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


FORM 10-Q
________________________________________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 29, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
COMMISSION FILE NUMBER: 0-23599

MERCURY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________
Massachusetts 04-2741391
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
50 MINUTEMAN ROAD 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x  Accelerated 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 April 30,October 31, 2023: 58,190,09659,277,051 s shareshares
1

MERCURY SYSTEMS, INC.
INDEX
 
  PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1.
3
3
4
Consolidated Statements of Shareholders’ Equity for the first quarters third quartersended September 29, 2023 and nine months ended March 31, 2023 and April1, 2022September 30, 2022
5
6
7
Item 2.
2321
Item 3.
3532
Item 4.
3532
PART II. OTHER INFORMATION
Item 1.
3633
Item 1A.
3633
Item 5.
33
Item 6.
3734
3835

2

PART I. FINANCIAL INFORMATION
 
ITEM 1.     FINANCIAL STATEMENTS
MERCURY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
March 31, 2023July 1, 2022September 29, 2023June 30, 2023
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$64,441 $65,654 Cash and cash equivalents$89,369 $71,563 
Accounts receivable, net of allowance for credit losses of $1,090 and $2,074 at March 31, 2023 and July 1, 2022, respectively125,562 144,494 
Accounts receivable, net of allowance for credit losses of $820 and $1,335 at September 29, 2023 and June 30, 2023, respectivelyAccounts receivable, net of allowance for credit losses of $820 and $1,335 at September 29, 2023 and June 30, 2023, respectively91,448 124,729 
Unbilled receivables and costs in excess of billingsUnbilled receivables and costs in excess of billings376,722 303,356 Unbilled receivables and costs in excess of billings388,555 382,558 
InventoryInventory342,777 270,339 Inventory362,910 337,216 
Prepaid income taxes3,588 7,503 
Prepaid expenses and other current assetsPrepaid expenses and other current assets24,785 23,906 Prepaid expenses and other current assets22,422 20,952 
Total current assetsTotal current assets937,875 815,252 Total current assets954,704 937,018 
Property and equipment, netProperty and equipment, net119,482 127,191 Property and equipment, net117,174 119,554 
GoodwillGoodwill938,093 937,880 Goodwill938,093 938,093 
Intangible assets, netIntangible assets, net310,647 351,538 Intangible assets, net285,551 298,051 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net63,960 66,366 Operating lease right-of-use assets, net60,877 63,015 
Deferred tax assetDeferred tax asset39,919 27,099 
Other non-current assetsOther non-current assets13,816 6,188 Other non-current assets4,446 8,537 
Total assetsTotal assets$2,383,873 $2,304,415 Total assets$2,400,764 $2,391,367 
Liabilities and Shareholders’ EquityLiabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$111,246 $98,673 Accounts payable$95,825 $103,986 
Accrued expensesAccrued expenses27,508 34,954 Accrued expenses33,660 28,423 
Accrued compensationAccrued compensation26,704 44,813 Accrued compensation17,717 30,419 
Income taxes payableIncome taxes payable— 13,874 
Deferred revenues and customer advancesDeferred revenues and customer advances54,700 15,487 Deferred revenues and customer advances58,116 56,562 
Total current liabilitiesTotal current liabilities220,158 193,927 Total current liabilities205,318 233,264 
Deferred income taxes6,451 32,398 
Income taxes payableIncome taxes payable4,901 9,112 Income taxes payable5,166 5,166 
Long-term debtLong-term debt511,500 451,500 Long-term debt576,500 511,500 
Operating lease liabilitiesOperating lease liabilities68,099 69,888 Operating lease liabilities64,168 66,797 
Other non-current liabilitiesOther non-current liabilities11,865 10,405 Other non-current liabilities8,800 7,955 
Total liabilitiesTotal liabilities822,974 767,230 Total liabilities859,952 824,682 
Commitments and contingencies (Note N)
Commitments and contingencies (Note L)Commitments and contingencies (Note L)
Shareholders’ equity:Shareholders’ equity:Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstandingPreferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding— — 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; 56,673,677 and 55,679,747 shares issued and outstanding at March 31, 2023 and July 1, 2022, respectively567 557 
Common stock, $0.01 par value; 85,000,000 shares authorized; 57,273,559 and 56,961,665 shares issued and outstanding at September 29, 2023 and June 30, 2023, respectivelyCommon stock, $0.01 par value; 85,000,000 shares authorized; 57,273,559 and 56,961,665 shares issued and outstanding at September 29, 2023 and June 30, 2023, respectively573 570 
Additional paid-in capitalAdditional paid-in capital1,187,335 1,145,323 Additional paid-in capital1,205,573 1,196,847 
Retained earningsRetained earnings365,675 385,774 Retained earnings320,731 357,439 
Accumulated other comprehensive incomeAccumulated other comprehensive income7,322 5,531 Accumulated other comprehensive income13,935 11,829 
Total shareholders’ equityTotal shareholders’ equity1,560,899 1,537,185 Total shareholders’ equity1,540,812 1,566,685 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$2,383,873 $2,304,415 Total liabilities and shareholders’ equity$2,400,764 $2,391,367 

The accompanying notes are an integral part of the consolidated financial statements.
3

MERCURY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)LOSS
(In thousands, except per share data)
(Unaudited)
Third Quarters EndedNine Months Ended First Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022 September 29, 2023September 30, 2022
Net revenuesNet revenues$263,479 $253,075 $720,646 $698,468 Net revenues$180,991 $227,579 
Cost of revenuesCost of revenues173,190 153,321 471,302 423,083 Cost of revenues130,464 149,484 
Gross marginGross margin90,289 99,754 249,344 275,385 Gross margin50,527 78,095 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrativeSelling, general and administrative44,626 39,261 128,626 113,027 Selling, general and administrative35,794 38,943 
Research and developmentResearch and development26,516 25,387 81,188 82,604 Research and development31,872 27,766 
Amortization of intangible assetsAmortization of intangible assets12,809 16,077 40,919 45,813 Amortization of intangible assets12,547 14,574 
Restructuring and other chargesRestructuring and other charges2,778 6,348 6,355 22,424 Restructuring and other charges9,546 1,508 
Acquisition costs and other related expensesAcquisition costs and other related expenses1,606 2,726 5,043 7,524 Acquisition costs and other related expenses969 2,498 
Total operating expensesTotal operating expenses88,335 89,799 262,131 271,392 Total operating expenses90,728 85,289 
Income (loss) from operations1,954 9,955 (12,787)3,993 
Loss from operationsLoss from operations(40,201)(7,194)
Interest incomeInterest income80 110 329 124 Interest income103 29 
Interest expenseInterest expense(6,711)(1,664)(17,848)(3,353)Interest expense(7,863)(4,547)
Other expense, netOther expense, net(613)(2,160)(3,412)(4,898)Other expense, net(1,774)(3,645)
(Loss) income before income taxes(5,290)6,241 (33,718)(4,134)
Income tax (benefit) provision(10,446)2,102 (13,619)1,506 
Loss before income taxesLoss before income taxes(49,735)(15,357)
Income tax benefitIncome tax benefit(13,027)(1,022)
Net income (loss)$5,156 $4,139 $(20,099)$(5,640)
Net lossNet loss$(36,708)$(14,335)
Basic net earnings (loss) per share$0.09 $0.07 $(0.36)$(0.10)
Basic net loss per shareBasic net loss per share$(0.64)$(0.26)
Diluted net earnings (loss) per share$0.09 $0.07 $(0.36)$(0.10)
Diluted net loss per shareDiluted net loss per share$(0.64)$(0.26)
Weighted-average shares outstanding:Weighted-average shares outstanding:Weighted-average shares outstanding:
BasicBasic56,511 55,590 56,310 55,495 Basic57,105 55,931 
DilutedDiluted56,896 56,027 56,310 55,495 Diluted57,105 55,931 
Comprehensive income (loss):
Net income (loss)$5,156 $4,139 $(20,099)$(5,640)
Comprehensive loss:Comprehensive loss:
Net lossNet loss$(36,708)$(14,335)
Change in fair value of derivative instruments, net of taxChange in fair value of derivative instruments, net of tax(2,687)— 1,275 — Change in fair value of derivative instruments, net of tax1,742 4,420 
Foreign currency translation adjustmentsForeign currency translation adjustments(20)232 374 207 Foreign currency translation adjustments420 429 
Pension benefit plan, net of taxPension benefit plan, net of tax46 48 142 144 Pension benefit plan, net of tax(56)48 
Total other comprehensive (loss) income, net of tax(2,661)280 1,791 351 
Total comprehensive income (loss)$2,495 $4,419 $(18,308)$(5,289)
Total other comprehensive income, net of taxTotal other comprehensive income, net of tax2,106 4,897 
Total comprehensive lossTotal comprehensive loss$(34,602)$(9,438)
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 Third Quarter Ended March 31, 2023For the First Quarter Ended September 29, 2023
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Shareholders’
Equity		Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Shareholders’
Equity
SharesAmountSharesAmount
Balance at December 30, 202256,365 $564 $1,173,026 $360,519 $9,983 $1,544,092 
Balance at June 30, 2023Balance at June 30, 202356,962 $570 $1,196,847 $357,439 $11,829 $1,566,685 
Issuance of common stock under employee stock incentive plansIssuance of common stock under employee stock incentive plans225 2 (2)— — — Issuance of common stock under employee stock incentive plans187 2 (2)— — — 
Issuance of common stock under defined contribution planIssuance of common stock under defined contribution plan84 1 4,189 — — 4,190 Issuance of common stock under defined contribution plan125 1 4,637 — — 4,638 
Stock-based compensationStock-based compensation— — 10,122 — — 10,122 Stock-based compensation— — 4,091 — — 4,091 
Net income— — — 5,156 — 5,156 
Other comprehensive loss— — — — (2,661)(2,661)
Balance at March 31, 202356,674 $567 $1,187,335 $365,675 $7,322 $1,560,899 
Net lossNet loss— — — (36,708)— (36,708)
Other comprehensive incomeOther comprehensive income— — — — 2,106 2,106 
Balance at September 29, 2023Balance at September 29, 202357,274 $573 $1,205,573 $320,731 $13,935 $1,540,812 
For the Third Quarter Ended April 1, 2022For the First Quarter Ended September 30, 2022
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Total
Shareholders’
Equity		Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		Total
Shareholders’
Equity
SharesAmountSharesAmount
Balance at December 31, 202155,583 $556 $1,122,113 $364,720 $(268)$1,487,121 
Balance at July 1, 2022Balance at July 1, 202255,680 $557 $1,145,323 $385,774 $5,531 $1,537,185 
Issuance of common stock under employee stock incentive plansIssuance of common stock under employee stock incentive plans16 — — — — — Issuance of common stock under employee stock incentive plans418 4 (4)— — — 
Issuance of common stock under defined contribution planIssuance of common stock under defined contribution plan83 1 4,122 — — 4,123 
Retirement of common stockRetirement of common stock(4)— (217)— — (217)Retirement of common stock(1)— (63)— — (63)
Stock-based compensationStock-based compensation— — 9,121 — — 9,121 Stock-based compensation— — 7,123 — — 7,123 
Net income— — — 4,139 — 4,139 
Net lossNet loss— — — (14,335)— (14,335)
Other comprehensive incomeOther comprehensive income— — — — 280 280 Other comprehensive income— — — — 4,897 4,897 
Balance at April 1, 202255,595 $556 $1,131,017 $368,859 $12 $1,500,444 
Balance at September 30, 2022Balance at September 30, 202256,180 $562 $1,156,501 $371,439 $10,428 $1,538,930 
For the Nine Months Ended March 31, 2023
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 plans702 7 (7)— — — 
Issuance of common stock under employee stock purchase plan57 1 2,392 — — 2,393 
Issuance of common stock under defined contribution plan236 2 11,580 — — 11,582 
Retirement of common stock(1)— (63)— — (63)
Stock-based compensation— — 28,110 — — 28,110 
Net loss— — — (20,099)— (20,099)
Other comprehensive income— — — — 1,791 1,791 
Balance at March 31, 202356,674 $567 $1,187,335 $365,675 $7,322 $1,560,899 
For the Nine Months Ended April 1, 2022
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Total
Shareholders’
Equity
SharesAmount
Balance at July 2, 202155,241 $552 $1,109,434 $374,499 $(339)$1,484,146 
Issuance of common stock under employee stock incentive plans445 4 (4)— — — 
Issuance of common stock under employee stock purchase plan54 1 2,515 — — 2,516 
Retirement of common stock(145)(1)(7,715)— — (7,716)
Stock-based compensation— — 26,787 — — 26,787 
Net loss— — — (5,640)— (5,640)
Other comprehensive income— — — — 351 351 
Balance at April 1, 202255,595 $556 $1,131,017 $368,859 $12 $1,500,444 
The accompanying notes are an integral part of the consolidated financial statements.
5

