the nine months ended March 31, 2023.

As of and For the Nine Months Ended,

(In thousands) March 29, 2024 March 31, 2023

Net cash used in operating activities $ (11,379) $ (33,864)

Net cash used in investing activities $ (23,943) $ (29,800)

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

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

Net increase (decrease) in cash and cash equivalents $ 71,082 $ (1,213)

Cash and cash equivalents at end of period $ 142,645 $ 64,441

Our cash and cash equivalents increased by $97.1 million from June 30, 2023 to December 29, 2023, primarily as the result of $6.4 million of cash generated from operating activities and $105.0 million of borrowings on our Revolver, partially offset by $16.0 million invested in purchases of property and equipment.

Our cash and cash equivalents increased by $71.1 million from June 30, 2023 to March 29, 2024, primarily as the result of $105.0 million of borrowings on our Revolver, offset by $23.9 million invested in purchases of property and equipment and $11.4 million of cash used in operating activities.

Operating Activities

During the six months ended December 29, 2023, we had an inflow of $6.4 million in cash from operating activities compared to a $30.6 million outflow during the six months ended December 30, 2022.

The inflow during the six months ended December 29, 2023 was primarily due to a $69.7 million inflow from accounts receivable, unbilled receivables and costs in excess of billings as compared to a $30.9 million outflow during the six months ended December 30, 2022.

The six months ended December 29, 2023 also included lower outflows due to inventory, prepaid expenses and other current assets, and accounts payable, accrued expenses, and accrued compensation as compared to the six months ended December 30, 2022.

This activity was partially offset by outflows of $13.9 million, $5.8 million, and $2.7 million of income taxes payable, prepaid income taxes, and other non-current assets, respectively.

Cash paid for income taxes and interest during the six months ended December 29, 2023 also increased by $12.4 million and $4.9 million, respectively, as compared to the six months ended December 30, 2022, further offsetting the increase.

During the nine months ended March 29, 2024, we had an outflow of $11.4 million in cash from operating activities compared to a $33.9 million outflow during the nine months ended March 31, 2023.

The reduced outflow during the nine months ended March 29, 2024 was primarily due to a higher net loss of $106.8 million and a $78.3 million inflow from accounts receivable, unbilled receivables and costs in excess of billings as compared to a $53.7 million outflow during the nine months ended March 31, 2023.

The nine months ended March 29, 2024 also included lower outflows due to inventory and the benefit for deferred income taxes as compared to the nine months ended March 31, 2023.

This activity was offset by outflows of $28.0 million, $25.9 million, and $13.9 million of prepaid income taxes, accounts payable, accrued expenses, and accrued compensation, and income taxes payable, respectively and lower inflows from deferred revenues and customer advances.

Investing Activities

During the six months ended December 29, 2023, we invested $16.0 million, a decrease of $4.4 million, as compared to $20.4 million during the six months ended December 30, 2022 primarily due to lower purchases of property and equipment.

During the nine months ended March 29, 2024, we invested $23.9 million, a decrease of $5.9 million, as compared to $29.8 million during the nine months ended March 31, 2023 primarily due to lower purchases of property and equipment.

Financing Activities

During the six months ended December 29, 2023, we had $105.0 million of borrowings on our Revolver as compared to $100.0 million of borrowings during the six months ended December 30, 2022.

During the six months ended December 30, 2022, the borrowings were partially offset by payments under credit facilities of $40.0 million while there were no such payments made during the six months ended December 29, 2023.

During the nine months ended March 29, 2024, we had $105.0 million of borrowings on our Revolver as compared to $100.0 million of borrowings during the nine months ended March 31, 2023.

During the nine months ended March 31, 2023, the borrowings were partially offset by payments under credit facilities of $40.0 million while there were no such payments made during the nine months ended March 29, 2024.

C OMMITMENTS, C ONTRACTUAL O BLIGATIONS AND C ONTINGENCIES

The following is a schedule of our commitments and contractual obligations outstanding at December 29, 2023:

The following is a schedule of our commitments and contractual obligations outstanding at March 29, 2024:

(In thousands) Total Less Than

4 unchanged sentences

Purchase obligations represent open non-cancelable purchase commitments for certain inventory components and services used in normal operations.

The purchase commitments covered by these agreements are for less than one year and aggregated approxi mately $122.4 million at December 29, 2023.

We have a liability at December 29, 2023 of $5.2 million for uncertain tax positions that have been taken or are expected to be taken in various income tax returns.

