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 increasingly volatile geopolitical events 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, including the risks from heightened, persistent, and increasingly sophisticated nation-state level cyberattacks and emerging threats associated with agentic AI-enabled cyber tools, 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 federal securities class action lawsuit and related claims, 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. 25 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 March 27, 2026, we had 2,117 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 third quarter ended March 27, 2026 were $235.8 million, $2.9 million, $0.04, $0.27, and $36.1 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 27, 2026 were $693.8 million, $30.5 million, $0.51, $0.68, and $101.7 million, respectively. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. 26 RESULTS OF OPERATIONS: There were 13 weeks included in the results of operations for the third quarters ended March 27, 2026 and March 28, 2025, respectively. There were 39 weeks during the nine months ended March 27, 2026 and March 28, 2025, respectively. The results for the third quarter and nine months ended March 27, 2026 are not necessarily indicative of the results to be expected for the full fiscal year. The third quarter ended March 27, 2026 compared to the third quarter ended March 28, 2025 The following table sets forth, for the third quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income (Loss): (In thousands) March 27, 2026 As a % of Total Net Revenue March 28, 2025 As a % of Total Net Revenue Net revenues $ 235,759 100.0 % $ 211,358 100.0 % Cost of revenues 166,709 70.7 154,248 73.0 Gross margin 69,050 29.3 57,110 27.0 Operating expenses: Selling, general and administrative 39,138 16.5 43,044 20.4 Research and development 15,014 6.4 15,983 7.6 Amortization of intangible assets 9,561 4.1 10,185 4.8 Restructuring and other charges (48) — 4,931 2.3 Acquisition costs and other related expenses 155 0.1 311 0.1 Total operating expenses 63,820 27.1 74,454 35.2 Income (loss) from operations 5,230 2.2 (17,344) (8.2) Interest income 2,507 1.1 1,290 0.6 Interest expense (7,331) (3.1) (8,068) (3.8) Other (expense) income, net (3,093) (1.3) 2,304 1.1 Loss before income tax provision (benefit) (2,687) (1.1) (21,818) (10.3) Income tax provision (benefit) 174 0.1 (2,648) (1.2) Net Loss $ (2,861) (1.2) % $ (19,170) (9.1) % R EVENUES Total revenues increased $24.4 million, or 11.5%, to $235.8 million during the third quarter ended March 27, 2026, as compared to $211.4 million during the third quarter ended March 28, 2025. Revenues increased year over year as we continued to execute on our program base. Point in time revenue and over time revenue represented 52% and 48%, respectively, of total revenues during the third quarter ended March 27, 2026, an increase of $9.8 million and $14.6 million, respectively. Point in time revenue and over time revenue represented 53% and 47% respectively, of total revenues during the third quarter ended March 28, 2025. Revenue increases were driven by the modules and sub-assemblies as well as the integrated solutions product grouping which increased $17.5 million and $11.0 million, respectively, partially offset by the components product grouping which decreased $4.1 million during the third quarter ended March 27, 2026, when compared to the prior period. The increase in total revenue was primarily driven by the other sensor and effector, radar, and electronic warfare end applications with increases of $17.3 million, $8.9 million, and $8.6 million, respectively, partially offset by C4I and other end applications which decreased $7.0 million and $3.4 million, respectively. The increase in total revenue was also driven by the Land, Space, and Naval platforms with increases of $19.0 million, $13.9 million, and $12.0 million, respectively, partially offset by decreases to the Airborne and Other platforms of $17.7 million and $2.8 million, respectively. The largest program increases were related to LTAMDS, PWSA, and SEWIP, partially offset by a decrease in F/A-18 when compared to the prior period. There were no programs comprising 10% or more of our revenues for the third quarters ended March 27, 2026 or March 28, 2025. G ROSS M ARGIN Gross margin was 29.3% for the third quarter ended March 27, 2026, an increase of 230 basis points from the 27.0% gross margin realized during the third quarter ended March 28, 2025. The higher gross margin was driven by net estimate at completion ("EAC") change impact on our programs recognized over time of approximately $2.1 million recorded in the quarter, an incremental improvement of approximately $1.6 million, or 80 basis points, when compared to the prior period. The 27 increase was also driven by lower net manufacturing variances $4.1 million, partially offset by higher inventory reserves of $3.3 million. 