MERCURY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended First Quarters Ended
March 31, 2023April 1, 2022 September 29, 2023September 30, 2022
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net lossNet loss$(20,099)$(5,640)Net loss$(36,708)$(14,335)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expenseDepreciation and amortization expense74,827 70,021 Depreciation and amortization expense22,692 23,701 
Stock-based compensation expenseStock-based compensation expense27,446 26,262 Stock-based compensation expense4,117 7,249 
Share-based matching contributions on defined contribution planShare-based matching contributions on defined contribution plan9,715 — Share-based matching contributions on defined contribution plan4,841 3,680 
Benefit for deferred income taxesBenefit for deferred income taxes(34,644)(5,241)Benefit for deferred income taxes(12,795)(814)
Other non-cash itemsOther non-cash items721 (1,092)Other non-cash items186 (1,301)
Cash settlement for termination of interest rate swapCash settlement for termination of interest rate swap5,995 — Cash settlement for termination of interest rate swap7,403 5,995 
Changes in operating assets and liabilities, net of effects of businesses acquired:Changes in operating assets and liabilities, net of effects of businesses acquired:Changes in operating assets and liabilities, net of effects of businesses acquired:
Accounts receivable, unbilled receivables, and costs in excess of billingsAccounts receivable, unbilled receivables, and costs in excess of billings(53,705)(65,203)Accounts receivable, unbilled receivables, and costs in excess of billings27,046 (47,257)
InventoryInventory(70,029)(28,386)Inventory(27,630)(18,430)
Prepaid income taxesPrepaid income taxes3,866 (7,710)Prepaid income taxes(765)(2,220)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(1,154)(10,528)Prepaid expenses and other current assets(1,813)(11,946)
Other non-current assetsOther non-current assets2,752 3,211 Other non-current assets2,315 2,654 
Accounts payable, accrued expenses, and accrued compensationAccounts payable, accrued expenses, and accrued compensation(11,765)45,572 Accounts payable, accrued expenses, and accrued compensation(13,020)(17,788)
Deferred revenues and customer advancesDeferred revenues and customer advances39,051 (14,591)Deferred revenues and customer advances1,760 8,270 
Income taxes payableIncome taxes payable(4,229)3 Income taxes payable(13,863)(501)
Other non-current liabilitiesOther non-current liabilities(2,612)(6,112)Other non-current liabilities(2,834)(2,996)
Net cash (used in) provided by operating activities(33,864)566 
Net cash used in operating activitiesNet cash used in operating activities(39,068)(66,039)
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Acquisition of business, net of cash acquired— (243,255)
Purchases of property and equipmentPurchases of property and equipment(29,950)(19,476)Purchases of property and equipment(8,015)(7,328)
Other investing activitiesOther investing activities150 (3,214)Other investing activities— 50 
Net cash used in investing activitiesNet cash used in investing activities(29,800)(265,945)Net cash used in investing activities(8,015)(7,278)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from employee stock plans2,393 2,516 
Borrowings under credit facilitiesBorrowings under credit facilities100,000 251,500 Borrowings under credit facilities65,000 60,000 
Payments under credit facilities(40,000)— 
Purchase and retirement of common stockPurchase and retirement of common stock(63)(7,716)Purchase and retirement of common stock— (63)
Payments of deferred financing and offering costs— (2,662)
Net cash provided by financing activitiesNet cash provided by financing activities62,330 243,638 Net cash provided by financing activities65,000 59,937 
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents121 (404)Effect of exchange rate changes on cash and cash equivalents(111)(293)
Net decrease in cash and cash equivalents(1,213)(22,145)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents17,806 (13,673)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period65,654 113,839 Cash and cash equivalents at beginning of period71,563 65,654 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$64,441 $91,694 Cash and cash equivalents at end of period$89,369 $51,981 
Cash paid during the period for:Cash paid during the period for:Cash paid during the period for:
InterestInterest$18,751 $2,424 Interest$6,417 $3,713 
Income taxesIncome taxes$21,928 $15,023 Income taxes$14,568 $4,131 
Supplemental disclosures—non-cash activities:Supplemental disclosures—non-cash activities:Supplemental disclosures—non-cash activities:
Non-cash investing activity: Purchases of property and equipment incurred but not yet paidNon-cash investing activity: Purchases of property and equipment incurred but not yet paid$5,105 $4,615 Non-cash investing activity: Purchases of property and equipment incurred but not yet paid$6,192 $507 
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
Mercury Systems, Inc. is a technology company that delivers commercial innovation to rapidly transformprocessing power for the globalmost demanding aerospace and defense industry.missions. Headquartered in Andover, Massachusetts, the Company's end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. Mercury's Processing Platform includestechnologies 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 aerospace and defense community.
Investors and others should note that the Company announces material financial information using its website (www.mrcy.com), Securities and Exchange Commission (“SEC”) filings, press releases, public conference calls, webcasts, and social media, including Twitter (twitter.com/mrcy and twitter.com/mrcy_CEO) and LinkedIn (www.linkedin.com/company/mercury-systems). Therefore, the Company encourages investors and others interested in Mercury to review the information the Company posts on the social media and other communication channels listed on its website.
B.Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles (“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 July 1, 2022June 30, 2023 which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 16, 2022.15, 2023. The results for the thirdfirst quarter and nine months ended March 31,September 29, 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 thirdfirst quarter of fiscal 20232024 are to the quarter ended March 31,September 29, 2023. There were 13 weeks13-weeks during the thirdfirst quarters ended March 31,September 29, 2023 and April 1, 2022, respectively. There were 39 weeks during the nine months ended March 31, 2023 and April 1,September 30, 2022, respectively.
USE OF 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 ASC 805, Business Combinations, (“ASC 805”), for all transactions and events in 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 ASC 805 for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in business combinations.
7

FOREIGN CURRENCY
Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, France, Spain 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 Accumulated other comprehensive income (loss) (“AOCI”) in shareholders’ equity. Gains (losses) resulting from non-U.S. currency transactions are included in Other expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss)Loss 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 RECEIVABLES FACTORING
On September 27, 2022, the Company executed an uncommitted receivables purchase agreement (“RPA”) with Bank of the West, as purchaser, pursuant to which the Company may offer to sell certain customer receivables, subject to the terms and conditions of the RPA. The RPA is an uncommitted arrangement such that the Company is 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 limit that as of 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 RPA Agreement is treated as a true sale of accounts receivable by the Company. The Company has continued involvement in servicing accounts receivable under the Purchase Agreement, but no 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 for amounts factored by the Company are recorded as an increase to cash and a reduction to accounts receivable outstanding in the Consolidated Balance Sheets. Cash Flows attributable to factoring are reflected as cash flows from operating activities in the Company's Consolidated Statements of Cash Flows. Factoring fees are included as selling, general and administrative expenses in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).Loss.
The Company had $24,502$28,826 factored in accounts receivables as of March 31,September 29, 2023 and incurred factoring fees of approximately $179 and $317 for$308 for the thirdfirst quarter and nine months ended March 31, 2023, respectively.September 29, 2023. The Company did not factor any accounts receivable or incur any factoring fees for the thirdfirst quarter and nine months ended April 1,September 30, 2022.
DERIVATIVES
The Company records the fair value of its derivative financial instruments in its condensed consolidated financial statements in Other non-current assets, or Other non-current liabilities depending on their net position, regardless of the purpose or intent for holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component 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 Income (Loss)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 qualified for hedge accounting as of March 31,September 29, 2023.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, (“ASC 606”). Revenues are derived from the sales of products that are grouped into one of the following three categories: (i) components; (ii) modules and sub-assemblies; and (iii) integrated subsystems. The Company also generates revenues from the performance of services, including systems engineering support, consulting, maintenance and other support, testing and installation. Each promised good or service within a contract is accounted for separately under the guidance of ASC 606 if they are distinct.
8

Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single performance 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 48%42% and 43%37% of revenues for the third quarterfirst quarters ended September 29, 2023 and nine months ended March 31, 2023, respectively. Contracts with distinct performance obligations recognized at a point in time, with or without an allocation of the transaction price, totaled 45% and 48% for the third quarter and nine months ended April 1,September 30, 2022 respectively.
The Company also engages in over time 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.
Total revenue recognized over time was 52%58% and 57%63% of total revenues for the thirdfirst quarters ended September 29, 2023 and nine months ended March 31, 2023, respectively. Total revenue recognized over time was 55% and 52% of total revenues for the third quarter and nine months ended April 1,September 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 generally over a period of 12 to 36 months. The Company accrues for anticipated warranty costs upon product shipment. The Company does not consider activities related to
8

such assurance warranties, if any, to be a separate performance obligation. The Company does offer separately priced extended warranties which generally range from 12 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 completion 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 contract.
All revenues are reported net of government assessed taxes (e.g., sales taxes or value-added taxes). Refer to Note MK 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.
The contract asset balances were $376,722$388,555 and $303,356$382,558 as of March 31,September 29, 2023 and July 1, 2022,June 30, 2023, respectively. The contract asset balance increased due to growth in revenue recognized under over time contracts, as well as the timing of program milestone billingsrevenue on certain large overtime contracts as compared to timing of hardware delivery and related billing events on long-standing contract asset balances during the thirdfirst quarter ended March 31,September 29, 2023. The contract liability balances were $55,276$58,569 and $15,966$57,142 as of March 31,September 29, 2023 and July 1, 2022,June 30, 2023, respectively. The increase was due to a higher volume of advance milestone billing events as well as timing of revenue conversion across multiple programs.
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Revenue recognized for the thirdfirst quarter and nine months ended March 31,September 29, 2023 that was included in the contract liability balance at July 1, 2022June 30, 2023 was $2,681 and $10,418, respectively.$21,015. Revenue recognized for the thirdfirst quarter and nine months ended April 1,September 30, 2022 that was included in the contract liability balance at July 2, 20212022 was $6,263 and $24,551, respectively.$4,669.
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 March 31,September 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $505,791.$557,347. The Company expects to recognize approximately 63% of its remaining performance obligations as revenue in the next 12 months and the balance thereafter.
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. As part of the Company's assessment over the future benefit of certain long-lived assets in the second quarter ended December 30, 2022, the Company identified an immaterial correction of an error in the useful lives assigned to certain leasehold improvements. This resulted in a cumulative adjustment to depreciation expense of approximately $3,100, which was recorded during the second quarter ended December 30, 2022.
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WEIGHTED-AVERAGE SHARES
Weighted-average shares were calculated as follows:
Third Quarters EndedNine Months EndedFirst Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022September 29, 2023September 30, 2022
Basic weighted-average shares outstandingBasic weighted-average shares outstanding56,511 55,590 56,310 55,495 Basic weighted-average shares outstanding57,105 55,931 
Effect of dilutive equity instrumentsEffect of dilutive equity instruments385 437 — — Effect of dilutive equity instruments— — 
Diluted weighted-average shares outstandingDiluted weighted-average shares outstanding56,896 56,027 56,310 55,495 Diluted weighted-average shares outstanding57,105 55,931 
Equity instruments to purchase 7921,912 and 1,873416 shares of common stock were not included in the calculation of diluted net earningsloss per share for the third quarterfirst quarters ended September 29, 2023 and nine months ended March 31, 2023, respectively, because the equity instruments were anti-dilutive. Equity instruments to purchase 246 and 386 shares of common stock were not included in the calculation of diluted net earnings per share for the third quarter and nine months ended April 1,September 30, 2022, respectively, because the equity instruments were anti-dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has evaluated recently issued accounting pronouncements and determined there are no recently issued accounting pronouncements that require disclosure.
In October 2021,RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2023, the FASB issuedcompany adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, an amendment 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 Topic 606, Revenue from Contracts with Customers. Under current U.S. GAAP, an acquirer generally recognizes assets and liabilities assumed in a business combination, including contract assets and liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under Topic 606. This ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period. The impact to the Company's consolidated financial statements and related disclosures of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in fiscal 2023 and beyond.
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RCustomersECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective July 2, 2022, the Company adopted ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.. This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.
Effective July 2, 2022, the Company adopted ASU No. 2020-06, Debt - Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU simplify the accounting for convertible debt securities. This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.
Effective December 1, 2022, the Company adopted ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU extend the sunset date under Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected LIBOR cessation date of June 30, 2023. This adoption did not have a material impact to the Company's consolidated financial statements or related disclosures.


