What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2025-02-04 · 126 added, 126 removed, 249 unchanged (50% of the section changed)

11 unchanged sentences

We undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which such statement is made.

Mercury Systems is a technology company that delivers mission-critical processing power to the edge - where signals and data are collected - to solve the most pressing aerospace and defense challenges.

Mercury’s products and solutions are deployed in more than 300 programs and across 35 countries.

The Company is headquartered in Andover, Massachusetts, and has over 20 locations worldwide.

The Mercury Processing Platform is the unique advantage we provide to our customers.

It comprises the innovative technologies we’ve developed and acquired for more than 40 years that bring integrated, mission-critical processing capabilities to the edge.

Our processing platform spans the full breadth of signal processing—from radio frequency (“RF”) front end to the human-machine interface—to rapidly convert meaningful data, gathered in the most remote and hostile environments, into critical decisions.

It allows us to offer standard products and custom solutions from silicon to system scale, including components, modules, subsystems, and systems and it embodies the customer-centric approach we take to delivering capabilities that are mission-ready, trusted and secure, software-defined, and open and modular.

Mercury Systems is a technology company that delivers mission-critical processing power to the edge to solve the most pressing aerospace and defense challenges.

Combining technologies and expertise developed for more than 40 years, the Mercury Processing Platform offers customers a unique advantage to unleash breakthrough capabilities.

It spans the full breadth of signal processing—from RF front end to the human-machine interface—to rapidly convert meaningful data, gathered in the most remote and hostile environments, into critical decisions.

The Processing Platform allows Mercury to offer standard products and custom integrated solutions from silicon to system scale, including components, modules, subsystems, and systems.

Mercury’s products and integrated solutions are deployed in more than 300 programs and across 35 countries.

The company is headquartered in Andover, Massachusetts, and has more than 20 locations worldwide.

As a leading manufacturer of essential components, products, modules and subsystems, we sell to all of the top defense prime contractors, the U.S.

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We maintain our technological edge by investing in critical capabilities and intellectual property (“IP” or “building blocks”) in processing, leveraging open standards and open architectures to adapt quickly those building blocks into solutions for highly data-intensive applications, including emerging needs in areas such as artificial intelligence (“AI”).

As of December 27, 2024, we had 2,374 employees.

As of March 28, 2025, we had 2,200 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.

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We are committed to providing an inclusive environment that respects the varied backgrounds and viewpoints of our employees.

We believe that the workforce required to grow our business and deliver creative solutions must be rich in diverse thought;

and experience.

We believe that the workforce required to grow our business and deliver creative solutions must be rich in diverse thought and experience.

Our initiatives focus on building and maintaining the talent that will create cohesive and collaborative teams that drive innovation.

By adhering to these values, it will help our employees to realize their full potential at work to provide Innovation That Matters®.

Our consolidated revenues, net loss, diluted net loss per share, adjusted earnings per share (“adjusted EPS”), and adjusted EBITDA for the second quarter ended December 27, 2024 were $223.1 million, ($17.6) million, ($0.30), $0.07, and $22.0 million, respectively.

Our consolidated revenues, net loss, diluted net loss per share, adjusted earnings per share (“adjusted EPS”), and adjusted EBITDA for the six months ended December 27, 2024 were $427.6 million, ($35.1) million, ($0.60), $0.11, and $43.5 million, respectively.

Our consolidated revenues, net loss, diluted net loss per share, adjusted earnings per share (“adjusted EPS”), and adjusted EBITDA for the third quarter ended March 28, 2025 were $211.4 million, ($19.2) million, ($0.33), $0.06, and $24.7 million, respectively.

Our consolidated revenues, net loss, diluted net loss per share, adjusted earnings per share (“adjusted EPS”), and adjusted EBITDA for the nine months ended March 28, 2025 were $638.9 million, ($54.3) million, ($0.93), $0.17, and $68.2 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 27, 2024 and December 29, 2023, respectively.

The results for the second quarter ended December 27, 2024 are not necessarily indicative of the results to be expected for the full fiscal year.

The second quarter ended December 27, 2024 compared to the second quarter ended December 29, 2023

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 27, 2024 As a % of

Revenue December 29, 2023 As a % of

There were 13 weeks included in the results of operations for the third quarters ended March 28, 2025 and March 29, 2024, respectively.

The results for the third quarter ended March 28, 2025 are not necessarily indicative of the results to be expected for the full fiscal year.

