MERCURY SYSTEMS INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS From time to time, information provided, statements made by our employees or information included in our filings with the Securities and Exchange Commission (“SEC”) may contain statements that are not historical facts but that are “forward-looking statements,” which involve risks and uncertainties. You can identify these statements by the words “may,” “will,” “could,” “should,” “would,” “plans,” “expects,” “anticipates,” “continue,” “estimate,” “project,” “intend,” “likely,” “forecast,” “probable,” “potential,” and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, continued funding of defense programs, the timing and amounts of such funding, general economic and business conditions, including unforeseen weakness in our markets, effects of any U.S. federal government shutdown or extended continuing resolution, effects of geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in or cost increases related to completing development, engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in, or in the U.S. government’s interpretation of, federal export control or procurement rules and regulations, including tariffs, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of our products, shortages in or delays in receiving components, supply chain delays or volatility for critical components, production delays or unanticipated expenses including due to quality issues or manufacturing execution issues, failure to meet contractual performance specifications, adherence to required manufacturing standards, capacity underutilization, increases in scrap or inventory write-offs, failure to achieve or maintain manufacturing quality certifications, such as AS9100, failure to achieve or maintain qualified business systems, such as those required by the DFARS, adverse findings in government audits or investigations, the impact of supply chain disruption, inflation and labor shortages, among other things, on program execution and the resulting effect on customer satisfaction, inability to fully realize the expected benefits from acquisitions, restructurings, and operational efficiency initiatives or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, effects of shareholder activism, increases in interest rates, changes to industrial security and cyber-security regulations and requirements and impacts from any cyber or insider threat events, changes in tax rates or tax regulations, changes to interest rate swaps or other cash flow hedging arrangements, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, litigation, including the dispute arising with the former CEO over his resignation, unanticipated costs under fixed-price service and system integration engagements, and various other factors beyond our control. These risks and uncertainties also include such additional risk factors as are discussed in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended June 27, 2025. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which such statement is made. OVERVIEW Mercury Systems is a global technology company that delivers mission-critical processing 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 the top U.S. and European defense prime contractors, the U.S. government and original equipment manufacturers (“OEM”) commercial aerospace companies. Our mission-critical products and solutions are deployed by our customers for a variety of applications including sensor and radar processing, electronic warfare, avionics, weapons, and command, control, communications, and intelligence (“C4I”). Mercury has built a trusted, robust portfolio of proven capabilities, leveraging the most advanced commercial silicon technologies and purpose-built to exceed the performance needs of our defense and commercial customers. Customers add their own applications and algorithms to our specialized, secure and innovative products and pre-integrated solutions. This allows them to complete their full system by integrating with their platform, the sensor technology and, increasingly, the processing from Mercury. 23 Our deep, long-standing relationships with leading high-tech and other commercial companies, coupled with our targeted research and development (“R&D”) investments and industry-leading trusted and secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. We are leading the development and adaptation of commercial technology for aerospace and defense solutions. From chip-scale to system scale and from data, including RF to digital to decision, we make mission-critical technologies safe, secure, affordable and relevant for our customers. Our capabilities, technology, people and R&D investment strategy combine to differentiate Mercury in our industry. 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 September 26, 2025, we had 2,175 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. Our talent attraction, engagement and retention is critical to execute on our long-term strategy. We invest in our culture and values to drive employee engagement that turns ideas into action, delivering trusted and secure solutions at the speed of innovation. We believe that our success depends on our ability to foster a company-wide culture that values a broad range of solutions to problems, a wide array of skills and experiences, and multiple perspectives. 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. 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 first quarter ended September 26, 2025 were $225.2 million, $12.5 million, $0.21, $0.26, and $35.6 million, respectively. 