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: Third Quarters Ended (in thousands) March 27, 2026 March 28, 2025 Gross favorable $ 7,437 $ 5,448 Gross unfavorable (9,532) (9,101) Net impact of changes in estimates $ (2,095) $ (3,653) 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 decreased $3.9 million, or 9.1%, to $39.1 million during the third quarter ended March 27, 2026, as compared to $43.0 million in the third quarter ended March 28, 2025. The decrease was primarily driven by lower litigation and settlement, depreciation, and consulting expense of $2.6 million, $1.9 million, and $0.8 million, respectively. These decreases were partially offset by higher compensation expense and software licensing fees of $1.6 million and $1.0 million, respectively. R ESEARCH AND D EVELOPMENT Research and development expenses decreased $1.0 million, or 6.1%, to $15.0 million during the third quarter ended March 27, 2026, as compared to $16.0 million during the third quarter ended March 28, 2025. The decrease was primarily driven by efficiency improvements and the savings from headcount reductions of approximately 120 employees, initiated across fiscal 2025 and 2026, resulting in lower expense of $5.9 million. There was also decreased depreciation expense of $0.4 million and outside service expense of $0.4 million. These decreases were partially offset by higher engineering utilization of $4.4 million and supplies expense of $1.3 million. A MORTIZATION OF I NTANGIBLE A SSETS We recognized $9.6 million of amortization of intangible assets during the third quarter ended March 27, 2026, as compared to $10.2 million during the third quarter ended March 28, 2025, primarily due to various customer relationship intangibles being fully amortized in fiscal 2025. R ESTRUCTURING AND O THER C HARGES We incurred an immaterial amount of restructuring and other charges during the third quarter ended March 27, 2026, as compared to $4.9 million during the third quarter ended March 28, 2025. Restructuring and other charges during the third quarter ended March 28, 2025 included $4.9 million for separation costs related to the reduction in workforce initiated January 29, 2025 impacting approximately 145 positions. A CQUISITION C OSTS AND O THER R ELATED E XPENSES There was an immaterial amount of acquisition costs and other related expenses, including costs incurred in the asset acquisition of a provider of specialized manufacturing processes, during the third quarters ended March 27, 2026 and March 28, 2025. 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 $2.5 million of interest income during the third quarter ended March 27, 2026, as compared to $1.3 million during the third quarter ended March 28, 2025. The increase was driven by higher average cash and cash equivalents during the period. 28 I NTEREST E XPENSE We incurred $7.3 million of interest expense during the third quarter ended March 27, 2026, as compared to $8.1 million during the third quarter ended March 28, 2025. The decrease was driven by lower interest rates during the period on our existing credit facility (the "Revolver"). O THER (E XPENSE ) I NCOME, N ET Other expense, net was $3.1 million during the third quarter ended March 27, 2026, as compared to other income, net of $2.3 million during the third quarter ended March 28, 2025. The third quarter ended March 27, 2026 includes a $1.9 million adjustment related to the disposal of our former manufacturing operations in Switzerland, $0.6 million of financing costs, and $0.5 million of net foreign currency translation losses. 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 of 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. I NCOME T AXES We recorded an income tax provision of $0.2 million and an income tax benefit of $2.6 million on a loss before income taxes of $2.7 million and $21.8 million for the third quarters ended March 27, 2026 and March 28, 2025, respectively. During the third quarters ended March 27, 2026 and March 28, 2025, we recognized a tax benefit of $0.3 million related to stock compensation windfalls and a tax provision of less than $0.1 million related to stock compensation shortfalls, respectively. The effective tax rate for the third quarter ended March 27, 2026 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, stock compensation windfalls, and state taxes. 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. 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 provision 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. 