The third quarter ended March 28, 2025 compared to the third quarter ended March 29, 2024

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

(In thousands) March 28, 2025 As a % of

Revenue March 29, 2024 As a % of

Net revenues $ 211,358 100.0 % $ 208,258 100.0 %

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Interest expense (8,068) (3.8) (9,319) (4.5)

Other expense, net (3,865) (1.7) (1,148) (0.5)

Other income (expense), net 2,304 1.1 (2,784) (1.3)

Loss before income tax benefit (21,818) (10.3) (57,217) (27.5)

1 unchanged sentence

Net Loss $ (19,170) (9.1) % $ (44,574) (21.4) %

Total revenues increased $25.7 million, or 13.0%, to $223.1 million during the second quarter ended December 27, 2024, as compared to $197.5 million during the second quarter ended December 29, 2023.

Revenues increased year over year as we pivoted our resources in fiscal 2024 to executing on our program base, including progress toward full rate production of our common processing architecture.

Point in time revenue and over time revenue represented 55% and 45% of total revenues during the second quarter ended December 27, 2024, an increase of $29.1 million and decrease of $3.4 million, respectively.

Point in time revenue and over time revenue represented 47% and 53% respectively, of total revenues during the second quarter ended December 29, 2023.

Revenue increases by product grouping were driven by the integrated solutions, components, and modules and sub-assemblies which increased $18.3 million, $3.9 million, and $3.4 million, respectively during the second quarter ended December 27, 2024 when compared to the prior period.

The increase in total revenue by end application was primarily driven by the radar and other end applications with increases of $36.0 million and $14.8 million respectively, partially offset by decreases to C4I and electronic warfare of $22.5 million and $2.2 million, respectively.

The increase in total revenue by platform was also driven by higher Land, Naval, Other, and Space of $16.7 million, $13.5 million, $10.1 million, and $7.3 million, respectively, partially offset by a decrease to Airborne of $21.9 million.

The largest program increases were related to LTAMDS, Aegis, and MH-60R/S, partially offset by decreases in the SCAR and F/A-18 programs when compared to the prior period.

There were no programs comprising 10% or more of our revenues for the second quarters ended December 27, 2024 or December 29, 2023.

Total revenues increased $3.1 million, or 1.5%, to $211.4 million during the third quarter ended March 28, 2025, as compared to $208.3 million during the third quarter ended March 29, 2024.

Revenues increased year over year as we pivoted our resources in fiscal 2024 to executing on our program base, including progress toward full rate production of our common processing architecture programs.

Point in time revenue and over time revenue represented 53% and 47%, respectively, of total revenues during the third quarter ended March 28, 2025, an increase of $24.9 million and decrease of $21.8 million, respectively.

Point in time revenue and over time revenue represented 42% and 58% respectively, of total revenues during the third quarter ended March 29, 2024.

Revenue increases by product grouping were driven by the modules and sub-assemblies and integrated solutions product groupings which increased $8.3 million and $2.1 million, respectively, partially offset by components which decreased $7.3 million during the third quarter ended March 28, 2025 when compared to the prior period.

The increase in total revenue by end application was primarily driven by the C4I, radar, and other end applications with increases of $12.2 million, $11.3 million, and $5.3 million respectively, partially offset by a decrease to other sensor & effector of $25.5 million.

The increase in total revenue by platform was also driven by higher Other, Land, and Airborne of $11.2 million, $10.7 million, and $6.5 million, respectively, partially offset by decreases to Space and Naval of $21.4 million and $3.9 million, respectively.

The largest program increases were related to KC46, a secure processing program, and F/A-18, partially offset by decreases in a strategic weapons program and the 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 28, 2025 or March 29, 2024.

G ROSS M ARGIN

Gross margin was 27.3% for the second quarter ended December 27, 2024, an increase of 1,130 basis points from the 16.0% gross margin realized during the second quarter ended December 29, 2023.

The higher gross margin was driven primarily by net EAC change impact on our programs recognized over time of approximately $4.4 million recorded in the quarter, an incremental improvement of approximately $26.2 million, or 1,355 basis points, when compared to the prior period as well as lower inventory reserves of $12.4 million.

The increase in inventory reserves in fiscal 2024 related to specifically identified excess and obsolete inventory primarily resulting from a shift in customer demand for our next generation product offering.

These improvements in gross margin were partially offset by higher manufacturing adjustments of $4.1 million.

Gross margin was 27.0% for the third quarter ended March 28, 2025, an increase of 750 basis points from the 19.5% gross margin realized during the third quarter ended March 29, 2024.

The higher gross margin was driven primarily by net Estimate at completion ("EAC") change impact on our programs recognized over time of approximately $3.7 million recorded in the quarter, an incremental improvement of approximately $12.3 million, or 600 basis points, when compared to the prior period as well as lower inventory reserves of $9.6 million and lower warranty provisions of $5.0 million.

