UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

________________________________________________________________
☒
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2017For the quarterly period ended December 29, 2023
OR
☐
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TOFor the transition period from                      to                     
COMMISSION FILE NUMBER: 0-23599001-41194

MERCURY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

________________________________________________________________
Massachusetts04-2741391
MASSACHUSETTS04-2741391
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
50 MINUTEMAN ROAD
ANDOVER, MA
01810
ANDOVERMA
(Address of principal executive offices)(Zip Code)
978-256-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareMRCYNasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerxAccelerated filer¨
Large accelerated filerxAccelerated filer
¨

Non-accelerated filer¨Smaller reporting company¨☐
Emerging growth company☐¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  x
Shares of Common Stock outstanding as of January 31, 2018: 48,242,590 shares

2024: 59,365,980 shares

1

MERCURY SYSTEMS, INC.
INDEX
PAGE
NUMBER
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1.
3
3
4
Consolidated Statements of Shareholders’ Equity for the second quarters and six months ended December 31, 2017 29, 2023 and 2016December 30, 2022
45
56
67
Item 2.
1922
Item 3.
3336
Item 4.
3336
PART II. OTHER INFORMATION
Item 1.
3437
Item 1A.
3437
Item 6.5.
3437
Item 6.
38
3539




2

PART I. FINANCIAL INFORMATION
 
ITEM 1.FINANCIAL STATEMENTS
ITEM 1.     FINANCIAL STATEMENTS
MERCURY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
December 29, 2023June 30, 2023
Assets
Current assets:
Cash and cash equivalents$168,646 $71,563 
Accounts receivable, net of allowance for credit losses of $737 and $1,335 at December 29, 2023 and June 30, 2023, respectively82,737 124,729 
Unbilled receivables and costs in excess of billings, net of allowance for credit losses of $2,313 and $0 at December 29, 2023 and June 30, 2023, respectively351,003 382,558 
Inventory354,212 337,216 
Prepaid income taxes5,753 — 
Prepaid expenses and other current assets21,470 20,952 
Total current assets983,821 937,018 
Property and equipment, net114,361 119,554 
Goodwill938,093 938,093 
Intangible assets, net273,309 298,051 
Operating lease right-of-use assets, net65,657 63,015 
Deferred tax asset55,426 27,099 
Other non-current assets5,585 8,537 
Total assets$2,436,252 $2,391,367 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$88,060 $103,986 
Accrued expenses31,484 28,423 
Accrued compensation25,133 30,419 
Income taxes payable— 13,874 
Deferred revenues and customer advances81,044 56,562 
Total current liabilities225,721 233,264 
Income taxes payable5,166 5,166 
Long-term debt616,500 511,500 
Operating lease liabilities68,252 66,797 
Other non-current liabilities16,121 7,955 
Total liabilities931,760 824,682 
Commitments and contingencies (Note L)
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding— — 
Common stock, $0.01 par value; 85,000,000 shares authorized; 57,563,733 and 56,961,665 shares issued and outstanding at December 29, 2023 and June 30, 2023, respectively576 570 
Additional paid-in capital1,220,343 1,196,847 
Retained earnings275,150 357,439 
Accumulated other comprehensive income8,423 11,829 
Total shareholders’ equity1,504,492 1,566,685 
Total liabilities and shareholders’ equity$2,436,252 $2,391,367 
 December 31,
2017		 June 30,
2017
Assets   
Current assets:   
Cash and cash equivalents$32,035
 $41,637
Accounts receivable, net of allowance for doubtful accounts of $52 and $83 at December 31, 2017 and June 30, 2017, respectively87,315
 76,341
Unbilled receivables and costs in excess of billings35,655
 37,332
Inventory105,912
 81,071
Prepaid income taxes15
 1,434
Prepaid expenses and other current assets7,970
 8,381
Total current assets268,902
 246,196
Property and equipment, net51,640
 51,643
Goodwill384,785
 380,846
Intangible assets, net120,672
 129,037
Other non-current assets9,817
 8,023
Total assets$835,816
 $815,745
Liabilities and Shareholders’ Equity   
Current liabilities:   
Accounts payable$37,628
 $27,485
Accrued expenses10,427
 20,594
Accrued compensation17,781
 18,406
Deferred revenues and customer advances8,440
 6,360
Total current liabilities74,276
 72,845
Deferred income taxes—
 4,856
Income taxes payable855
 855
Other non-current liabilities11,454
 11,772
Total liabilities86,585
 90,328
Commitments and contingencies (Note M)

 

Shareholders’ equity:   
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding—
 —
Common stock, $0.01 par value; 85,000,000 shares authorized; 46,833,499 and 46,303,075 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively468
 463
Additional paid-in capital581,534
 584,795
Retained earnings166,171
 139,085
Accumulated other comprehensive income1,058
 1,074
Total shareholders’ equity749,231
 725,417
Total liabilities and shareholders’ equity$835,816
 $815,745


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

3


MERCURY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMELOSS
(In thousands, except per share data)
(Unaudited)
  Three Months Ended 
 December 31,		 Six Months Ended 
 December 31,		 
  2017 2016 2017 2016 
Net revenues $117,912
 $98,014
 $223,981
 $185,663
 
Cost of revenues 63,752
 50,625
 119,147
 98,830
 
Gross margin 54,160
 47,389
 104,834
 86,833
 
Operating expenses:         
Selling, general and administrative 21,222
 19,320
 41,790
 36,864
 
Research and development 15,187
 13,156
 28,929
 25,994
 
Amortization of intangible assets 5,827
 4,888
 11,464
 9,490
 
Restructuring and other charges 313
 69
 408
 366
 
Acquisition costs and other related expenses 723
 998
 984
 1,419
 
Total operating expenses 43,272
 38,431
 83,575
 74,133
 
Income from operations 10,888
 8,958
 21,259
 12,700
 
Interest income 3
 10
 22
 50
 
Interest expense (107) (1,898) (110) (3,720) 
Other (expense) income, net (316) (87) (1,131) 513
 
Income before income taxes 10,468
 6,983
 20,040
 9,543
 
Tax provision (benefit) 1,335
 1,779
 (7,046) 520
 
Net income $9,133
 $5,204
 $27,086
 $9,023
 
Basic net earnings per share $0.20
 $0.13
 $0.58
 $0.23
 
Diluted net earnings per share $0.19
 $0.13
 $0.57
 $0.23
 
          
Weighted-average shares outstanding:         
Basic 46,752
 39,151
 46,701
 39,004
 
Diluted 47,447
 39,985
 47,538
 39,920
 
          
Comprehensive income:         
Net income $9,133
 $5,204
 $27,086
 $9,023
 
Foreign currency translation adjustments 22
 (341) (56) (333) 
Pension benefit plan, net of tax 10
 —
 40
 —
 
Total other comprehensive income, net of tax 32
 (341) (16) (333) 
Total comprehensive income $9,165
 $4,863
 $27,070
 $8,690
 
 Second Quarters EndedSix Months Ended
 December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Net revenues$197,463 $229,588 $378,454 $457,167 
Cost of revenues165,943 148,628 296,407 298,112 
Gross margin31,520 80,960 82,047 159,055 
Operating expenses:
Selling, general and administrative44,470 45,057 80,264 84,000 
Research and development28,476 26,906 60,348 54,672 
Amortization of intangible assets12,270 13,536 24,817 28,110 
Restructuring and other charges2 2,069 9,548 3,577 
Acquisition costs and other related expenses231 939 1,200 3,437 
Total operating expenses85,449 88,507 176,177 173,796 
Loss from operations(53,929)(7,547)(94,130)(14,741)
Interest income29 220 132 249 
Interest expense(8,674)(6,590)(16,537)(11,137)
Other (expense) income, net(1,148)846 (2,922)(2,799)
Loss before income tax benefit(63,722)(13,071)(113,457)(28,428)
Income tax benefit(18,141)(2,151)(31,168)(3,173)
Net loss$(45,581)$(10,920)$(82,289)$(25,255)
Basic net loss per share$(0.79)$(0.19)$(1.44)$(0.45)
Diluted net loss per share$(0.79)$(0.19)$(1.44)$(0.45)
Weighted-average shares outstanding:
Basic57,424 56,252 57,314 56,126 
Diluted57,424 56,252 57,314 56,126 
Comprehensive loss:
Net loss$(45,581)$(10,920)$(82,289)$(25,255)
Change in fair value of derivative instruments, net of tax(5,864)(458)(4,122)3,962 
Foreign currency translation adjustments409 (35)829 394 
Pension benefit plan, net of tax(57)48 (113)96 
Total other comprehensive (loss) income, net of tax(5,512)(445)(3,406)4,452 
Total comprehensive loss$(51,093)$(11,365)$(85,695)$(20,803)
The accompanying notes are an integral part of the consolidated financial statements.

4


MERCURY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
For the Second Quarter Ended December 29, 2023
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Shareholders’
Equity
SharesAmount
Balance at September 29, 202357,274 $573 $1,205,573 $320,731 $13,935 $1,540,812 
Issuance of common stock under employee stock incentive plans82 1 (1)— — — 
Issuance of common stock under employee stock purchase plan107 1 3,162 — — 3,163 
Issuance of common stock under defined contribution plan101 1 3,578 — — 3,579 
Retirement of common stock— — (15)— — (15)
Stock-based compensation— — 8,046 — — 8,046 
Net loss— — — (45,581)— (45,581)
Other comprehensive loss— — — — (5,512)(5,512)
Balance at December 29, 202357,564 $576 $1,220,343 $275,150 $8,423 $1,504,492 
For the Second Quarter Ended December 30, 2022
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Shareholders’
Equity
SharesAmount
Balance at September 30, 202256,180 $562 $1,156,501 $371,439 $10,428 $1,538,930 
Issuance of common stock under employee stock incentive plans59 1 (1)— — — 
Issuance of common stock under employee stock purchase plan57 1 2,392 — — 2,393 
Issuance of common stock under defined contribution plan69 — 3,269 — — 3,269 
Stock-based compensation— — 10,865 — — 10,865 
Net loss— — — (10,920)— (10,920)
Other comprehensive loss— — — — (445)(445)
Balance at December 30, 202256,365 $564 $1,173,026 $360,519 $9,983 $1,544,092 
For the Six Months Ended December 29, 2023
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Shareholders’
Equity
SharesAmount
Balance at June 30, 202356,962 $570 $1,196,847 $357,439 $11,829 $1,566,685 
Issuance of common stock under employee stock incentive plans269 3 (3)— — — 
Issuance of common stock under employee stock purchase plan107 1 3,162 — — 3,163 
Issuance of common stock under defined contribution plan226 2 8,215 — — 8,217 
Retirement of common stock— — (15)— — (15)
Stock-based compensation— — 12,137 — — 12,137 
Net loss— — — (82,289)— (82,289)
Other comprehensive loss— — — — (3,406)(3,406)
Balance at December 29, 202357,564 $576 $1,220,343 $275,150 $8,423 $1,504,492 
For the Six Months Ended December 30, 2022
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive Income		Total
Shareholders’
Equity
SharesAmount
Balance at July 1, 202255,680 $557 $1,145,323 $385,774 $5,531 $1,537,185 
Issuance of common stock under employee stock incentive plans477 5 (5)— — — 
Issuance of common stock under employee stock purchase plan57 1 2,392 — — 2,393 
Issuance of common stock under defined contribution plan152 1 7,391 — — 7,392 
Retirement of common stock(1)— (63)— — (63)
Stock-based compensation— — 17,988 — — 17,988 
Net loss— — — (25,255)— (25,255)
Other comprehensive income— — — — 4,452 4,452 
Balance at December 30, 202256,365 $564 $1,173,026 $360,519 $9,983 $1,544,092 

The accompanying notes are an integral part of the consolidated financial statements.
5

MERCURY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended 
 December 31,
 2017 2016
Cash flows from operating activities:   
Net income$27,086
 $9,023
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization expense18,939
 15,176
Stock-based compensation expense9,448
 7,725
Benefit for deferred income taxes(4,833) (1,002)
Non-cash interest expense—
 935
Other non-cash items847
 (341)
Changes in operating assets and liabilities, net of effects of businesses acquired:   
Accounts receivable, unbilled receivables, and costs in excess of billings(9,181) 1,189
Inventory(22,455) (3,882)
Prepaid income taxes1,414
 (1,623)
Prepaid expenses and other current assets(1,970) 376
Other non-current assets(2,507) (97)
Accounts payable and accrued expenses11,597
 (1,903)
Deferred revenues and customer advances1,976
 (1,310)
Income taxes payable(11,284) 305
Other non-current liabilities(2,270) (50)
Net cash provided by operating activities16,807
 24,521
Cash flows from investing activities:   
Acquisition of business, net of cash acquired(5,798) (38,764)
Purchases of property and equipment(7,592) (13,753)
Other investing activities(375) (111)
Net cash used in investing activities(13,765) (52,628)
Cash flows from financing activities:   
Proceeds from employee stock plans2,049
 2,733
Payments for retirement of common stock(14,909) (7,560)
Payments under credit facilities(15,000) (2,500)
Borrowings under credit facilities15,000
 —
Net cash used in financing activities(12,860) (7,327)
Effect of exchange rate changes on cash and cash equivalents216
 (72)
Net decrease in cash and cash equivalents(9,602) (35,506)
Cash and cash equivalents at beginning of period41,637
 81,691
Cash and cash equivalents at end of period$32,035
 $46,185
Cash paid during the period for:   
Interest$111
 $2,785
Income taxes$9,928
 $2,731
Supplemental disclosures—non-cash activities:   
Non-cash investing activity$—
 $1,816
 Six Months Ended
 December 29, 2023December 30, 2022
Cash flows from operating activities:
Net loss$(82,289)$(25,255)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense44,885 50,934 
Stock-based compensation expense11,503 17,507 
Stock-based matching contributions on defined contribution plan7,652 6,427 
Benefit for deferred income taxes(28,432)(22,334)
Other non-cash items7,266 (991)
Cash settlement for termination of interest rate swap7,403 5,995 
Changes in operating assets and liabilities:
Accounts receivable, unbilled receivables, and costs in excess of billings69,715 (30,876)
Inventory(15,503)(40,215)
Prepaid income taxes(5,818)7,463 
Prepaid expenses and other current assets(366)(4,768)
Other non-current assets(2,697)6,589 
Accounts payable, accrued expenses, and accrued compensation(18,173)(28,825)
Deferred revenues and customer advances24,098 23,871 
Income taxes payable(13,896)10,537 
Other non-current liabilities1,078 (6,706)
Net cash provided by (used in) operating activities6,426 (30,647)
Cash flows from investing activities:
Purchases of property and equipment(16,005)(20,504)
Other investing activities— 102 
Net cash used in investing activities(16,005)(20,402)
Cash flows from financing activities:
Proceeds from employee stock plans3,163 2,393 
Borrowings under credit facilities105,000 100,000 
Payments under credit facilities— (40,000)
Purchase and retirement of common stock(15)(63)
Payments of deferred financing and offering costs(1,931)— 
Net cash provided by financing activities106,217 62,330 
Effect of exchange rate changes on cash and cash equivalents445 9 
Net increase in cash and cash equivalents97,083 11,290 
Cash and cash equivalents at beginning of period71,563 65,654 
Cash and cash equivalents at end of period$168,646 $76,944 
Cash paid during the period for:
Interest$16,113 $11,191 
Income taxes, net of refunds$14,881 $2,528 
Supplemental disclosures—non-cash activities:
Non-cash investing activity: Purchases of property and equipment incurred but not yet paid$6,220 $5,367 
The accompanying notes are an integral part of the consolidated financial statements.

6


MERCURY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share data)
(Unaudited)
A.Description of Business
A.Description of Business
Mercury Systems, Inc. (the “Company” or “Mercury”) is a leading commercial provider of secure sensortechnology company that delivers processing power for the most demanding aerospace and safety critical mission processing subsystems. Optimized for customer and mission success, its solutions power a wide variety of critical defense and intelligence programs.missions. Headquartered in Andover, Massachusetts, it is pioneeringthe Company's end-to-end processing platform enables a next-generation defense electronics business model specifically designed to meet the industry's current and emerging technology and business needs. The Company delivers affordable innovative solutions, rapid time-to-value and service and support primarily to defense prime contractor customers. The Company's products and solutions have been deployed in more than 300 programs with over 25 different defense prime contractors. Key programs include Aegis, Patriot, Surface Electronic Warfare Improvement Program ("SEWIP"), Gorgon Stare, Predator, F-16 SABR, F-35, E2D Hawkeye, Reaper and Paveway. The Company's organizational structure allows it to deliver capabilities that combine technology building blocks and deep domain expertise in thebroad range of aerospace and defense sector.programs, optimized for mission success in some of the most challenging and demanding environments. Processing technologies that comprise the Company's platform include signal solutions, display, software applications, networking, storage and secure processing. The Company's innovative solutions are mission-ready, trusted and secure, software-defined and open and modular (the Company's differentiators), to meet customers’ most-pressing high-tech needs, including those specific to the defense community.
B.Summary of Significant Accounting Policies
BASISOF PRESENTATION
B.Summary of Significant Accounting Policies
BASISOF PRESENTATION
The accompanying consolidated financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles ("GAAP"(“GAAP”) in the United States of America for interim financial information and with the instructions to the Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted pursuant to those rules and regulations; however, in the opinion of management the financial information reflects all adjustments, consisting of adjustments of a normal recurring nature, necessary for fair presentation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended June 30, 20172023 which are contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”)SEC on August 18, 2017.15, 2023. The results for the threesecond quarter and six months ended December 31, 201729, 2023 are not necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
All references to the second quarter of fiscal 2024 are to the quarter ended December 29, 2023. There were 13-weeks during the second quarters ended December 29, 2023 and December 30, 2022, respectively. There were 26 weeks during the six months ended December 29, 2023 and December 30, 2022, respectively.
USEOF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
BUSINESS COMBINATIONS
The Company utilizes the acquisition method of accounting under FASB ASC 805, Business Combinations, (“FASB ASC 805”), for all transactions and events which it obtains control over one or more other businesses, to recognize the fair value of all assets and liabilities acquired, even if less than one hundred percent ownership is acquired, and in establishing the acquisition date fair value as the measurement date for all assets and liabilities assumed. The Company also utilizes FASB ASC 805 for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in business combinations.
FOREIGN CURRENCY
Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, JapanSpain and Canada. The accounts of foreign subsidiaries are translated using exchange rates in effect at period-end for assets and liabilities and at average exchange rates during the period for results of operations. The related translation adjustments are reported in accumulatedAccumulated other comprehensive income (“AOCI”) in shareholders’ equity. Gains (losses) resulting from non-U.S. currency transactions are included in other income (expense),Other expense, net in the Consolidated Statements of Operations and Comprehensive IncomeLoss and were immaterial for all periods presented.