29 Nine months ended March 27, 2026 compared to the nine months ended March 28, 2025 The following table sets forth, for the nine month periods indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income (Loss): (In thousands) March 27, 2026 As a % of Total Net Revenue March 28, 2025 As a % of Total Net Revenue Net revenues $ 693,840 100.0 % $ 638,914 100.0 % Cost of revenues 501,258 72.2 469,188 73.4 Gross margin 192,582 27.8 169,726 26.6 Operating expenses: Selling, general and administrative 127,183 18.4 116,698 18.3 Research and development 43,579 6.3 55,734 8.7 Amortization of intangible assets 29,514 4.3 32,574 5.1 Restructuring and other charges 5,591 0.8 7,231 1.1 Acquisition costs and other related expenses 900 0.1 666 0.1 Total operating expenses 206,767 29.9 212,903 33.3 Loss from operations (14,185) (2.1) (43,177) (6.7) Interest income 6,182 0.9 2,240 0.4 Interest expense (23,066) (3.3) (25,404) (4.0) Other expense, net (5,613) (0.8) (2,900) (0.5) Loss before income tax benefit (36,682) (5.3) (69,241) (10.8) Income tax benefit (6,211) (0.9) (14,967) (2.3) Net Loss $ (30,471) (4.4) % $ (54,274) (8.5) % R EVENUES Total revenues increased $54.9 million, or 8.6%, to $693.8 million during the nine months ended March 27, 2026, as compared to $638.9 million during the nine months ended March 28, 2025. Revenues increased year over year as we continued to execute on our program base. Point in time revenue and over time revenue represented 53% and 47%, respectively, of total revenues during the nine months ended March 27, 2026, an increase of $41.5 million and $13.4 million, respectively. Point in time revenue and over time revenue represented 51% and 49%, respectively, of total revenue during the nine months ended March 28, 2025. Revenue increases by were driven by the modules and sub-assemblies and integrated solutions product groupings which increased $52.2 million and $2.5 million, respectively, when compared to the prior period. The increase in total revenue was primarily driven by the other sensor and effector, C4I, radar, and electronic warfare end applications with increases of $22.4 million, $21.7 million, $12.0 million, and $6.8 million, respectively, partially offset by a decrease to other end applications of $8.0 million. The increase in total revenue was also driven by the Land, Space, Naval, and Other platforms with increases of $41.9 million, $17.1 million, $12.7 million, and $8.8 million, respectively, partially offset by a decrease to the Airborne platform of $25.6 million. The largest program increases were related to a secure processing program, an integrated space program, SEWIP, PWSA, and KC-46, partially offset by T-45 and a secure processing program. There were no programs comprising 10% or more of our revenues for the nine months ended March 27, 2026 or March 28, 2025. G ROSS M ARGIN Gross margin was 27.8% for the nine months ended March 27, 2026, an increase of 120 basis points from the 26.6% gross margin realized during the nine months ended March 28, 2025. The higher gross margin was driven primarily by net EAC change impact on our programs recognized over time of $9.6 million recorded in the period, an incremental improvement of approximately $6.7 million, or 120 basis points, when compared to the prior period. The increase was also driven by lower manufacturing variances of $12.8 million, partially offset by higher inventory reserves of $4.8 million and scrap of $3.4 million. 30 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: Nine Months Ended (in thousands) March 27, 2026 March 28, 2025 Gross favorable $ 23,443 $ 20,262 Gross unfavorable (33,067) (36,616) Net impact of changes in estimates $ (9,624) $ (16,354) 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 judgment across the full portfolio of programs. S ELLING , G ENERAL AND A DMINISTRATIVE Selling, general and administrative expenses increased $10.5 million, or 9.0%, to $127.2 million during the nine months ended March 27, 2026, as compared to $116.7 million during the nine months ended March 28, 2025. The increase was primarily driven by higher compensation, litigation and settlement, and software licensing fees expense of $8.4 million, $4.5 million, and $2.5 million, respectively. These increases were partially offset by lower depreciation and consulting expense of $3.1 million and $2.2 million, respectively. R ESEARCH A ND D EVELOPMENT Research and development expenses decreased $12.1 million, or 21.8%, to $43.6 million during the nine months ended March 27, 2026, as compared to $55.7 million during the nine months ended March 28, 2025. The decrease was primarily driven by efficiency improvements and the savings from headcount reductions of approximately 120 employees, initiated across fiscal 2025 and 2026, resulting in lower expense of $16.0 million. There was also decreased expense on depreciation, software licensing fees, outside services, and consulting of $1.6 million, $1.2 million, $1.0 million, $0.4 million, respectively. These decreases were partially offset by higher engineering utilization of $5.8 million and supplies expense of $2.5 million. A MORTIZATION OF I NTANGIBLE A SSETS We recognized $29.5 million of amortization of intangible assets during the nine months ended March 27, 2026, as compared to $32.6 million during the nine months ended March 28, 2025, primarily due to various customer relationship intangibles being fully amortized in fiscal 2025. R ESTRUCTURING A ND O THER C HARGES Restructuring and other charges were $5.6 million during the nine months ended March 27, 2026, as compared to $7.2 million during the nine months ended March 28, 2025. Restructuring and other charges during the nine months ended March 27, 2026 were primarily severance related charges associated with workforce reductions initiated during the period that eliminated approximately 100 positions. 