The increase in inventory reserves in fiscal 2024 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 our common processing architecture programs.

We may experience increases in our manufacturing costs related to the imposition of tariffs on the import of components from other countries.

We do not expect to see material increases to these costs in fiscal 2025, but they could impact our gross margins in fiscal 2026.

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:

Second Quarters Ended

(in thousands) December 27, 2024 December 29, 2023

Third Quarters Ended

(in thousands) March 28, 2025 March 29, 2024

Gross favorable $ 5,448 $ 9,667

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S ELLING , G ENERAL AND A DMINISTRATIVE

Selling, general and administrative expenses decreased $4.0 million, or 8.9%, to $40.5 million during the second quarter ended December 27, 2024, as compared to $44.5 million in the second quarter ended December 29, 2023.

Selling, general and administrative expenses decreased $0.2 million, or 0.4%, to $43.0 million during the third quarter ended March 28, 2025, as compared to $43.2 million in the third quarter ended March 29, 2024.

The decrease was primarily driven by lower bad debt expense of $6.4 million as well as the savings from reductions in force initiated in fiscal 2024, resulting in lower compensation costs of $6.1 million.

These decreases were partially offset by higher bonus expense of $2.4 million as well as legal and consulting costs of $3.0 million.

These decreases were partially offset by higher legal and consulting costs of $5.7 million, additional bonus and stock compensation expense of $4.6 million, and higher depreciation expense of $1.3 million.

R ESEARCH AND D EVELOPMENT

Research and development expenses decreased $7.1 million, or 25.0%, to $21.4 million during the second quarter ended December 27, 2024, as compared to $28.5 million during the second quarter ended December 29, 2023.

The decrease during the second quarter ended December 27, 2024 was primarily driven by the savings from headcount reductions of 111 employees, initiated in fiscal 2024, resulting in lower expense of $7.7 million as well as decreased spend on outside services of $2.1 million.

Research and development expenses decreased $5.6 million, or 25.9%, to $16.0 million during the third quarter ended March 28, 2025, as compared to $21.6 million during the third quarter ended March 29, 2024.

The decrease was primarily driven by the savings from headcount reductions of 185 R&D employees, initiated in fiscal 2024 and fiscal 2025, resulting in lower expense of $4.6 million as well as decreased spend on consultants and outside services of $2.3 million, and lower equipment and supplies expense of $2.0 million.

These decreases were partially offset by higher bonus expense of $3.7 million.

A MORTIZATION OF I NTANGIBLE A SSETS

Amortization of intangible assets decreased $1.1 million to $11.2 million during the second quarter ended December 27, 2024, as compared to $12.3 million during the second quarter ended December 29, 2023, primarily due to various developed technology and customer relationship intangibles being fully amortized in fiscal 2024.

Amortization of intangible assets decreased $1.3 million to $10.2 million during the third quarter ended March 28, 2025, as compared to $11.5 million during the third quarter ended March 29, 2024, primarily due to various developed technology and customer relationship intangibles being fully amortized in fiscal 2024.

R ESTRUCTURING AND O THER C HARGES

There was an immaterial amount of restructuring and other charges during the second quarters ended December 27, 2024 and December 29, 2023.

On January 29, 2025, we executed a workforce reduction that will eliminate approximately 145 positions, resulting in expected restructuring charges of approximately $5.0 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.

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 quarters ended December 27, 2024 and December 29, 2023.

We incurred $4.9 million of restructuring and other charges during the third quarter ended March 28, 2025, as compared to $9.8 million during the third quarter ended March 29, 2024.

Restructuring and other charges during the third quarter ended March 28, 2025 include $4.9 million for separation costs related to the reduction in workforce initiated January 29, 2025 impacting approximately 145 positions.

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

I NTEREST I NCOME

We recognized $0.4 million of interest income during the second quarter ended December 27, 2024, as compared to an immaterial amount during the second quarter ended December 29, 2023.

We recognized $1.3 million of interest income during the third quarter ended March 28, 2025, as compared to $0.5 million during the third quarter ended March 29, 2024.

The increase was driven by higher average cash and cash equivalents during the period.

I NTEREST E XPENSE

We incurred $8.4 million of interest expense during the second quarter ended December 27, 2024, as compared to $8.7 million during the second quarter ended December 29, 2023.

We incurred $8.1 million of interest expense during the third quarter ended March 28, 2025, as compared to $9.3 million during the third quarter ended March 29, 2024.

The decrease was driven by lower average outstanding borrowings during the period on our existing credit facility (the "Revolver").