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C. Acquisitions
ATLANTA MICRO ACQUISITION
On November 29, 2021, the Company acquired Atlanta Micro, Inc. (“Atlanta Micro”) for a purchase price of $90,000, prior to net working capital and net debt adjustments. Based in Norcross, Georgia, Atlanta Micro is a leading designer and manufacturer of high-performance RF modules and components, including advanced monolithic microwave integrated circuits (“MMICs”) which are critical for high-speed data acquisition applications including electronic warfare, radar and weapons. The Company funded the acquisition through the Company's existing revolving credit facility (the “Revolver”). On March 28, 2022, the Company and former owners of Atlanta Micro agreed to post closing adjustments totaling $58, which increased the Company's net purchase price.
The following table presents the net purchase price and the fair values of the assets and liabilities of Atlanta Micro:
Amounts
Consideration transferred
Cash paid at closing$91,438 
Working capital and net debt adjustment(416)
Less cash acquired(1,782)
Net purchase price$89,240 
Fair value of tangible assets acquired and liabilities assumed
Cash$1,782 
Accounts receivable1,568 
Inventory4,475 
Fixed assets434 
Other current and non-current assets2,079 
Accounts payable(529)
Accrued expenses(845)
Other current and non-current liabilities(11,174)
Fair value of net tangible assets acquired(2,210)
Fair value of identifiable intangible assets34,980 
Goodwill58,252 
Fair value of net assets acquired91,022 
Less cash acquired(1,782)
Net purchase price$89,240 

On November 29, 2022, the measurement period for Atlanta Micro expired. The identifiable intangible assets include customer relationships of $27,310 with a useful life of 20 years, completed technology of $7,260 with a useful life of 8 years and backlog of $410 with a useful life of two years.
The goodwill of $58,252 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 and is not deductible for tax purposes. The goodwill from this acquisition is reported in the Microelectronics reporting unit.

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AVALEX ACQUISITION
On September 27, 2021, the Company signed a definitive agreement to acquire Avalex Technologies, LLC. (“Avalex”) for a purchase price of $155,000, prior to net working capital and net debt adjustments. On November 5, 2021, the transaction closed and the Company acquired Avalex. Based in Gulf Breeze, Florida, Avalex is a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders and warning systems. The Company funded the acquisition with the Revolver. On March 17, 2022, the Company and former owner of Avalex agreed to post closing adjustments totaling $151, which increased the Company's net purchase price.
The following table presents the net purchase price and the fair values of the assets and liabilities of Avalex:
Amounts
Consideration transferred
Cash paid at closing$157,367 
Working capital and net debt adjustment(1,034)
Less cash acquired(2,188)
Net purchase price$154,145 
Fair value of tangible assets acquired and liabilities assumed
Cash$2,188 
Accounts receivable5,363 
Inventory7,141 
Fixed assets1,245 
Other current and non-current assets5,228 
Accounts payable(1,755)
Accrued expenses(1,421)
Other current and non-current liabilities(4,788)
Fair value of net tangible assets acquired13,201 
Fair value of identifiable intangible assets61,360 
Goodwill81,772 
Fair value of net assets acquired156,333 
Less cash acquired(2,188)
Net purchase price$154,145 

On November 5, 2022, the measurement period for Avalex expired. The identifiable intangible assets include customer relationships of $41,880 with a useful life of 9 years, completed technology of $14,430 with a useful life of 7 years and backlog of $5,050 with a useful life of one year.
The goodwill of $81,772 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 goodwill from this acquisition is reported in the Mission Systems reporting unit, formerly referred to as the Processing reporting unit. The Company is amortizing the amount over 15 years for tax purposes. As of March 31, 2023, the Company had $76,068 of goodwill deductible for tax purposes.
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D.Fair Value of Financial Instruments
 Fair Value Measurements
 March 31, 2023Level 1Level 2Level 3
Liabilities:
Interest rate swap$3,244 $— $3,244 $— 
Total$3,244 $— $3,244 $— 
The following table summarizes the Companies' financial instruments measured at fair value on a recurring basis as of September 29, 2023:
 Fair Value Measurements
 September 29, 2023Level 1Level 2Level 3
Liabilities:
Interest rate swap$1,548 $— $1,548 $— 
Total$1,548 $— $1,548 $— 
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 30, 2022,29, 2023, the Company entered into an interest rate hedging agreement (the “Swap”“September 2023 Swap”). Refer to Note O for further information regarding the Swap.
The fair value of the September 2023 Swap is estimated 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 March 31,September 29, 2023, the fair value of the September 2023 Swap was a liability of $3,244$1,548 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.
The following table summarizes the Companies' financial instruments 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 fair value of interest rate hedging agreement entered on September 29, 2022 ("the Swap") is estimated 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 is included within Other non-current assets in the Company's Consolidated Balance Sheets. The Company terminated the Swap during the first quarter ended September 29, 2023.
Refer to Note M for further information regarding the September 2023 Swap and the termination of the Swap.
E.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, historical usage, product mix and possible alternative uses. Inventory was comprised of the following:
As ofAs of
March 31, 2023July 1, 2022September 29, 2023June 30, 2023
Raw materialsRaw materials$235,668 $178,410 Raw materials$235,921 $229,984 
Work in processWork in process83,305 64,287 Work in process101,086 81,930 
Finished goodsFinished goods23,804 27,642 Finished goods25,903 25,302 
TotalTotal$342,777 $270,339 Total$362,910 $337,216 
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F.E.Goodwill
In accordance with FASB ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the 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 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 following table sets forth the changes inThere has been no change to the carrying amount of goodwill forduring the nine monthsfirst quarter ended March 31, 2023September 29, 2023.:
The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.
Total
Balance at July 1, 2022$937,880 
Goodwill adjustment for the Avalex acquisition66 
Goodwill adjustment for the Atlanta Micro acquisition147 
Balance at March 31, 2023$
938,093 
The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.
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G.F.Restructuring
During the thirdfirst quarter and nine months ended March 31,September 29, 2023, the Company incurred $2,778initiated several immediate cost savings measures that simplify the Company’s organizational structure, facilitate clearer accountability, and $6,355align 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 restructuringredundancy between corporate and other charges, respectively. 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 $9,546 of severance costs.
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 certain 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 acquisition integration activities.
Consistent with the Company's definition of restructuring and other charges, 1MPACT is an organizational redesign program initiated on the heels of a series of acquisitions since 2014 rather than a single, discrete acquisition. Since the inception of 1MPACT, the Company has selectively engaged with leading consultants to accelerate solution design and implementation for the highest value workstreams. These costs are associated with this discrete transformation initiative and are non-routine and may not be indicative of ongoing results.
Restructuring and other charges for the third quarter ended March 31, 2023 primarily related to $1,977 of severance costs, 1MPACT related costs consisting of $786 of costs for facility optimization efforts, including $556 related to lease asset impairment, as well as $15 of third party consulting costs.
Restructuring and other charges for the nine months ended March 31, 2023 primarily related to $2,776 of severance costs, 1MPACT related costs consisting of $1,825 of costs for facility optimization efforts, including $1,339 related to lease asset impairment, as well as $1,754 of third party consulting costs.
All of the restructuring and other charges are classified as Operating expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss)Loss and any remaining restructuring obligations are expected to be paid within the next twelve months. The restructuring liability is classified as Accrued expenses in the Consolidated Balance Sheets.
The following table presents the detail of charges included in the Company’s liability for restructuring and other charges:
Severance & RelatedFacilities
& Other		Total
Balance at July 1, 2022$4,722 $— $4,722 
Restructuring charges2,776 486 3,262 
Cash paid(5,312)(448)(5,760)
Balance at March 31, 2023$2,186 $38 $2,224 
15
Severance & Related
Balance at June 30, 2023$1,529 
Restructuring charges9,546 
Cash paid(4,087)
Balance at September 29, 2023$6,988 

H.G.Income Taxes
The Company recorded an income tax (benefit) provisionbenefit of $(10,446)$13,027 and $2,102 on a (loss) income before income taxes of $(5,290) and $6,241 for the third quarters ended March 31, 2023 and April 1, 2022, respectively. The Company recorded an income tax (benefit) provision of $(13,619) and $1,506$1,022 on a loss before income taxes of $33,718$49,735 and $4,134$15,357 for the nine monthsfirst quarters ended March 31,September 29, 2023 and April 1,September 30, 2022, respectively.
For the thirdfirst quarter ended March 31,September 29, 2023, the Company calculated the U.S. income tax benefit using the discrete method which assumesas though the nine monththree-month period was the annual period as this was more appropriate given the facts and circumstances. The Company determined that the application of the estimated annual effective tax rate (“AETR”) method generally required by FASB ASC 740, Income Taxes is impractical given that normal deviations in the projected close to break-even pre-tax net income (loss) could result in a disproportionate and unreliable effective tax rate under the AETR method. The tax benefit for the third quarter ended March 31, 2023 also includes a true-up to the prior quarters due to the change in methodology.
During the third quarter ended March 31, 2023, the Company concluded its income tax audit with the Internal Revenue Service for fiscal years 2016 through 2018 and recognized a tax benefit of $1,335 related to a release of income tax reserves for unrecognized income tax benefits. During the nine months ended March 31, 2023, the Company recognized a tax benefit of $3,683 related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the statute of limitations.
During the nine months ended March 31, 2023 and April 1, 2022, the Company recognized a tax provision of $1,655 and $906 related to stock compensation shortfalls, respectively.
The effective tax rate for the thirdfirst quarter ended September 29, 2023 differed from the federal statutory rate primarily due to federal and nine monthsstate research and development credits and state taxes. The effective tax rate for the first quarter ended March 31, 2023 and April 1,September 30, 2022 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation and state taxes. The effective
During the first quarters ended September 29, 2023 and September 30, 2022, the Company recognized a tax rate for the third quarterprovision of $1,215 and nine months ended March 31, 2023 also differed from the federal statutory rate due$1,611 related to the release of income tax reserves for unrecognized income tax benefits.stock compensation shortfalls, respectively.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022. The Company expects the impact of this legislation to be immaterial.
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Effective for tax years beginning after December 31, 2021, 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.
I.
H.Debt
REVOLVING CREDIT FACILITY
On February 28, 2022, the Company amended the Revolverrevolving credit facility (the "Revolver") to increase and extend the borrowing capacity to a $1,100,000, 5-year revolving credit line, with the maturity extended to February 28, 2027. As of March 31,September 29, 2023, the Company's outstanding balance of unamortized deferred financing costs was $3,681,$3,211, which is being amortized to Other expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss)Loss on a straight line basis over the term of the Revolver.
As of March 31,September 29, 2023, the Company was in compliance with all covenants and conditions under the Revolver and there were outstanding borrowings of $511,500$576,500 against the Revolver, resulting in interest expense of $6,711 and $17,848$7,863 for the thirdfirst quarter and nine months ended March 31,September 29, 2023. The Company had a total of approximately $1,000,000 ofborrowing capacity as defined under the Revolver available as of March 31,September 29, 2023 is approximately $766,500, less outstanding borrowings of $511,500.$576,500. There were outstanding letters of creditcredit of $963 as$963 as of March 31,September 29, 2023.
J.I.Employee Benefit Plan
PENSION 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.
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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 March 31,September 29, 2023 was a net liability of $4,589,$4,073, which is recorded in Other non-current liabilities on the Consolidated Balance Sheet. The Company recorded a net gainloss of $46 and $142$56 in AOCI during the thirdfirst quarter and nine months ended March 31,September 29, 2023. The Company recorded a net gain of $48 and $144 in AOCI during the thirdfirst quarter and nine months April 1,ended September 30, 2022. The Company recognized net periodic benefit costs of $230 and $671$207 associated with the Plan for the thirdfirst quarter and nine months ended March 31, 2023, respectively.September 29, 2023. The Company recognized net periodic benefit costs of $267 and $805$221 associated with the Plan for the thirdfirst quarter and nine months ended April 1, 2022, respectively.September 30, 2022. The Company's total expected employer contributions to the Plan during fiscal 20232024 are $1,093.$1,125.
401(k) Plan
The Company maintains a qualified 401(k) plan (the “401(k) Plan”) for its U.S. employees. Effective in the first quarter of fiscal 2023, the Company increased the rate of its matching contributions from 3% to 6% ofemployees and matches participants' eligible annual compensation and changed the form of these contributions from cashup 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 $1,868$2,501 and $2,705 of capitalized stock-based 401(k) matching compensation expense on the Consolidated Balance Sheet at March 31, 2023.September 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 thirdfirst quarter ended March 31,September 29, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $3,288$4,841 as compared to $2,145 of cash match$3,680 during the thirdfirst quarter ended April 1, 2022. During the nine months ended March 31, 2023, the Company recognized share-based matching contributions related to the 401(k) plan of $9,715 as compared to $5,966 of cash match during the nine months ended April 1,September 30, 2022.