ACCOUNTS RECEIVABLE

Accounts receivable, net, represents amounts that have been billed and are currently due from customers. The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. The Company provides credit to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended as necessary. The allowance is based upon an assessment of the customer's credit worthiness, reasonable forecasts about the future, history with the customer, and the age of the receivable balance. The Company typically invoices a customer upon shipment of the product (or completion of a service) for contracts where revenue is recognized at a point in time. For contracts where revenue is recognized over time, the invoicing events are typically based on specified performance obligation deliverables or milestone events, or quantifiable measures of performance.
7

ACCOUNTS RECEIVABLEECEIVABLES FACTORING
On December 21, 2017,September 27, 2022, the Company executed a Master Receivables Purchase Agreement (the “Purchase Agreement”an uncommitted receivables purchase agreement (“RPA”) with Bank of America, N.A. (the “Bank”) for the sale ofWest, as purchaser, pursuant to which the Company may offer to sell certain eligible accounts receivable balancescustomer receivables, subject to the terms and conditions of the RPA. The RPA is an uncommitted arrangement such that the Company upis not obligated to sell any receivables and Bank of the West has no obligation to purchase any receivables from the Company. Pursuant to the RPA, Bank of the West may purchase certain of the Company's customer receivables at a discounted rate, subject to a maximumlimit that as of $30,000.any date, the total amount of purchased receivables held by Bank of the West, less the amount of all collections received on such receivables, may not exceed $20,000. The RPA has an indefinite term and the agreement remains in effect until it is terminated by either party. Factoring under the PurchaseRPA Agreement is treated as a true sale of accounts receivable by the Company. The Company has a continued involvement in servicing accounts receivable under the Purchase Agreement,RPA, but has no significant retained interests related to the factored accounts receivable. On March 14, 2023, the Company amended the RPA to increase the capacity from $20,000 to $30,600. On June 21, 2023, the Company further amended the RPA with BMO Harris Bank (as successor in interest to Bank of the West) to increase the capacity from $30,600 to $60,000.
Proceeds fromfor amounts factored by the Company are recorded as an increaseincrease to cash and a reduction to accounts receivable outstanding in the consolidated balance sheets.Consolidated Balance Sheets. Cash flowsFlows attributable to factoring are reflected as cash flows from operating activities in the Company’s consolidated statementsCompany's Consolidated Statements of cash flows.Cash Flows. Factoring fees are included as selling, general and administrative expenses in the Company’s consolidated statementsCompany's Consolidated Statements of operationsOperations and comprehensive income.Comprehensive Loss.
The Company had $48,205 factored accounts receivablereceivables as of December 29, 2023 and incurred factoring fees of $18,821approximately $953 and $69, respectively,$1,261 for the threesecond quarter and six months ended December 31, 2017.
REVENUE RECOGNITION
29, 2023. The Company relies upon FASB ASC 605, Revenue Recognition, to accounthad $20,000 factored in accounts receivables as of December 30, 2022 and incurred factoring fees of approximately $138 for its revenue transactions. Revenue is recognized upon shipment provided that title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured, and customer acceptance criteria, if any, have been successfully demonstrated. Out-of-pocket expenses that are reimbursable by the customer are included in revenue and cost of revenue.
Certain contracts with customers require the Company to perform tests of its products prior to shipment to ensure their performance complies with the Company’s published product specifications and, on occasion, with additional customer-requested specifications. In these cases, the Company conducts such tests and, if they are completed successfully, includes a written confirmation with each order shipped. As a result, at the time of each product shipment, the Company believes that no further customer testing requirements exist and that there is no uncertainty of acceptance by its customer.
The Company uses FASB Accounting Standards Update ("ASU") No. 2009-13 (“FASB ASU 2009-13”), Multiple-Deliverable Revenue Arrangements. FASB ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence (“VSOE”) if available; (2) third-party evidence (“TPE”) if VSOE is not available; and (3) best estimated selling price (“BESP”), if neither VSOE nor TPE is available. Additionally, FASB ASU 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. 
The Company enters into multiple-deliverable arrangements that may include a combination of hardware components, related integration or other services. These arrangements generally do not include any performance-, cancellation-, termination- or refund-type provisions. Total revenue recognized under multiple-deliverable revenue arrangements was 37% and 38% of total revenue in the threesecond quarter and six months ended December 31, 2017, respectively. Total revenue recognized under multiple-deliverable revenue arrangements was 23% and 29% of total revenues in the three and six months ended December 31, 2016, respectively.30, 2022.
In accordance with the provisions of FASB ASU 2009-13, the Company allocates arrangement consideration to each deliverable in an arrangement based on its relative selling price. The Company generally expects that it will not be able to establish VSOE or TPE due to limited single element transactions and the nature of the markets in which the Company competes, and, as such, the Company typically determines its relative selling price using BESP. The objective of BESP is to determine the price at which the Company would transact if the product or service were sold by the Company on a standalone basis.
The Company's determination of BESP involves the consideration of several factors based on the specific facts and circumstances of each arrangement. Specifically, the Company considers the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, the Company’s ongoing pricing strategy and policies (as evident from the price list established and updated by management on a regular basis), the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold.DERIVATIVES
The Company analyzesrecords the selling prices usedfair value of its derivative financial instruments in its allocationconsolidated financial statements in Other non-current assets, or Other non-current liabilities depending on their net position, regardless of arrangement consideration at a minimum on an annual basis. Selling prices will be analyzed on a more frequent basis if a significant changethe purpose or intent for holding the derivative contract. Changes in the Company’s business necessitatesfair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a more timely analysis or ifcomponent of Other comprehensive income (loss) (“OCI”). Changes in the fair value of cash flow hedges that qualify for hedge accounting treatment are recorded in OCI and reclassified into earnings in the same line item on the Consolidated Statements of Operations and Comprehensive Loss as the impact of the hedged transaction when the underlying contract matures and, for interest rate exposure derivatives, over the term of the corresponding debt instrument. Changes in the fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur. All derivatives for the Company experiences significant variancesqualified for hedge accounting as of December 29, 2023.
REVENUE RECOGNITION
The Company recognizes revenue in its selling prices.
Each deliverable withinaccordance with ASC 606, Revenue from Contracts with Customers, (“ASC 606”). Revenues are derived from the Company’s multiple-deliverable revenue arrangements is accounted for as a separate unitsales of accounting under the guidance of FASB ASU 2009-13 if bothproducts that are grouped into one of the following criteria are met: the delivered item or items have value to the customer on a standalone basis;three categories: (i) components; (ii) modules and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probablesub-assemblies; and substantially in the control of the Company. The Company's revenue arrangements generally do not include a general right of return relative to delivered products. The Company


considers a deliverable to have standalone value if the item is sold separately by the Company or another vendor or if the item could be resold by the customer.
Deliverables not meeting the criteria for being a separate unit of accounting are combined with a deliverable that does meet that criterion. The appropriate allocation of arrangement consideration and recognition of revenue is then determined for the combined unit of accounting.
(iii) integrated subsystems. The Company also engages in long-term contracts for development, production and services activities which it accounts for consistent with FASB ASC 605-35, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and other relevant revenue recognition accounting literature. The Company considers the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. Generally for fixed-price contracts, other than service-type contracts, revenue is recognized primarily under the percentage of completion method or, for certain short-term contracts, by the completed contract method. Revenuegenerates revenues from service-type fixed-price contracts is recognized ratably over the contract period or by other appropriate input or output methods to measure service provided, and contract costs are expensed as incurred. The Company establishes billing terms at the time project deliverables and milestones are agreed. The risk to the Company on a fixed-price contract is that if estimates to complete the contract change from one period to the next, profit levels will vary from period to period. For time and materials contracts, revenue reflects the number of direct labor hours expended in the performance of a contract multiplied by the contract billing rate, as well as reimbursement of other billable direct costs. For all types of contracts, the Company recognizes anticipated contract losses as soon as they become known and estimable.
The Company also considers whether contracts should be combined or segmented in accordance with the applicable criteria under GAAP. The Company combines closely related contracts when all the applicable criteria under GAAP are met. The combination of two or more contracts requires judgment in determining whether the intent of entering into the contracts was effectively to enter into a single project, which should be combined to reflect an overall profit rate. Similarly, the Company may separate a project, which may consist of a single contract or group of contracts, with varying rates of profitability, only if the applicable criteria under GAAP are met. Judgment also is involved in determining whether a single contract or group of contracts may be segmented based on how the arrangement was negotiated and the performance criteria. The decision to combine a group of contracts or segment a contract could change the amount of revenue and gross profit recorded in a given period.
The use of contract accounting requires significant judgment relative to estimating total contract revenues and costs,services, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials. The Company’s estimates are based upon the professional knowledge and experience of its engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.
Contract costs also may include estimated contract recoveries for matters such as contract changes and claims for unanticipated contract costs. The Company records revenue associated with these matters only when the amount of recovery can be estimated reliably and realization is probable.
The Company defines service revenues as revenue from activities that are not associated with the design, development, production, or delivery of tangible assets, software or specific capabilities sold. Examples of the Company's service revenues include: analyst services and systems engineering support, consulting, maintenance and other support, testing and installation. The Company combines its product andEach promised good or service revenueswithin a contract is accounted for separately under the guidance of ASC 606 if they are distinct. Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single class as serviceperformance obligation with other goods or services that together meet the criteria for being distinct. The appropriate allocation of the transaction price and recognition of revenue is then determined for the bundled performance obligation.
Revenue recognized at a point in time generally relates to contracts that include a combination of components, modules and sub-assemblies, integrated subsystems and related system integration or other services. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 47% and 45% of revenues are less than 10 percentfor the second quarter and six months ended December 29, 2023, respectively. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of total revenues.the transaction price, totaled 44% and 40% of revenues for the second quarter and six months ended and December 30, 2022, respectively.
The Company also engages in contracts for development, production and service activities and recognizes revenue for performance obligations over time. These over time contracts involve the design, development, manufacture, or modification of complex modules and sub-assemblies or integrated subsystems and related services. Over time contracts include both fixed-price and cost reimbursable contracts. The Company’s cost reimbursable contracts typically include cost-plus fixed fee and time and material contracts.
8

Total revenue recognized over time was 53% and 55% of total revenues for the second quarters and six months ended December 29, 2023, respectively. Total revenue recognized over time was 56% and 60% of total revenues for the second quarters and six months ended December 30, 2022, respectively.
The Company generally does not provideprovide its customers with rights of product return other than those related to assurance warranty provisions that permit repair or replacement of defective goods.goods generally over a period of 12 to 36 months. The Company accrues for anticipated warranty costs upon product shipment. RevenuesThe Company does not consider activities related to such assurance warranties, if any, to be a separate performance obligation. The Company does offer separately priced extended warranties which generally range from product royalties12 to 36 months that are treated as separate performance obligations. The transaction price allocated to extended warranties is recognized over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract.
The Company's contracts generally do not include significant financing components. The Company's over time contracts may include milestone payments, which align the payment schedule with the progress towards completion on the performance obligation. Otherwise, the Company's contracts are predicated on payment upon invoicecompletion of the performance obligation. On certain contracts, the Company may be entitled to receive an advance payment, which is not considered a significant financing component because most contracts have a duration of approximately two years on average and it is used to facilitate inventory demands at the onset of a contract and to safeguard the Company from the failure of the other party to abide by some or all of their obligations under the Company. Additionally, allcontract.
All revenues are reported net of government assessed taxes (e.g., sales taxes or value-added taxes). Refer to Note K for disaggregation of revenue for the period.

CONTRACT BALANCES

Contract balances result from the timing of revenue recognized, billings and cash collections resulting in the generation of contract assets and liabilities. Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Instead, while the Company has an enforceable right to payment as progress is made over performance obligations, billings to customers are generally predicated on (i) completion of defined milestones, (ii) monthly costs incurred or (iii) final delivery of goods or services. Contract assets are presented as Unbilled receivables and costs in excess of billings on the Company’s Consolidated Balance Sheets. Contract liabilities consist of deferred product revenue, billings in excess of revenues, deferred service revenue and customer advances. Deferred product revenue represents amounts that have been invoiced to customers, but are not yet recognizable as revenue because the Company has not satisfied its performance obligations under the contract. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Deferred service revenue primarily represents amounts invoiced to customers for annual maintenance contracts or extended warranty contracts, which are recognized over time in proportion to the costs expected to be incurred in satisfying the obligations under the contract. Customer advances represent deposits received from customers on an order. Contract liabilities are included in deferred revenue as well as Other non-current liabilities on the Company’s Consolidated Balance Sheets. Contract balances are reported in a net position on a contract-by-contract basis.
WEIGHTED-AVERAGE SHARESThe contract asset balances were $351,003 and $382,558 as of December 29, 2023 and June 30, 2023, respectively. The contract asset balance decreased due to the successful execution and billings across multiple programs, as well as, cumulative adjustments from the cost growth impact and contract settlements during the six months ended December 29, 2023. The contract liability balances were $81,596 and $57,142 as of December 29, 2023 and June 30, 2023, respectively. The contract liability increased due to a higher volume of advanced milestone billing events as well as timing of revenue conversion across multiple programs.
Revenue recognized for the second quarter and six months ended December 29, 2023 that was included in the contract liability balance at June 30, 2023 was $10,228 and $31,243, respectively. Revenue recognized for the second quarter and six months ended December 30, 2022 that was included in the contract liability balance at July 1, 2022 was $3,068 and $7,737, respectively.
REMAINING PERFORMANCE OBLIGATIONS
The Company includes in its computation of remaining performance obligations customer orders for which it has accepted signed sales orders. The definition of remaining performance obligations excludes contracts with original expected durations of less than one year, as well as those contracts that provide the customer with the right to cancel or terminate the order with no substantial penalty, even if the Company’s historical experience indicates the likelihood of cancellation or termination is remote. As of December 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $657,598. The Company expects to recognize approximately 58% of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.
9

LONG-LIVED ASSETS
Long-lived assets primarily include property and equipment, intangible assets and right-of-use ("ROU") assets. The Company regularly evaluates its long-lived assets for events and circumstances that indicate a potential impairment in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows of the asset as compared to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.
WEIGHTED-AVERAGE SHARES
Weighted-average shares were calculated as follows:
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
Basic weighted-average shares outstanding46,752
 39,151
 46,701
 39,004
Effect of dilutive equity instruments695
 834
 837
 916
Diluted weighted-average shares outstanding47,447
 39,985
 47,538
 39,920
Second Quarters EndedSix Months Ended
December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Basic weighted-average shares outstanding57,424 56,252 57,314 56,126 
Effect of dilutive equity instruments— — — — 
Diluted weighted-average shares outstanding57,424 56,252 57,314 56,126 
Equity instruments to purchase 232,865 and 1622,460 shares of common stock were not included in the calculation of diluted net loss per share for the second quarters and six months ended December 29, 2023, respectively, because the equity instruments were anti-dilutive. Equity instruments to purchase 511 and 300 shares of common stock were not included in the calculation of diluted net earnings per share for the threesecond quarter and six months ended December 31, 2017, respectively, because the equity instruments were anti-dilutive. Equity instruments to purchase 9 and 6 shares of common stock were not included in the calculation of diluted net earnings per share for the three and six months ended December 31, 2016,30, 2022, respectively, because the equity instruments were anti-dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
C. Acquisitions
RICHLAND TECHNOLOGIES ACQUISITION
On July 3, 2017,In November 2023, the Company entered into a membership interest purchase agreement with Richland Technologies, L.L.C. ("RTL")FASB issued ASU No. 2023-07, Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures, pursuantan amendment of the FASB Accounting Standards Codification. The amendments in this ASU address improvements to which, the Company acquired RTL on a cash-free, debt-free basisreportable segment disclosure requirements, specifically requiring disclosure of significant segment expenses. The amendment also extends certain annual disclosures to interim periods, and clarifies that single reportable segment entities must apply ASC 280 in its entirety, inclusive of this update. This ASU is effective for a total purchase price of $5,798. RTL specializes in safety-critical and high integrity systems, software and hardware developmentfiscal years beginning after December 15, 2023, as well as safety-certification servicesall interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Improvement to Income Tax Disclosures, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU enact new income tax disclosure requirements in addition to modifying existing requirements. The amendment requires entities to categorize and provide greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. This ASU is effective for mission-critical applications.fiscal years beginning after December 15, 2024, with early adoption permitted. The acquisition hadCompany is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2023, the company adopted ASU No. 2021-08, Business Combinations (ASC 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, an immaterialamendment of the FASB Accounting Standards Codification. The amendments in this ASU address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. This adoption did not have an impact to the Company’s results of operations (contributed less than one percent of net revenue for the three and six months ended December 31, 2017), and accordingly the disclosures required per FASB ASC 805 have been excluded from the Form 10-Q filing. The Company recognized primarily intangible assets including customer relationships, developed technology and goodwill based on its preliminary purchase price allocation.
DELTA ACQUISITION
On April 3, 2017, the Company entered into a membership interest purchase agreement with Delta Microwave, LLC ("Delta"), pursuant to which the Company acquired Delta on a cash-free, debt-free basis for a total purchase price of $40,500, subject to net working capital and net debt adjustments. Delta is a designer and manufacturer of high-value RF, microwave and millimeter wave sub-assemblies and components for the military, aerospace and space markets. The acquisition and transaction related expenses were funded with cash on hand.
The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of Delta:
 Amounts
Consideration transferred 
Cash paid at closing$40,500
Net purchase price$40,500
  
Estimated fair value of tangible assets acquired and liabilities assumed 
Accounts receivable and cost in excess of billings$957
Inventory4,452
Fixed assets1,918
Other current and non-current assets67
Current liabilities(2,055)
Estimated fair value of net tangible assets acquired5,339
Estimated fair value of identifiable intangible assets17,000
Estimated goodwill18,161
Estimated fair value of net assets acquired40,500
Net purchase price$40,500
The amounts above represent the preliminary fair value estimates as of December 31, 2017 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period. The preliminary identifiable intangible asset estimates include customer relationships of $8,000 with a useful life of 9 years, developed technology of $5,900 with a useful


life of 7 years and backlog of $3,100 with a useful life of 2 years. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill.
The goodwill of $18,161 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. The Delta acquisition expands the scale and breadth of the Company’s RF, microwave and millimeter wave capabilities, provides a highly complementary program portfolio in missiles and munitions, deepens market penetration in core radar, electronic warfare ("EW"), and precision-guided munitions markets, and opens new growth opportunities in space launch, GPS, satellite communications and datalinks. The goodwill from this acquisition is reported under the Advanced Microelectronic Solutions (“AMS”) reporting unit.
Since Delta was a limited liability company, the acquisition is treated as an asset purchase for tax purposes. The Company has estimated the tax value of the intangible assets from this transaction and is amortizing the amount over 15 years for tax purposes. As of December 31, 2017, the Company had $17,615 of goodwill deductible for tax purposes.
The revenues and income before income taxes from Delta included in the Company's consolidated results for the three months ended December 31, 2017 were $5,229 and $74, respectively. The revenues and income before income taxes from Delta included in the Company's consolidated results for the six months ended December 31, 2017 were $10,761 and $661, respectively. The Company has not furnished pro forma financial information relating to Delta because such information is not material to the Company's financial results.
CES AQUISITION
On November 4, 2016, the Company and the shareholders of CES entered into a Stock Purchase Agreement, pursuant to which, Mercury acquired CES for a total purchase price of $39,123, subject to net working capital and net debt adjustments. The acquisition and associated transaction expenses were funded with cash on hand. Based in Geneva, Switzerland, CES is a leading provider of embedded solutions for military and aerospace mission-critical computing applications. CES specializes in the design, development and manufacture of safety-certifiable product and subsystems solutions including: primary flight control units, flight test computers, mission computers, command and control processors, graphics and video processing and avionics-certified Ethernet and IO. CES has decades of experience designing subsystems deployed in applications certified up to the highest levels of design assurance. CES products and solutions are used on platforms such as aerial refueling tankers and multi-mission aircraft, as well as the several types of unmanned platforms.
The following table presents the net purchase price and the fair values of the assets and liabilities of CES:
 
Amounts 
Consideration transferred 
Cash paid at closing$39,123
Working capital adjustment(330)
Net purchase price$38,793
  
Fair value of tangible assets acquired and liabilities assumed 
Accounts receivable and cost in excess of billings$2,698
Inventory8,950
Fixed assets1,480
Other current and non-current assets748
Current liabilities(3,154)
Non-current liabilities(6,140)
Deferred tax liabilities(1,148)
Fair value of net tangible assets acquired3,434
Fair value of identifiable intangible assets14,722
Goodwill20,637
Fair value of net assets acquired38,793
Net purchase price$38,793
On November 3, 2017, the measurement period for CES expired. The identifiable intangible assets include customer relationships of $9,060 with a useful life of 9 years and developed technology of $5,662 with a useful life of 7 years.