O THER E XPENSE, N ET

Other expense, net was $3.9 million during the second quarter ended December 27, 2024, as compared to $1.1 million during the second quarter ended December 29, 2023.

The second quarter ended December 27, 2024 includes $2.4 million net foreign currency translation losses, $1.1 million of financing costs, $0.1 million of consulting costs, and $0.1 million of securities class action expense.

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.

O THER I NCOME ( E XPENSE ) , N ET

Other income (expense), net was $2.3 million during the third quarter ended March 28, 2025, as compared to $(2.8) million during the third quarter ended March 29, 2024.

The third quarter ended March 28, 2025 includes other income of $2.7 million, related to the sale of the mc.com domain name, $1.2 million net foreign currency translation gains, $0.9 million of financing costs, $0.5 million of securities class action expense, and $0.2 million of consulting costs.

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.

I NCOME T AXES

We recorded an income tax benefit of $6.7 million and $18.1 million on a loss before income taxes of $24.3 million and $63.7 million for the second quarters ended December 27, 2024 and December 29, 2023, respectively.

During the second quarters ended December 27, 2024 and December 29, 2023, we recognized a tax provision of $0.1 million and $0.4 million related to stock compensation shortfalls, respectively.

The effective tax rate for the second quarter ended December 27, 2024 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, and state taxes.

The effective tax rate for the second quarter ended December 29, 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.

We recorded an income tax benefit of $2.6 million and $12.6 million on a loss before income taxes of $21.8 million and $57.2 million for the third quarters ended March 28, 2025 and March 29, 2024, respectively.

The effective tax rate for the third quarter ended March 28, 2025 differed from the federal statutory rate primarily due to federal and state research and development credits, return to provision adjustments, non-deductible compensation, and state taxes.

The effective tax rate for the third quarter ended March 29, 2024 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.

We continue to maintain a valuation allowance on the majority of our foreign net operating loss carryforwards and state research and developmental tax credit carryforwards.

Based on forecasted taxable income and the scheduled reversal of the remaining deferred tax assets, we believe it is more likely than not that all other deferred tax assets will be recognized.

Six months ended December 27, 2024 compared to the six months ended December 29, 2023

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 27, 2024 As a % of

Revenue December 29, 2023 As a % of

Nine months ended March 28, 2025 compared to the nine months ended March 29, 2024

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

(In thousands) March 28, 2025 As a % of

Revenue March 29, 2024 As a % of

Net revenues $ 638,914 100.0 % $ 586,712 100.0 %

15 unchanged sentences

Net Loss $ (54,274) (8.5) % $ (126,863) (21.6) %

Total revenues increased $49.1 million, or 13.0%, to $427.6 million during the six months ended December 27, 2024, as compared to $378.5 million during the six months ended December 29, 2023.

Revenues increased year over year as we pivoted our resources in fiscal 2024 to executing on our program base, including progress toward full rate production of our common processing architecture.

Point in time revenue and over time revenue each represented 50% of total revenues during the six months ended December 27, 2024, an increase of $45.0 million and $4.1 million, respectively.

Point and time revenue and over time revenue represented 45% and 55% respectively, of total revenue during the six months ended December 29, 2023.

Revenue increases by product groupings were driven by the integrated solutions, modules and sub-assemblies and components which increased $26.1 million, $11.7 million and $11.3 million, respectively.

The increase in total revenue by end application was primarily driven by the radar, other, and other sensor and effector increases of $43.1 million, $29.1 million, and $4.7 million respectively, partially offset by decreases to C4I and electronic warfare of $27.4 million and $0.3 million, respectively.

The increase in total revenue by platform was also driven by higher Other, Land, Space and Naval of $30.3 million, $25.3 million, $16.6 million, and $13.0 million, respectively, partially offset by a decrease to Airborne of $36.1 million.

The largest program increases were related to the LTAMDS, Aegis and MH-60R/S programs, partially offset by decreases to the SCAR and AARGM programs when compared to the prior period.

There were no programs comprising 10% or more of our revenues for the six months ended December 27, 2024 or December 29, 2023.

Total revenues increased $52.2 million, or 8.9%, to $638.9 million during the nine months ended March 28, 2025, as compared to $586.7 million during the nine months ended March 29, 2024.

Revenues increased year over year as we pivoted

our resources in fiscal 2024 to executing on our program base, including progress toward full rate production of our common processing architecture programs.

Point in time revenue and over time revenue represented 51% and 49%, respectively, of total revenues during the nine months ended March 28, 2025, an increase of $70.0 million and $17.8 million, respectively.