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K.Shareholders' Equity
STOCKHOLDER RIGHTS PLAN
On December 27, 2021, the Company's Board of Directors authorized and declared a dividend of one preferred share purchase right (a “Right”), payable on January 10, 2022, for each outstanding share of common stock par value $0.01 per share to the stockholders of record on that date. Each Right entitled the registered holder to purchase from the Company a unit of Series A Junior Preferred Stock, par value $0.01 per share, of the Company at a designated price per unit, subject to adjustment. The Rights initially trade with, and are inseparable from, the shares of common stock.
On June 24, 2022, the Company amended the Rights Agreement, dated as of December 27, 2021, to increase the ownership threshold for a person to be an “Acquiring Person” (as defined in the Rights Agreement) from 7.5% of common stock to 10% of common stock (10% of common stock to 20% of common stock in the case of a passive institutional investor).
Additional details about the Rights Agreement are contained in the Current Reports on Form 8-K filed by the Company with the SEC on December 29, 2021 and June 24, 2022.
On October 26, 2022 the Stockholder Rights Plan and the Rights thereunder expired.
L.J.Stock-Based Compensation
STOCK INCENTIVE PLANS
At March 31,September 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”). The 2018 Plan replaced the 2005 Plan. The shares 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. Stock options must be granted with an exercise price of not less than 100% of the fair value of the Company’s common stock on the date of grant and the options generally have a term of seven years. There were 2,690598 available shares for future grant under the 2018 Plan at March 31,September 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 2018 Plan. Performance awards vest based on the
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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 generally include the achievement of internal performance targets in relation to a peer group of companies.
EMPLOYEE STOCK PURCHASE PLAN
At March 31,September 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 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 57 and 54no shares issued under the ESPP during the nine monthsfirst quarters ended March 31,September 29, 2023 and April 1,September 30, 2022, respectively. Shares available for future purchase under the ESPP totaled 256168 at March 31,September 29, 2023.
STOCK OPTION 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.

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The following table summarizes activity of the Company's stock option plans since June 30, 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 9/29/23
Outstanding at June 30, 2023— $— $— — — 
Granted934 12.71 45.00 
Exercised— — 
Canceled— — 
Outstanding at September 29, 2023934 $12.71 $45.00 3.42— 
Exercisable at September 29, 2023— $— $— — — 
There was no options vested or exercised during the first quarter ended September 29, 2023. Non-vested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions. As of September 29, 2023, there was $11,351 of total unrecognized compensation cost related to non-vested options granted that is expected to be recognized over a weighted-average period 3.42 years from September 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:
First Quarter Ended
September 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 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 was 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 July 1, 2022:June 30, 2023:
 Non-vested Restricted Stock Awards
 Number of
Shares		Weighted Average
Grant Date
Fair Value
Outstanding at June 30, 20231,339 $54.45 
Granted1,131 36.90 
Vested(187)64.43 
Forfeited(198)52.88 
Outstanding at September 29, 20232,085 $44.28 
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 Non-vested Restricted Stock Awards
 Number of
Shares		Weighted Average
Grant Date
Fair Value
Outstanding at July 1, 20222,305 $57.47 
Granted269 54.52 
Vested(702)60.81 
Forfeited(214)55.74 
Outstanding at March 31, 20231,658 $55.08 
STOCK-BASED COMPENSATION EXPENSE
The Company recognizes expense for its share-based payment plans in the Consolidated Statements of Operations and Comprehensive Income (Loss)Loss in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”). The Company had $1,893$1,188 and $1,229$1,215 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended March 31,September 29, 2023 and July 1, 2022,June 30, 2023, respectively. Under the fair value recognition provisions of 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 Statements of Operations and Comprehensive Income (Loss):Loss:
 Third Quarters EndedNine Months Ended
 March 31, 2023April 1, 2022March 31, 2023April 1, 2022
Cost of revenues$630 $467 $1,666 $1,348 
Selling, general and administrative7,577 6,845 20,732 20,438 
Research and development1,732 1,575 5,048 4,476 
Stock-based compensation expense before tax9,939 8,887 27,446 26,262 
Income taxes(2,684)(2,399)(7,410)(7,091)
Stock-based compensation expense, net of income taxes$7,255 $6,488 $20,036 $19,171 