The goodwill of $20,637 largely reflects the potential synergies and expansion of the Company's offerings across product lines and markets complementary to the Company's existing products and markets. CES provides the Company with capabilities in mission computing, safety-critical avionics and platform management that are in demand from its customers. These new capabilities will also substantially expand Mercury’s addressable market into commercial aerospace, defense platform management, command, control, communications, computers, and intelligence ("C4I") and mission computing markets that are aligned to Mercury’s existing market focus. The acquisition is directly aligned with the Company's strategy of expanding its capabilities, services and offerings along the sensor processing chain. The goodwill from this acquisition is reported under the Sensor and Mission Processing (“SMP”) reporting unit.
The revenues and income before income taxes from CES included in the Company's consolidated results for the three months ended December 31, 2017 were $7,000 and $2,445, respectively. The revenues and income before income taxes from CES included in the Company's consolidated results for the six months ended December 31, 2017 were $13,319 and $2,093, respectively. The Company has not furnished pro forma financial information relating to CES because such information is not material to the Company's financial results.
THEMIS COMPUTER AQUISITION
On December 21, 2017, the Company and Thunderbird Merger Sub, Inc., a newly formed, wholly-owned subsidiary of Mercury (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ceres Systems (“Ceres”), the holding company that owns Themis Computer (“Themis”, and together with Ceres, collectively the “Acquired Company”). Pursuant to the Merger Agreement, the Merger Sub will merge with and into Ceres with Ceres continuing as the surviving company and a wholly-owned subsidiary of Mercury (the “Merger”). By operation of the Merger, the Company acquired both Ceres and its wholly-owned subsidiary, Themis.
On February 1, 2018, the Company closed the transaction for an aggregate purchase price of $180,000, plus an estimated adjustment for acquired working capital and cash. The merger consideration is subject to post-closing adjustments based on a determination of closing net working capital, transaction expenses and net debt (all as defined in the Merger Agreement). See Note N "Subsequent Events" to the consolidated financial statements for further discussion.or related disclosures.

D.
10

C.Fair Value of Financial Instruments
The following table summarizes the Company’sCompanies' financial assetsinstruments measured at fair value on a recurring basis atas of December 31, 2017:29, 2023:
  Fair Value Measurements
  December 31, 2017 Level 1 Level 2 Level 3
Assets:        
Certificates of deposit $1,048
 $—
 $1,048
 $—
Total $1,048
 $—
 $1,048
 $—
 Fair Value Measurements
 December 29, 2023Level 1Level 2Level 3
Liabilities:
Interest rate swap$8,710 $— $8,710 $— 
Total$8,710 $— $8,710 $— 
The carrying values of cash and cash equivalents, including money market funds, restricted cash, accounts receivable and payable, contract assets and liabilities and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The Company determined the carrying value of long-term debt approximated fair value due to variable interest rates charged on the borrowings, which reprice frequently. During the first quarter ended September 29, 2023, the Company entered into an interest rate hedging agreement (the “September 2023 Swap”).
The fair value of the Company’s certificatesSeptember 2023 Swap is estimated using a discounted cash flow analysis based on the contractual terms of deposit are determined throughthe derivative, leveraging observable inputs other than quoted prices, for identical or similarsuch as interest rates. As of December 29, 2023, the fair value of the September 2023 Swap was a liability of $8,710 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.
The following table summarizes the Companies' financial instruments in markets that are not active or are directly or indirectly observable. measured at fair value on a recurring basis as of June 30, 2023:
Fair Value Measurements
June 30, 2023Level 1Level 2Level 3
Assets:
Interest rate swap$3,523 $— $3,523 $— 
Total assets measured at fair value$3,523 $— $3,523 $— 
The cost-method investment, whichfair value of interest rate hedging agreement entered on September 29, 2022 ("the Swap") is presentedestimated using a discounted cash flow analysis based on the contractual terms of the derivative, leveraging observable inputs other than quoted prices, such as interest rates. As of June 30, 2023, the fair value of the Swap was an asset of $3,523 and was included within otherOther non-current assets in the accompanying consolidated balance sheets, does not have a readily determinable fair value, as suchCompany's Consolidated Balance Sheets. The Company terminated the Company recordedSwap during the investment at costfirst quarter ended September 29, 2023.
Refer to Note M for further information regarding the September 2023 Swap and will continue to evaluate the asset for impairment on a quarterly basis.

termination of the Swap.

E.Inventory
D. Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value, and consists of materials, labor and overhead. On a quarterly basis, the Company uses consistent methodologies to evaluate inventory for net realizable value. Once an item is written down, the value becomes the new inventory cost basis. The Company reduces the value of inventory for excess and obsolete inventory, consisting of on-hand inventory in excess of estimated usage. The excess and obsolete inventory evaluation is based upon assumptions about future demand, history,historical usage, product mix and possible alternative uses. Inventory was comprised of the following:
As of
December 29, 2023June 30, 2023
Raw materials$227,072 $229,984 
Work in process108,247 81,930 
Finished goods18,893 25,302 
Total$354,212 $337,216 
11
  December 31, 2017 June 30, 2017
Raw materials $67,268
 $48,645
Work in process 25,977
 22,567
Finished goods 12,667
 9,859
Total $105,912
 $81,071
There are no amounts in inventory relating to contracts having production cycles longer than one year.
F.Goodwill
The following table sets forth the changes in the carrying amount of goodwill by reporting unit for the six months ended December 31, 2017:

  SMP AMS MDS Total
Balance at June 30, 2017 $116,003
 $217,956
 $46,887
 $380,846
Goodwill adjustment for the CES acquisition 291
 —
 —
 291
Goodwill adjustment for the Delta acquisition —
 201
 —
 201
Goodwill arising from the RTL acquisition 3,447
 —
 —
 3,447
Balance at December 31, 2017 $119,741
 $218,157
 $46,887
 $384,785
E.Goodwill
In the six months ended December 31, 2017, there were no triggering events, as defined byaccordance with FASB ASC 350, Intangibles - GoodwillIntangibles-Goodwill and Other(“ASC 350”), which requiredthe Company determines its reporting units based upon whether discrete financial information is available, if management regularly reviews the operating results of the component, the nature of the products offered to customers and the market characteristics of each reporting unit. A reporting unit is considered to be an interim goodwill impairment test. operating segment or one level below an operating segment also known as a component. Component level financial information is reviewed by management across two divisions: Mission Systems and Microelectronics. Accordingly, these were determined to be the Company's reporting units.
The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.year, and also assesses potential triggering events during interim reporting periods. During the second quarter ended December 29, 2023, the Company assessed events and circumstances to consider its reporting units for a potential triggering event, including: macroeconomic conditions, industry and market considerations, financial performance and expectations of projected financial performance and cash flows, changes in the Company's stock price in relation to the carrying value of its reporting units, among other relevant factors. The Company concluded that there was no triggering event during the second quarter ended December 29, 2023 that would require an interim impairment test. The Company will continue to monitor these events and circumstances in future periods and adverse changes to these events and circumstances could require the Company to perform an interim impairment test.
G.Restructuring
The following table presentsThere has been no change to the detailcarrying amount of activity for the Company’s restructuring plans:
  Severance &
Related		 Facilities
& Other		 Total
Restructuring liability at June 30, 2017 $1,365
 $—
 $1,365
Restructuring and other charges 327
 81
 408
Cash paid (575) (81) (656)
Restructuring liability at December 31, 2017 $1,117
 $—
 $1,117
Duringgoodwill during the six months ended December 31, 2017,29, 2023.

F.Restructuring
For the six months ended December 29, 2023, the Company incurred netinitiated several immediate cost savings measures that simplify the Company’s organizational structure, facilitate clearer accountability, and align to the Company’s priorities, including: (i) embedding the 1MPACT value creation initiatives and execution into the Company’s operations; (ii) streamlining organizational structure and removing areas of redundancy between corporate and divisional organizations; and (iii) reducing selling, general, and administrative headcount and rebalancing discretionary and third party spending to better align with the Company’s priority areas. On July 20, 2023, the Company executed the plan to embed the 1MPACT value creation initiatives into operations, and on August 9, 2023, the Company approved and initiated a workforce reduction that, together with the 1MPACT related action, eliminated approximately 150 positions resulting in $9,548 of severance costs for the six months ended December 29, 2023.
The Company incurs restructuring and other charges in connection with management's decision to undertake certain actions to realign operating expenses through workforce reductions and the closure of $408. Restructuringcertain Company facilities, businesses and product lines. The Company's adjustments reflected in restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisitionpost acquisition integration activities.
All of the restructuring and other charges are classified as operatingOperating expenses in the consolidated statementsConsolidated Statements of operationsOperations and Comprehensive Loss and any remaining severancerestructuring obligations are expected to be paid within the next twelve months. The restructuring liability is classified as accruedAccrued expenses in the consolidated balance sheets.
H.Income Taxes
On December 22, 2017,Consolidated Balance Sheets. Refer to Note N for further information regarding the Tax Cuts and Jobs Actworkforce reduction announced during the third quarter of 2017 (the “Tax Act”) was enacted by the U.S. government. The Tax Act has impacted the U.S. statutory Federal tax rate that the Company will use going forward, which has been reduced to 21% from 35%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory Federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years.


2024.
The Tax Act also includes items thatfollowing table presents the Company expects will increase its tax expense including, but not limited to, the eliminationdetail of the domestic manufacturing deduction and increased limitations on executive compensation. In addition, the actual effective tax rate may be materially different than the statutory Federal tax rate (including being higher) based on the availability and impact of various other adjustments including but not limited to state taxes, Federal research and development credits, discrete tax benefits related to stock compensation, and the inclusion or exclusion of various items in taxable income which may differ from GAAP income.
To transition to the reduced U.S. corporate tax rate, an adjustment is required to be made to our U.S. deferred tax assets and liabilities. For the three months ended December 31, 2017, the adjustment to the U.S. deferred tax assets and liabilities resulted in a tax benefit of $1,286. The Tax Act includes a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986, including historical tax information that is not yet available to management. The Company has not recorded any transition tax associated with its accumulated, undistributed foreign earnings given its current U.S. tax attributes, including the availability of foreign tax credits. For the three months ended December 31, 2017, the Company has recorded a provisional tax expense of $415 as it no longer expects to utilize certain foreign tax credits. The Company continues to evaluate its transition tax obligation and expects to finalize its conclusions by the end of fiscal 2018. The Company does not expect the final amounts to be materially different than those recorded within this period. For the three-months ended December 31, 2017, the Company has recorded all known and estimable impacts of the Tax Act that are effective for fiscal year 2018. In accordance with SEC Staff Accounting Bulletin 118 (“SAB 118”), future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expensecharges included in the period in which those adjustments become estimableCompany’s liability for restructuring and finalized.other charges:
Severance & Related
Balance at June 30, 2023$1,529 
Restructuring charges9,548 
Cash paid(7,390)
Balance at December 29, 2023$3,687 
12

G.Income Taxes
The Company recorded an income tax provisionbenefit of $1,335$18,141 and $1,779$2,151 on income from operationsa loss before income taxes of $10,468$63,722 and $6,983$13,071 for the three monthssecond quarters ended December 31, 201729, 2023 and 2016,December 30, 2022, respectively. The Company recorded an income tax benefit of $7,046$31,168 and an income tax provision of $520$3,173 on income from operationsa loss before income taxes of $20,040$113,457 and $9,543$28,428 for the six months ended December 31, 201729, 2023 and 2016,December 30, 2022, respectively.
During the threesecond quarter and six months ended December 31, 2017 and 2016,29, 2023, the Company recognized a discrete tax expenseprovision of $431 and benefit of $294 and $634, respectively,$1,646 related to excess tax benefits on stock-based compensation. The discrete tax expense forstock compensation shortfalls, respectively, and during the threesecond quarter and six months ended December 31, 2017 included30, 2022 the enactmentCompany recognized a tax provision of $134 and $1,745 related to stock compensation shortfalls, respectively. During the second quarter ended December 30, 2022, the Company recognized a tax benefit of $2,348 related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The excess tax benefit related to stock-based compensation is the resultstatute of an increase in value from the stock award between the grant date and the vest date. limitations.
The effective tax rate for the threesecond quarters and six months ended December 31, 201729, 2023 and 2016December 30, 2022 differed from the Federalfederal statutory rate primarily due to Federalfederal and state research and development credits, domestic manufacturing deduction, excess tax benefits related tonon-deductible compensation, stock compensation shortfalls and state taxes. The effective tax rate for the second quarter and six months ended December 30, 2022 also differed from the federal statutory rate due to the release of income tax reserves for previously unrecognized income tax benefits.
The Tax Cuts and Jobs Act of 2017 requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes, effective for the Company beginning in the fiscal year ended June 30, 2023. As a result, the Company has recorded a deferred tax asset through the second quarter ended December 29, 2023 of $88,949. During the six months ended December 31, 2017 and 2016,29, 2023, the Company recognized a discretehas made $15,314 of tax benefit of $7,579 and $2,817, respectively,payments related to excess tax benefits on stock-based compensation.this requirement. The discrete tax benefit forCompany will continue to monitor guidance and any proposed regulations and adjust the six months ended December 31, 2017 included the enactment of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The benefit is the result of the increase in value from the stock award between the grant date and the vest date. The six months ended December 31, 2017 also included discrete tax benefits of $3,716, derived from new information obtained about net operating loss carry-forwards of the entities acquired from Microsemi Corporation in May 2016. The discrete items disclosed above for the six months ended December 31, 2017 included the effect of the Tax Act. The effective tax rate for the six months ended December 31, 2017 and 2016 differed from the Federal statutory rate primarily due to Federal research and development credits, domestic manufacturing deduction, excess tax benefits related to stock compensation, and state taxes.estimates as necessary.
No material changes in the Company’s unrecognized tax positions occurred during the six months ended December 31, 2017.
H.Debt
I.Debt
REVOLVING CREDIT FACILITY
On June 27, 2017,February 28, 2022, the Company amended itsthe revolving credit facility (the "Revolver") to increase and extend the borrowing capacity of its existing revolving credit facility intoto a $400,000,$1,100,000, 5-year revolving credit line, expiring in June 2022 (“with the Revolver”).maturity extended to February 28, 2027. As of December 31, 2017,29, 2023, the Company's outstanding balance of unamortized deferred financing costs was $5,991,$4,811, which is being amortized to other (expense) income,Other expense, net in the Consolidated Statements of Operations and Comprehensive Loss on a straight line basis over the term of the Revolver and includes the costs incurred in conjunction with the November 2023 amendment to the Revolver.
On November 7, 2023, due to the uncertainty surrounding a government shutdown or prolonged continuing resolution and the potential impact on the second quarter and fiscal 2024 results, the Company proactively executed Amendment No. 5 to the Revolver, as amended to date, with a syndicate of commercial banks and Bank of America, N.A acting as the administrative agent allowing for a temporary increase in the Consolidated Total Net Leverage Ratio covenant requirement from 4.50 to 5.25 for the second quarter ended December 29, 2023. In conjunction with Amendment No. 5 to the Revolver, the Company incurred $1,931 of new unamortized deferred financing costs that will be amortized over the remaining term of the Revolver. TheRefer to exhibit 10.1 on Form 8-K filed by the Company drew $195,000 fromwith the Revolver to facilitateSEC on November 7, 2023.
During the completion ofsecond quarter and six months ended December 29, 2023, the Merger Agreement for the acquisition of both CeresCompany borrowed $40,000 and its wholly-owned subsidiary, Themis.
$105,000, respectively. As of December 31, 2017,29, 2023, the Company was in compliance with all covenants and conditions under the Revolver and there were no outstanding borrowings of $616,500 against the revolver.Revolver, resulting in interest expense of $8,674 and $16,537 for the second quarter and six months ended December 29, 2023. The borrowing capacity as defined under the Revolver as of December 29, 2023 is approximately $750,000, less outstanding borrowings of $616,500. There were outstanding letters of credit of $2,760$963 as of December 31, 2017.

29, 2023.

J.Stock-Based Compensation
STOCK OPTIONI.Employee Benefit Plan
PLANSENSION PLAN
The Company maintains a defined benefit pension plan (the “Plan”) for its Swiss employees, which is administered by an independent pension fund. The Plan is mandated by Swiss law and meets the criteria for a defined benefit plan under ASC 715, Compensation—Retirement Benefits (“ASC 715”), because participants of the Plan are entitled to a defined rate of return on contributions made. The independent pension fund is a multi-employer plan with unrestricted joint liability for all participating companies for which the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan.
13

The Company recognizes a net asset or liability for the Plan equal to the difference between the projected benefit obligation of the Plan and the fair value of the Plan’s assets as required by ASC 715. The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions of the projected benefit obligation of the Plan. The Plan's funded status at December 29, 2023 was a net liability of $4,431, which is recorded in Other non-current liabilities on the Consolidated Balance Sheet. The Company recorded a net loss of $57 and $113 in AOCI during the second quarter and six months ended December 29, 2023. The Company recorded a net gain of $48 and $96 in AOCI during the second quarter and six months ended December 30, 2022. The Company recognized net periodic benefit costs of $208 and $415 associated with the Plan for the second quarter and six months ended December 29, 2023, respectively. The Company recognized net periodic benefit costs of $220 and $441 associated with the Plan for the second quarter and six months ended December 30, 2022, respectively. The Company's total expected employer contributions to the Plan during fiscal 2024 are $1,133.
401(k) Plan
The Company maintains a qualified 401(k) plan (the “401(k) Plan”) for its U.S. employees and matches participants' eligible annual compensation up to 6% in Company stock. The Company may also make optional contributions to the plan for any plan year at its discretion. The Company had $3,270 and $2,705 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at December 29, 2023 and June 30, 2023, respectively. Stock-based 401(k) matching compensation cost is measured based on the value of the matching amount and is recognized as expense as incurred. During the second quarter and six months ended December 29, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $2,811 and $7,652, as compared to $3,822 and $6,427 during the second quarter and six months ended December 30, 2022.