Point in time revenue and over time revenue represented 44% and 56%, respectively, of total revenue during the nine months ended March 29, 2024.

Revenue increases by product groupings were driven by the integrated solutions, modules and sub-assemblies, and components product groupings which increased by $28.2 million, $20.0 million and $4.0 million, respectively.

The increase in total revenue by end application was primarily driven by the radar and other end applications increases of $54.4 million and $34.3 million, respectively, partially offset by decreases to other sensor & effector and C4I of $20.9 million and $15.2 million, respectively.

The increase in total revenue by platform was also driven by higher Other, Land, and Naval of $41.5 million, $35.9 million, and $9.2 million, respectively, partially offset by decreases to Airborne and Space of $29.6 million and $4.8 million, respectively.

The largest program increases were related to LTAMDS, MH-60R/S, Aegis, and a secure processing program, partially offset by decreases to the SCAR and Tracking Layer programs when compared to the prior period.

There were no programs comprising 10% or more of our revenues for the nine months ended March 28, 2025 or March 29, 2024.

G ROSS M ARGIN

Gross margin was 26.3% for the six months ended December 27, 2024, an increase of 460 basis points from the 21.7% gross margin realized during the six months ended December 29, 2023.

The higher gross margin was driven primarily by net EAC change impact on our programs recognized over time of approximately $12.7 million recorded in the period, an incremental improvement of approximately $35.2 million, or 969 basis points, when compared to the prior period as well as lower inventory reserves of $9.4 million, partially offset by higher manufacturing adjustments of $12.3 million.

Gross margin was 26.6% for the nine months ended March 28, 2025, an increase of 570 basis points from the 20.9% gross margin realized during the nine months ended March 29, 2024.

The higher gross margin was driven primarily by net EAC change impact on our programs recognized over time of approximately $16.4 million recorded in the period, an incremental improvement of approximately $47.6 million, or 830 basis points, when compared to the prior period as well as lower inventory reserves of $19.0 million and lower warranty provisions of $5.1 million, partially offset by higher manufacturing adjustments of $11.1 million.

We may experience increases in our manufacturing costs related to the imposition of tariffs on the import of components from other countries.

We do not expect to see material increases to these costs in fiscal 2025, but they could impact our gross margins in fiscal 2026.

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:

Six Months Ended

(in thousands) December 27, 2024 December 29, 2023

Nine Months Ended

(in thousands) March 28, 2025 March 29, 2024

Gross favorable $ 20,262 $ 14,441

4 unchanged sentences

S ELLING , G ENERAL AND A DMINISTRATIVE

Selling, general and administrative expenses decreased $6.6 million, or 8.2%, to $73.7 million during the six months ended December 27, 2024, as compared to $80.3 million during the six months ended December 29, 2023.

The decrease was primarily driven by the reduction in force initiated in fiscal 2024, resulting in lower costs of $8.6 million, lower bad debt expense of $4.8 million, lower software licensing fees of $2.2 million, lower directors fees of $0.6 million, and lower facilities expense of $0.5 million.

These decreases were partially offset by higher stock-based compensation of $3.5 million, higher bonus expense of $3.1 million, as well as higher legal and consulting costs of $3.7 million.

Selling, general and administrative expenses decreased $6.7 million, or 5.4%, to $116.7 million during the nine months ended March 28, 2025, as compared to $123.4 million during the nine months ended March 29, 2024.

The decrease was primarily driven by the reduction in force initiated in fiscal 2024, resulting in lower compensation costs of $14.7 million, lower bad debt expense of $11.2 million, lower software licensing fees of $3.1 million, as well as lower equipment and supplies expense of $0.8 million.

These decreases were partially offset by higher bonus and stock-based compensation of $11.2 million as well as higher legal and consulting costs of $9.3 million.

R ESEARCH A ND D EVELOPMENT

Research and development expenses decreased $20.6 million, or 34.1%, to $39.8 million during the six months ended December 27, 2024, as compared to $60.3 million during the six months ended December 29, 2023.

The decrease was primarily driven by the savings from headcount reductions of 111 employees, initiated in fiscal 2024, resulting in lower expense of $18.1 million, as well as decreased spend on outside services, supplies, and consulting services of $6.5 million.

Research and development expenses decreased $26.2 million, or 32.0%, to $55.7 million during the nine months ended March 28, 2025, as compared to $81.9 million during the nine months ended March 29, 2024.

The decrease was primarily driven by the savings from headcount reductions of 185 employees, initiated in fiscal 2024 and fiscal 2025, resulting in lower expense of $22.6 million, as well as decreased spend on outside services, supplies, and consulting services of $10.8 million.