 First Quarters Ended
 September 29, 2023September 30, 2022
Cost of revenues$816 $799 
Selling, general and administrative1,761 4,878 
Research and development1,540 1,572 
Stock-based compensation expense before tax4,117 7,249 
Income taxes(1,112)(1,957)
Stock-based compensation expense, net of income taxes$3,005 $5,292 
M.K.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. During the first quarter of fiscal 2022, the Company announced its 1MPACT value creation initiative to promote scale as the organization continues to grow.
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The Company evaluated thisits internal reorganizationorganization under FASB ASC 280, Segment Reporting (“ASC 280”) to determine whether thisthere has been a change has impacted the Company'sto its conclusion of a single operating and reportable segment. The Company concluded this change hadthere has been no effectchanges 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 ASC 280.
The geographic distribution of the Company’s revenues as determined by country in which the Company's legal subsidiary is domiciled is summarized as follows:
U.S.EuropeAsia PacificEliminationsTotalU.S.EuropeAsia PacificEliminationsTotal
THIRD QUARTER ENDED MARCH 31, 2023
FIRST QUARTER ENDED SEPTEMBER 29, 2023FIRST QUARTER ENDED SEPTEMBER 29, 2023
Net revenues to unaffiliated customersNet revenues to unaffiliated customers$252,945 $10,525 $9 $— $263,479 Net revenues to unaffiliated customers$171,881 $9,104 $6 $— $180,991 
Inter-geographic revenuesInter-geographic revenues1,794 26 — (1,820)— Inter-geographic revenues1,719 92 — (1,811)— 
Net revenuesNet revenues$254,739 $10,551 $9 $(1,820)$263,479 Net revenues$173,600 $9,196 $6 $(1,811)$180,991 
THIRD QUARTER ENDED APRIL 1, 2022
Net revenues to unaffiliated customers$243,100 $9,216 $759 $— $253,075 
Inter-geographic revenues(729)824 — (95)— 
Net revenues$242,371 $10,040 $759 $(95)$253,075 
NINE MONTHS ENDED MARCH 31, 2023
Net revenues to unaffiliated customers$690,922 $29,708 $16 $— $720,646 
Inter-geographic revenues1,873 398 — (2,271)— 
Net revenues$692,795 $30,106 $16 $(2,271)$720,646 
NINE MONTHS ENDED APRIL 1, 2022
FIRST QUARTER ENDED SEPTEMBER 30, 2022FIRST QUARTER ENDED SEPTEMBER 30, 2022
Net revenues to unaffiliated customersNet revenues to unaffiliated customers$666,336 $31,211 $921 $— $698,468 Net revenues to unaffiliated customers$218,822 $8,752 $5 $— $227,579 
Inter-geographic revenuesInter-geographic revenues2,418 2,152 — (4,570)— Inter-geographic revenues147 204 — (351)— 
Net revenuesNet revenues$668,754 $33,363 $921 $(4,570)$698,468 Net revenues$218,969 $8,956 $5 $(351)$227,579 
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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.
The Company’s products are typically compute-intensive and require extremely high bandwidth and high throughput. These processing solutions often must also meet significant SWaPsize, 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 augmentedchanged its technological capabilities, applications and end markets. As these acquisitions and changes occurred, the Company's proportion of revenue derived from the sale of components in different technological areas, and modules, sub-assemblies and integrated subsystems which combine technologies into more complex diverse products 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 presents the Company's net revenue by end user for the periods presented:
Third Quarters EndedNine Months Ended First Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022 September 29, 2023September 30, 2022
Domestic(1)
Domestic(1)
$238,159 $227,254 $648,948 $603,094 
Domestic(1)
$146,467 $205,830 
International/Foreign Military Sales(2)
International/Foreign Military Sales(2)
25,320 25,821 71,698 95,374 
International/Foreign Military Sales(2)
34,524 21,749 
Total Net RevenueTotal Net Revenue$263,479 $253,075 $720,646 $698,468 Total Net Revenue$180,991 $227,579 
(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 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.
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The following table presents the Company's net revenue by end application for the periods presented:
Third Quarters EndedNine Months EndedFirst Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022 September 29, 2023September 30, 2022
Radar(1)
Radar(1)
$83,853 $50,033 $180,968 $160,109 
Radar(1)
$28,559 $53,408 
Electronic Warfare(2)
Electronic Warfare(2)
35,939 44,010 104,746 110,320 
Electronic Warfare(2)
28,141 35,089 
Other Sensor & Effector(3)
Other Sensor & Effector(3)
20,143 23,768 70,679 77,374 
Other Sensor & Effector(3)
21,166 21,203 
Total Sensor & EffectorTotal Sensor & Effector139,935 117,811 356,393 347,803 Total Sensor & Effector77,866 109,700 
C4I(4)
C4I(4)
104,188 111,282 303,054 285,614 
C4I(4)
91,204 104,041 
Other(5)
Other(5)
19,356 23,982 61,199 65,051 
Other(5)
11,921 13,838 
Total Net RevenueTotal Net Revenue$263,479 $253,075 $720,646 $698,468 Total Net Revenue$180,991 $227,579 
(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 presents the Company's net revenue by product grouping for the periods presented:
Third Quarters EndedNine Months EndedFirst Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022 September 29, 2023September 30, 2022
Components(1)
Components(1)
$53,187 $42,198 $130,263 $108,735 
Components(1)
$37,509 $34,807 
Modules and Sub-assemblies(2)
Modules and Sub-assemblies(2)
55,433 52,719 173,547 134,342 
Modules and Sub-assemblies(2)
37,533 44,004 
Integrated Subsystems(3)
Integrated Subsystems(3)
154,859 158,158 416,836 455,391 
Integrated Subsystems(3)
105,949 148,768 
Total Net RevenueTotal Net Revenue$263,479 $253,075 $720,646 $698,468 Total Net Revenue$180,991 $227,579 
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(1) Components represent the basic building blocks of an electronic system. They generally perform a single function such as switching, storing or converting electronic signals. Some examples include 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 combine multiple components to serve a range of complex functions, including processing, networking and graphics display. Typically delivered as computer boards or other packaging, modules and sub-assemblies are usually designed using open standards to provide interoperability when integrated in a subsystem. Examples of modules and sub-assemblies include embedded processing boards, switched fabrics and boards for high-speed input/output, digital receivers, graphics and video, along with multi-chip modules, integrated radio frequency and microwave multi-function assemblies and radio frequency tuners and transceivers.
(3) Integrated subsystems bring components, modules and/or sub-assemblies into one system, enabled with software. Subsystems are typically, but not always, integrated within an open standards-based chassis and often feature interconnect technologies to enable communication between disparate systems. Spares and replacement modules and sub-assemblies are provided for use with 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:
Third Quarters EndedNine Months EndedFirst Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022September 29, 2023September 30, 2022
Airborne(1)
Airborne(1)
$126,674 $126,176 $364,968 $353,730 
Airborne(1)
$107,734 $127,260 
Land(2)
Land(2)
58,816 38,285 119,483 100,118 
Land(2)
23,650 33,932 
Naval(3)
Naval(3)
39,961 42,725 104,900 116,938 
Naval(3)
26,675 33,735 
Other(4)
Other(4)
38,028 45,889 131,295 127,682 
Other(4)
22,932 32,652 
Total Net RevenuesTotal Net Revenues$263,479 $253,075 $720,646 $698,468 Total Net Revenues$180,991 $227,579 
(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.EuropeAsia PacificEliminationsTotal
March 31, 2023$116,212 $3,270 $— $— $119,482 
July 1, 2022$122,712 $4,476 $3 $— $127,191 
U.S.EuropeTotal
September 29, 2023$114,041 $3,133 $117,174 
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 are as follows:
Third Quarters EndedNine Months Ended First Quarters Ended
March 31, 2023April 1, 2022March 31, 2023April 1, 2022 September 29, 2023September 30, 2022
Lockheed Martin CorporationLockheed Martin Corporation13 %16 %
L3HarrisL3Harris12 %*
Raytheon TechnologiesRaytheon Technologies18 %15 %14 %15 %Raytheon Technologies11 %13 %
Lockheed Martin Corporation13 %*14 %*
U.S. NavyU.S. Navy*12 %
Northrop GrummanNorthrop Grumman11 %*11 %*Northrop Grumman*10 %
U.S. Navy*14 %10 %15 %
42 %29 %49 %30 %
36 %51 %
*    Indicates that the amount is less than 10% of the Company's revenue 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. There were no programs comprising 10% or more of the Company's revenues for the thirdfirst quarters and nine months ended March 31,September 29, 2023 and April 1,September 30, 2022.
N.L.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 business. Although legal proceedings are inherently unpredictable, the Company believes that it has valid defenses with respect to any 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's cash flows, results of operations, or financial position.
In June 2021, Embedded Reps of America, LLC (“ERA”), a former sales representative, and James Mazzola, a principal of ERA, filed for binding arbitration related to the termination of ERA’s sales representative agreement raising multiple claims that aggregate to approximately $9,000 in direct damages, with treble damages requested on a number of those claims. ERA was a sales representative of Themis Computer (“Themis”) when Themis was acquired by Mercury. The sales representative agreement provided for termination by either party upon 30 days written notice with ERA entitled to commissions for orders obtained by ERA with product shipment occurring prior to termination. The Company responded to the complaint in July 2021. An arbitration proceeding was held during September 2022, with final motions in October 2022 and oral arguments in November 2022. The arbitrator issued its final ruling in January 2023, awarding ERA $72 in damages and fees.
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InOn 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 Mercury whichthe Company that was acquired in the Company’sCompany's acquisition of the Microsemi carve-out businessCarve-Out Business that once owned and operated a facility at 531 Main Street, Acton, Massachusetts contributed to the groundwater contamination. NTS is seeking payment byfrom 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 the 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 the 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”). The Company responded and asserted its counterclaims in a filing with the AAA on November 1, 2023. The response by the former CEO is due in mid-November 2023, with further proceedings to be scheduled during 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 our former CEO during the dispute.
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 March 31,September 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 $142,698128,696.
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 Consolidated Statements of Cash Flows.
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O.M.Derivatives
The Company utilizes interest rate derivatives to mitigate interest rate exposure with respect to its financing arrangements. On September 7,29, 2022, the Company entered into an interest ratethe Swap (the “initial Swap”) with JP Morgan Chase Bank, N.A. (“JPMorgan”("JPMorgan") for a notional amount of $300,000 in order to fix the interest rate associated with a portion of the total $511,500 existing borrowings on the Revolver.Revolver at the time of the Swap. The initial Swap agreement was designated and qualified for hedge accounting treatment as a cash flow hedge. The initial Swap matures on February 28, 2027, coterminous with the maturity of the Revolver. The initial Swap established a fixed interest rate on the first $300,000 of the Company's outstanding borrowings against the Revolver obligation at 3.25%3.79%.
On September 29, 2022,28, 2023, the Company terminated the initial Swap. At the time of termination, the fair value of the initial Swap was an asset of $5,995.$7,403. The Company received the cash settlement of $5,995$7,403 and these proceeds are classified within Operating Activities of the Consolidated Statements of Cash Flows. During the third quarter and nine months ended March 31, 2023, the Company amortized $339 and $678, respectively, of the gain, which is included within Other comprehensive income (loss).
Following the termination of the initial Swap, the Company entered a newinto the September 2023 Swap agreement (“the Swap”) on September 29, 202228, 2023 with JPMorgan. The Swap fixesJPMorgan for a notional amount of $300,000 in order to fix the interest rate associated with a portion of the total $511,500$576,500 existing borrowings of outstanding borrowings under theon Company's Revolver at 4.66%. The September 2023 Swap agreement was designated and qualified for hedge accounting treatment as a ratecash flow hedge. The September 2023 Swap matures on February 28, 2027, coterminous with the maturity of 3.79%. the Revolver.
As of March 31,September 29, 2023, the fair value of the hedgeSeptember 2023 Swap was a liability of $3,244$1,548 and is included within Other non-current liabilities in the Company's Consolidated Balance Sheets.
During the first quarter ended September 29, 2023, the Company amortized $339 of the previous unrealized gain associated with an interest swap entered into on September 7, 2022 and terminated on September 29, 2022, which is included within Other comprehensive income.
The market risk associated with the Company’s derivative instrument is the result of interest rate movements that are expected to offset the market risk of the underlying arrangement. The counterparty to the September 2023 Swap is JPMorgan. Based on the credit ratings of the Company’s counterparty as of March 31,September 29, 2023, nonperformance is not perceived to be a material risk. Furthermore, none of the Company’s derivatives are subject to collateral or other security arrangements and none contain provisions that are dependent on the Company’s credit ratings from any credit rating agency. While the contract or notional amounts of derivative 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 their contracts) are generally limited to the amounts, if any, by which the counterparty obligations under the contracts exceed the obligations of the Company to the counterparty. As a result of the above considerations, the Company does not consider the risk of counterparty default to be significant.
P.N.Subsequent Events
The Company has evaluated subsequent events from the date of the Consolidated Balance Sheet through the date the consolidated financial statements were issuedissued.
Due to the uncertainty surrounding a government shutdown or prolonged continuing resolution and noted no items requiring adjustment of the financial statements or additional disclosures.potential impact on the second quarter and fiscal 2024 results, the Company has proactively executed an amendment to its Revolver allowing for a temporary increase in the Consolidated Total Net Leverage Ratio covenant requirement from 4.50 to 5.25 for the second quarter.
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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
From time to time, information provided, statements made by our employees or information included in our filings with the Securities and Exchange Commission (“SEC”) may contain statements that are not historical facts but that are “forward-looking statements,” which involve risks and uncertainties. You can identify these statements by the 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’s markets, effects of epidemics and pandemics such as COVID, effects of any U.S. Federalfederal government shutdown or extended continuing resolution, effects of continued geopolitical unrest and regional conflicts, competition, inflation, 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's 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 or manufacturing execution issues, failure to achieve or maintain manufacturing quality certifications, such as AS9100, the impact of the COVID pandemic and 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 value creationexecution excellence initiatives such as 1MPACT, 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, which difficulties may be enhancedimpacted by ourthe termination of the Company’s announced strategic review initiative, including a potential sale of the Company, unanticipated challenges with the transition of the Company'sCompany’s Chief Executive Officer and Chief Financial Officer role,roles, including any 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) in the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 2022.June 30, 2023. 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 technology company that delivers commercial innovation to rapidly transformprocessing power for the globalmost demanding aerospace and defense industry.missions. Headquartered in Andover, Massachusetts, our end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. Our Processing Platform includestechnologies that comprise our platform include signal solutions, display, software applications, networking, storage and secure processing. Our innovative solutions are mission-ready, trusted and secure, software-defined and open and modular to meetmeeting our customers’ most-pressing high-techcost and schedule needs including those specifictoday by allowing them to the aerospace and defense community.use or modify our products to suit their mission. Customers access our solutions via the Mercury platform,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 the present to the future.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 contractors, the U.S. government and original equipment manufacturers (“OEM”) commercial aerospace companies. We haveMercury has built a trusted, contemporaryrobust portfolio of proven product solutions, leveraging the most advanced commercial silicon technologies and purpose-built for aerospace and defense that we believe meets and exceedsto 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 us.Mercury. Our products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers.
OurMercury’s transformational business model accelerates the process of making new technology profoundly more accessible to our customers by bridging the gap between commercial technology and aerospace and defense applications.applications on time constraints that matter. Our long-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
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secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. We are leading the development and adaptation of commercial
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technology for aerospace and defense solutions. From chip-scale to system scale and from data, including radio frequency (“RF”) to digital to decision, we make mission-critical technologies safe, secure, affordable and relevant for our customers.
Our capabilities, technology, people and R&D investment strategy combine to differentiate usMercury in our industry. We maintain our technological edge by investing in critical capabilities and intellectual property (“IP” or “building blocks”) in processing, leveraging open standards and open architectures to adapt quickly those building blocks into solutions for highly data-intensive applications, including emerging needs in areas such as artificial intelligence (“AI”).
Our mission critical solutions are deployed by our customers for a variety of applications including command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”), electronic intelligence, mission computing avionics, electro-optical/infrared (“EO/IR”), electronic warfare, weapons and missile defense, hypersonics and radar.
Since we conduct much of our business with our defense customers via commercial 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 March 31,September 29, 2023, we had 2,5372,539 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”), and adjusted EBITDA for the thirdfirst quarter ended March 31,September 29, 2023 were $263.5$181.0 million, $5.2$36.7 million, $0.09, $0.40,$0.64, $0.24, and $43.5$2.0 million, respectively. Our consolidated revenues, acquired revenues, net loss, diluted net loss per share, adjusted earnings per share (“adjusted EPS”), and adjusted EBITDA for the nine months ended March 31, 2023 were $720.6 million, $25.1 million, $(20.1) million, $(0.36), $0.89, and $110.3 million. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures.