24 RESULTS OF OPERATIONS: There were 13 weeks included in the results of operations for the first quarters ended September 26, 2025 and September 27, 2024, respectively. The results for the first quarter ended September 26, 2025 are not necessarily indicative of the results to be expected for the full fiscal year. The first quarter ended September 26, 2025 compared to the first quarter ended September 27, 2024 The following table sets forth, for the first quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive Loss: (In thousands) September 26, 2025 As a % of Total Net Revenue September 27, 2024 As a % of Total Net Revenue Net revenues $ 225,209 100.0 % $ 204,431 100.0 % Cost of revenues 162,310 72.1 152,641 74.7 Gross margin 62,899 27.9 51,790 25.3 Operating expenses: Selling, general and administrative 45,906 20.3 33,153 16.2 Research and development 13,184 5.9 18,383 9.0 Amortization of intangible assets 10,259 4.6 11,235 5.5 Restructuring and other charges 1,584 0.7 2,260 1.1 Acquisition costs and other related expenses 563 0.2 177 0.1 Total operating expenses 71,496 31.7 65,208 31.9 Loss from operations (8,597) (3.8) (13,418) (6.6) Interest income 2,027 0.9 544 0.3 Interest expense (7,886) (3.5) (8,906) (4.4) Other expense, net (2,080) (1.0) (1,339) (0.6) Loss before income tax benefit (16,536) (7.4) (23,119) (11.3) Income tax benefit (4,021) (1.8) (5,594) (2.7) Net Loss $ (12,515) (5.6) % $ (17,525) (8.6) % R EVENUES Total revenues increased $20.8 million, or 10.2%, to $225.2 million during the first quarter ended September 26, 2025, as compared to $204.4 million during the first quarter ended September 27, 2024. Revenues increased year over year as we continued to execute on our program base, and continued toward full rate production of our common processing architecture programs. Point in time revenue and over time revenue represented 52% and 48%, respectively, of total revenues during the first quarter ended September 26, 2025, an increase of $25.2 million and decrease of $4.5 million, respectively. Point in time revenue and over time revenue represented 45% and 55% respectively, of total revenues during the first quarter ended September 27, 2024. Revenue increases were driven by the modules and sub-assemblies as well as the components product grouping which increased $20.4 million and $0.6 million, respectively, partially offset by the integrated solutions product grouping which decreased $0.2 million during the first quarter ended September 26, 2025 when compared to the prior period. The increase in total revenue was primarily driven by the C4I and other sensor and effector end applications with increases of $26.2 million and $3.4 million respectively, partially offset by decreases to the electronic warfare and the radar end applications of $5.3 million and $3.6 million. The increase in total revenue was also driven by the Land, Other, Airborne, and Space platforms with increases of $8.6 million, $5.9 million, $4.2 million, and $3.1 million, respectively, partially offset by a decrease to the Naval platform of $1.0 million. The largest program increases were related to KC-46, a secure processing program, and F/A-18, partially offset by decreases in a secure processing program and the F-16 program when compared to the prior period. There were no programs comprising 10% or more of our revenues for the first quarters ended September 26, 2025 or September 27, 2024. 25 G ROSS M ARGIN Gross margin was 27.9% for the first quarter ended September 26, 2025, an increase of 260 basis points from the 25.3% gross margin realized during the first quarter ended September 27, 2024. The higher gross margin was driven primarily by favorable program mix, lower manufacturing adjustments of $7.4 million as well as net estimate at completion ("EAC") change impact on our programs recognized over time of approximately $4.1 million recorded in the quarter, an incremental improvement of approximately $4.2 million, or 200 basis points, when compared to the prior period. We may experience increases in our manufacturing costs related to the imposition of tariffs on the import of components from other countries. We have not seen material increases to these costs in the first quarter of fiscal 2026, but they could impact our gross margins in the future. 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: First Quarters Ended (in thousands) September 26, 2025 September 27, 2024 Gross favorable $ 8,455 $ 7,774 Gross unfavorable (12,505) (16,067) Net impact of changes in estimates $ (4,050) $ (8,293) 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, including impact of contract amendments factored for potential risks and opportunities. We utilize the latest and best information available when revising our estimates and apply consistent judgment across the full portfolio of programs. S ELLING , G ENERAL AND A DMINISTRATIVE Selling, general and administrative expenses increased $12.7 million, or 38.4%, to $45.9 million during the first quarter ended September 26, 2025, as compared to $33.2 million in the first quarter ended September 27, 2024. The increase was primarily driven by higher compensation and litigation and settlement expense of $7.3 million and $6.0 million, respectively. These increases were partially offset by lower consulting and depreciation expense of $0.6 million and $0.5 million, respectively. The litigation and settlement expense incurred during the first quarter ended September 26, 2025 was comprised of $5.2 million related to the dispute with our former CEO and $1.0 million related to contract matters. R ESEARCH AND D EVELOPMENT Research and development expenses decreased $5.2 million, or 28.3%, to $13.2 million during the first quarter ended September 26, 2025, as compared to $18.4 million during the first quarter ended September 27, 2024. The decrease was primarily driven by the savings from headcount reductions of approximately 230 employees, initiated in fiscal 2025, resulting in lower expense of $6.7 million. We also saw decreased spending on outside service, depreciation, and software licensing expense of $0.6 million, $0.6 million, and $0.4 million, respectively. These decreases were partially offset by higher equipment and supplies and bonus