J.Stock-Based Compensation
STOCK INCENTIVE PLANS
At December 29, 2023, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 7,862 shares, including 3,000 shares approved by the Company's shareholders on October 28, 2020 and 2,000 shares approved for future grant under the 2018 Plan by the Company's shareholders on October 26, 2022. On October 25, 2023, the Company's shareholders approved an additional 3,450 shares to be added to the 2018 plan. The 2018 Plan shares available for issuance also include 948 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”), is 15,252. The 2018 Plan replaced the 2005 Plan. The shares at December 31, 2017.authorized for issuance under the 2018 Plan will continue to be increased by any future cancellations, forfeitures or terminations (other than by exercise) of awards under the 2005 Plan. The foregoing does not affect any outstanding awards under the 2005 Plan, which remain in full force and effect in accordance with their terms. The 2018 Plan provides for the grant of non-qualified and incentive stock options, restricted stock, stock appreciation rights and deferred stock awards to employees and non-employees. All stockStock options aremust be granted with an exercise price of not less than 100% of the fair value of the Company’s common stock aton the date of grant and the options generally have a term of seven years. There were 1,4964,110 available shares available for future grant under the 20052018 Plan at December 31, 2017.29, 2023.
As part of the Company's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 20052018 Plan. Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets. Based on the performance targets, some of these awards require graded vesting which results in more rapid expense recognition compared to traditional time-based vesting over the same vesting period. The Company monitors the probability of achieving the performance targets on a quarterly basis and may adjust periodic stock compensation expense accordingly based on its determination of the likelihood for reaching targets. The performance targets include: (i)generally include the achievement of internalfinancial performance targets only, and (ii) the achievement of internal performance targets in relationgoals, either on an absolute basis or relative to a peer group of companies. Payouts under performance-based restricted stock awards may also be subject to modification based on Mercury’s total shareholder return relative to the component companies within the Spade Defense Index.
EMPLOYEE STOCK PURCHASE PLAN
14

TheEMPLOYEE STOCK PURCHASE PLAN
At December 29, 2023, the aggregate number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 1,800 shares.2,300 shares, including 500 shares approved by the Company's shareholders on October 28, 2020. Under the ESPP, rights are granted to purchase shares of common stock at 85% of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period. The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee’s compensation as defined in the ESPP. There were 39107 and 5057 shares issued under the ESPP during the six months ended December 31, 201729, 2023 and 2016,December 30, 2022, respectively. Shares available for future purchase under the ESPP totaled 26360 at December 31, 2017.29, 2023.
STOCK OPTIONAND AND AWARD ACTIVITY
On August 15, 2023, the Company announced that William L. Ballhaus was appointed as the Company’s President and Chief Executive Officer. Mr. Ballhaus received an onboarding grant of premium-priced stock options ("New Hire Option") under the 2018 Plan. The Company and Mr. Ballhaus are parties to an employment agreement, which is included in exhibit 10.1 on Form 8-K filed by the Company with the SEC on August 15, 2023.
The New Hire Option is granted in four (4) tranches as follows: (w) 233,500 shares of the Company’s common stock with an exercise price equal to $42.00 (“Tranche 1”); (x) 233,500 shares of the Company’s common stock with an exercise price equal to $43.00 (“Tranche 2”); (y) 233,500 shares of the Company’s common stock with an exercise price equal to $46.00 (“Tranche 3”); and (z) 233,500 shares of the Company’s common stock with an exercise price equal to $49.00 (“Tranche 4”). Tranche 1 and Tranche 2 shall become vested and exercisable on the third anniversary of August 17, 2023 ("the Initial Grant Date") (subject to the Executive’s continued employment through such date) and shall expire on the fourth anniversary of the Initial Grant Date. Tranche 3 and Tranche 4 shall become vested and exercisable on the fourth anniversary of the Initial Grant Date (subject to the Executive’s continued employment through such date) and shall expire on the fifth anniversary of the Initial Grant Date.
The following table summarizes activity of the Company’sCompany's stock option plans since June 30, 2017:2023:
Options Outstanding
Number of
Shares		Weighted Average
Grant Date
Fair Value		Weighted Average
Exercise Price		Weighted Average
Remaining
Contractual Term
(Years)		Aggregate
Intrinsic Value as of 12/29/23
Outstanding at June 30, 2023— $— $— — — 
Granted934 12.71 45.00 
Exercised— — 
Canceled— — 
Outstanding at December 29, 2023934 $12.71 $45.00 3.18— 
Exercisable at December 29, 2023— $— $— — — 
There were no options vested or exercised during the second quarter ended December 29, 2023. Non-vested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions. As of December 29, 2023, there was $10,609 of total unrecognized compensation cost related to non-vested options granted that is expected to be recognized over a weighted-average period 3.18 years from December 29, 2023.
The Company uses the Black-Scholes valuation model for estimating the fair value on the date of grant of stock options. The Company calculated the fair values of the options grants using the following weighted-average assumptions:
Second Quarter Ended
December 29, 2023
Expected volatility45 %
Expected term4 years
Risk-free interest rate4.44 %
Expected dividend yield— %
Weighted-average grant date fair value per share$12.71 
The expected volatility of options granted has been determined using a weighted average of the historical volatility of the Company’s stock for a period equal to the expected life of the option. The expected life of options has been determined using the average of the contractual term and the weighted average vesting term of the options. The risk-free interest rate is based on a
15

  Options Outstanding
  Number of
Shares		 Weighted Average
Exercise Price		 Weighted Average
Remaining
Contractual Term
(Years)
Outstanding at June 30, 2017 51
 $13.53
 0.60
Granted —
 —
  
Exercised (47) 14.12
  
Canceled —
 —
  
Outstanding at December 31, 2017 4
 $5.52
 3.60
zero-coupon U.S. treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied an estimated annual forfeiture rate based on historical averages in determining the expense recorded in each period. There were no stock options granted during fiscal year ended June 30, 2023.
The following table summarizes the status of the Company’s non-vested restricted stock awards and deferred stock awards since June 30, 2017:2023:
 Non-vested Restricted Stock Awards
 Number of
Shares		Weighted Average
Grant Date
Fair Value
Outstanding at June 30, 20231,339 $54.45 
Granted1,198 37.06 
Vested(269)60.27 
Forfeited(337)50.31 
Outstanding at December 29, 20231,931 $43.57 
  Non-vested Restricted Stock Awards
  Number of
Shares		 Weighted Average
Grant Date
Fair Value
Outstanding at June 30, 2017 1,564
 $18.93
Granted 453
 47.46
Vested (758) 17.02
Forfeited (42) 26.28
Outstanding at December 31, 2017 1,217
 $30.47
STOCK-BASED COMPENSATION EXPENSE
STOCK-BASED COMPENSATION EXPENSE
The Company recognizes expense for its share-based payment plans in the consolidated statementsConsolidated Statements of operations for the six months ended December 31, 2017Operations and 2016Comprehensive Loss in accordance with FASB ASC 718, Compensation - Stock Compensation(“ASC 718”). The Company had $265$1,848 and $177$1,215 of capitalized stock-based compensation expense on the consolidated balance sheets as ofConsolidated Balance Sheets for the periods ended December 31, 201729, 2023 and 2016,June 30, 2023, respectively. Under the fair value recognition provisions of FASB ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period, net of estimated forfeitures.
The following table presents share-based compensation expenses included in the Company’s consolidated statementsConsolidated Statements of operations:Operations and Comprehensive Loss:

 Second Quarters EndedSix Months Ended
 December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Cost of revenues$4 $237 $820 $1,036 
Selling, general and administrative5,742 8,277 7,503 13,155 
Research and development1,640 1,744 3,180 3,316 
Stock-based compensation expense before tax7,386 10,258 11,503 17,507 
Income taxes(1,994)(2,770)(3,106)(4,727)
Stock-based compensation expense, net of income taxes$5,392 $7,488 $8,397 $12,780 
K.Operating Segment, Geographic Information and Significant Customers
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
Cost of revenues$47
 $148
 $195
 $223
Selling, general and administrative4,270
 3,539
 8,246
 6,578
Research and development510
 406
 1,007
 924
Stock-based compensation expense before tax4,827
 4,093
 9,448
 7,725
Income taxes(1,593) (1,575) (3,118) (2,964)
Stock-based compensation expense, net of income taxes$3,234
 $2,518
 $6,330
 $4,761
K.Employee Benefit Plan
PENSION PLAN
With the acquisition of CES on November 4, 2016, the Company assumed a defined benefit pension plan (the "Plan") for its Swiss employees, which is administered by an independent pension fund. The Plan is mandated by Swiss law and meets the criteria for a defined benefit plan under ASC 715, Compensation—Retirement Benefits (“ASC 715”), because participants of the Plan are entitled to a defined rate of return on contributions made. The independent pension fund is a multi-employer plan with unrestricted joint liability for all participating companies for which the Plan’s overfunding or underfunding is allocated to each participating company based on an allocation key determined by the Plan.
The Company recognizes a net asset or liability for the Plan equal to the difference between the projected benefit obligation of the Plan and the fair value of the Plan’s assets as required by ASC 715. The funded status may vary from year to year due to changes in the fair value of the Plan’s assets and variations on the underlying assumptions of the projected benefit obligation of the Plan. The Plan's funded status at December 31, 2017 was a net liability of $6,647, which is recorded in other non-current liabilities on the consolidated balance sheets. The Company recorded a net gain of $10 and $40 in accumulated other comprehensive income during the three and six months ended December 31, 2017, respectively. The Company recognized net periodic benefit costs of $201 and $407 associated with the Plan for the three and six months ended December 31, 2017, respectively. The Company's total expected employer contributions to the Plan during fiscal 2018 are $516.
L.Operating Segment, Geographic Information and Significant Customers
Operating segments are defined as components of an enterprise evaluated regularly by the Company's chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company is comprisedevaluated its internal organization under FASB ASC 280, Segment Reporting (“ASC 280”) to determine whether there has been a change to its conclusion of a single operating and reportable segment. The Company concluded there has been no changes given the CODM continues to evaluate and manage the Company on the basis of one operating and reportable segment. The Company utilized the management approach for determining its operating segment in accordance with FASB ASC 280, Segment Reporting.280.

16


The geographic distribution of the Company’s revenues as determined by order origination based on the country in which the Company's legal subsidiary is domiciled is summarized as follows:
U.S.EuropeAsia PacificEliminationsTotal
SECOND QUARTER ENDED DECEMBER 29, 2023
Net revenues to unaffiliated customers$183,162 $14,295 $6 $— $197,463 
Inter-geographic revenues1,286 204 — (1,490)— 
Net revenues$184,448 $14,499 $6 $(1,490)$197,463 
SECOND QUARTER ENDED DECEMBER 30, 2022
Net revenues to unaffiliated customers$219,155 $10,431 $2 $— $229,588 
Inter-geographic revenues(68)168 — (100)— 
Net revenues$219,087 $10,599 $2 $(100)$229,588 
SIX MONTHS ENDED DECEMBER 29, 2023
Net revenues to unaffiliated customers$355,043 $23,399 $12 $— $378,454 
Inter-geographic revenues3,005 296 — (3,301)— 
Net revenues$358,048 $23,695 $12 $(3,301)$378,454 
SIX MONTHS ENDED DECEMBER 30, 2022
Net revenues to unaffiliated customers$437,977 $19,183 $7 $— $457,167 
Inter-geographic revenues79 372 — (451)— 
Net revenues$438,056 $19,555 $7 $(451)$457,167 
The Company offers a broad family of products and processing solutions designed to meet the full range of requirements in compute-intensive, signal processing, image processing and command and control applications. To maintain a competitive advantage, the Company seeks to leverage technology investments across multiple product lines and product solutions.
  U.S. Europe Asia Pacific Eliminations Total
THREE MONTHS ENDED DECEMBER 31, 2017          
Net revenues to unaffiliated customers $105,687
 $9,417
 $2,808
 $—
 $117,912
Inter-geographic revenues 3,169
 43
 —
 (3,212) —
Net revenues $108,856
 $9,460
 $2,808
 $(3,212) $117,912
THREE MONTHS ENDED DECEMBER 31, 2016          
Net revenues to unaffiliated customers $91,407
 $5,809
 $798
 $—
 $98,014
Inter-geographic revenues 1,893
 —
 —
 (1,893) —
Net revenues $93,300
 $5,809
 $798
 $(1,893) $98,014
SIX MONTHS ENDED DECEMBER 31, 2017          
Net revenues to unaffiliated customers $203,402
 $16,895
 $3,684
 $—
 $223,981
Inter-geographic revenues 4,916
 65
 —
 (4,981) —
Net revenues $208,318
 $16,960
 $3,684
 $(4,981) $223,981
SIX MONTHS ENDED DECEMBER 31, 2016          
Net revenues to unaffiliated customers $174,455
 $6,662
 $4,546
 $—
 $185,663
Inter-geographic revenues 5,180
 15
 —
 (5,195) —
Net revenues $179,635
 $6,677
 $4,546
 $(5,195) $185,663
The Company’s products are typically compute-intensive and require extremely high bandwidth and high throughput. These processing solutions often must also meet significant size, weight and power ("SWaP") constraints for use in aircraft, unmanned aerial vehicles, ships and other platforms and be ruggedized for use in harsh environments. The Company's products transform the massive streams of digital data created in these applications into usable information in real time. The systems can scale from a few processors to thousands of processors.
In recent years, the Company completed a series of acquisitions that changed its technological capabilities, applications and end markets. As these acquisitions and changes occurred, the Company increased theCompany's proportion of its revenue derived from the sale of components in different technological areas, and also increased the amount of revenue associated with combiningmodules, sub-assemblies and integrated subsystems which combine technologies into more complex and diverse products including modules, sub-assemblies and integrated subsystems.has shifted. The following tables present revenue consistent with the Company's strategy of expanding its technological capabilities and program content. As additional information related to the Company’s products by end user, application, product grouping and/or platform is attained, the categorization of these products can vary over time. When this occurs, the Company reclassifies revenue by end user, application, product grouping and/or platform for prior periods. Such reclassifications typically do not materially change the underlying trends of results within each revenue category.
The following table below presents the Company's net revenue by end user for the periods presented:
  Three Months Ended December 31, Six Months Ended December 31,
  2017 2016 2017 2016
Domestic (1) $89,969
 $83,052
 $179,647
 $156,578
International/Foreign Military Sales (2) 27,943
 14,962
 44,334
 29,085
Total Net Revenue $117,912
 $98,014
 $223,981
 $185,663
 Second Quarters EndedSix Months Ended
 December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Domestic(1)
$181,822 $204,959 $328,289 $410,789 
International/Foreign Military Sales(2)
15,641 24,629 50,165 46,378 
Total Net Revenue$197,463 $229,588 $378,454 $457,167 
(1) Domestic revenues consist of sales where the end user is within the U.S., as well as sales to prime defense contractor customers where the ultimate end user location is not defined. 
(2) International/Foreign Military Sales consist of sales to U.S. prime defense contractor customers where the end user is known to be outside the U.S., foreign military sales through the U.S. government, and direct sales to non-U.S. based customers intended for end use outside of the U.S.

17


The following table below presents the Company's net revenue by end application for the periods presented:
  Three Months Ended December 31, Six Months Ended December 31,
  2017 2016 2017 2016
Radar (1) $44,678
 $44,803
 $81,218
 $82,292
Electronic Warfare (2) 29,411
 21,304
 57,419
 42,284
Other Sensor & Effector (3) 10,992
 4,661
 20,741
 9,307
Total Sensor & Effector 85,081
 70,768
 159,378
 133,883
C4I (4) 13,562
 6,613
 26,388
 10,953
Other (5) 19,269
 20,633
 38,215
 40,827
Total Net Revenue $117,912
 $98,014
 $223,981
 $185,663
Second Quarters EndedSix Months Ended
 December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Radar(1)
$13,254 $43,707 $41,813 $97,115 
Electronic Warfare(2)
28,377 33,718 56,518 68,807 
Other Sensor & Effector(3)
22,635 29,333 43,801 50,536 
Total Sensor & Effector64,266 106,758 142,132 216,458 
C4I(4)
115,470 103,735 206,674 198,866 
Other(5)
17,727 19,095 29,648 41,843 
Total Net Revenue$197,463 $229,588 $378,454 $457,167 
(1) Radar includes end-use applications where radio frequency signals are utilized to detect, track and identify objects.
(2) Electronic Warfare includes end-use applications comprising the offensive and defensive use of the electromagnetic spectrum.
(3) Other Sensor &and Effector products include all Sensor &and Effector end markets other than Radar and Electronic Warfare.
(4) C4I includes rugged secure rackmount servers that are designed to drive the most powerful military processing applications.
(5) Other products include all component and other sales where the end use is not specified.
The following table below presents the Company's net revenue by product grouping for the periods presented:
  Three Months Ended December 31, Six Months Ended December 31,
  2017 2016 2017 2016
Components (1) $39,908
 $24,636
 $72,720
 $44,468
Modules and Sub-assemblies (2) 41,728
 38,560
 89,460
 75,152
Integrated Subsystems (3) 36,276
 34,818
 61,801
 66,043
Total Net Revenue $117,912
 $98,014
 $223,981
 $185,663
Second Quarters EndedSix Months Ended
 December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Components(1)
$41,440 $45,158 $78,949 $77,076 
Modules and Sub-assemblies(2)
35,851 62,312 73,384 118,114 
Integrated Subsystems(3)
120,172 122,118 226,121 261,977 
Total Net Revenue$197,463 $229,588 $378,454 $457,167 
(1) Components include technology elements typically performingrepresent the basic building blocks of an electronic system. They generally perform a single discrete technological function which when physically combined with other components may be used to create a modulesuch as switching, storing or sub-assembly. Examplesconverting electronic signals. Some examples include but are not limited to power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, MMICs (monolithic microwave integrated circuits), and memory and storage devices.
(2) Modules and Sub-assemblies include combinationssub-assemblies combine multiple components to serve a range of multiple functional technology elements and/complex functions, including processing, networking and graphics display. Typically delivered as computer boards or components that work together to perform multiple functions but are typically resident on or within a single board or housing. Modulesother packaging, modules and sub-assemblies mayare usually designed using open standards to provide interoperability when integrated in turn be combined to form an integrateda subsystem. Examples of modules and sub-assemblies include but are not limited to embedded processing modules, embedded processing boards, switch fabricswitched fabrics and boards high speedfor high-speed input/output, boards, digital receiver boards,receivers, graphics and video, processing and Ethernet and IO (input-output) boards,along with multi-chip modules, integrated radio frequency and microwave multi-function assemblies and radio frequency tuners and transceivers.
(3) Integrated Subsystems include multiplesubsystems bring components, modules and/or subassemblies combinedsub-assemblies into one system, enabled with a backplane or similar functional element and software to enable a solution. Thesesoftware. Subsystems are typically, but not always, integrated within aan open standards-based chassis and with cooling, power and other elementsoften feature interconnect technologies to address various requirements and are also often combined with additional technologies for interaction with other parts of a complete system or platform. Integrated subsystems also include spareenable communication between disparate systems. Spares and replacement modules and sub-assemblies sold as part of the same programare provided for use in or with integrated subsystems sold by the Company. The Company’s subsystems are deployed in sensor processing, aviation and mission computing and C4I applications.
The following table presents the Company's net revenue by platform for the periods presented:
Second Quarters EndedSix Months Ended
December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Airborne(1)
$124,835 $119,944 $232,569 $238,294 
Land(2)
25,968 26,735 49,618 60,667 
Naval(3)
12,870 31,204 39,545 64,939 
Other(4)
33,790 51,705 56,722 93,267 
Total Net Revenues$197,463 $229,588 $378,454 $457,167 
(1) Airborne platform includes products that relate to personnel, equipment or pieces of equipment designed for airborne applications.
(2) Land platform includes products that relate to fixed or mobile equipment, or pieces of equipment for personnel, weapon systems, vehicles and support elements operating on land.
(3) Naval platform includes products that relate to personnel, equipment or pieces of equipment designed for naval operations.
(4) All platforms other than Airborne, Land or Naval.
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The geographic distribution of the Company’s identifiable long-lived assets is summarized as follows:
  U.S. Europe Asia Pacific Eliminations Total
December 31, 2017 $50,305
 $1,323
 $12
 $—
 $51,640
June 30, 2017 $50,340
 $1,288
 $15
 $—
 $51,643
U.S.EuropeTotal
December 29, 2023$112,008 $2,353 $114,361 
June 30, 2023$116,381 $3,173 $119,554 
Identifiable long-lived assets exclude right-of-use assets, goodwill, and intangible assets.