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RESULTS OF OPERATIONS:
ResultsThere were 13-weeks included in the results of operations for the thirdfirst quarters ended March 31,September 29, 2023 and April 1,September 30, 2022, include full periodrespectively. The results from the acquisitions of Atlanta Micro, Inc (“Atlanta Micro”) and Avalex Technologies, LLC. (“Avalex”). Results of operations for the nine monthsfirst quarter ended March 31,September 29, 2023 and April 1, 2022 include only results from the acquisition date for Avalex and Atlanta Micro which were acquired on November 5, 2021 and November 29, 2021, respectively. Accordingly, the periods presented below are not directly comparable.necessarily indicative of the results to be expected for the full fiscal year.
The thirdfirst quarter ended March 31,September 29, 2023 compared to the thirdfirst quarter ended April 1,September 30, 2022
The following table sets forth, for the thirdfirst quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income (Loss):Loss:
(In thousands)(In thousands)March 31, 2023As a % of
Total Net
Revenue		April 1, 2022As a % of
Total Net
Revenue		(In thousands)September 29, 2023As a % of
Total Net
Revenue		September 30, 2022As a % of
Total Net
Revenue
Net revenuesNet revenues$263,479 100.0 %$253,075 100.0 %Net revenues$180,991 100.0 %$227,579 100.0 %
Cost of revenuesCost of revenues173,190 65.7 153,321 60.6 Cost of revenues130,464 72.1 149,484 65.7 
Gross marginGross margin90,289 34.3 99,754 39.4 Gross margin50,527 27.9 78,095 34.3 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrativeSelling, general and administrative44,626 16.9 39,261 15.5 Selling, general and administrative35,794 19.8 38,943 17.1 
Research and developmentResearch and development26,516 10.1 25,387 10.0 Research and development31,872 17.6 27,766 12.2 
Amortization of intangible assetsAmortization of intangible assets12,809 4.9 16,077 6.4 Amortization of intangible assets12,547 6.9 14,574 6.4 
Restructuring and other chargesRestructuring and other charges2,778 1.1 6,348 2.5 Restructuring and other charges9,546 5.3 1,508 0.7 
Acquisition costs and other related expensesAcquisition costs and other related expenses1,606 0.6 2,726 1.1 Acquisition costs and other related expenses969 0.5 2,498 1.1 
Total operating expensesTotal operating expenses88,335 33.6 89,799 35.5 Total operating expenses90,728 50.1 85,289 37.5 
Income from operations1,954 0.7 9,955 3.9 
Loss from operationsLoss from operations(40,201)(22.2)(7,194)(3.2)
Interest incomeInterest income80 — 110 — Interest income103 0.1 29 — 
Interest expenseInterest expense(6,711)(2.5)(1,664)(0.7)Interest expense(7,863)(4.4)(4,547)(2.0)
Other expense, netOther expense, net(613)(0.2)(2,160)(0.8)Other expense, net(1,774)(1.0)(3,645)(1.5)
(Loss) income before income taxes(5,290)(2.0)6,241 2.4 
Income tax (benefit) provision(10,446)(4.0)2,102 0.8 
Loss before income taxesLoss before income taxes(49,735)(27.5)(15,357)(6.7)
Income tax benefitIncome tax benefit(13,027)(7.2)(1,022)(0.4)
Net income$5,156 2.0 %$4,139 1.6 %
Net lossNet loss$(36,708)(20.3)%$(14,335)(6.3)%
REVENUES
Total revenues increased $10.4decreased $46.6 million, or 4.1%20.5%, to $263.5$181.0 million during the thirdfirst quarter ended March 31,September 29, 2023, as compared to $253.1$227.6 million during the thirdfirst quarter ended April 1,September 30, 2022. These increasesThe decrease was driven by our pivot to enhanced execution, including prioritizing our resource allocation to the completion of our challenged programs, and cash-efficient operating model, which was evidenced by the decrease of approximately $38.7 million in revenue recognized over time which represented 58% of total revenues during the first quarter ended September 29, 2023, as compared to 63% of total revenues during the first quarter ended September 30, 2022.
Specifically, with regard to our challenged programs which are recognized over time, we have recognized a majority of the revenue and related cost as we acquired material and applied labor over the period of performance to progress these programs in prior periods. As we continue to resolve technical challenges and complete these programs, which consumes a significant amount of operational capacity, the remaining revenues on these challenged programs are recognized, however these revenues represent a very small proportion of the total contract value. In addition, as we improve our management systems and focus efforts to more properly balance working capital, we are transitioning to a cash-efficient operating model to better align the timing of material receipts to labor resource availability and hardware delivery needs across our programs now that we have seen less disruption in the supply chain. This transition creates a near-term revenue timing dynamic.
Product grouping decreases were driven by the componentssubsystems and modules and sub-assemblies product groupings which grew $11.0decreased $42.8 million and $2.7$6.5 million, respectively, partially offset by decreasesan increase to integrated subsystemscomponents grouping of $3.3$2.7 million. The increasedecrease in total revenue was primarily driven by an increasethe radar, C4I and electronic warfare end applications decreases of $24.8 million, $12.8 million and $6.9 million, respectively. We experienced decreases across each platform during the first quarter ended September 29, 2023 when compared to the radar end application of $33.8prior period; airborne, land and naval platforms decreased $19.5 million, partially offset by decreases to electronic warfare, C4I, other end applications and other sensor and effector end applications which decreased $8.1 million, $7.1 million, $4.6$10.3 million and $3.6$7.1 million, respectively. The increase was primarily within the land platform which grew $20.5 million, partially offset by decreases across the other and naval platforms of $7.9 million and $2.8 million, respectively, during the third quarter ended March 31, 2023. The largest program increasesdecreases were related to the LTAMDS, P-8 and a secure processing program F-16, a classified C4I program, and F-35 programs.when compared to the prior period. There were no programs comprising 10% or more of our revenues for the thirdfirst quarters ended March 31,September 29, 2023 or April 1,September 30, 2022.
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GROSS MARGIN
Gross margin was 34.3%27.9% for the thirdfirst quarter ended March 31,September 29, 2023, a decrease of 510640 basis points from the 39.4%34.3% gross margin realized during the thirdfirst quarter ended April 1,September 30, 2022. The lower gross margin was primarily driven by program mix as well as product and program execution challenges.related cost growth especially with regard to our challenged programs. Program mix was more heavilyin the first quarter ended September 29, 2023 continued to be weighted towards the execution of our challenged programs, most of which are development in nature, and carry lower gross margins. Certain of our challenged programs trend lower than average on gross margin as a result of costs associated with technical issues. The growth in estimated costs to complete since the prior year has significantly reduced the overall margins recognized on these programs through completion. Program cost growth resulted in an incremental impact of approximately $4.9 million to gross margin, or 410 basis points, when compared to the prior period,period. About $5.9 million of total cost growth impact in the quarter was attributable to the approximately 20 challenged programs, of which carry lower average gross margins as compared$4.7 million related to production programs. These programs warrant higher engineering labor for customized development, production and service activities. The nature of these efforts results in lower margin content, but serve as pre-cursors to higher margin production awards.one program. In addition, we experienced increased costs associated withhigher manufacturing variances primarily related to certain development programs in the final stages of execution resulting in higher than expected labor and material charges in the period.non-recurring cost adjustments as well as inventory reserves.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $5.3decreased $3.1 million, or 13.7%8.1%, to $44.6$35.8 million during the thirdfirst quarter ended March 31,September 29, 2023, as compared to $39.3$38.9 million in the thirdfirst quarter ended April 1,September 30, 2022. The increasedecrease was primarily related to an increasethe savings realized from the reduction in our 401(k) matching contributions from 3% to 6%, increased stockforce initiated on August 9, 2023, a decrease in share-based compensation expense of $0.7$3.1 million as well as an increase in headcount and salary rate increases.lower bonus accrual.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $1.1$4.1 million, or 4.4%14.8%, to $26.5$31.9 million during the thirdfirst quarter ended March 31,September 29, 2023, as compared to $25.4$27.8 million during the thirdfirst quarter ended April 1,September 30, 2022. The increase during the thirdfirst quarter ended March 31,September 29, 2023 was primarily due toan increase in headcount as we returncompared to normalized resource levels following a periodthe first quarter ended September 30, 2022 of higher attrition in the prior year.approximately 30 positions. This increase was partially offset by increased CRADCustomer Funded Research and Development ("CRAD") of $4.2$3.1 million as a result of a higher mix of development programs execution during the thirdfirst quarter ended March 31, 2023.September 29, 2023 as compared to the prior period.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets decreased $3.3$2.0 million to $12.8$12.5 million during the thirdfirst quarter ended March 31,September 29, 2023, as compared to $16.1$14.6 million during the thirdfirst quarter ended April 1,September 30, 2022, primarily due to the backlog intangible from our Avalex and Atlanta Micro acquisitionsacquisition being fully amortized in fiscal 2023.
RESTRUCTURING AND OTHER CHARGES
During the thirdfirst quarter ended March 31,September 29, 2023, we incurred $2.8initiated 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 $9.5 million of restructuring and other charges, as compared to $6.3 million during the third quarter ended April 1, 2022.severance costs. Restructuring and other charges during the thirdfirst quarter ended March 31, 2023 includes $2.0 million related to severance costs and $0.8 million of costs related to facility optimization efforts associated with 1MPACT, including $0.5 million related to lease asset impairment. Restructuring and other charges during the third quarter ended April 1,September 30, 2022 primarily related to 1MPACT including $5.5$1.3 million of third party consulting costs $0.8 million of facility optimization costs and $0.1$0.2 million related to severance costs.
ACQUISITION COSTS AND OTHER RELATED EXPENSES
Acquisition costs and other related expenses were $1.6$1.0 million during the thirdfirst quarter ended March 31,September 29, 2023 as compared to $2.7$2.5 million during the thirdfirst quarter ended April 1,September 30, 2022. The acquisition costs and other related expenses during the thirdfirst quarter ended March 31,September 29, 2023 includes $1.3$0.3 million associated withrelated to the conclusion of the Board of Directors' review of strategic alternatives. We expect to continue to incur such acquisition costs and other related expensesalternatives, as well as $0.3 million for third-party advisory fees in the future as we continue to seek opportunities to enhance shareholder value.connection with engagements by activist investors.
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INTEREST EXPENSE
We incurred $6.7$7.9 million of interest expense during the thirdfirst quarter ended March 31,September 29, 2023, as compared to $1.7$4.5 million during the thirdfirst quarter ended April 1,September 30, 2022. The increase was driven by an increase ina higher interest rate and higher averageadditional outstanding borrowings on our Revolver (the "Revolver"). As of the thirdfirst quarter ended March 31,September 29, 2023, we had total borrowings of $511.5$576.5 million on our Revolver as compared to $451.5$511.5 million of total borrowings as of the thirdfirst quarter ended April 1,September 30, 2022.
OTHER EXPENSE, NET
Other expense, net decreased to $0.6$1.8 million during the thirdfirst quarter ended March 31,September 29, 2023, as compared to $2.2$3.6 million during the thirdfirst quarter ended April 1,September 30, 2022. The thirdfirst quarter ended March 31,September 29, 2023 includes $0.6 million of financing costs, litigation and settlement expenses of $0.3 million, partially offset by net foreign currency translation gains of $0.3 million. The third quarter ended April 1, 2022 includes $0.9 million of financing costs, net foreign currency translation losses of $0.6$1.0 million, and $0.3$0.5 million of financing costs and litigation and settlement expenses.
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expenses of $0.5 million, partially offset by other income of $0.3 million. The first quarter ended September 30, 2022 includes net foreign currency translation losses of $1.8 million, $0.5 million of financing costs, and litigation and settlement expenses of $1.3 million.
INCOME TAXES
We recorded an income tax (benefit) provisionbenefit of $(10.4)$13.0 million and $2.1$1.0 million on a (loss) incomeloss before income taxes of $(5.3)$49.7 million and $6.2$15.4 million for the thirdfirst quarters ended March 31,September 29, 2023 and April 1,September 30, 2022, respectively.
For the thirdfirst quarter ended March 31,September 29, 2023, we calculated ourthe U.S. income tax benefit using the discrete method which assumesas though the nine monththree-month period was the annual period as this was more appropriate given the facts and circumstances. We determined that the application of the estimated annual effective tax rate (“AETR”) method generally required by FASB ASC 740,Income Taxes is impractical given that normal deviations in the projected close to break-even pre-tax net income (loss) could result in a disproportionate and unreliable effective tax rate under the AETR method. The tax benefit for the third quarter ended March 31, 2023 also includes a true-up to the prior quarters due to the change in methodology.
During the third quarter ended March 31, 2023, we concluded the income tax audit with the Internal Revenue Service for fiscal years 2016 through 2018 and recognized a tax benefit of $1.3 million related to a release of income tax reserves for unrecognized income tax benefits.
The effective tax rate for the third quartersfirst quarter ended March 31,September 29, 2023 differed from the federal statutory rate primarily due to federal and April 1,state research and development credits and state taxes. The effective tax rate for the first quarter ended September 30, 2022 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation and state taxes. The effective tax rate for the third quarter ended March 31, 2023 also differed from the federal statutory rate due to the release for previously unrecognized income tax benefits.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022. We expect the impact of this legislation to be immaterial.
Effective for tax years beginning after December 31, 2021, 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. We estimate the cash impact from this provision to be approximately $30 million in fiscal 2023.
Nine months ended March 31, 2023 compared to the nine months ended April 1, 2022
The following table sets forth, for the nine month periods indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income (Loss):
(In thousands)March 31, 2023As a % of
Total Net
Revenue		April 1, 2022As a % of
Total Net
Revenue
Net revenues$720,646 100.0 %$698,468 100.0 %
Cost of revenues471,302 65.4 423,083 60.6 
Gross margin249,344 34.6 275,385 39.4 
Operating expenses:
Selling, general and administrative128,626 17.8 113,027 16.2 
Research and development81,188 11.3 82,604 11.8 
Amortization of intangible assets40,919 5.7 45,813 6.6 
Restructuring and other charges6,355 0.9 22,424 3.2 
Acquisition costs and other related expenses5,043 0.7 7,524 1.1 
Total operating expenses262,131 36.4 271,392 38.9 
(Loss) income from operations(12,787)(1.8)3,993 0.5 
Interest income329 — 124 — 
Interest expense(17,848)(2.5)(3,353)(0.4)
Other expense, net(3,412)(0.4)(4,898)(0.7)
Loss before income taxes(33,718)(4.7)(4,134)(0.6)
Income tax (benefit) provision(13,619)(1.9)1,506 0.2 
Net loss$(20,099)(2.8)%$(5,640)(0.8)%
REVENUES
Total revenues increased $22.2 million, or 3.2%, to $720.6 million during the nine months ended March 31, 2023, as compared to $698.5 million during the nine months ended April 1, 2022. The increase in total revenue was primarily due to
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additional acquired and organic revenues of $19.0 million and $3.2 million, respectively. The increase was driven by higher demand for modules and sub-assemblies and components which increased $39.2 million and $21.5 million, respectively, and was partially offset by a decrease in integrated subsystems of $38.6 million during the nine months ended March 31, 2023. The increase in total revenue was primarily from the radar and C4I end applications which increased $20.9 million and $17.4 million, respectively, and was partially offset by decreases of $6.7 million, $5.6 million and $3.9 million from other sensor and effector, electronic warfare and other end applications, respectively. The increase was primarily across the land, airborne and other platforms which grew $19.4 million, $11.2 million and $3.6 million, respectively, partially offset by a decrease to the naval platform of $12.0 million during the nine months ended March 31, 2023. The largest program increases were related to the LTAMDS, F-35, a secure processing program, F-16 and NDSA programs. There were no programs comprising 10% or more of our revenues for the nine months ended March 31, 2023 or April 1, 2022. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures.
GROSS MARGIN
Gross margin was 34.6% for the nine months ended March 31, 2023, a decrease of 480 basis points from the 39.4% gross margin realized during the nine months ended April 1, 2022. The lower gross margin was primarily driven by program mix as well as product and program execution challenges. Program mix was more heavily weighted towards development programs as compared to the prior period, which carry lower average gross margins as compared to production programs. These programs warrant higher engineering labor for customized development, production and service activities. The nature of these efforts results in lower margin content, but serve as pre-cursors to higher margin production awards. In addition, we experienced increased costs associated with certain development programs in the final stages of execution resulting in higher than expected labor and material charges in the period. Program mix was also impacted by a customer funding delay on a large FMS sale. In connection with our 1MPACT facility optimization efforts, we are exiting certain facilities prior to contractual lease terms and consolidating operations across other existing sites. In addition, as part of our assessment of future benefits of certain long-lived assets, we identified an immaterial correction of an error in the useful lives assigned to certain leasehold improvements resulting in a cumulative adjustment to depreciation expense, which was recorded during the second quarter ended December 30, 2022.
SELLING, GENERALAND ADMINISTRATIVE