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. A CQUISITION C OSTS AND O THER R ELATED E XPENSES Acquisition costs and other related expenses were $0.9 million during the nine months ended March 27, 2026, as compared to $0.7 million during the nine months ended March 28, 2025. The acquisition costs and other related expenses we incurred during the nine months ended March 27, 2026 primarily relate to $0.4 million related to run-rate amortization of fair value adjustments from purchase accounting as well as an immaterial amount of costs incurred in the asset acquisition of a provider of specialized manufacturing processes. 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. 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. 31 I NTEREST I NCOME We recognized $6.2 million of interest income during the nine months ended March 27, 2026, as compared to $2.2 million during the nine months ended March 28, 2025. The increase was driven by higher average cash and cash equivalents during the period. I NTEREST E XPENSE We incurred $23.1 million of interest expense during the nine months ended March 27, 2026, as compared to $25.4 million during the nine months ended March 28, 2025. The decrease was driven by lower interest rates during the period on the Revolver. O THER E XPENSE , N ET Other expense, net increased $2.7 million to $5.6 million during the nine months ended March 27, 2026, as compared to $2.9 million during the nine months ended March 28, 2025. There was $2.9 million of financing costs, a $1.9 million adjustment related to the disposal of our former manufacturing operations in Switzerland, and $1.1 million of net foreign currency translation losses during the nine months ended March 27, 2026. During the nine months ended March 28, 2025, 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. I NCOME T AXES We recorded an income tax benefit of $6.2 million and $15.0 million on a loss before income taxes of $36.7 million and $69.2 million for the nine months ended March 27, 2026 and March 28, 2025, respectively. During the nine months ended March 27, 2026 and March 28, 2025, we recognized a tax benefit of $2.4 million related to stock compensation windfalls and a tax provision of $0.4 million related to stock compensation shortfalls, respectively. The effective tax rate for the nine months ended March 27, 2026 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, stock compensation windfalls, and state taxes. 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. 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 OBBBA was enacted, which includes a broad range of tax provisions and extended and modified certain provisions of the TCJA, including, but not limited to, restoration of 100% bonus depreciation, EBITDA-based interest provision 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 March 27, 2026, our working capital balance decreased $14.3 million, or 3%, 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. 32 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 November 4, 2030. The borrowing capacity as defined under the Revolver as of March 27, 2026 is the total availability of $850.0 million less outstanding borrowings of $591.5 million and outstanding letters of credit of $4.2 million. During the nine months ended March 27, 2026, we made no borrowings or repayments. As of March 27, 2026, we were in compliance with all covenants and conditions under the Revolver. On November 4, 2025, we executed Amendment No. 7 to the Revolver. This amendment extended the maturity date of the credit facility by five years to November 4, 2030 with a facility size of $850.0 million. On April 30, 2026, we repaid $150.0 million of the Revolver, leaving $441.5 million drawn on the Revolver as of that date. Because this partial repayment occurred after the end of the fiscal quarter, it is not reflected in the accompanying balance sheet as of the end of the third quarter. The repayment was funded with available cash on hand and does not affect our assessment of liquidity or capital resources as of March 27, 2026. We remained in compliance with all applicable financial covenants both before and after the partial repayment. We continue to evaluate opportunities to further reduce outstanding borrowings under the facility depending on market conditions, operational requirements and cash flows. 