expense of $2.2 million and $1.1 million, respectively. A MORTIZATION OF I NTANGIBLE A SSETS We recognized $10.3 million of amortization of intangible assets during the first quarter ended September 26, 2025, as compared to $11.2 million during the first quarter ended September 27, 2024, primarily due to various customer relationship intangibles being fully amortized in fiscal 2025. R ESTRUCTURING AND O THER C HARGES We incurred $1.6 million of restructuring and other charges during the first quarter ended September 26, 2025, as compared to $2.3 million during the first quarter ended September 27, 2024. Restructuring and other charges during the first quarter ended September 26, 2025 were primarily to related to severance related charges associated with a workforce reduction initiated during the quarter that eliminated approximately 40 positions. Restructuring and other charges during the first quarter ended September 27, 2024 were primarily for severance related charges. We expect to incur an additional $2.4 million of restructuring and other charges during the second quarter ending December 26, 2025, primarily related to severance-related charges associated with a workforce reduction that eliminates 42 international positions. 26 A CQUISITION C OSTS AND O THER R ELATED E XPENSES Acquisition costs and other related expenses were $0.6 million during the first quarter ended September 26, 2025, as compared to $0.2 million during the first quarter ended September 27, 2024. 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 $2.0 million of interest income during the first quarter ended September 26, 2025, as compared to $0.5 million during the first quarter ended September 27, 2024. The increase was driven by higher average cash and cash equivalents during the period. I NTEREST E XPENSE We incurred $7.9 million of interest expense during the first quarter ended September 26, 2025, as compared to $8.9 million during the first quarter ended September 27, 2024. The decrease was driven by lower interest rates during the period on our existing credit facility (the "Revolver"). O THER E XPENSE, N ET Other expense, net was $2.1 million during the first quarter ended September 26, 2025, as compared to $1.3 million during the first quarter ended September 27, 2024. The first quarter ended September 26, 2025 includes $0.9 million of financing costs, $0.8 million net foreign currency translation losses, and $0.4 million of securities class action expense. Legal fees incurred under the securities class action are reimbursable by our insurance providers, mitigating our expenses incurred to date. The first quarter ended September 27, 2024 includes $2.3 million of financing costs, $0.5 million of consulting costs, and $0.2 million securities class action expenses, partially offset by $1.5 million net foreign currency translation gains and $0.2 million of other income. I NCOME T AXES We recorded income tax benefits of $4.0 million and $5.6 million on losses before income taxes of $16.5 million and $23.1 million for the first quarters ended September 26, 2025 and September 27, 2024, respectively. During the first quarter ended September 26, 2025 and September 27, 2024, we recognized a tax benefit of $1.1 million related to stock compensation windfalls and a tax provision of $0.2 million related to stock compensation shortfalls, respectively. The effective tax rate for the first quarter ended September 26, 2025 and September 27, 2024 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, and state taxes. We continue to maintain a valuation allowance on all of our foreign net operating loss carryforwards and the majority of our 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. We expect to amortize previously capitalized research and development expenditures. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which includes a broad range of tax provisions and extended and modified certain provisions of the Tax Cuts and Jobs Act ("TCJA"), including, but not limited to, restoration of 100% bonus depreciation, EBITDA-based interest expense limitation and immediate expensing of domestic research and development expenditures. We have evaluated the potential impact of this legislation and expect it to result primarily in a timing difference, with no material impact on our effective tax rate. L IQUIDITY AND C APITAL R ESOURCES Our primary sources of liquidity come from existing cash and cash generated from operations, our Revolver, and our ability to raise capital under our universal shelf registration statement. Our near-term fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments. As of the first quarter ended September 26, 2025, our working capital balance increased $9.0 million as compared to the balance as of June 27, 2025. 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. 27 Shelf Registration Statement On October 4, 2023, we filed a shelf registration statement on Form S-3ASR with the SEC. The shelf registration statement, which was effective upon filing with the SEC, registered each of the following securities: debt securities, preferred stock, common stock, warrants and units. We intend to use the proceeds from financings using the shelf registration statement for general corporate purposes, which may include the following: • the acquisition of other companies or businesses; • the repayment and refinancing of debt; • capital expenditures; • working capital; and • other purposes as described in the prospectus supplement. We have an unlimited amount available under the shelf registration statement. Revolving Credit Facilities We have a 5-year Revolver with a maturity extended to February 28, 2027. The borrowing capacity as defined under the Revolver as of September 26, 2025 is the total availability of $900.0 million less outstanding borrowings of $591.5 million and outstanding letters of credit of $5.9 million. During the first quarter