Selling, general and administrative expenses increased $15.6 million, or 13.8%, to $128.6 million during the nine months ended March 31, 2023, as compared to $113.0 million during the nine months ended April 1, 2022. The increase was primarily related to a full period of the Avalex and Atlanta Micro acquisitions driving an incremental $1.9 million of expense, an increase in our 401(k) matching contributions from 3% to 6%, increased stock compensation expense of $0.3 million as well as an increase in headcount and salary rate increases.
RESEARCHAND DEVELOPMENT
Research and development expenses decreased $1.4 million, or 1.7%, to $81.2 million during the nine months ended March 31, 2023, as compared to $82.6 million during the nine months ended April 1, 2022. The decrease was primarily related to lower headcount as well as incremental CRAD of $9.4 million, partially offset by an increase in our 401(k) matching contributions from 3% to 6% during the nine months ended March 31, 2023.
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges were $6.4 million during the nine months ended March 31, 2023, as compared to $22.4 million during the nine months ended April 1, 2022. Restructuring and other charges during the nine months ended March 31, 2023 primarily related to 1MPACT including $2.8 million of severance costs, $1.8 million of third party consulting costs, $1.8 million of costs for facility optimization efforts, including $1.3 million related to lease asset impairment. Restructuring and other charges during the nine months ended April 1, 2022 primarily related to $14.1 million of third party consulting costs associated with 1MPACT and $7.5 million of severance costs associated with the elimination of approximately 110 positions across manufacturing, SG&A and R&D based on ongoing talent and workforce optimization efforts. In addition, the nine months ended April 1, 2022 includes $0.8 million of costs for facilities optimization efforts associated with 1MPACT, including $0.5 million related to lease asset impairment.
ACQUISITION COSTSAND OTHER RELATED EXPENSES
Acquisition costs and other related expenses were $5.0 million during the nine months ended March 31, 2023, as compared to $7.5 million during the nine months ended April 1, 2022. The acquisition costs and other related expenses we incurred during the nine months ended March 31, 2023 were primarily related to $2.5 million for third party advisory fees in connection with engagements by activist investors and $1.3 million associated with the Board of Directors' review of strategic alternatives. Acquisition costs during the nine months ended April 1, 2022 were primarily related to the acquisitions of Avalex and Atlanta Micro as well as $2.7 million for third party advisory fees in connection with engagements by activist investors. We
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expect to continue to incur such acquisition costs and other related expenses in the future as we continue to seek opportunities to enhance shareholder value.
INTEREST EXPENSE
We incurred $17.8 million of interest expense during the nine months ended March 31, 2023, as compared to $3.4 million during the nine months ended April 1, 2022. The increase was driven by an increase in interest rate and additional borrowings on our Revolver as compared to the nine months ended April 1, 2022. As of the nine months ended March 31, 2023, we had total borrowings of $511.5 million on our Revolver as compared to $451.5 million of total borrowings as of the nine months ended April 1, 2022.
OTHER EXPENSE, NET
Other expense, net decreased $1.5 million to $3.4 million during the nine months ended March 31, 2023 as compared to $4.9 million during the nine months ended April 1, 2022. There was $1.7 million of both financing costs and litigation and settlement costs, respectively, during the nine months ended March 31, 2023. There was $2.1 million of financing costs, $1.3 million of net foreign currency translation losses and $1.2 million of litigation and settlement expenses during the nine months ended April 1, 2022.
INCOME TAXES
We recorded an income tax (benefit) provision of $(13.6) million and $1.5 million on a loss before income taxes of $33.7 million and $4.1 million for the nine months ended March 31, 2023 and April 1, 2022, respectively.
For the nine months ended March 31, 2023, we calculated our U.S. income tax benefit using the discrete method which assumes the nine month period was the annual period as this was more appropriate given the facts and circumstances. We determined that the application of the estimated annual effective tax rate (“AETR”) method generally required by ASC 740 is impractical given that normal deviations in the projected close to break-even pre-tax net income (loss) could result in a disproportionate and unreliable effective tax rate under the AETR method. The tax benefit for the third quarter ended March 31, 2023 also includes a true-up to the prior quarters due to the change in methodology.
During the nine monthsfirst quarters ended March 31, 2023, we concluded our income tax audit with the Internal revenue service for fiscal years 2016 through 2018 and recognized a tax benefit of $3.7 million related to a release of income tax reserves for unrecognized income tax benefits. During the nine months ended March 31,September 29, 2023 and April 1,September 30, 2022, we recognized a tax provision of $1.7$1.2 million and $0.9$1.6 million related to stock compensation shortfalls, respectively.
The effective tax rate for the nine months ended March 31, 2023 and April 1, 2022 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, stock compensation shortfalls and state taxes. The effective tax rate for the nine months ended March 31, 2023 also differed from the federal statutory rate due to the release of income tax reserves for unrecognized income tax benefits.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on certain stock buybacks after December 31, 2022. We expect the impact of this legislation to be immaterial.
Effective for tax years beginning after December 31, 2021, 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. We estimate the cash outflow from this provision to be approximately $30 million in fiscal 2023.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity come from existing cash and cash generated from operations, our Revolver, our ability to raise capital under our universal shelf registration 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 planhave experienced growth in our working capital balances and, in particular, related to continueunbilled receivables and inventory over the last several years. As we complete our challenged programs and then receive follow-on production awards, both unbilled receivables and inventory will convert to invest in improvementscash reducing our working capital balances to more appropriate operating levels.
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 have proactively executed an amendment to our facilities, continuous evaluation of potential acquisition opportunities and internal R&DRevolver allowing for a temporary increase in the Consolidated Total Net Leverage Ratio covenant requirement from 4.50 to promote future growth, including new opportunities in avionics mission computers, secure processing, radar modernization and trusted custom microelectronics.5.25 for the second quarter.
Based on our current plans and business conditions, we believe that existing cash and cash equivalents, our available Revolver, cash generated from operations and our financing capabilities will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months.
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Shelf Registration Statement
On September 14, 2020,October 4, 2023, we filed a shelf registration statement on Form S-3ASR with the SEC. The shelf registration statement, which was effective upon filing with the SEC, registered each of the following securities: debt securities, preferred stock, common stock, warrants and units. We intend to use the proceeds from financings using the shelf registration statement for general corporate purposes, which may include the following:
•the acquisition of other companies or businesses;
•the repayment and refinancing of debt;
•capital expenditures;
•working capital; and
•other purposes as described in the prospectus supplement.
We have an unlimited amount available under the shelf registration statement.
Revolving Credit Facilities
On February 28, 2022, we amended the Revolver to increase and extend the borrowing capacity to a $1.1 billion, 5-year revolving credit line, with the maturity extended to February 28, 2027. AsThe borrowing capacity as defined under the Revolver as of March 31,September 29, 2023 we had a total ofis approximately $1.0 billion available to us on the Revolver,$766.5 million, less outstanding borrowings of $511.5$576.5 million. See Note IH in the accompanying consolidated financial statements for further discussion of the Revolver.
Receivables Purchase Agreement
On September 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 total amount of purchased receivables held by Bank of the West, less the amount of all collections received on such receivables, may not exceed $20.0 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 amended 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 the West) to increase the capacity from $30.6 million to $60.0 million. We factored accounts receivable and incurred factoring fees of approximately $24.5$28.8 million and $0.3 million, respectively, for the nine monthsfirst quarter ended March 31,September 29, 2023. We did not factor any accounts receivable or incur any factoring fees for the nine monthsfirst quarter ended April 1,September 30, 2022.
CASH FLOWS
As of and For the Nine Months Ended, As of and For the First Quarters Ended,
(In thousands)(In thousands)March 31, 2023April 1, 2022(In thousands)September 29, 2023September 30, 2022
Net cash (used in) provided by operating activities$(33,864)$566 
Net cash used in operating activitiesNet cash used in operating activities$(39,068)$(66,039)
Net cash used in investing activitiesNet cash used in investing activities$(29,800)$(265,945)Net cash used in investing activities$(8,015)$(7,278)
Net cash provided by financing activitiesNet cash provided by financing activities$62,330 $243,638 Net cash provided by financing activities$65,000 $59,937 
Net decrease in cash and cash equivalents$(1,213)$(22,145)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents$17,806 $(13,673)
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$64,441 $91,694 Cash and cash equivalents at end of period$89,369 $51,981 
Our cash and cash equivalents decreasedincreased by $1.2$17.8 million from July 1, 2022June 30, 2023 to March 31,September 29, 2023, primarily as the result of $33.9$65.0 million of borrowings on our Revolver, partially offset by $39.1 million used in operating activities and $30.0$8.0 million invested in purchases of property and equipment, partially offset by $60.0 million of net borrowings on our Revolver and $2.4 million of proceeds from employee stock plans.equipment.
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Operating Activities
During the nine monthsfirst quarter ended March 31,September 29, 2023, we had an outflow of $33.9$39.1 million in cash from operating activities compared to $0.6a $66.0 million generated in cash from operating activitiesoutflow during the nine monthsfirst quarter ended April 1,September 30, 2022. The decreaselower outflow during the first quarter ended September 29, 2023 was primarily due to higher outflows for inventory to support customer delivery schedules for existing and future awards. During the quarter, we experienced some stabilization of the supply chain with more timely receipts of material resulting in higher than expected outflows for inventory. The decrease was also driven by highera $27.0 million inflow from accounts receivable, unbilled receivables and costs in excess of billings as compared to a result$47.3 million outflow during the first quarter ended September 30, 2022. The first quarter ended September 29, 2023 also included cash settlement for termination of development program execution delaysinterest rate swap of $7.4 million, an incremental $1.4 million as well as certain long lead materials required to progress programscompared to the next billing milestone.prior period, and lower outflows of prepaid expenses and other current assets and accounts payable, accrued expenses, and accrued compensation. These decreasesincreases were partially offset by additionalhigher outflows in the current period for inventory and lower deferred revenues and customer advances. Cash paid for interest and income taxes and interest during the nine monthsfirst quarter ended March 31,September 29, 2023 also increased by $16.3$10.4 million and $6.9$2.7 million, respectively, as compared to the nine monthsfirst quarter ended April 1,September 30, 2022 further contributing to the decrease.
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Investing Activities
During the nine monthsfirst quarter ended March 31,September 29, 2023, we invested $29.8$8.0 million, a decreasean increase of $236.1$0.7 million, as compared to $265.9$7.3 million during the nine monthsfirst quarter ended April 1,September 30, 2022 primarily driven by the acquisitions of Avalex and Atlanta Micro. The decrease was also driven by $3.4 million less other investing activities, partially offset by $10.5$0.7 million higher purchases of property and equipment as compared to the nine months ended April 1, 2022.equipment.
Financing Activities
During the nine monthsfirst quarter ended March 31,September 29, 2023, we had $60.0$65.0 million of net borrowings on our Revolver as compared to $251.5$60.0 million of net borrowings during the nine monthsfirst quarter ended April 1,September 30, 2022. We also had $0.1 million of cash payments related to the purchase and retirement of common stock used to settle individual employees’ tax liabilities associated with the annual vesting of restricted stock awards, as compared to $7.7 million in the nine months ended April 1, 2022. The decrease in the payments related to the purchase and retirement of common stock used to settle individual employees’ tax liabilities associated with vesting of restricted stock awards is due to a change in our incentive stock plan tax withholding methods.
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The following is a schedule of our commitments and contractual obligations outstanding at March 31,September 29, 2023:
(In thousands)(In thousands)TotalLess Than
1 Year		1-3
Years		3-5
Years		More Than
5 Years		(In thousands)TotalLess Than
1 Year		1-3
Years		3-5
Years		More Than
5 Years
Purchase obligationsPurchase obligations$142,698 $142,698 $— $— $— Purchase obligations$128,696 $128,696 $— $— $— 
Operating leasesOperating leases94,441 14,013 26,914 23,818 29,696 Operating leases89,184 14,178 26,723 23,492 24,791 
$237,139 $156,711 $26,914 $23,818 $29,696 $217,880 $142,874 $26,723 $23,492 $24,791 
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 $142.7$128.7 million at March 31,September 29, 2023.
We have a liability at March 31,September 29, 2023 of $4.9$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.
As part of our strategy for growth, we continue to explore acquisitions or strategic alliances. The associated acquisition costs incurred in the form of professional fees and services may be material to the future periods in which they occur, regardless of whether the acquisition is ultimately completed.
We may elect from time to time to purchase and subsequently retire shares of common stock in order to settle employees’ tax liabilities associated with vesting of a restricted stock award. These transactions would be treated as a use of cash in financing activities in our Consolidated Statements of Cash Flows.
OFF-BALANCE SHEET ARRANGEMENTS
Other than certain indemnification provisions in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not consolidated in the financial statements. Additionally, we do not have an interest in, or relationships with, any special purpose entities.
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NON-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 EPS, free cash flow, organic revenue and acquired revenue.
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Adjusted EBITDA is defined as net income before other non-operating adjustments, interest income and expense, income taxes, depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, COVID related expenses, and stock-based and other non-cash compensation expense. We use adjusted EBITDA as an important indicator of the operating performance of our business. We use adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our board of directors, determining the portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in our operations and allocating resources to various initiatives and operational requirements. We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period to period without any correlation to underlying operating performance. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our adjusted EBITDA are valuable indicators of our operating performance.
Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted EBITDA financial adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.
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The following table reconciles our net income (loss),loss, the most directly comparable GAAP financial measure, to our adjusted EBITDA:
Third Quarters EndedNine Months Ended First Quarters Ended
(In thousands)(In thousands)March 31, 2023April 1, 2022March 31, 2023April 1, 2022(In thousands)September 29, 2023September 30, 2022
Net income (loss)$5,156 $4,139 $(20,099)$(5,640)
Net lossNet loss$(36,708)$(14,335)
Other non-operating adjustments, netOther non-operating adjustments, net(337)938 (3)1,581 Other non-operating adjustments, net731 1,797 
Interest expense, netInterest expense, net6,631 1,554 17,519 3,229 Interest expense, net7,760 4,518 
Income tax (benefit) provision(10,446)2,102 (13,619)1,506 
Income tax benefitIncome tax benefit(13,027)(1,022)
DepreciationDepreciation11,084 8,388 33,908 24,208 Depreciation10,145 9,127 
Amortization of intangible assetsAmortization of intangible assets12,809 16,077 40,919 45,813 Amortization of intangible assets12,547 14,574 
Restructuring and other chargesRestructuring and other charges2,778 6,348 6,355 22,424 Restructuring and other charges9,546 1,508 
Impairment of long-lived assetsImpairment of long-lived assets— — — — Impairment of long-lived assets— — 
Acquisition, financing and other third party costsAcquisition, financing and other third party costs2,012 3,497 6,185 9,245 Acquisition, financing and other third party costs1,332 2,864 
Fair value adjustments from purchase accountingFair value adjustments from purchase accounting178 16 179 (1,715)Fair value adjustments from purchase accounting177 (176)
Litigation and settlement expense, netLitigation and settlement expense, net366 320 1,741 1,202 Litigation and settlement expense, net503 1,305 
COVID related expensesCOVID related expenses1 182 62 639 COVID related expenses— 61 
Stock-based and other non-cash compensation expenseStock-based and other non-cash compensation expense13,229 8,935 37,172 26,400 Stock-based and other non-cash compensation expense8,951 10,940 
Adjusted EBITDAAdjusted EBITDA$43,461 $52,496 $110,319 $128,892 Adjusted EBITDA$1,957 $31,161 
Adjusted income and adjusted EPS exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. We believe that exclusion of these items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We use these measures along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define adjusted income as net income before other non-operating adjustments, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, 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. 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.