Customers comprising 10% or more of the Company’s revenues for the periods shown below are as follows:
Second Quarters EndedSix Months Ended
December 29, 2023December 30, 2022December 29, 2023December 30, 2022
U.S. Navy10 %11 %*11 %
RTX Corporation*12 %10 %12 %
L3Harris**10 %*
Lockheed Martin Corporation*12 %*14 %
Northrop Grumman*11 %*10 %
10 %46 %20 %47 %
*    Indicates that the amount is less than 10% of the Company's revenue for the respective period.
  Three Months Ended December 31, Six Months Ended December 31,
  2017 2016 2017 2016
Lockheed Martin Corporation
 20% 13% 19% 19%
Raytheon Company 17% 22% 19% 19%
Northrop Grumman Corporation 12% 10% 11% *
  49% 45% 49% 38%
*Indicates that the amount is less than 10% of the Company’s revenues for the respective period.
While the Company typically has customers from which it derives 10% or more of its revenue, the sales to each of these customers are spread across multiple programs and platforms. ProgramsThere were no programs comprising 10% or more of the Company’sCompany's revenues for the periods shown below are as follows:second quarters and six months ended December 29, 2023 and December 30, 2022.
  Three Months Ended December 31, Six Months Ended December 31,
  2017 2016 2017 2016
F-35 *
 11% *
 *
Aegis *
 *
 *
 10%
  —% 11% —% 10%
L.Commitments and Contingencies
*Indicates that the amount is less than 10% of the Company’s revenues for the respective period.
M.Commitments and Contingencies
LEGAL CLAIMS
The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of its business. Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to anythose matters currently pending against the Company and intends to defend itself vigorously. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company’sCompany's cash flows, results of operations, or financial position.
On December 7, 2021, counsel for National Technical Systems, Inc. (“NTS”) sent the Company an environmental demand letter pursuant to Massachusetts General Laws Chapter 21E, Section 4A, and CERCLA 42 U.S.C. Section 9601, related to a site that NTS formerly owned at 533 Main Street, Acton, Massachusetts. NTS received a Notice of Responsibility from the Massachusetts Department of Environmental Protection (“MassDEP”) alleging trichloroethene, freon and 1,4-dioxane contamination in the groundwater emanating from NTS’s former site. NTS alleges in its demand letter that the operations of a predecessor company to the Company that was acquired in the Company's acquisition of the Microsemi Carve-Out Business that once owned and operated a facility at 531 Main Street, Acton, Massachusetts contributed to the groundwater contamination. NTS is seeking payment from the Company of NTS’s costs for any required environmental remediation. In April 2022, the Company engaged in a meet and confer session with NTS pursuant to Massachusetts General Laws Chapter 21E, Section 4A to discuss the status of the environmental review performed by NTS and its licensed site professional. In addition, in November 2021, the Company responded to a request for information from MassDEP regarding the detection of PFAS (per- and polyfluoroakyl substances) in the Acton, Massachusetts Water District’s Conant public water supply wells near the former facility at 531 Main Street, Acton, Massachusetts at a level above standard that MassDEP published for PFAS in October 2020. The Company has not been contacted by NTS or MassDEP since the dates discussed above. It is too early to determine what responsibility, if any, the Company may have for these environmental matters.
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On June 19, 2023, the Board of Directors received notice of the Company’s former CEO’s resignation from the positions of President and Chief Executive Officer. The Board accepted his resignation effective June 24, 2023. In the notice, the former CEO claimed entitlement to certain benefits, including equity vesting, severance, and other benefits, under the change in control severance agreement (the “CIC Agreement”) because the former CEO had resigned with good reason during a potential change in control period. The Company disputes these claims and maintains that the former CEO resigned without good reason. On September 19, 2023, the former CEO filed for binding arbitration under the employment rules of the American Arbitration Association (“AAA”). An arbitrator was appointed on November 29, 2023, and the arbitration trial has been scheduled for mid-December 2024. The Company intends to contest vigorously the claims under the CIC Agreement and believes that the Company has strong arguments that the former CEO’s claims lack merit. If the arbitrator rules in the Company’s favor, the Company may still need to pay the former CEO’s reasonable legal fees and compensation during the dispute. If instead the arbitrator rules for the former CEO, the Company could be liable for up to approximately $12,900, based on the closing price of the Company's common stock on June 26, 2023, plus legal fees and expenses and compensation during dispute, for accelerated equity vesting, severance, and other benefits under the CIC Agreement. The Company categorically denies any wrongdoing or liability under the CIC Agreement, but the outcome of potential arbitration is inherently uncertain. Accordingly, it is reasonably possible that the Company will incur a liability in this matter, and the Company estimates the potential range of exposure from $0 to $12,900, plus costs and attorneys’ fees and compensation to the former CEO during the dispute.
On December 13, 2023, a securities class action complaint was filed against the Company, Mark Aslett, and Michael Ruppert in the U.S. District Court for the District of Massachusetts. The complaint asserts Section 10(b) and 20(a) securities fraud claims on behalf of a purported class of purchasers and sellers of the Company's stock from December 7, 2020, through June 23, 2023. The complaint alleges that the Company's public disclosures in SEC filings and on earnings calls were false and/or misleading. Subject to the terms of the Company's by-laws and applicable Massachusetts law, Mr. Aslett, the Company's former Chief Executive Officer, and Mr. Ruppert, the Company's former Chief Financial Officer, are indemnified by the Company for this matter. The Company believes the claims in the complaint are without merit and intends to defend itself vigorously. It is too early to determine what responsibility, if any, the Company will have for this matter.
INDEMNIFICATION OBLIGATIONS
The Company’s standard product sales and license agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments the Company could be required to make under these indemnification provisions is, in some instances, unlimited.
PURCHASE COMMITMENTS
As of December 31, 2017,29, 2023, the Company has entered into non-cancelable purchase commitments for certain inventory components and services used in its normal operations. The purchase commitments covered by these agreements are for less than one year and aggregate to $50,653.$122,449.
OTHER
As part of the Company's strategy for growth, the Company continues 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.
The Company 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 or exercise of stock options. These transactions would be treated as a use of cash in financing activities in the Company's statementConsolidated Statements of cash flows.Cash Flows.
20
N.Subsequent Events
THEMISCOMPUTERAQUISITION

M.Derivatives
The Company utilizes interest rate derivatives to mitigate interest rate exposure with respect to its financing arrangements. On December 21, 2017,September 29, 2022, the Merger Sub,Company entered into the Merger AgreementSwap with Ceres,JP Morgan Chase Bank, N.A. ("JPMorgan") for a notional amount of $300,000 in order to fix the holding companyinterest rate associated with a portion of the total $511,500 existing borrowings on the Revolver at the time of the Swap. The Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge. The Swap was scheduled to mature on February 28, 2027, coterminous with the maturity of the Revolver. The Swap established a fixed interest rate on the first $300,000 of the Company's outstanding borrowings against the Revolver obligation at 3.79%.
On September 28, 2023, the Company terminated the Swap. At the time of termination, the fair value of the Swap was an asset of $7,403. The Company received the cash settlement of $7,403 and these proceeds are classified within Operating Activities of the Consolidated Statements of Cash Flows.
Following the termination of the Swap, the Company entered into the September 2023 Swap agreement on September 28, 2023 with JPMorgan for a notional amount of $300,000 in order to fix the interest rate associated with a portion of the total $576,500 existing borrowings on Company's Revolver at the time of the Swap at 4.66%. The September 2023 Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge. The September 2023 Swap matures on February 28, 2027, coterminous with the maturity of the Revolver.
As of December 29, 2023, the fair value of the September 2023 Swap was a liability of $8,710 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.
During the second quarter and six months ended December 29, 2023, the Company amortized a total of $881 and $1,220, respectively, of the gain associated with the interest swaps terminated on September 29, 2022 and September 28, 2023, which is included within Other comprehensive loss.
The market risk associated with the Company’s derivative instrument is the result of interest rate movements that owns Themis. Pursuantare expected to offset the market risk of the underlying arrangement. The counterparty to the Merger Agreement,September 2023 Swap is JPMorgan. Based on the Merger Sub will merge with and into Ceres with Ceres continuing as the surviving company and a wholly-owned subsidiary of Mercury. By operationcredit ratings of the Merger,Company’s counterparty as of December 29, 2023, nonperformance is not perceived to be a material risk. Furthermore, none of the Company acquired both CeresCompany’s derivatives are subject to collateral or other security arrangements and its wholly-owned subsidiary, Themis.
Based in Fremont, California, Themis is a leading designer and manufacturernone contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of commercial, SWaP-optimized rugged servers, computers, and storage systems for U.S. and international defense programs.
Underderivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Company’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of the counterparty to meet the terms of the Merger Agreement, the merger consideration (including payments with respect to outstanding stock options) consisted of an all cash purchase price of $180,000, without interest. The merger consideration is subject to post-closing


adjustments based on a determination of closing net working capital, transaction expenses and net debt (all as defined in the Merger Agreement). A related escrow agreement establishes an escrow amount of $1,500 in respect of post-closing adjustments owedtheir contracts) are generally limited to the Company and an escrow amountamounts, if any, by which the counterparty obligations under the contracts exceed the obligations of $900 in respect of indemnification obligationsthe Company to the Company.
On February 1, 2018,counterparty. As a result of the above considerations, the Company closeddoes not consider the transaction for an aggregate purchase pricerisk of $180,000, plus an estimated adjustment for acquired working capital and cash. The Company drew $195,000 on the Revolver to facilitate the closing of the acquisition, with the higher amount reflecting an estimated adjustment for working capital, including cash, expectedcounterparty default to be received with the Acquired Company at closing.significant.
The Company has not completed its preliminary purchase price allocation for Ceres as not all information required for the analysis was available.
GENERALN.Subsequent Events
The Company has evaluated subsequent events from the date of the consolidated balance sheetConsolidated Balance Sheet through the date the consolidated financial statements were issued.

On January 12, 2024, the Company initiated and approved a workforce reduction that will eliminate approximately 100 positions, resulting in expected restructuring charges of approximately $10,000 - $12,000. These charges are for employee separation costs and will be classified as Restructuring and other charges within the Consolidated Statements of Operations and Comprehensive Loss for the fiscal quarter ending March 29, 2024.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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"(“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 use of 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 the Company’sour markets, effects of any U.S. Federalfederal government shutdown or extended continuing resolution, effects of continued 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’sgovernment’s interpretation of, federal export control or procurement rules and regulations, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of the Company'sour products, shortages in or delays in receiving components, supply chain delays or volatility for critical components such as semiconductors, production delays or unanticipated expenses including due to performance quality issues with outsourced components,or manufacturing execution issues, capacity underutilization, increases in scrap or inventory write-offs, failure to achieve or maintain manufacturing quality certifications, such as AS9100, 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 restructurings,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, such as the deductibility of internal research and development, 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 set forth under Part I-Item 1A (Risk Factors)are discussed in our filings with the Company'sU.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2023 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 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, Inc. is a leading commercial provider of secure sensortechnology company that delivers processing power for the most demanding aerospace and safety critical mission processing subsystems. Optimized for customer and mission success, our solutions power a wide variety of critical defense and intelligence programs.missions. Headquartered in Andover, Massachusetts, we are pioneeringour end-to-end processing platform enables a next-generationbroad range of aerospace and defense electronics business model designed to meetprograms, optimized for mission success in some of the industry’s currentmost challenging and emerging business needs. We deliver affordabledemanding environments. Processing technologies that comprise our platform include signal solutions, display, software applications, networking, storage and secure processing. Our innovative solutions rapid time-to-valueare mission-ready, trusted and servicesecure, software-defined and support primarilyopen and modular meeting our customers’ cost and schedule needs today by allowing them to use or modify our products to suit their mission. Customers access our solutions via the Mercury Processing Platform, which encompasses the broad scope of our investments in technologies, companies, products, services and the expertise of our people. Ultimately, we connect our customers to what matters most to them. We connect commercial technology to defense, people to data and partners to opportunities. And, at the most human level, we connect what we do to our customers’ missions; supporting the people for whom safety, security and protecting freedom are of paramount importance.
As a leading manufacturer of essential components, products, modules and subsystems, we sell to defense prime contractorcontractors, the U.S. government and original equipment manufacturers (“OEM”) commercial aerospace companies. Mercury has built a trusted, robust portfolio of proven product solutions, 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. Our products and solutions have beenare deployed in more than 300 programs with over 25 different defense prime contractors. Key programs include Aegis, Patriot, Surface Electronic Warfare Improvement Program (“SEWIP”), Gorgon Stare, Predator, F-35, F-16 SABR, E2D Hawkeye, Reaper,contractors and Paveway. Our organizational structure allows uscommercial aviation customers.
Mercury’s business model accelerates the process of making new technology profoundly more accessible to deliver capabilitiesour customers by bridging the gap between commercial technology and aerospace and defense applications on time constraints that combine technology building blocks and deep domain expertise in defense sector.matter.
22

Our technologieslong-standing deep relationships with leading high-tech and other commercial companies, coupled with our high level of research and development (“R&D”) investments on a percentage basis and industry-leading trusted and secure design and manufacturing capabilities, include secure embedded processing modulesare the foundational tenets of this model. We are leading the development and subsystems, mission computers, safety-critical avionics,adaptation of commercial technology for aerospace and defense solutions. From chip-scale to system scale and from data, including radio frequency (“RF”) components, multi-function assembliesto digital to decision, we make mission-critical technologies safe, secure, affordable and subsystems.relevant for our customers.
Our capabilities, technology, people and R&D investment strategy combine to differentiate Mercury in our industry. We utilize leadingmaintain our technological edge high performance computing technologies architected by investing in critical capabilities and intellectual property (“IP” or “building blocks”) in processing, leveraging open standards and open architectures to addressadapt quickly those building blocks into solutions for highly data-intensive applications, that include data signal, sensor and image processing while addressing the packaging challenges, often referred toincluding emerging needs in areas such as “SWaP” (size, weight, and power), thatartificial intelligence (“AI”).
Our mission critical solutions are common in military applications. We have design, development, and manufacturing capabilities in mission computing, safety-critical avionics and platform management. In addition, we design and manufacture RF, microwave and millimeter wave components and subsystems to meet the needsdeployed by our customers for a variety of the radar, electronic warfare (“EW”), signals intelligence (“SIGINT”) and other high bandwidth communications requirements and applications.
We also provide significant capabilities relating to pre-integrated electronic warfare, electronic attack (“EA”) and electronic counter measure (“ECM”) subsystems, SIGINT and electro-optical/infrared (“EO/IR”) processing technologies, and radar environment test and simulation systems. We deploy these solutions on behalf of defense prime contractors and the Department of Defense (“DoD”), leveraging commercially available technologies and solutions (or “building blocks”) from our business and other commercial suppliers. We leverage this technology to design and build integrated sensor processing subsystems, oftenapplications including classified application-specific software and intellectual property (“IP”) for the C4ISR (command,command, control, communications, computers, intelligence, surveillance and reconnaissance)reconnaissance (“C4ISR”), EW,electronic intelligence, mission computing avionics, electro-optical/infrared (“EO/IR”), electronic warfare, weapons and ECM markets. We bring significant domain expertise to customers, drawing on over 25 years of experience in EW, SIGINT,missile defense, hypersonics and radar environment test and simulation.


radar.
Since we conduct much of our business with our defense customers via commercial item sales,items, requests by customers are a primary driver of revenue fluctuations from quarter to quarter. Customers specify delivery date requirements that coincide with their need for our products. Because these customers may use our products in connection with a variety of defense programs or other projects of different sizes and durations, a customer’s orders for one quarter generally do not indicate a trend for future orders by that customer. Additionally, order patterns do not necessarily correlate amongst customers and, therefore, we generally cannot identify sequential quarterly trends.
As of December 31, 2017,29, 2023, we had 1,2052,550 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 embrace diversity company-wide and realize the benefits of a diverse workforce that includes a greater variety of solutions to problems, a broader collection of skills and experiences and an array of viewpoints to consider. We are strongly focused on providing an inclusive environment that respects the diversity of the world. We believe that the workforce required to grow our business and deliver creative solutions must be rich in diversity of thought, experience and culture. Our diversity and inclusion initiatives focus on building and maintaining the talent that will create cohesive and collaborative teams that drive innovation. We believe that these values will help our employees realize their full potentials at work to provide Innovation That Matters®.
Our consolidated revenues, net income,loss, diluted net earningsloss per share, adjusted earningsloss per share ("(“adjusted EPS"EPS”), and adjusted EBITDA for the three monthssecond quarter ended December 31, 201729, 2023 were $117.9$197.5 million, $9.1($45.6) million, $0.19, $0.28,($0.79), ($0.42), and $26.9($21.3) million, respectively. Our consolidated revenues, net loss, diluted net loss per share, adjusted EPS, and adjusted EBITDA for the six months ended December 29, 2023 were $378.5 million, ($82.3) million, ($1.44), ($0.66), and ($19.4) million, respectively. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. Our consolidated revenues, net income, net earnings per share, adjusted earnings per share ("adjusted EPS"), and adjusted EBITDA for the six months ended December 31, 2017 were $224.0 million, $27.1 million, $0.57, $0.65, and $51.9 million, respectively. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures.


23



RESULTS OF OPERATIONS:
ResultsThere were 13 weeks included in the results of operations for the three and six month periodsecond quarters ended December 31, 2016 do not include results for Delta Microwave, LLC ("Delta") or Richland Technologies, L.L.C. ("RTL") since these businesses29, 2023 and December 30, 2022, respectively. There were acquired subsequent to December 31, 2016 and includes approximately two months results for CES Creative Electronic Systems, S.A. ("CES"), which was acquired on November 4, 2016. Accordingly,26 weeks during the periods presented below are not directly comparable.
Threesix months ended December 31, 201729, 2023 and December 30, 2022, respectively. The results for the second quarter and six months ended December 29, 2023 are not necessarily indicative of the results to be expected for the full fiscal year.
The second quarter ended December 29, 2023 compared to the three monthssecond quarter ended December 31, 201630, 2022
The following tables settable sets forth, for the three month periodssecond quarter ended indicated, financial data from the consolidated statementsConsolidated Statements of operations:Operations and Comprehensive Loss:
(In thousands)December 29, 2023As a % of
Total Net
Revenue		December 30, 2022As a % of
Total Net
Revenue
Net revenues$197,463 100.0 %$229,588 100.0 %
Cost of revenues165,943 84.0 148,628 64.7 
Gross margin31,520 16.0 80,960 35.3 
Operating expenses:
Selling, general and administrative44,470 22.5 45,057 19.6 
Research and development28,476 14.4 26,906 11.7 
Amortization of intangible assets12,270 6.3 13,536 5.9 
Restructuring and other charges2 — 2,069 1.0 
Acquisition costs and other related expenses231 0.1 939 0.4 
Total operating expenses85,449 43.3 88,507 38.6 
Loss from operations(53,929)(27.3)(7,547)(3.3)
Interest income29 — 220 0.1 
Interest expense(8,674)(4.4)(6,590)(2.9)
Other (expense) income, net(1,148)(0.5)846 0.4 
Loss before income tax benefit(63,722)(32.3)(13,071)(5.7)
Income tax benefit(18,141)(9.2)(2,151)(0.9)
Net loss$(45,581)(23.1)%$(10,920)(4.8)%
(In thousands) December 31, 2017 As a % of
Total Net
Revenue		 December 31, 2016 As a % of
Total Net
Revenue
Net revenues $117,912
 100.0 % $98,014
 100.0 %
Cost of revenues 63,752
 54.1
 50,625
 51.7
Gross margin 54,160
 45.9
 47,389
 48.3
Operating expenses:        
Selling, general and administrative 21,222
 18.0
 19,320
 19.7
Research and development 15,187
 12.9
 13,156
 13.4
Amortization of intangible assets 5,827
 4.9
 4,888
 5.0
Restructuring and other charges 313
 0.3
 69
 0.1
Acquisition costs and other related expenses 723
 0.6
 998
 1.0
Total operating expenses 43,272
 36.7
 38,431
 39.2
Income from operations 10,888
 9.2
 8,958
 9.1
Interest income 3
 —
 10
 —
Interest expense (107) (0.1) (1,898) (1.9)
Other expense, net (316) (0.3) (87) (0.1)
Income before income taxes 10,468
 8.8
 6,983
 7.1
Tax provision 1,335
 1.1
 1,779
 1.8
Net income $9,133
 7.7 % $5,204
 5.3 %
REVENUES
(In thousands) December 31, 2017 As a % of
Total Net
Revenue		 December 31, 2016 As a % of
Total Net
Revenue		 $ Change % Change
Organic revenue $104,957
 89% $94,058
 96% $10,899
 12%
Acquired revenue 12,955
 11% 3,956
 4% 8,999
 227%
Total revenues $117,912
 100% $98,014
 100% $19,898
 20%
Total revenues increased $19.9decreased $32.1 million, or 20%14.0%, to $117.9$197.5 million during the three monthssecond quarter ended December 31, 201729, 2023, as compared to the same period in fiscal 2017 including "Acquired revenue" which represents net revenue from acquired businesses that have been part of Mercury for completion of four full quarters or less (and excludes any intercompany transactions). After the completion of four fiscal quarters, acquired businesses will be treated as organic for current and comparable historical periods. The increase in total revenues is primarily attributed to the Falcon Edge, SEWIP and E2D Hawkeye programs and the increase of $9.0 million of Acquired revenue. These increases were partially offset by lower revenues from the F-35 program and a large ground based radar program.
International revenues, which consist of foreign military sales through the U.S. government, sales to prime defense contractor customers where the end user is known to be outside of the U.S., and direct sales to non-U.S. based customers, increased $12.9 million to $27.9$229.6 million during the three monthssecond quarter ended December 31, 2017, compared30, 2022. Revenues decreased year over year as we continue to $15.0 millionprioritize resources to execute our challenged programs, transition from our higher mix of development programs and aim to better align our operating cadence with prudent working capital management. As a result, we are experiencing a temporary volume shift in our total revenue, especially our over time revenue which decreased by approximately $25.1 million. We expect this trend to continue through the same period in the priorremainder of fiscal year. International revenues2024. Over time revenue represented 24% and 15%53% of total revenues during the three monthssecond quarter ended December 31, 2017 and 2016, respectively.