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. On December 10, 2025, the Company amended the RPSA to increase the facility from $60.0 million to $75.0 million. We had $75.0 million of factored accounts receivable, of which $60.9 million was included as a contra account within Accounts receivable, net of allowance for credit losses on our Consolidated Balance Sheet and $14.1 million was recorded in Due to factoring facility on our Consolidated Balance Sheet as of March 27, 2026. We incurred factoring fees of approximately $1.4 million during the nine months ended March 27, 2026. We had $60.0 million of factored accounts receivable, of which $55.1 million was included as a contra account within Accounts receivable, net of allowance for credit losses on our Consolidated Balance Sheet and $4.9 million was recorded in Due to factoring facility on our Consolidated Balance Sheet as of March 28, 2025. We incurred factoring fees of approximately $1.3 million during the nine months ended March 28, 2025. Share Repurchase Agreement 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. Repurchased shares are accounted for as authorized and unissued shares. All share repurchases are made in accordance with Rule 10b-18. During the third quarter ended March 27, 2026, no shares of the Company's common stock were repurchased under the share repurchase program. During the nine months ended March 27, 2026, 221,510 shares of the Company's common stock were repurchased and immediately retired under the share repurchase program at an average cost of $67.70 per share. As of March 27, 2026, there was $185.0 million available for future share repurchases under this share repurchase program. 33 C ASH F LOWS As of and For the Nine Months Ended, (In thousands) March 27, 2026 March 28, 2025 Net cash provided by operating activities $ 60,235 $ 100,776 Net cash used in investing activities $ (22,128) $ (11,105) Net cash used in financing activities $ (15,429) $ (757) Net increase in cash and cash equivalents $ 22,701 $ 89,301 Cash and cash equivalents at end of period $ 331,800 $ 269,822 Our cash and cash equivalents increased by $22.7 million from June 27, 2025 to March 27, 2026, as the result of $60.2 million of cash provided by operating activities, partially offset by $20.7 million invested in purchases of property and equipment, $15.0 million of cash paid in the purchase and retirement of common stock, and $1.4 million of cash paid in the asset acquisition of a provider of specialized manufacturing processes. Operating Activities During the nine months ended March 27, 2026, we had an inflow of $60.2 million in cash from operating activities compared to a $100.8 million inflow during the nine months ended March 28, 2025. The reduced inflow during the nine months ended March 27, 2026 was primarily due to an outflow of $6.5 million from deferred revenues and customer advances, as compared to an inflow of $67.9 million in the prior period, an outflow of $20.5 million due to prepaid expenses and other current assets, as compared to an inflow of $4.0 million in the prior period, and a $18.2 million lower inflow from accounts receivable, unbilled receivables, and costs in excess of billings. This activity was partially offset by an inflow of $47.4 million from accounts payable, accrued expenses, accrued compensation, and due to factoring, as compared to an outflow in the prior period of $5.3 million. Under the terms of the RPSA for some customers, we will collect customer payments related to factored receivables, which are then remitted to the counterparty after receipt. As of March 27, 2026, we had collected $14.1 million on behalf of the RPSA. These collected balances are reflected as Cash and cash equivalents and the related obligation to remit the cash to the counterparty is recorded in Due to factoring facility on our Consolidated Balance Sheet. The lower inflow of cash from operating activities was partially offset by a lower net loss of $23.8 million. The settlement in principle of the federal securities class action lawsuit, which is expected to be covered by our insurance, reached during the nine months ended September 26, 2025, 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 nine months ended March 27, 2026, we invested $22.1 million, an increase of $11.0 million, as compared to $11.1 million during the nine months ended March 28, 2025 primarily due to higher purchases of property and equipment of $5.0 million and $1.4 million of cash paid in the asset acquisition of a provider of specialized manufacturing processes. The nine months ended March 28, 2025 also included an inflow of $4.6 million due to other investing activities. Financing Activities During the nine months ended March 27, 2026, we had $15.0 million of cash outflow related to the purchase and retirement of common stock, as well as $3.2 million of cash paid in financing costs in conjunction with the amendment to our Revolver during the second quarter of fiscal 2026, partially offset by $2.7 million proceeds from employee stock plans. The nine months ended March 28, 2025, included $2.2 million of cash paid in financing costs 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 March 27, 2026: (In thousands) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Purchase obligations $ 224,180 $ 197,019 $ 22,645 $ 4,516 $ — Operating leases 70,988 15,382 28,917 18,259 8,430 $ 295,168 $ 212,401 $ 51,562 $ 22,775 $ 8,430 Purchase obligations repre sent open non-cancelable purchase commitments for certain inventory components and services used in normal operations. The purchase commitments covered by these agreements aggregated approximately $224.2 million at March 27, 2026. 