These decreases were partially offset by higher bonus expense of $7.4 million.

R ESTRUCTURING A ND O THER C HARGES

Restructuring and other charges were $2.3 million during the six months ended December 27, 2024, as compared to $9.5 million during the six months ended December 29, 2023.

Restructuring and other charges during the six months ended December 27, 2024 are primarily related to severance related charges.

Restructuring and other charges during the six months ended December 29, 2023 include $9.5 million of severance costs related to a workforce reduction that eliminated approximately 150 positions.

On January 29, 2025, we executed a workforce reduction that will eliminate approximately 145 positions, resulting in expected restructuring charges of approximately $5.0 million.

Restructuring and other charges were $7.2 million during the nine months ended March 28, 2025, as compared to $19.4 million during the nine months ended March 29, 2024.

Restructuring and other charges during the nine months ended March 28, 2025 related to severance related charges primarily related to the reduction in workforce initiated January 29, 2025.

Restructuring and other charges during the nine months ended March 29, 2024 include $19.4 million of severance costs related to workforce reductions that eliminated approximately 250 positions.

A CQUISITION C OSTS AND O THER R ELATED E XPENSES

Acquisition costs and other related expenses were $0.4 million during the six months ended December 27, 2024, as compared to $1.2 million during the six months ended December 29, 2023.

The acquisition costs and other related expenses we incurred during the six months ended December 27, 2024 includes $0.4 million related to run-rate amortization of fair value adjustments from purchase accounting.

Acquisition costs and other related expenses during the six months ended December 29, 2023 includes $0.4 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 and other related expenses were $0.7 million during the nine months ended March 28, 2025, as compared to $1.4 million during the nine months ended March 29, 2024.

The acquisition costs and other related expenses we incurred during the nine months ended March 28, 2025 includes $0.5 million related to run-rate amortization of fair value adjustments from purchase accounting and $0.2 million related to the acquisition of Star Lab and disposal of our manufacturing operations in Plan-Les-Ouates, Switzerland.

Acquisition costs and other related expenses 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.

We could incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our technological capabilities and especially within the sensor and effector and C4I markets.

Transaction costs incurred by the acquiree prior to the consummation of an acquisition would not be reflected in our historical results of operations.

I NTEREST I NCOME

We recognized $1.0 million of interest income during the six months ended December 27, 2024, as compared to $0.1 million during the six months ended December 29, 2023.

We recognized $2.2 million of interest income during the nine months ended March 28, 2025, as compared to $0.7 million during the nine months ended March 29, 2024.

The increase was driven by higher average cash and cash equivalents during the period.

I NTEREST E XPENSE

We incurred $17.3 million of interest expense during the six months ended December 27, 2024, as compared to $16.5 million during the six months ended December 29, 2023.

The increase was higher average outstanding borrowings during the period on our existing credit facility (the "Revolver").

We incurred $25.4 million of interest expense during the nine months ended March 28, 2025, as compared to $25.9 million during the nine months ended March 29, 2024.

The decrease was driven by lower average outstanding borrowings during the period on the Revolver.

O THER E XPENSE , N ET

Other expense, net increased $2.3 million to $5.2 million during the six months ended December 27, 2024 as compared to $2.9 million during the six months ended December 29, 2023.

There were $3.4 million of financing costs, $0.9 million of net foreign currency translation losses, $0.7 million of consulting costs, and $0.3 million of securities class action expense, partially offset by other income of $0.2 million during the six months ended December 27, 2024.

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.

Other expense, net decreased $2.8 million to $2.9 million during the nine months ended March 28, 2025, as compared to $5.7 million during the nine months ended March 29, 2024.

There was $4.3 million of financing costs, $0.9 million of consulting costs, and $0.8 million of securities class action expense, partially offset by other income of $2.9 million, primarily related to the sale of the mc.com domain name, and $0.3 million of net foreign currency translation gains during the nine months ended March 28, 2025.

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.

I NCOME T AXES

We recorded an income tax benefit of $12.3 million and $31.2 million on a loss before income taxes of $47.4 million and $113.5 million for the six months ended December 27, 2024 and December 29, 2023, respectively.

During the six months ended December 27, 2024 and December 29, 2023, we recognized a tax provision of $0.4 and $1.6 million related to stock compensation shortfalls, respectively.

The effective tax rate for the six months ended December 27, 2024 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, and state taxes.

The effective tax rate for the six months ended December 29, 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.

We recorded an income tax benefit of $15.0 million and $43.8 million on a loss before income taxes of $69.2 million and $170.7 million for the nine months ended March 28, 2025 and March 29, 2024, respectively.