ended September 26, 2025, we made no borrowings or repayments. As of September 26, 2025, we were in compliance with all covenants and conditions under the Revolver. On August 13, 2024, we executed Amendment No. 6 to the Revolver, decreasing the permanent borrowing capacity to $900.0 million. On November 4, 2025, the Company entered into Amendment No. 7 to the Revolver. This amendment extends the maturity date of the credit facility by five years to November 4, 2030 with a facility size of $850.0 million. As of the effective date of the amendment, the outstanding balance on the facility was $591.5 million. See Note I in the accompanying consolidated financial statements for further discussion of the Revolver. Receivables Purchase Agreement On August 13, 2024, we entered into a $60.0 million committed receivables purchase and servicing agreement (“RPSA”) with a new party. The RPSA has an initial term of two years. Pursuant to the RPSA, the new party has committed to purchase receivables at a discount from a list of certain of our customers, maintaining a balance of purchased receivables at or below $60.0 million. We had $45.5 million of factored accounts receivable as of September 26, 2025 and incurred factoring fees of approximately $0.4 million during the first quarter ended September 26, 2025. We had $43.7 million of factored accounts receivable as of September 27, 2024 and incurred factoring fees of approximately $0.4 million during the first quarter ended September 27, 2024. C ASH F LOWS As of and For the First Quarters Ended, (In thousands) September 26, 2025 September 27, 2024 Net cash provided by (used in) operating activities $ 2,182 $ (14,660) Net cash used in investing activities $ (6,548) $ (6,236) Net cash used in financing activities $ — $ (2,249) Net decrease in cash and cash equivalents $ (4,383) $ (22,398) Cash and cash equivalents at end of period $ 304,716 $ 158,123 Our cash and cash equivalents decreased by $4.4 million from June 27, 2025 to September 26, 2025, as the result of $6.5 million invested in purchases of property and equipment, partially offset by $2.2 million of cash provided by operating activities. 28 Operating Activities During the first quarter ended September 26, 2025, we had an inflow of $2.2 million in cash from operating activities compared to a $14.7 million outflow during the first quarter ended September 27, 2024. The inflow during the first quarter ended September 26, 2025 was primarily due to an inflow of $20.9 million from accounts payable, accrued expenses, and accrued compensation, as compared to an outflow in the prior period of $27.0 million, an inflow of $20.1 million from accounts receivable, unbilled receivables, and costs in excess of billings, as compared to an outflow in the prior period of $6.1 million, a lower net loss of $5.0 million, and a lower benefit for deferred income taxes of $4.0 million. This activity was partially offset by an outflow of $35.3 million from prepaid expenses and other current assets, as compared to an inflow in the prior period of $2.0 million and an outflow of $8.3 million from deferred revenues and customer advances, as compared to an inflow in the prior period of $21.2 million. The settlement in principle of the federal securities class action lawsuit, which is expected to be covered by our insurance, reached during the first quarter ended September 26, 20025, increased the cash provided by accrued expenses and was offset by a $32.5 million outflow in other current assets, respectively. Investing Activities During the first quarter ended September 26, 2025, we had higher purchases of property and equipment of $6.5 million, an increase of $0.3 million, as compared to $6.2 million during the first quarter ended September 27, 2024. Financing Activities During the first quarter ended September 26, 2025, we had no financing cash flows, as compared to $2.2 million of cash paid in deferred financing in conjunction with the amendment to our Revolver during the first quarter of fiscal 2025. C OMMITMENTS, C ONTRACTUAL O BLIGATIONS AND C ONTINGENCIES The following is a schedule of our commitments and contractual obligations outstanding at September 26, 2025: (In thousands) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Purchase obligations $ 209,466 $ 184,429 $ 18,778 $ 6,259 $ — Operating leases 75,889 14,854 28,670 21,466 10,899 $ 285,355 $ 199,283 $ 47,448 $ 27,725 $ 10,899 Purchase obligations represent open non-cancelable purchase commitments for certain inventory components and services used in no rmal operations. The purchase commitments covered by these agreements aggregated approximately $209.5 million at September 26, 2025. We have a liability at September 26, 2025 of $4.0 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. Accordingly, these amounts are not included in the above table. Our standard product sales and license agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which we indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred in connection with certain intellectual property infringement claims by any third party with respect to our products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments we could be required to make under these indemnification provisions is, in some instances, unlimited. As part of our strategy for growth, we continue to explore acquisitions or strategic alliances. The associated acquisition costs incurred in the form of professional fees and services may be material to the future periods in which they occur, regardless of whether the acquisition is ultimately completed. We may elect from time to time to purchase and subsequently retire shares of common stock in order to settle employees’ tax liabilities associated with vesting of a restricted stock award. These transactions would be treated as a use of cash in financing activities in our Consolidated Statements of Cash Flows. On November 3, 2025, the Board of Directors authorized a new share repurchase program for the purchase of up to $200.0 million of our outstanding common stock. The program has no expiration date and repurchases may be made through open market or privately negotiated transactions from time to time at prevailing market prices. The timing and amount of repurchases will depend on market conditions and other factors. 