Revenues from EW, C4I, and Other Sensor and Effector increased by $8.1 million, $6.9 million and $6.3 million, respectively, during the three months ended December 31, 201729, 2023, as compared to 56% of total revenues during the samesecond quarter ended December 30, 2022.
Specifically, with regard to our challenged programs which are recognized over time, we have recognized a majority of the revenue and related cost as we acquired material and applied labor over the period of performance to progress these programs in fiscal 2017.prior periods. As we continue to resolve technical challenges and complete these programs, which consumes a significant amount of operational capacity, the remaining revenues on these challenged programs are recognized, however these revenues represent a very small proportion of the total contract value. In addition, we adjusted our estimates at completion for incremental technical and execution costs in the quarter, especially as related to one of our challenged programs as well as certain other development and production programs resulting in a cumulative adjustment to reduce revenues in the second quarter. In addition, as we transition our operating cadence with a goal of more properly balancing our material purchases with contract awards and resource availability to drive better working capital results, we are experiencing a near-term revenue timing dynamic.
We experienced decreases across each product grouping during the second quarter ended December 29, 2023 when compared to the prior period; modules and sub-assemblies, components, and integrated subsystems, decreased $26.5 million, $3.7 million, and $1.9 million, respectively. The EW increasedecrease in total revenue was driven primarily by the SEWIP program, while the increase in C4I was driven by the F-35 program. The increase in Other Sensorradar, other sensor and Effector was primarily due to higher revenue from the Precision Guidance Kit ("PGK") program. Additionally, revenues from components, modules & sub-assemblies,
24

effector and integrated subsystems increased by $15.3electronic warfare end applications decreases of $30.5 million, $3.2$6.7 million, and $1.4$5.3 million, respectively, duringpartially offset by increases to C4I end applications of $11.7 million. The decrease in total revenue was also driven by lower Naval and Other platforms of $18.3 million and $17.9 million, respectively, partially offset by increases to airborne platforms of $4.9 million. The largest program decreases were related to the three months ended December 31, 2017 asAEGIS program, a secure processing program, and the THAAD program, partially offset by increases to a large C4I program and the F/A-18 program when compared to the same period in fiscal 2017. The components increase was driven primarily byprior period. There were no programs comprising 10% or more of our revenues for the Falcon Edge program, while the increase in modules and sub-assemblies was driven primarily by the SEWIP program. The increase in integrated subsystems was primarily due to higher revenue from the E2D Hawkeye and Aegis programs.second quarters ended December 29, 2023 or December 30, 2022.
GROSS MARGIN
Gross margin was 45.9%16.0% for the three monthssecond quarter ended December 31, 2017,29, 2023, a decrease of 2401930 basis points from the 48.3%35.3% gross margin achievedrealized during the same period in fiscal 2017.second quarter ended December 30, 2022. The lower gross margin between yearswas driven by cost growth impacts and higher manufacturing adjustments, primarily related to inventory reserves and scrap. The growth in estimated costs to complete during fiscal 2024 has significantly reduced the overall margins recognized on the affected programs through completion. Program cost growth of approximately $30.6 million was recorded in the quarter resulting in an incremental impact of approximately $23.3 million to gross margin, or 1230 basis points, when compared to the prior period. Approximately $13.7 million of total cost growth impact in the quarter was attributable to the approximately 20 challenged programs, of which $12.6 million related to one program. The remaining $16.9 million was incurred across certain other development and production programs based on facts and circumstances in the quarter. The decrease in gross margin was also attributable to higher manufacturing adjustments of approximately $13.3 million related to inventory reserves and scrap. The increase in inventory reserves was related to specifically identified excess and obsolete inventory primarily resulting from a shift in customer demand for our next generation product offering. In addition, we are actively marketing and selling certain of our slow moving inventory with certain parts expected to be at a discount. The increase in scrap was primarily a result of higher levels of discrepant material especially as related to the common processing architecture across several of our remaining challenged programs. We have several initiatives underway to address more efficient and cost-effective producibility of these subsystems.
SELLING, GENERALAND ADMINISTRATIVE
Selling, general and administrative expenses decreased $0.6 million, or 1.3%, to $44.5 million during the second quarter ended December 29, 2023, as compared to $45.1 million in the second quarter ended December 30, 2022. The decrease was primarily driven by the reduction in force initiated on August 9, 2023, resulting in lower compensation costs including $2.5 million of stock compensation expense, $1.3 million of bonus expense, as well as a large last-time component buy by a customer and less F-35 royalty revenue. Lower gross margins for the three months ended December 31, 2017reduction in controllable spend. These decreases were partially offset by contract asset write-offs of $4.8 million as a result of negotiating settlement terms with our customers to reduce scope, or otherwise exit contracts, especially as related to certain challenged programs.
RESEARCHAND DEVELOPMENT
Research and development expenses increased $1.6 million, or 5.8%, to $28.5 million during the second quarter ended December 29, 2023, as compared to $26.9 million during the second quarter ended December 30, 2022. The increase during the second quarter ended December 29, 2023 was driven by higher compensation costs of $1.3 million and $1.2 million of incremental R&D spend on equipment and supplies and outside services, partially offset by lower inventory step-up amortizationbonus expense of $0.8 million as compared to the same period in fiscal 2017.second quarter ended December 30, 2022.
SELLING, GENERALANDADMINISTRATIVEMORTIZATION OF INTANGIBLE ASSETS
Selling, general and administrative expenses increased $1.9Amortization of intangible assets decreased $1.3 million or 10%, to $21.2$12.3 million during the three monthssecond quarter ended December 31, 2017, compared to $19.3 million in the same period in fiscal 2017. The increase was primarily related to higher compensation related costs due to added headcount from the acquisitions of Delta and RTL, as well as the full period impact of the CES acquisition. Selling, general and administrative expenses as a percentage of revenues decreased slightly for the three months ended December 31, 201729, 2023, as compared to $13.5 million during the same period in fiscal 2017. The decrease wassecond quarter ended December 30, 2022, primarily due to higher revenuesthe backlog intangible from our Avalex acquisition being fully amortized in fiscal 2023.
RESTRUCTURING AND OTHER CHARGES
There was an immaterial amount of restructuring and other charges during the three monthssecond quarter ended December 31, 2017, as compared to the same period in fiscal 2017.
RESEARCHAND DEVELOPMENT
Research and development expenses increased approximately $2.0 million, or 15%, to $15.2 million during the three months ended December 31, 2017, compared to $13.2 million during the same period in fiscal 2017. The increase was primarily due to increased headcount from the acquisitions of CES, Delta and RTL driving higher compensation related costs, in addition to decreased customer funded development.
RESTRUCTURING AND OTHER CHARGES
29, 2023. Restructuring and other charges increased $0.2 million to $0.3 million during the three monthssecond quarter ended December 31, 2017, compared30, 2022 included $1.0 million of costs related to $0.1facility optimization efforts associated with 1MPACT, including $0.8 million duringrelated to lease asset impairment, as well as $0.6 million related to severance costs and the same periodremaining $0.4 million related to third party consulting costs associated with 1MPACT.
25

On January 12, 2024, we initiated and approved a workforce reduction that will eliminate approximately 100 positions, resulting in fiscal 2017. Restructuringexpected restructuring charges of approximately $10 - 12 million. All of the restructuring and other charges will be classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive Loss and any remaining restructuring obligations are typically relatedexpected to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities.be paid within the next twelve months.
ACQUISITION COSTSAND OTHER RELATED EXPENSES
We incurred $0.7 millionThere was an immaterial amount of acquisition costs and other related expenses during the three monthssecond quarter ended December 31, 2017, compared to $1.0 million during the same period in fiscal 2017.29, 2023. The acquisition costs and other related expenses incurred during the three monthssecond quarter ended December 31, 2017 relate to the acquisition of Ceres Systems, the holding company that owns Themis Computer (“Themis”, and together with Ceres, collectively the “Acquired Company”), while fiscal 2017 expenses30, 2022 were primarily related to the acquisition of CES. We expect to incur acquisition costs$0.6 million for third-party advisory fees in connection with engagements by activist investors and other acquisition related expenses periodically in the future as we continue to seek acquisition opportunities to expand our capabilities and new end markets within the sensor processing chain.costs.
INTEREST EXPENSE
We incurred $0.1$8.7 million of interest expense during the three monthssecond quarter ended December 31, 201729, 2023, as compared to $1.9$6.6 million during the same period in fiscal 2017.second quarter ended December 30, 2022. The decreaseincrease was driven by $1.4 million casha higher interest expenserate and $0.5 million of non-cash interest expense related tohigher average outstanding borrowings during the amortization of debt issuance costs related toperiod on our former term loan, which was repaid in the fourth quarter of fiscal 2017.existing credit facility (the "Revolver").
OTHER (EXPENSE, )INCOME, NET
Other expense, net decreased $0.2 million to $(0.3)was $1.1 million during the three monthssecond quarter ended December 31, 2017,29, 2023, as compared to $(0.1)other income, net of $0.8 million induring the same period in fiscal 2017.second quarter ended December 30, 2022. The decrease wassecond quarter ended December 29, 2023 includes litigation and settlement expenses of $1.4 million and $0.8 million of financing costs, partially offset by net foreign currency translation gains of $0.7 million and $0.4 million of other income. The second quarter ended December 30, 2022 includes net foreign currency translation gains of $1.4 million offset by $0.5 million of financing costs.
INCOME TAXES
We recorded an income tax benefit of $18.1 million and $2.2 million on a loss before income taxes of $63.7 million and $13.1 million for the second quarters ended December 29, 2023 and December 30, 2022, respectively.
During the second quarters ended December 29, 2023 and December 30, 2022, we recognized a tax provision of $0.4 million and $0.1 million related to stock compensation shortfalls, respectively. During the second quarter ended December 30, 2022, we recognized a tax benefit of $2.3 million related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the statute of limitations.
The effective tax rate for the second quarters ended December 29, 2023 and December 30, 2022 differed from the federal statutory rate primarily due to $0.6 million in financingfederal and registration fees duringstate research and development credits, non-deductible compensation, stock compensation shortfalls and state taxes. The effective tax rate for the three monthssecond quarter ended December 31, 2017 compared to $0.1 million for30, 2022 also differed from the same period in fiscal 2017. The decrease was also driven by a $0.3 million gain relatedfederal statutory rate due to the amortizationrelease of the gain on the sale leaseback of our former headquarters in fiscal 2017, which was fully amortized in fiscal 2017. The decrease was partially offset by a less than $0.1 million foreign exchangepreviously unrecognized income tax benefits.


gain during the three months ended December 31, 2017, as compared to $0.2 million foreign exchange loss during the same period in fiscal 2017.
INCOME TAXES
On December 22, 2017, theThe Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted by the U.S. government. The Tax Act has impacted the statutory Federal tax rate that the Company will use going forward, which has been reducedrequires companies to 21% from 35%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory Federal rate of approximately 28% for our fiscal year ending June 30, 2018,capitalize and 21% for subsequent fiscal years. In addition to the reduced corporate rate we also expect to benefit from the immediate deduction for certain new investments. The Tax Act also includes items that we expect will increase our tax expense including, but not limited to, the elimination of theamortize domestic manufacturing deduction and increased limitations on executive compensation. In addition, the actual effective tax rate may be materially different than the statutory Federal tax rate (including being higher) based on the availability and impact of various other adjustments including but not limited to state taxes, Federal research and development credits, discreteexpenditures over five years for tax benefits related to stock compensation,purposes, and the inclusion or exclusion of various items in taxable income which may differ from GAAP income.
During the three months ended December 31, 2017 and 2016, we recognized a discrete tax expense and benefit of $0.3 million and $0.6 million, respectively, related to excess tax benefits on stock-based compensation. The discrete tax expense for the three months ended December 31, 2017 included the enactment of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The excess tax benefit related to stock-based compensation is the result of an increase in value from the stock award between the grant date and the vest date.
Our effective tax rate for the three months ended December 31, 2017 differed from the Federal statutory tax rate of 28% primarily due to the one-time impact of the Tax Act, Federalforeign research and development credits, domestic manufacturing deduction, excessexpenditures over fifteen years for tax benefitspurposes, effective for us beginning in the fiscal year ended June 30, 2023. As a result, we have recorded a deferred tax asset through the second quarter ended December 29, 2023 of $88.9 million. During the second quarter ended December 29, 2023, we have made $0.3 million of tax payments related to stock compensation, and state taxes. Our effective tax rate for the three months ended December 31, 2016 differed from the Federal statutory tax rate of 35% primarily duethis requirement. We will continue to Federal research and development credits, domestic manufacturing deduction, excess tax benefits related to stock compensation, and state taxes.
Within the calculation of our annual effective tax rate we have used assumptions and estimates that may change as a result of futuremonitor guidance and interpretation fromany proposed regulations and adjust the Internal Revenue Service, the SEC, and the FASB. The Tax Act contains many significant changes to the U.S. tax laws, the consequences of which have not yet been fully determined. Changes in corporate tax rates, the net deferred tax assets and/or liabilities relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses contained in the Tax Act could have a material impact on the Company’s future U.S. tax expense.

estimates as necessary.

26

Six months ended December 31, 201729, 2023 compared to the six months ended December 31, 201630, 2022
The following tables settable sets forth, for the six monthsmonth periods indicated, financial data from the consolidated statementsConsolidated Statements of operations:Operations and Comprehensive Loss:
(In thousands)December 29, 2023As a % of
Total Net
Revenue		December 30, 2022As a % of
Total Net
Revenue
Net revenues$378,454 100.0 %$457,167 100.0 %
Cost of revenues296,407 78.3 298,112 65.2 
Gross margin82,047 21.7 159,055 34.8 
Operating expenses:
Selling, general and administrative80,264 21.2 84,000 18.4 
Research and development60,348 15.9 54,672 12.0 
Amortization of intangible assets24,817 6.6 28,110 6.1 
Restructuring and other charges9,548 2.5 3,577 0.8 
Acquisition costs and other related expenses1,200 0.4 3,437 0.8 
Total operating expenses176,177 46.6 173,796 38.1 
Loss from operations(94,130)(24.9)(14,741)(3.3)
Interest income132 — 249 0.1 
Interest expense(16,537)(4.4)(11,137)(2.4)
Other expense, net(2,922)(0.7)(2,799)(0.6)
Loss before income tax benefit(113,457)(30.0)(28,428)(6.2)
Income tax benefit(31,168)(8.2)(3,173)(0.7)
Net loss$(82,289)(21.8)%$(25,255)(5.5)%
(In thousands) December 31, 2017 As a % of
Total Net
Revenue		 December 31, 2016 As a % of
Total Net
Revenue
Net revenues $223,981
 100.0 % $185,663
 100.0 %
Cost of revenues 119,147
 53.2
 98,830
 53.2
Gross margin 104,834
 46.8
 86,833
 46.8
Operating expenses:        
Selling, general and administrative 41,790
 18.7
 36,864
 19.9
Research and development 28,929
 12.9
 25,994
 14.0
Amortization of intangible assets 11,464
 5.1
 9,490
 5.1
Restructuring and other charges 408
 0.2
 366
 0.2
Acquisition costs and other related expenses 984
 0.4
 1,419
 0.7
Total operating expenses 83,575
 37.3
 74,133
 39.9
Income from operations 21,259
 9.5
 12,700
 6.9
Interest income 22
 —
 50
 —
Interest expense (110) —
 (3,720) (2.0)
Other (expense) income, net (1,131) (0.5) 513
 0.3
Income before income taxes 20,040
 9.0
 9,543
 5.2
Tax (benefit) provision (7,046) (3.1) 520
 0.3
Net income $27,086
 12.1 % $9,023
 4.9 %
REVENUES
(In thousands) December 31, 2017 As a % of
Total Net
Revenue		 December 31, 2016 As a % of
Total Net
Revenue		 $ Change % Change
Organic revenue $198,456
 89% $181,707
 98% $16,749
 9%
Acquired revenue 25,525
 11% 3,956
 2% 21,569
 545%
Total revenues $223,981
 100% $185,663
 100% $38,318
 21%
Total revenues increased $38.3decreased $78.7 million, or 21%17.2%, to $224.0$378.5 million during the six months ended December 31, 201729, 2023, as compared to the same period in fiscal 2017. The increase in total revenues is primarily attributed to $21.6 million of higher Acquired revenue during the six months ended December 31, 2017. The $16.7 million organic revenue increase was primarily attributed to the SEWIP, F-16 SABR and PGK programs, partially offset by lower revenues from a large ground based radar program and the Digital Electronic Warfare System ("DEWS") and PAC 3 programs.
International revenues, which consist of foreign military sales through the U.S. government, sales to prime defense contractor customers where the end user is known to be outside of the U.S., and direct sales to non-U.S. based customers, increased $15.2 million to $44.3$457.2 million during the six months ended December 31, 2017, compared30, 2022. Revenues decreased year over year as we continue to $29.1 millionprioritize resources to execute our challenged programs, transition from our higher mix of development programs and aim to better align our operating cadence with prudent working capital management. As a result, we are observing a temporary volume shift in our total revenue, especially our over time revenue which decreased by approximately $63.8 million. We expect this trend to continue through the same period in the priorremainder of fiscal year. International revenues2024. Over time revenue represented 20% and 16%55% of total revenues during the six months ended December 31, 2017 and 2016, respectively.
Revenues from C4I, EW, and Other Sensor and Effector increased by $15.4 million, $15.1 million, and $11.4 million, respectively, during the three months ended December 31, 201729, 2023, as compared to the same period in fiscal 2017. The C4I increase was driven primarily by the F-35 program, while the increase in EW was driven by the SEWIP program. The increase in Other Sensor and Effector was primarily due to higher revenue from the PGK program. Additionally,60% of total revenues from components and modules & sub-assemblies increased by $28.2 million and $14.3 million, respectively, offset by a $4.2 million reduction to integrated subsystems during the six months ended December 31, 201730, 2022.
Specifically, with regard to our challenged programs which are recognized over time, we have recognized a majority of the revenue and related cost as we acquired material and applied labor over the period of performance to progress these programs in prior periods. As we continue to resolve technical challenges and complete these programs, which consumes a significant amount of operational capacity, the remaining revenues on these challenged programs are recognized, however these revenues represent a very small proportion of the total contract value. In addition, we adjusted our estimates at completion for incremental technical and execution costs in the quarter, especially as related to one of our challenged programs as well as certain other development and production programs resulting in a cumulative adjustment to reduce revenues in the six months ended. In addition, as we transition our operating cadence with a goal of more properly balancing our material purchases with contract awards and resource availability to drive better working capital results, we are experiencing a near-term revenue timing dynamic.
We experienced product grouping decreases driven by modules and sub-assemblies and integrated subsystems, which decreased $44.7 million and $35.9 million, respectively, partially offset by an increase in the components product grouping of $1.9 million. The decrease in total revenue was primarily driven by the radar, electronic warfare and other end applications decreases of $55.3 million, $12.3 million, and $12.2 million, respectively, partially offset by increases to C4I end applications of $7.8 million. We experienced decreases across each platform during the six months ended December 29, 2023 when compared to the same period in fiscal 2017.prior period; Other, Naval, Land and Airborne platforms decreased $36.6 million, $25.4 million, $11.0 million and $5.7 million, respectively. The components increase was driven primarilylargest program decreases were related to the LTAMDS, AEGIS and P8 programs, partially offset by the UAV T-Series and Falcon Edge programs, while the increase in modules and sub-assemblies was driven by the SEWIP program. The decrease in integrated subsystems was primarily dueincreases to lower revenues from a large ground based radar program.C4I program and the F/A-18 program when compared to the prior period. There were no programs comprising 10% or more of our revenues for the six months quarters ended December 29, 2023 or December 30, 2022.