During the nine months ended March 28, 2025, we recognized a return to provision adjustment of $2.8 million related to federal and state research and development credits.

The effective tax rate for the nine months ended March 28, 2025 differed from the federal statutory rate primarily due to federal and state research and development credits, return to provision adjustments, non-deductible compensation, and state taxes.

The effective tax rate for the nine months ended March 29, 2024 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.

We continue to maintain a valuation allowance on the majority of our foreign net operating loss carryforwards and state research and developmental tax credit carryforwards.

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We have experienced growth in our working capital balances and, in particular, related to unbilled receivables and inventory over the last several years.

As we receive follow-on production awards, we believe that both unbilled receivables and inventory is expected to convert to cash reducing our working capital balances.

As we have received follow-on production awards, our unbilled receivables began to convert to cash reducing our working capital balances during the nine months ended March 28, 2025.

As we receive follow-on production awards, we believe that both unbilled receivables and inventory should convert to cash further reducing our working capital balances.

Based on our current plans and business conditions, we believe that existing cash and cash equivalents, our available Revolver, cash generated from operations and our financing capabilities will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months.

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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.

5, we 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.

On August 13, 2024, we executed Amendment No.

6 to the Revolver, decreasing the permanent borrowing capacity to $900.0 million, with a temporary reduction in credit availability to $750.0 million until we meet a minimum consolidated EBITDA level of $75.0 million.

During the second quarter and six months ended December 27, 2024, we did not have any additional borrowings or repayments.

As of December 27, 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.

The borrowing capacity as defined under the Revolver as of December 27, 2024 is approximately $750.0 million, less outstanding borrowings of $591.5 million.

During the third quarter and nine months ended March 28, 2025, we did not have any additional borrowings or repayments.

As of March 28, 2025, we were in compliance with all covenants and conditions under the Revolver and expect to be within our covenants and conditions for the remainder of the year.

The borrowing capacity as defined under the Revolver as of March 28, 2025 is approximately $900.0 million, less outstanding borrowings of $591.5 million.

Receivables Purchase Agreement

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Pursuant to the RPSA, the new party has committed to purchase receivables from a certain number of agreed upon customers, maintaining a balance of purchased receivables at or below $60.0 million.

We factored accounts receivable and incurred factoring fees of approximately $58.1 million and $0.8 million, respectively, for the six months ended December 27, 2024.

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.

As of and For the Six Months Ended,

(In thousands) December 27, 2024 December 29, 2023

Net cash provided by operating activities $ 70,802 $ 6,426

We factored accounts receivable and incurred factoring fees of approximately $55.1 million and $1.3 million, respectively, for the nine months ended March 28, 2025.

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.

As of and For the Nine Months Ended,

(In thousands) March 28, 2025 March 29, 2024

Net cash provided by (used in) operating activities $ 100,776 $ (11,379)

Net cash used in investing activities $ (11,105) $ (23,943)

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Cash and cash equivalents at end of period $ 269,822 $ 142,645

Our cash and cash equivalents increased by $62.0 million from June 28, 2024 to December 27, 2024, as the result of $70.8 million of cash provided by operating activities, $1.9 million other investing activities, and $1.5 million proceeds from employee stock plans, partially offset by $9.8 million invested in purchases of property and equipment, and $2.2 million of cash paid in deferred financing and offering costs.

Our cash and cash equivalents increased by $89.3 million from June 28, 2024 to March 28, 2025, as the result of $100.8 million of cash provided by operating activities, $4.6 million of cash provided by other investing activities, and $1.5 million of proceeds from employee stock plans, partially offset by $15.7 million invested in purchases of property and equipment and $2.2 million of cash paid in deferred financing and offering costs.

Operating Activities

During the six months ended December 27, 2024, we had an inflow of $70.8 million in cash from operating activities compared to a $6.4 million inflow during the six months ended December 29, 2023.

The higher inflow during the six months ended December 27, 2024 was primarily due to a lower net loss of $47.2 million, higher inflow from deferred revenues and customer advances of $38.1 million, lower benefit for deferred income taxes of $15.3 million, and an income tax refund received of $0.2 million as compared to income tax payments of $13.9 million during the six months ended December 29, 2023.

During the nine months ended March 28, 2025, we had an inflow of $100.8 million in cash from operating activities compared to a $11.4 million outflow during the nine months ended March 29, 2024.