The purchase commitments covered by these agreements are for less than one year and aggregated approxi mately $138.6 million at March 29, 2024.

We have a liability at March 29, 2024 of $5.2 million for uncertain tax positions that have been taken or are expected to be taken in various income tax returns.

We do not know the ultimate resolution on these uncertain tax positions and as such, do not know the ultimate timing of payments or amount, if any, related to this liability.

17 unchanged sentences

We use adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our board of directors, determining the portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in our operations and allocating resources to various initiatives and operational requirements.

We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period to period without any correlation to underlying operating performance.

We believe that adjusted EBITDA permits a comparative assessment of our

operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period to period without any correlation to underlying operating performance.

We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making.

4 unchanged sentences

The following table reconciles our net loss, the most directly comparable GAAP financial measure, to our adjusted EBITDA:

Second Quarters Ended Six Months Ended

(In thousands) December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Net loss $ (45,581) $ (10,920) $ (82,289) $ (25,255)

Third Quarters Ended Nine Months Ended

(In thousands) March 29, 2024 March 31, 2023 March 29, 2024 March 31, 2023

Net (loss) income $ (44,574) $ 5,156 $ (126,863) $ (20,099)

Other non-operating adjustments, net (64) (337) (375) (3)

21 unchanged sentences

The following tables reconcile net loss and diluted loss per share, the most directly comparable GAAP measures, to adjusted (loss) income and adjusted EPS:

Second Quarters Ended

(In thousands, except per share data) December 29, 2023 December 30, 2022

Net loss and loss per share $ (45,581) $ (0.79) $ (10,920) $ (0.19)

Third Quarters Ended

(In thousands, except per share data) March 29, 2024 March 31, 2023

Net (loss) income and (loss) earnings per share $ (44,574) $ (0.77) $ 5,156 $ 0.09

Other non-operating adjustments, net (64) (337)

15 unchanged sentences

(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares.

There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.

Six Months Ended

(In thousands, except per share data) December 29, 2023 December 30, 2022

There was no impact to the calculation of adjusted earnings per share as a result of this for the third quarter, presented above.

Nine Months Ended

(In thousands, except per share data) March 29, 2024 March 31, 2023

Net loss and loss per share $ (126,863) $ (2.20) $ (20,099) $ (0.36)

16 unchanged sentences

(2) Adjusted earnings per share is calculated using diluted shares whereas Net loss is calculated using basic shares.

There was no impact to the calculation of adjusted earnings per share as a result of this for the six months ended December 30, 2022.

There was no impact to the calculation of adjusted earnings per share as a result of this for the nine months ended March 31, 2023.

Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs.

5 unchanged sentences

The following table reconciles cash used in operating activities, the most directly comparable GAAP financial measure, to free cash flow:

Second Quarters Ended Six Months Ended

(In thousands) December 29, 2023 December 30, 2022 December 29, 2023 December 30, 2022

Net cash provided by (used in) operating activities $ 45,494 $ 35,392 $ 6,426 $ (30,647)

Third Quarters Ended Nine Months Ended

(In thousands) March 29, 2024 March 31, 2023 March 29, 2024 March 31, 2023

Net cash used in operating activities $ (17,805) $ (3,217) $ (11,379) $ (33,864)

Purchase of property and equipment (7,938) (9,446) (23,943) (29,950)

5 unchanged sentences

After the completion of four full fiscal quarters, acquired revenue is treated as organic for current and comparable historical periods.

The following tables reconcile the most directly comparable GAAP financial measure to the non-GAAP financial measure for the second quarters and six months ended December 29, 2023 and December 30, 2022, respectively:

(In thousands) December 29, 2023 As a % of

Revenue December 30, 2022 As a % of

The following tables reconcile the most directly comparable GAAP financial measure to the non-GAAP financial measure for the third quarters and nine months ended March 29, 2024 and March 31, 2023, respectively:

(In thousands) March 29, 2024 As a % of

Revenue March 31, 2023 As a % of

Revenue $ Change % Change

2 unchanged sentences

Total revenues $ 208,258 100 % $ 263,479 100 % $ (55,221) (21) %

(In thousands) December 29, 2023 As a % of

Revenue December 30, 2022 As a % of

(In thousands) March 29, 2024 As a % of

Revenue March 31, 2023 As a % of

Revenue $ Change % Change

7 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in our exposure to market risk from June 30, 2023 to December 29, 2023.

There were no material changes in our exposure to market risk from June 30, 2023 to 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 2. Management’s Discussion and Analysis