27


GROSS MARGIN
Gross margin was 46.8%21.7% for the six months ended December 31, 2017 and 2016. The29, 2023, a decrease of 1310 basis points from the 34.8% gross margin realized during the six months ended December 31, 201730, 2022. The lower gross margin was impacteddriven by lowercost growth impacts and higher manufacturing adjustments, primarily related to inventory reserves, scrap and certain other non-recurring cost adjustments. The growth in estimated costs to complete during fiscal 2024 has significantly reduced the overall margins recognized on the affected programs through completion. Program cost growth of approximately $48.0 million was recorded in the six months resulting in an incremental impact of approximately $27.9 million to gross margin, product mix,or 840 basis points, when compared to the prior period. Approximately, $19.3 million of total cost growth impact in the six months was attributable to the approximately 20 challenged programs, of which was offset by lower inventory step-up amortizationa total of $2.3$17.7 million related to two programs. The remaining $28.7 million was incurred across certain other development and production programs based on facts and circumstances in the quarter. The decrease in gross margin was also attributable to higher manufacturing adjustments of approximately $18.1 million related to inventory reserves and scrap. The increase in inventory reserves was related to specifically identified excess and obsolete inventory primarily resulting from a shift in customer demand for our acquired businesses comparednext generation product offering. In addition, we are actively marketing and selling certain of our slow moving inventory with certain parts expected to be at a discount. The increase in scrap was primarily a result of higher levels of discrepant material especially as related to the same period in fiscal 2017.common processing architecture across several of our remaining challenged programs. We have several initiatives underway to address more efficient and cost-effective producibility of these subsystems.
SELLING, GENERALAND ADMINISTRATIVE
Selling, general and administrative expenses increased $4.9decreased $3.7 million, or 13%4.4%, to $41.8$80.3 million during the six months ended December 31, 2017, compared to $36.9 million in the same period in fiscal 2017. The increase was primarily due to higher compensation expense due to increased headcount from the acquisitions of Delta and RTL, as well as the full period impact of CES. Selling, general and administrative expenses decreased as a percentage of revenues to 18.7% during the six months ended December 31, 2017 from 19.9% during the same period in fiscal 2017. The decrease was primarily due to higher revenues in the six months ended December 31, 2017,29, 2023, as compared to the same period in fiscal 2017.
RESEARCHAND DEVELOPMENT
Research and development expenses increased $2.9 million, or 11%, to $28.9$84.0 million during the six months ended December 31, 2017, compared30, 2022. The decrease was primarily driven by the reduction in force initiated on August 9, 2023, resulting in lower compensation costs including $5.7 million of lower stock compensation and $4.1 million of lower bonus expense. These decreases were partially offset by contract asset write-offs of $4.8 million as a result of negotiating settlement terms with our customers to $26.0reduce scope, or otherwise exit contracts, especially as related to certain challenged programs.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $5.7 million, or 10.4%, to $60.3 million during the same period in fiscal 2017.six months ended December 29, 2023, as compared to $54.7 million during the six months ended December 30, 2022. The increase was primarily due to increased headcount from the acquisitionsan increase in compensation costs of Delta$4.8 million, incremental R&D spend on equipment, supplies and RTL, in additionoutside services totaling $2.9 million, partially offset by lower bonus expense of $2.3 million as compared to the full period impact of the CES acquisition, driving higher compensation related costs in addition to increased prototype expenditures.six months ended December 30, 2022.
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges were $0.4$9.5 million for the six months ended December 31, 2017 and 2016. Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities.
ACQUISITION COSTSAND OTHER RELATED EXPENSES
We incurred $1.0 million of acquisition costs and other related expenses during the six months ended December 31, 2017,29, 2023, as compared to $1.4$3.6 million during the same periodsix months ended December 30, 2022. During the six months ended December 29, 2023 we initiated several immediate cost savings measures that simplify our organizational structure, facilitate clearer accountability, and align our priorities, including: (i) embedding the 1MPACT value creation initiatives and execution into our operations; (ii) streamlining organizational structure and removing areas of redundancy between corporate and divisional organizations; and (iii) reducing selling, general, and administrative headcount and rebalancing discretionary and third party spending to better align with our priority areas. On July 20, 2023, we executed the plan to embed the 1MPACT value creation initiatives into operations, and on August 9, 2023, we approved and initiated a workforce reduction that, together with the 1MPACT related action, eliminated approximately 150 positions resulting in fiscal 2017.$9.5 million of severance costs. Restructuring and other charges during the six months ended December 30, 2022 primarily related to 1MPACT including $1.7 million of third party consulting costs, $1.0 million of costs for facility optimization efforts including $0.8 million related to lease asset impairment, as well as $0.8 million of severance costs associated with the elimination of approximately 10 positions.
On January 12, 2024, we initiated and approved a workforce reduction that will eliminate approximately 100 positions, resulting in expected restructuring charges of approximately $10 - 12 million. 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.
ACQUISITION COSTSAND OTHER RELATED EXPENSES
Acquisition costs and other related expenses were $1.2 million during the six months ended December 29, 2023, as compared to $3.4 million during the six months ended December 30, 2022. The acquisition costs and other related expenses we incurred during the six months ended December 31, 2017 relate to the acquisitions of RTL and Themis, while fiscal 2017 expenses29, 2023 includes $0.3 million related to the acquisitionconclusion of CES. We expectthe Board of Directors' review of strategic alternatives, as well as $0.3 million for third-party advisory fees in connection with engagements
28

by activist investors. Acquisition costs during the six months ended December 30, 2022 were primarily related to incur acquisition costs$2.5 million for third party advisory fees in connection with engagements by activist investors and other acquisition related expenses periodically in the future as we continue to seek acquisition opportunities to expand our capabilities and new end markets within the sensor processing chain.costs.
INTEREST EXPENSE
We incurred $0.1$16.5 million of interest expense during the six months ended December 31, 201729, 2023, as compared to $3.7 million in the same period in fiscal 2017. The decrease was driven by $2.8 million cash interest expense and $0.9 million of amortization of debt issuance costs on the term loan, which was repaid during the fourth quarter of fiscal 2017.
OTHER (EXPENSE) INCOME, NET
Other (expense) income, net was $(1.1)$11.1 million during the six months ended December 31, 2017,30, 2022. The increase was driven by an increase in interest rate and higher average borrowings outstanding on our Revolver as compared to $0.5the six months ended December 30, 2022.
OTHER EXPENSE, NET
Other expense, net increased $0.1 million during the same period in fiscal 2017. The decrease was primarily due to $1.2$2.9 million in financing and registration fees during the six months ended December 31, 201729, 2023 as compared to $0.2$2.8 million forduring the same period in fiscal 2017. The six months ended December 31, 2016 included $0.630, 2022. There was $1.9 million related to the amortization of the gain on the sale leasebacklitigation and settlement costs, $1.4 million of our former corporate headquarters,financing costs and $0.3 million of net foreign currency translation losses, partially offset by $0.2other income of $0.7 million. during the six months ended December 29, 2023. There was $1.4 million of litigation and settlement costs, $1.1 million of financing costs and $0.4 million of net foreign exchange losses.currency translation losses during the six months ended December 30, 2022.
INCOME TAXES
On December 22, 2017, the Tax Act was enacted by the U.S. government. The Tax Act has impacted the statutory Federal tax rate that the Company will use going forward, which has been reduced to 21% from 35%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory Federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. In addition to the reduced corporate rate we also expect to benefit from the immediate deduction for certain new investments. The Tax Act also includes items that we expect will increase our tax expense including, but not limited to, the elimination of the domestic manufacturing deduction and increased limitations on executive compensation. In addition, the actual effective tax rate may be materially different than the statutory Federal tax rate (including being higher) based on the availability and impact of various other adjustments including but not limited to state taxes, Federal research and development credits, discrete tax benefits related to stock compensation, and the inclusion or exclusion of various items in taxable income which may differ from GAAP income.
We recorded an income tax benefit of $7.0$31.2 million duringand $3.2 million on a loss before income taxes of $113.5 million and $28.4 million for the six months ended December 31, 2017 as compared to an income29, 2023 and December 30, 2022, respectively.
During the six months quarters ended December 29, 2023 and December 30, 2022, we recognized a tax provision of $0.5$1.6 and $1.7 million for the same period in fiscal 2017.related to stock compensation shortfalls, respectively. During the six months ended December 31, 2017 and


2016,30, 2022, we recognized discretea tax benefit of $2.3 million related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of $7.6 millionthe statute of limitations.
The effective tax rate for the second quarters ended December 29, 2023 and $2.8 million, respectively, relatedDecember 30, 2022 differed from the federal statutory rate primarily due to excessfederal and state research and development credits, non-deductible compensation, stock compensation shortfalls and state taxes. The effective tax benefits on stock-based compensation. rate for the second quarter ended December 30, 2022 also differed from the federal statutory rate due to the release of previously unrecognized income tax benefits.
The discreteTax Cuts and Jobs Act of 2017 requires companies to capitalize and amortize domestic research and development expenditures over five years for tax benefitpurposes, and foreign research and development expenditures over fifteen years for tax purposes, effective for us beginning in the fiscal year ended June 30, 2023. As a result, we have recorded a deferred tax asset through the second quarter ended December 29, 2023 of $88.9 million. During the six months ended December 31, 2017 included the enactment29, 2023, we have made $15.3 million of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The benefit is the result of the increase in value from the stock award between the grant date and the vest date. The six months ended December 31, 2017 also included a discrete tax benefit of $3.7 million derived from new information obtained about net operating loss carry-forwards of the entities acquired from Microsemi Corporation (the “Carve-Out Business”) in May 2016. The discrete items disclosed above for the six months ended December 31, 2017 included the effect of the Tax Act.
Our effective tax rate for the six months ended December 31, 2017 differed from the Federal statutory tax rate of 28% primarily due to the one-time impact of the Tax Act, Federal research and development credits, domestic manufacturing deduction, excess tax benefitspayments related to stock compensation, and state taxes. Our effective tax rate for the six months ended December 31, 2016 differed from the Federal statutory tax rate of 35% primarily duethis requirement. We will continue to Federal research and development credits, domestic manufacturing deduction, excess tax benefits related to stock compensation, and state taxes.
Within the calculation of our annual effective tax rate we have used assumptions and estimates that may change as a result of futuremonitor guidance and interpretation fromany proposed regulations and adjust the Internal Revenue Service, the SEC, and the FASB. The Tax Act contains many significant changes to the U.S. tax laws, the consequences of which have not yet been fully determined. Changes in corporate tax rates, the net deferred tax assets and/or liabilities relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses contained in the Tax Act could have a material impact on the Company’s future U.S. tax expense.estimates as necessary.
LIQUIDITYAND CAPITAL RESOURCES
Our primary sources of liquidity come from existing cash and cash generated from operations, including our accounts receivable factoring program, our revolving credit facility andRevolver, our ability to raise capital under our universal shelf registration statement.statement and our ability to factor our receivables. Our near-term fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments. We do not currently have any material commitments forexperienced growth in our working capital expenditures.balances and, in particular, related to unbilled receivables and inventory over the last several years. As we complete our challenged programs and then receive follow-on production awards, we believe that both unbilled receivables and inventory is expected to convert to cash reducing our working capital balances.
29

Based on our current plans and business conditions, we believe that existing cash and cash equivalents, our available revolving credit facility,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.
Shelf Registration Statement
On August 28, 2017,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. Additionally, as part of the shelf registration statement, we have entered into an equity distribution agreement which allows us to sell an aggregate of up to $200.0 million of our common stock from time to time through our agents. The actual dollar amount and number of shares of common stock we sell pursuant to the equity distribution agreement will be dependent on, among other things, market conditions and our fund raising requirements. The agents may sell the common stock by any method deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation sales made directly on NASDAQ, on any other existing trading market for the common stock or to or through a market maker. In addition, our common stock may be offered and sold by such other methods, including privately negotiated transactions, as we and the agents may agree.
Revolving Credit FacilityFacilities
In June 2017,On February 28, 2022, we amended our revolving credit facility ("the Revolver"), increasingRevolver to increase and extendingextend the facility intoborrowing capacity to a $400.0 million,$1.1 billion, 5-year revolving credit line, expiring in June 2022. In connection with the amendment,maturity extended to February 28, 2027. The borrowing capacity as defined under the Revolver as of December 29, 2023 is approximately $750.0 million, less outstanding borrowings of $616.5 million.
On November 7, 2023, due to the uncertainty surrounding a government shutdown or prolonged continuing resolution and the potential impact on the second quarter and fiscal 2024 results, we repaidproactively executed Amendment No. 5 to the remaining outstanding principalRevolver, as amended to date, with a syndicate of commercial banks and interest on our term loan using cash on hand. The Revolver had an outstanding balanceBank of $0 at December 31, 2017, other thanAmerica, N.A acting as the administrative agent allowing for outstanding letters of credit. See Note Ia temporary increase in the accompanying consolidated financial statementsConsolidated Total Net Leverage Ratio covenant requirement from 4.50 to 5.25 for further discussionthe second quarter ended December 29, 2023.
As of December 29, 2023, the Company was in compliance with all covenants and conditions under the Revolver and expects to be within our covenant and conditions for the remainder of the Revolver.year. Refer to exhibit 10.1 filed on Form 8-K filed by the Company with the SEC on November 7, 2023.
Receivables Purchase Agreement
On February 1, 2018, uponSeptember 27, 2022, we entered into an uncommitted receivables purchase agreement (“RPA”) with Bank of the West, as purchaser, pursuant to which we may offer to sell certain customer receivables, subject to the terms and conditions of the RPA. The RPA is an uncommitted arrangement such that we are not obligated to sell any receivables and Bank of the West has no obligation to purchase any receivables from us. Pursuant to the RPA, Bank of the West may purchase certain of our customer receivables at a discounted rate, subject to a limit that as of any date, the conditions set forth in a Merger Agreement, we completed the acquisitiontotal amount of Ceres, the holding company that owns Themis. Under the termspurchased receivables held by Bank of the Merger Agreement,West, less the amount of all collections received on such receivables, may not exceed $20.0 million. The RPA has an indefinite term and the agreement remains in effect until it is terminated by either party. On March 14, 2023, we paid an aggregate


purchase priceamended the RPA to increase the capacity from $20.0 million to $30.6 million. On June 21, 2023, we further amended the RPA with BMO Harris Bank (as successor in interest to Bank of $180.0the West) to increase the capacity from $30.6 million plus an estimated adjustment for acquired working capital to $60.0 million. We factored accounts receivable and cashincurred factoring fees of approximately $48.2 million and $1.3 million, respectively, for the Acquired Company, subject to post-closing adjustments based on a determinationsix months ended December 29, 2023. We factored accounts receivable and incurred factoring fees of closing net working capital, transaction expensesapproximately $20.0 million and net debt (all as defined in$0.1 million respectively, for the Merger Agreement). To facilitate the completion of the Merger Agreement, we drew $195.0 million from the Revolver, with the higher amount reflecting an estimated adjustment for working capital, including cash, expected to be received with the Acquired Company at closing.
CASH FLOWSsix months ended December 30, 2022.
30
  As of and For the Six
Month Period Ended
December 31,
(In thousands) 2017 2016
Net cash provided by operating activities $16,807
 $24,521
Net cash used in investing activities $(13,765) $(52,628)
Net cash used in financing activities $(12,860) $(7,327)
Net decrease in cash and cash equivalents $(9,602) $(35,506)
Cash and cash equivalents at end of period $32,035
 $46,185

CASH FLOWS
 As of and For the Six Months Ended,
(In thousands)December 29, 2023December 30, 2022
Net cash provided by (used in) operating activities$6,426 $(30,647)
Net cash used in investing activities$(16,005)$(20,402)
Net cash provided by financing activities$106,217 $62,330 
Net increase in cash and cash equivalents$97,083 $11,290 
Cash and cash equivalents at end of period$168,646 $76,944 
Our cash and cash equivalents decreasedincreased by $9.6$97.1 million from June 30, 20172023 to December 31, 2017,29, 2023, primarily as the result of $14.9$6.4 million used in the retirement of common stock used to settle individual employees' tax liabilities associated with vestingcash generated from operating activities and $105.0 million of restricted stock awards, $7.6borrowings on our Revolver, partially offset by $16.0 million invested in purchases of property and equipment, and $5.8 million used in acquisition activities. These decreases were partially offset by $16.8 million provided by operating activities.equipment.
Operating Activities
During the six months ended December 31, 2017,29, 2023, we generated $16.8had an inflow of $6.4 million in cash from operating activities compared to a decrease$30.6 million outflow during the six months ended December 30, 2022. The inflow during the six months ended December 29, 2023 was primarily due to a $69.7 million inflow from accounts receivable, unbilled receivables and costs in excess of $7.7billings as compared to a $30.9 million whenoutflow during the six months ended December 30, 2022. The six months ended December 29, 2023 also included lower outflows due to inventory, prepaid expenses and other current assets, and accounts payable, accrued expenses, and accrued compensation as compared to the same period in fiscal 2017. The decrease in cash generated by operating activities was primarily a result of $18.6 million higher inventory purchases, $11.6 million decrease in income taxes payable, and $10.4 million less collections from accounts receivables. The decrease in cash generated by operating activitiessix months ended December 30, 2022. This activity was partially offset by generating$18.1outflows of $13.9 million, $5.8 million, and $2.7 million of higher net income taxes payable, prepaid income taxes, and $13.5other non-current assets, respectively. Cash paid for income taxes and interest during the six months ended December 29, 2023 also increased by $12.4 million more cash fromand $4.9 million, respectively, as compared to the timing of payables. Our ability to generate cash from operations in future periods will depend in large part on profitability, cash flows attributable to factoring,six months ended December 30, 2022, further offsetting the rate and timing of collections of accounts receivable, our inventory turns and our ability to manage other areas of working capital.increase.
Investing Activities
During the six months ended December 31, 2017,29, 2023, we used $13.8invested $16.0 million, in investing activitiesa decrease of $4.4 million, as compared to $52.6$20.4 million during the same period in fiscal 2017. The decrease was primarily driven by $5.8 million used in the acquisition of RTL for the six months ended December 31, 2017 compared30, 2022 primarily due to $38.8 million used in the acquisition of CES in the same period of fiscal 2017. The decrease was also driven by $6.2 million in lower purchases of property and equipment during fiscal 2018.equipment.
Financing Activities
During the six months ended December 31, 2017,29, 2023, we used $12.9had $105.0 million in financing activities compared to $7.3 million during the same period in fiscal 2017. The $5.5 million increase in cash used by financing activities was primarily due to $14.9 million used in the retirement of common stock used to settle employees’ tax liabilities associated with vesting of restricted stock awardsborrowings on our Revolver as compared to $7.6$100.0 million used inof borrowings during the same periodsix months ended December 30, 2022. During the six months ended December 30, 2022, the borrowings were partially offset by payments under credit facilities of fiscal 2017, primarily driven by$40.0 million while there were no such payments made during the increase in our stock price as of the vesting date.six months ended December 29, 2023.
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The following is a schedule of our commitments and contractual obligations outstanding at December 31, 2017:29, 2023:
(In thousands)TotalLess Than
1 Year		1-3
Years		3-5
Years		More Than
5 Years
Purchase obligations$122,449 $122,449 $— $— $— 
Operating leases96,252 14,607 28,044 25,476 28,125 
$218,701 $137,056 $28,044 $25,476 $28,125 
(In thousands) Total Less Than
1 Year		 1-3
Years		 3-5
Years		 More Than
5 Years
Purchase obligations $50,653
 $50,653
 $—
 $—
 $—
Operating leases 70,263
 6,875
 12,450
 9,425
 41,513
  $120,916
 $57,528
 $12,450
 $9,425
 $41,513
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 approximately $50.7approximately $122.4 million at December 31, 2017.