The inflow during the nine months ended March 28, 2025 was primarily due to a lower net loss of $72.6 million, higher inflow from deferred revenues and customer advances of $53.7 million, lower prepaid income taxes of $25.0 million, lower outflow from accounts payable, accrued expenses, and accrued compensation of $20.6 million, and an income tax refund received of $5.3 million as compared to income tax payments of $25.9 million during the nine months ended March 29, 2024.

This activity was partially offset by a lower inflow from accounts receivable, unbilled receivables, and costs in excess of billings of $37.5 million and a $11.2 million lower provision for bad debt.

The six months ended December 29, 2023 also included a $7.4 million inflow from the cash settlement for the termination of the interest rate swap.

The nine months ended March 29, 2024 also included a $7.4 million inflow from the cash settlement for the termination of the interest rate swap.

Investing Activities

During the six months ended December 27, 2024, we invested $7.9 million, a decrease of $8.1 million, as compared to $16.0 million during the six months ended December 29, 2023 primarily due to $6.2 million lower purchases of property and equipment and an inflow of $1.9 million due to other investing activities.

During the nine months ended March 28, 2025, we invested $11.1 million, a decrease of $12.8 million, as compared to $23.9 million during the nine months ended March 29, 2024 primarily due to $8.2 million lower purchases of property and equipment and an inflow of $4.6 million due to other investing activities.

Financing Activities

During the six months ended December 27, 2024, we had no additional borrowings on our Revolver as compared to $105.0 million of borrowings during the six months ended December 29, 2023.

The six months ended December 27, 2024, included $2.2 million of cash paid in deferred financing in conjunction with the amendment to our Revolver during the first quarter of fiscal 2025, partially offset by $1.5 million proceeds from employee stock plans.

During the nine months ended March 28, 2025, we had no additional borrowings on our Revolver as compared to $105.0 million of borrowings during the nine months ended March 29, 2024.

The nine months ended March 28, 2025, included $2.2 million of cash paid in deferred financing in conjunction with the amendment to our Revolver during the first quarter of fiscal 2025, partially offset by $1.5 million proceeds from employee stock plans.

C OMMITMENTS, C ONTRACTUAL O BLIGATIONS AND C ONTINGENCIES

The following is a schedule of our commitments and contractual obligations outstanding at December 27, 2024:

The following is a schedule of our commitments and contractual obligations outstanding at March 28, 2025:

(In thousands) Total Less Than

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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 $124.4 million at December 27, 2024.

We have a liability at December 27, 2024 of $7.7 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 $156.8 million at March 28, 2025.

We have a liability at March 28, 2025 of $7.7 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.

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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 27, 2024 December 29, 2023 December 27, 2024 December 29, 2023

Third Quarters Ended Nine Months Ended

(In thousands) March 28, 2025 March 29, 2024 March 28, 2025 March 29, 2024

Net loss $ (19,170) $ (44,574) $ (54,274) $ (126,863)

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

Second Quarters Ended

(In thousands, except per share data) December 27, 2024 December 29, 2023

Third Quarters Ended

(In thousands, except per share data) March 28, 2025 March 29, 2024

Net loss and loss per share $ (19,170) $ (0.33) $ (44,574) $ (0.77)

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

There were no impact to the calculation of adjusted earnings per share as a result of this for the second quarters ended December 27, 2024 and December 29, 2023.

Six Months Ended

(In thousands, except per share data) December 27, 2024 December 29, 2023

There was no impact to the calculation of adjusted earnings per share as a result of this for the third quarters ended March 28, 2025 and March 29, 2024.

Nine Months Ended

(In thousands, except per share data) March 28, 2025 March 29, 2024

Net loss and loss per share $ (54,274) $ (0.93) $ (126,863) $ (2.20)

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

There were no impact to the calculation of adjusted earnings per share as a result of this for the six months ended December 27, 2024 and December 29, 2023.

There was a $0.01 impact to the calculation of adjusted earnings per share as a result of this for the nine months ended March 28, 2025 and no impact to the calculation of adjusted earnings per share as a result of this for the nine months ended March 29, 2024.

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.

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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 27, 2024 December 29, 2023 December 27, 2024 December 29, 2023

Net cash provided by operating activities $ 85,462 $ 45,494 $ 70,802 $ 6,426

Third Quarters Ended Nine Months Ended

(In thousands) March 28, 2025 March 29, 2024 March 28, 2025 March 29, 2024

Net cash provided by (used in) operating activities $ 29,974 $ (17,805) $ 100,776 $ (11,379)

Purchase of property and equipment (5,914) (7,938) (15,705) (23,943)

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in our exposure to market risk from June 28, 2024 to December 27, 2024.

There were no material changes in our exposure to market risk from June 28, 2024 to March 28, 2025.

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