29 O FF - BALANCE S HEET A RRANGEMENTS Other than certain indemnification provisions in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not consolidated in the financial statements. Additionally, we do not have an interest in, or relationships with, any special purpose entities. N ON -G AAP F INANCIAL M EASURES In our periodic communications, we discuss certain important measures that are not calculated according to U.S. generally accepted accounting principles (“GAAP”), including adjusted EBITDA, adjusted income, adjusted EPS, and free cash flow. Adjusted EBITDA is defined as net income before other non-operating adjustments, interest income and expense, income taxes, depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, COVID related expenses, and stock-based and other non-cash compensation expense. We use adjusted EBITDA as an important indicator of the operating performance of our business. 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 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. We believe that trends in our adjusted EBITDA are valuable indicators of our operating performance. Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted EBITDA financial adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring. The following table reconciles our net loss, the most directly comparable GAAP financial measure, to our adjusted EBITDA: First Quarters Ended (In thousands) September 26, 2025 September 27, 2024 Net loss $ (12,515) $ (17,525) Other non-operating adjustments, net 748 (1,735) Interest expense, net 5,859 8,362 Income tax benefit (4,021) (5,594) Depreciation 8,654 9,985 Amortization of intangible assets 10,259 11,235 Restructuring and other charges 1,584 2,260 Impairment of long-lived asset — — Acquisition, financing and other third party costs 1,317 2,331 Fair value adjustments from purchase accounting 131 177 Litigation and settlement expense, net 7,224 1,394 Stock-based and other non-cash compensation expense 16,328 10,560 Adjusted EBITDA $ 35,568 $ 21,450 30 Adjusted income and adjusted EPS exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. We believe that exclusion of these items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We use these measures along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define adjusted income as net income before other non-operating adjustments, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, and stock-based and other non-cash compensation expense. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision. Adjusted EPS expresses adjusted income on a per share basis using weighted average diluted shares outstanding. Adjusted income and adjusted EPS are non-GAAP financial measures and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. We expect to continue to incur expenses similar to the adjusted income and adjusted EPS financial adjustments described above, and investors should not infer from our presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring. The following tables reconcile net loss and diluted loss per share, the most directly comparable GAAP measures, to adjusted income and adjusted EPS: First Quarters Ended (In thousands, except per share data) September 26, 2025 September 27, 2024 Net loss and loss per share $ (12,515) $ (0.21) $ (17,525) $ (0.30) Other non-operating adjustments, net 748 (1,735) Amortization of intangible assets 10,259 11,235 Restructuring and other charges 1,584 2,260 Impairment of long-lived assets — — Acquisition, financing and other third party costs 1,317 2,331 Fair value adjustments from purchase accounting 131 177 Litigation and settlement expense, net 7,224 1,394 Stock-based and other non-cash compensation expense 16,328 10,560 Impact to income taxes (1) (9,516) (6,253) Adjusted income and adjusted earnings per share (2) $ 15,560 $ 0.26 $ 2,444 $ 0.04 Diluted weighted-average shares outstanding 60,140 58,585 (1) Impact to income taxes is calculated by recasting income before income taxes to include the items involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The recalculation also adjusts for any discrete tax expense or benefit related to the items. (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 was no impact to the calculation of adjusted earnings per share as a result of this for the first quarters ended September 26, 2025 and September 27, 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. We believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. We believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity. Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenditures similar to the free cash flow adjustment described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash. 31 The following table reconciles cash used in operating activities, the most directly comparable GAAP financial measure, to free cash flow: First Quarters Ended (In thousands) September 26, 2025 September 27, 2024 Net cash provided by (used in) operating activities $ 2,182 $ (14,660) Purchase of property and equipment (6,548) (6,236) Free cash flow $ (4,366) $ (20,896) R ECENTLY I SSUED A CCOUNTING P RONOUNCEMENTS See Note B to our consolidated financial statements (under the caption "Recently Issued Accounting Pronouncements"). R ECENTLY A DOPTED A CCOUNTING P RONOUNCEMENTS See Note B to our consolidated financial statements (under the caption "Recently Adopted Accounting Pronouncements"). 32 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in our exposure to market risk from June 27, 2025 to September 26, 2025.