29, 2023.
We have a liability at December 31, 201729, 2023 of $0.8$5.2 million for uncertain tax positions that have been taken or are expected to be taken in various income tax returns. We do not know the ultimate resolution on these uncertain tax positions and as such, do not know the ultimate timing of payments or amount, if any, related to this liability. 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.
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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 or exercise of stock options.award. These transactions would be treated as a use of cash in financing activities in our statementConsolidated Statements of cash flows.Cash Flows.
OFF-BALANCE SHEET ARRANGEMENTS
Other than our lease commitments incurredcertain indemnification provisions in the normal course of business, and certain indemnification provisions, 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.
NON-GAAP-GAAP FINANCIAL MEASURES
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 earnings per share ("adjusted EPS") andEPS, free cash flow.flow, organic revenue and acquired revenue.
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 financingother 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 a componentthe portion of bonus and equity compensation for executive officers and other key employees based on operating performance, and evaluating short-term and long-term operating trends in our operations.operations and allocating resources to various initiatives and operational requirements. We believe thethat adjusted EBITDA financial measure assists in providingpermits a more complete understandingcomparative assessment of our underlying operational measuresoperating performance, relative to manage our business, to evaluate our performance comparedbased on our GAAP results, while isolating the effects of charges that may vary from period to prior periods and the marketplace, andperiod without any correlation to establish operational goals.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.

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The following table reconciles our net income,loss, the most directly comparable GAAP financial measure, to our adjusted EBITDA:
  Three Months Ended 
 December 31,		 Six Months Ended 
 December 31,
(In thousands) 2017 2016 2017 2016
Net income $9,133
 $5,204
 $27,086
 $9,023
Interest (income) expense, net 104
 1,888
 88
 3,670
Income taxes 1,335
 1,779
 (7,046) 520
Depreciation 3,775
 2,968
 7,475
 5,686
Amortization of intangible assets 5,827
 4,888
 11,464
 9,490
Restructuring and other charges (1) 313
 69
 408
 366
Impairment of long-lived assets —
 —
 —
 —
Acquisition and financing costs 1,366
 1,114
 2,220
 1,667
Fair value adjustments from purchase accounting (2) 84
 868
 593
 2,945
Litigation and settlement expense (income), net —
 100
 —
 100
Stock-based and other non-cash compensation expense 4,941
 4,093
 9,637
 7,725
Adjusted EBITDA $26,878
 $22,971
 $51,925
 $41,192
(1) Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. The Company believes these items are non-routine and may not be indicative of ongoing operating results.
(2) Fair value adjustments from purchase accounting for the three and six months ended December 31, 2017 relate to CES and Delta inventory step-up amortization. Fair value adjustments from purchase accounting for the three and six months ended December 31, 2016 relate to the Carve-Out Business and CES inventory step-up amortization.
 Second Quarters EndedSix Months Ended
(In thousands)December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Net loss$(45,581)$(10,920)$(82,289)$(25,255)
Other non-operating adjustments, net(1,042)(1,463)(311)334 
Interest expense, net8,645 6,370 16,405 10,888 
Income tax benefit(18,141)(2,151)(31,168)(3,173)
Depreciation9,923 13,697 20,068 22,824 
Amortization of intangible assets12,270 13,536 24,817 28,110 
Restructuring and other charges2 2,069 9,548 3,577 
Impairment of long-lived assets— — — — 
Acquisition, financing and other third party costs860 1,309 2,192 4,173 
Fair value adjustments from purchase accounting178 177 355 1 
Litigation and settlement expense, net1,383 70 1,886 1,375 
COVID related expenses— — — 61 
Stock-based and other non-cash compensation expense10,195 13,003 19,146 23,943 
Adjusted EBITDA$(21,308)$35,697 $(19,351)$66,858 
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 financingother 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. 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. These non-GAAP financial measures 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 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 table reconcilestables reconcile net incomeloss and diluted earningsloss per share, the most directly comparable GAAP measures, to adjusted (loss) income and adjusted EPS:
33

Second Quarters EndedSecond Quarters Ended
(In thousands, except per share data)(In thousands, except per share data)December 29, 2023December 30, 2022
Net loss and loss per share
Other non-operating adjustments, net
Amortization of intangible assets
Amortization of intangible assets
Amortization of intangible assets
Restructuring and other charges
Restructuring and other charges
Restructuring and other charges
Impairment of long-lived assets
Impairment of long-lived assets
Impairment of long-lived assets
Acquisition, financing and other third party costs
Acquisition, financing and other third party costs
Acquisition, financing and other third party costs
Fair value adjustments from purchase accounting
Fair value adjustments from purchase accounting
Fair value adjustments from purchase accounting
Litigation and settlement expense, net
Litigation and settlement expense, net
Litigation and settlement expense, net
COVID related expenses
COVID related expenses
COVID related expenses
Stock-based and other non-cash compensation expense
Stock-based and other non-cash compensation expense
Stock-based and other non-cash compensation expense
Impact to income taxes (3)(1)
Impact to income taxes (3)(1)
Impact to income taxes (3)(1)
Adjusted (loss) income and adjusted (loss) earnings per share(2)
Adjusted (loss) income and adjusted (loss) earnings per share(2)
Adjusted (loss) income and adjusted (loss) earnings per share(2)
Diluted weighted-average shares outstanding
Diluted weighted-average shares outstanding
Diluted weighted-average shares outstanding
(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.
(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.(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) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.
(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.(2) Loss per share and adjusted loss per share is calculated using basic shares whereas earnings per share and adjusted earnings per share is calculated using diluted shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the second quarter ended December 30, 2022.

Three Months Ended
December 31,
(In thousands, except per share data) 2017 2016
Net income and diluted earnings per share $9,133
 $0.19
 $5,204
 $0.13
Amortization of intangible assets 5,827
   4,888
  
Restructuring and other charges (1) 313
   69
  
Impairment of long-lived assets —
   —
  
Acquisition and financing costs 1,366
   1,114
  
Fair value adjustments from purchase accounting (2) 84
   868
  
Litigation and settlement expenses (income), net —
   100
  
Stock-based and other non-cash compensation expense 4,941
   4,093
  
Impact to income taxes (3)(1) (8,615)   (4,439)  
Adjusted income and adjusted earnings per share $13,049
 $0.28
 $11,897
 $0.30
        
Diluted weighted-average shares outstanding   47,447
   39,985
(1) Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. The Company believes these items are non-routine and may not be indicative of ongoing operating results.
(2) Fair value adjustments from purchase accounting for the three months ended December 31, 2017 relate to CES inventory step-up amortization. Fair value adjustments from purchase accounting for the three months ended December 31, 2016 relate to the Carve-Out Business and CES inventory step-up amortization.
(3) Impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision.
Six Months Ended
(In thousands, except per share data)December 29, 2023December 30, 2022
Net loss and loss per share$(82,289)$(1.44)$(25,255)$(0.45)
Other non-operating adjustments, net(311)334 
Amortization of intangible assets24,817 28,110 
Restructuring and other charges9,548 3,577 
Impairment of long-lived assets— — 
Acquisition and financing costs2,192 4,173 
Fair value adjustments from purchase accounting355 1 
Litigation and settlement expense, net1,886 1,375 
COVID related expenses— 61 
Stock-based and other non-cash compensation expense19,146 23,943 
Impact to income taxes(1)
(13,204)(8,230)
Adjusted (loss) income and adjusted (loss) earnings per share(2)
$(37,860)$(0.66)$28,089 $0.50 
Diluted weighted-average shares outstanding57,314 56,445 
(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 is calculated using basic shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the six months ended December 30, 2022.
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  Six Months Ended
December 31,
(In thousands, except per share data) 2017 2016
Net income and diluted earnings per share $27,086
 $0.57
 $9,023
 $0.23
   Amortization of intangible assets 11,464
   9,490
  
   Restructuring and other charges (1) 408
   366
  
   Impairment of long-lived assets —
   —
  
   Acquisition and financing costs 2,220
   1,667
  
   Fair value adjustments from purchase accounting (2) 593
   2,945
  
   Litigation and settlement expenses (income), net —
   100
  
   Stock-based and other non-cash compensation expense 9,637
   7,725
  
   Impact to income taxes (3) (20,566)   (10,524)  
Adjusted income and adjusted earnings per share $30,842
 $0.65
 $20,792
 $0.52
         
Diluted weighted-average shares outstanding   47,538
   39,920

(1) Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. The Company believes these items are non-routine and may not be indicative of ongoing operating results.
(2) Fair value adjustments from purchase accounting for the six months ended December 31, 2017 relate to CES and Delta inventory step-up amortization. Fair value adjustments from purchase accounting for the six months ended December 31, 2016 relate to the Carve-Out Business and CES inventory step-up amortization.
(3) Impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision.
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 byused in operating activities, the most directly comparable GAAP financial measure, to free cash flow:
 Second Quarters EndedSix Months Ended
(In thousands)December 29, 2023December 30, 2022December 29, 2023December 30, 2022
Net cash provided by (used in) operating activities$45,494 $35,392 $6,426 $(30,647)
Purchase of property and equipment(7,990)(13,176)(16,005)(20,504)
Free cash flow$37,504 $22,216 $(9,579)$(51,151)
  Three Months Ended 
 December 31,		 Six Months Ended 
 December 31,
(In thousands) 2017 2016 2017 2016
Cash provided by operating activities $8,779
 $14,238
 $16,807
 $24,521
Purchase of property and equipment (3,964) (7,703) (7,592) (13,753)
Free cash flow $4,815
 $6,535
 $9,215
 $10,768
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014,Organic revenue and acquired revenue are non-GAAP measures for reporting the FASB issued ASU No. 2014-09, Revenuefinancial performance of our business. We believe this information provides investors with insight as to our ongoing business performance. Organic revenue represents total company revenue excluding net revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitledacquired companies for the transfer of promised goods or services to customers. The ASU will replace most existingfirst four full quarters since the entities’ acquisition date (which excludes intercompany transactions). Acquired revenue recognition guidance in GAAP when it becomes effective. The new standard is effectiverepresents revenue from acquired companies for the Company on July 1, 2018,first four full quarters since the entities' acquisition date (which excludes intercompany transactions). After the completion of four full fiscal quarters, acquired revenue is treated as organic for current and we do not plancomparable historical periods.
The following tables reconcile the most directly comparable GAAP financial measure to early adopt this ASU. The standard permits the use of eithernon-GAAP financial measure for the retrospective or cumulative effect transition method. We currently intendsecond quarters and six months ended December 29, 2023 and December 30, 2022, respectively:
(In thousands)December 29, 2023As a % of
Total Net
Revenue		December 30, 2022As a % of
Total Net
Revenue		$ Change% Change
Organic revenue$197,463 100 %$229,588 100 %$(32,125)(14)%
Acquired revenue— — %— — %— — %
Total revenues$197,463 100 %$229,588 100 %$(32,125)(14)%
(In thousands)December 29, 2023As a % of
Total Net
Revenue		December 30, 2022As a % of
Total Net
Revenue		$ Change% Change
Organic revenue$378,454 100 %$457,167 100 %$(78,713)(17)%
Acquired revenue— — %— — %— — %
Total revenues$378,454 100 %$457,167 100 %$(78,713)(17)%
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note B to use the retrospective transition method upon adoption of the standard. We have made significant investments to date in our data reporting infrastructure, and continue to enhance this infrastructure in order to support the reporting and disclosure requirements of the new standard. In addition, we have extensively reviewed our current accounting policies and practices to evaluate the future impact that adoption of the standard will have on our consolidated financial statements and notes. Based on our review procedures(under the caption "Recently Issued Accounting Pronouncements").
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note B to date, the impact of adopting the new standard on our total sales and operating income is not expected to be material. The largest impact as a result of adoption will be to our disclosures relating to revenues, which will significantly expand under the new standard.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), an amendment of the FASB Accounting Standards Codification. This ASU requires lessees to recognize a right-of-use asset and lease liability for most lease arrangements. The new standard is effective for the Company on July 1, 2019. The standard mandates a modified retrospective transition method for all entities and early adoption is permitted. We are currently evaluating our population of leases to determine the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.(under the caption "Recently Adopted Accounting Pronouncements").
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, an amendment of the FASB Accounting Standards Codification. This ASU will reduce diversity in practice for classifying cash payments and receipts in the statement of cash flows for a number of common transactions. It will also clarify when identifiable cash flows should be separated versus classified based on their predominant source or use. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. We are evaluating the effect that ASU 2016-15 will have on our consolidated financial statements and related disclosures.
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In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, an amendment of the FASB Accounting Standards Codification. This ASU requires the seller and buyer to recognize at the transaction date the current and deferred income tax consequences of intercompany asset transfers (except transfers of inventory). Under current U.S. GAAP, the seller and buyer defer the consolidated tax consequences of an intercompany asset transfer from the period of the transfer to a future period when the asset is transferred out of the consolidated group, or otherwise affects consolidated earnings. This standard will cause volatility in companies’ effective tax rates, particularly for those that transfer intangible assets to foreign subsidiaries. For public entities, the new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017. An entity may early adopt the standard but only at the beginning of an annual period for which it has not issued or made available for issuance financial statements (interim or annual). We are evaluating the effect that ASU 2016-16 will have on our consolidated financial statements and related disclosures.



In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, an amendment of the FASB Accounting Standards Codification. This ASU eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (“the Step 2 test”) from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. For public business entities, the new standard is effective for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The ASU requires prospective adoption and permits early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect this guidance to have a material impact to our consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, an amendment of the FASB Accounting Standards Codification. This ASU requires employers that sponsor defined benefit pension and/or other post-retirement benefit plans to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Employers are required to present the other components of net benefit costs in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component of net periodic pension cost will be eligible for asset capitalization. For public entities, the new standard is effective for annual periods beginning after December 15, 2017, including interim periods within that annual period. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. This ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We are evaluating the effect that ASU 2017-07 will have on our consolidated financial statements and related disclosures.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2017, we adopted FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, an amendment of the FASB Accounting Standards Codification. This ASU changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. Such adoption has not and will not have any impact to our consolidated financial statements.



ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in our exposure to market risk from June 30, 20172023 to December 31, 2017.29, 2023.
ITEM 4.CONTROLS AND PROCEDURES
ITEM 4.     CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2017.29, 2023. We continue to review our disclosure controls and procedures and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our Company’s business. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13c-15(f)13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 201729, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, management is in the process of integrating the recently acquired Delta into our overall internal control over financial reporting environment.


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PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
ITEM 1.     LEGAL PROCEEDINGS
We are subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of our business. Although legal proceedings are inherently unpredictable, we believe that we have valid defenses with respect to those matters currently pending against us and intend to defend our selfourself vigorously. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on our cash flows, results of operations, or financial position.
On December 7, 2021, counsel for National Technical Systems, Inc. (“NTS”) sent us an environmental demand letter pursuant to Massachusetts General Laws Chapter 21E, Section 4A, and CERCLA 42 U.S.C. Section 9601, related to a site that NTS formerly owned at 533 Main Street, Acton, Massachusetts. NTS received a Notice of Responsibility from the Massachusetts Department of Environmental Protection (“MassDEP”) alleging trichloroethene, freon and 1,4-dioxane contamination in the groundwater emanating from NTS’s former site. NTS alleges in its demand letter that the operations of a predecessor company to Mercury that was acquired in our acquisition of the Microsemi Carve-Out Business that once owned and operated a facility at 531 Main Street, Acton, Massachusetts contributed to the groundwater contamination. NTS is seeking payment from us of NTS’s costs for any required environmental remediation. In April 2022, we engaged in a meet and confer session with NTS pursuant to Massachusetts General Laws Chapter 21E, Section 4A to discuss the status of the environmental review performed by NTS and its licensed site professional. In addition, in November 2021, we responded to a request for information from MassDEP regarding the detection of PFAS (per- and polyfluoroakyl substances) in the Acton, Massachusetts Water District’s Conant public water supply wells near the former facility at 531 Main Street, Acton, Massachusetts at a level above standard that MassDEP published for PFAS in October 2020. We have not been contacted by NTS or MassDEP since the dates discussed above. It is too early to determine what responsibility, if any, we may have for these environmental matters.
On June 19, 2023, our Board of Directors received notice of our former CEO’s resignation from his positions of President and Chief Executive Officer. The Board accepted his resignation effective June 24, 2023. In his notice, the former CEO claimed he was entitled to certain benefits, including equity vesting, severance, and other benefits, under his change in control severance agreement (the “CIC Agreement”) because he had resigned with good reason during a potential change in control period. We dispute these claims and maintain that he resigned without good reason. On September 19, 2023, our former CEO filed for binding arbitration under the employment rules of the American Arbitration Association (“AAA”). An arbitrator was appointed on November 29, 2023, and the arbitration trial has been scheduled for mid-December 2024. We intend to contest vigorously the claims under the CIC Agreement and believe that we have strong arguments that our former CEO’s claims lack merit. If the arbitrator rules in our favor, we may still need to pay the former CEO’s reasonable legal fees and compensation during the dispute. If instead the arbitrator rules for the former CEO, we could be liable for up to approximately $12.9 million, based on the closing price of our common stock on June 26, 2023, plus legal fees and expenses and compensation during dispute, for accelerated equity vesting, severance, and other benefits under the CIC Agreement. We categorically deny any wrongdoing or liability under the CIC Agreement, but the outcome of potential arbitration is inherently uncertain. Accordingly, it is reasonably possible that we will incur a liability in this matter, and we estimate the potential range of exposure from $0 to $12.9 million, plus costs and attorneys’ fees and compensation to our former CEO during the dispute.
On December 13, 2023, a securities class action complaint was filed against us, Mark Aslett, and Michael Ruppert in the U.S. District Court for the District of Massachusetts. The complaint asserts Section 10(b) and 20(a) securities fraud claims on behalf of a purported class of purchasers and sellers of our stock from December 7, 2020, through June 23, 2023. The complaint alleges that our public disclosures in SEC filings and on earnings calls were false and/or misleading. Subject to the terms of our by-laws and applicable Massachusetts law, Mr. Aslett, our former Chief Executive Officer, and Mr. Ruppert, our former Chief Financial Officer, are indemnified by the Company for this matter. We believe the claims in the complaint are without merit and intend to defend our self vigorously. It is too early to determine what responsibility, if any, Mercury will have for this matter.
ITEM 1A.RISK FACTORS
ITEM 1A.     RISK FACTORS
You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2023. There have been no material changes from the factors disclosed in our 20172023 Annual Report on Form 10-K filed on August 18, 2017,15, 2023, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.
ITEM 5.     OTHER INFORMATION
During the quarter ended December 29, 2023, none of the Company’s directors or executive officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement as each term is defined in Section 408(a) of Regulation S-K.
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ITEM 6.EXHIBITS
ITEM 6.     EXHIBITS
The following Exhibits are filed or furnished, as applicable, herewith:
101.INS
eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
The following materials from the Company’s Quarterly Report on the Form 10-Q for the quarter ended December 31, 2017 formatted
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) notes to the Consolidated Financial StatementsExhibit 101)
 +Furnished herewith. This certificate shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 +    Furnished herewith. This certificate shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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MERCURY SYSTEMS, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Andover, Massachusetts, on February 2, 2018.
6, 2024.
MERCURY SYSTEMS, INC.
By:
/S/    GERALD M. HAINES IIDAVID E. FARNSWORTH
Gerald M. Haines IIDavid E. Farnsworth
Executive Vice President,
Chief Financial Officer and Treasurer


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