34 We have a liability at March 27, 2026 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. 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, 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. 35 The following table reconciles our net loss, the most directly comparable GAAP financial measure, to our adjusted EBITDA: Third Quarters Ended Nine Months Ended (In thousands) March 27, 2026 March 28, 2025 March 27, 2026 March 28, 2025 Net loss $ (2,861) $ (19,170) $ (30,471) $ (54,274) Other non-operating adjustments, net 2,445 (3,911) 2,894 (3,097) Interest expense, net 4,824 6,778 16,884 23,164 Income tax provision (benefit) 174 (2,648) (6,211) (14,967) Depreciation 8,395 9,731 25,655 29,484 Amortization of intangible assets 9,561 10,185 29,514 32,574 Restructuring and other charges (48) 4,931 5,591 7,231 Impairment of long-lived asset — — — — Acquisition, financing and other third party costs 581 1,072 3,412 4,512 Fair value adjustments from purchase accounting 132 131 394 486 Litigation and settlement expense, net 2,120 5,467 11,631 8,948 Stock-based and other non-cash compensation expense 10,768 12,124 42,381 34,108 Adjusted EBITDA $ 36,091 $ 24,690 $ 101,674 $ 68,169 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. 36 The following tables reconcile net loss and diluted loss per share, the most directly comparable GAAP measures, to adjusted income and adjusted EPS: Third Quarters Ended (In thousands, except per share data) March 27, 2026 March 28, 2025 Net loss and loss per share $ (2,861) $ (0.04) $ (19,170) $ (0.33) Other non-operating adjustments, net 2,445 (3,911) Amortization of intangible assets 9,561 10,185 Restructuring and other charges (48) 4,931 Impairment of long-lived assets — — Acquisition, financing and other third party costs 581 1,072 Fair value adjustments from purchase accounting 132 131 Litigation and settlement expense, net 2,120 5,467 Stock-based and other non-cash compensation expense 10,768 12,124 Impact to income taxes (1) (6,279) (7,240) Adjusted income and adjusted earnings per share (2) $ 16,419 $ 0.27 $ 3,589 $ 0.06 Diluted weighted-average shares outstanding 60,776 59,367 (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 provision or benefit related to the items. (2) Adjusted earnings per share is calculated using diluted shares whereas Net loss per share is calculated using basic shares. There was a $0.01 impact and no impact to the calculation of adjusted earnings per share as a result of this for the third quarters ended March 27, 2026 and March 28, 2025, respectively. Nine Months Ended (In thousands, except per share data) March 27, 2026 March 28, 2025 Net loss and loss per share $ (30,471) $ (0.51) $ (54,274) $ (0.93) Other non-operating adjustments, net 2,894 (3,097) Amortization of intangible assets 29,514 32,574 Restructuring and other charges 5,591 7,231 Impairment of long-lived assets — — Acquisition and financing costs 3,412 4,512 Fair value adjustments from purchase accounting 394 486 Litigation and settlement expense, net 11,631 8,948 Stock-based and other non-cash compensation expense 42,381 34,108 Impact to income taxes (1) (23,930) (20,515) Adjusted income and adjusted earnings per share (2) $ 41,416 $ 0.68 $ 9,973 $ 0.17 Diluted weighted-average shares outstanding 60,525 59,024 (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 provision or benefit related to the items. (2) Adjusted earnings per share is calculated using diluted shares whereas Net loss per share is calculated using basic shares. There was no impact and a $0.01 impact to the calculation of adjusted earnings per share as a result of this for the nine months ended March 27, 2026 and March 28, 2025, respectively. 37 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. The following table reconciles cash provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow: Third Quarters Ended Nine Months Ended (In thousands) March 27, 2026 March 28, 2025 March 27, 2026 March 28, 2025 Net cash provided by operating activities $ 6,442 $ 29,974 $ 60,235 $ 100,776 Purchase of property and equipment (8,263) (5,914) (20,713) (15,705) Free cash flow $ (1,821) $ 24,060 $ 39,522 $ 85,071 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"). 38 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 March 27, 2026.