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The following tables reconcile net income (loss)loss and diluted earnings (loss)loss per share, the most directly comparable GAAP measures, to adjusted (loss) income and adjusted EPS:
Third Quarters EndedFirst Quarters Ended
(In thousands, except per share data)(In thousands, except per share data)March 31, 2023April 1, 2022(In thousands, except per share data)September 29, 2023September 30, 2022
Net income and earnings per share$5,156 $0.09 $4,139 $0.07 
Net loss and loss per shareNet loss and loss per share$(36,708)$(0.64)$(14,335)$(0.26)
Other non-operating adjustments, netOther non-operating adjustments, net(337)938 Other non-operating adjustments, net731 1,797 
Amortization of intangible assetsAmortization of intangible assets12,809 16,077 Amortization of intangible assets12,547 14,574 
Restructuring and other chargesRestructuring and other charges2,778 6,348 Restructuring and other charges9,546 1,508 
Impairment of long-lived assetsImpairment of long-lived assets— — Impairment of long-lived assets— — 
Acquisition, financing and other third party costsAcquisition, financing and other third party costs2,012 3,497 Acquisition, financing and other third party costs1,332 2,864 
Fair value adjustments from purchase accountingFair value adjustments from purchase accounting178 16 Fair value adjustments from purchase accounting177 (176)
Litigation and settlement expense, netLitigation and settlement expense, net366 320 Litigation and settlement expense, net503 1,305 
COVID related expensesCOVID related expenses1 182 COVID related expenses— 61 
Stock-based and other non-cash compensation expenseStock-based and other non-cash compensation expense13,229 8,935 Stock-based and other non-cash compensation expense8,951 10,940 
Impact to income taxes(1)
Impact to income taxes(1)
(13,637)(8,248)
Impact to income taxes(1)
(10,758)(5,191)
Adjusted income and adjusted earnings per share$22,555 $0.40 $32,204 $0.57 
Adjusted (loss) income and adjusted (loss) earnings per share(2)
Adjusted (loss) income and adjusted (loss) earnings per share(2)
$(13,679)$(0.24)$13,347 $0.24 
Diluted weighted-average shares outstandingDiluted weighted-average shares outstanding56,896 56,027 Diluted weighted-average shares outstanding57,105 56,347 
(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 a $0.01 impact to the calculation of adjusted earnings per share as a result of this for the first quarter ended September 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 a $0.01 impact to the calculation of adjusted earnings per share as a result of this for the first quarter ended September 30, 2022.
(1) Impact to income taxes is calculated by recasting income before income taxes to include the items involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The recalculation also adjusts for any discrete tax expense or benefit related to the items. The Company continues to calculate the adjusted income tax provision using the AETR method.
Nine Months Ended
(In thousands, except per share data)March 31, 2023April 1, 2022
Net loss and loss per share$(20,099)$(0.36)$(5,640)$(0.10)
Other non-operating adjustments, net(3)1,581 
Amortization of intangible assets40,919 45,813 
Restructuring and other charges6,355 22,424 
Impairment of long-lived assets— — 
Acquisition and financing costs6,185 9,245 
Fair value adjustments from purchase accounting179 (1,715)
Litigation and settlement expense, net1,741 1,202 
COVID related expenses62 639 
Stock-based and other non-cash compensation expense37,172 26,400 
Impact to income taxes(1)
(21,867)(23,221)
Adjusted income and adjusted earnings per share(2)
$50,644 $0.89 $76,728 $1.38 
Diluted weighted-average shares outstanding56,653 55,780 
(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. The Company continues to calculate the adjusted income tax provision using the AETR method.
(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 nine months ended March 31, 2023 and April 1, 2022, respectively.
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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.
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The following table reconciles cash (used in) provided byused in operating activities, the most directly comparable GAAP financial measure, to free cash flow:
Third Quarters EndedNine Months Ended First Quarters Ended
(In thousands)(In thousands)March 31, 2023April 1, 2022March 31, 2023April 1, 2022(In thousands)September 29, 2023September 30, 2022
Net cash (used in) provided by operating activities$(3,217)$(4,252)$(33,864)$566 
Net cash used in operating activitiesNet cash used in operating activities$(39,068)$(66,039)
Purchase of property and equipmentPurchase of property and equipment(9,446)(6,072)(29,950)(19,476)Purchase of property and equipment(8,015)(7,328)
Free cash flowFree cash flow$(12,663)$(10,324)$(63,814)$(18,910)Free cash flow$(47,083)$(73,367)
Organic revenue and acquired revenue are non-GAAP measures for reporting the financial 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 acquired companies for the first four full quarters since the entities’ acquisition date (which excludes intercompany transactions). Acquired revenue represents revenue from acquired companies for the 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 comparable historical periods.
The following tables reconcile the most directly comparable GAAP financial measure to the non-GAAP financial measure for the thirdfirst quarters and nine monthsfirst quarters ended March 31,September 29, 2023 and April 1,September 30, 2022, respectively:
(In thousands)(In thousands)March 31, 2023As a % of
Total Net
Revenue		April 1, 2022As a % of
Total Net
Revenue		$ Change% Change(In thousands)September 29, 2023As a % of
Total Net
Revenue		September 30, 2022As a % of
Total Net
Revenue		$ Change% Change
Organic revenueOrganic revenue$263,479 100 %$253,075 100 %$10,404 4 %Organic revenue$180,991 100 %$227,579 100 %$(46,588)(20)%
Acquired revenueAcquired revenue— — %— — %— 100 %Acquired revenue— — %— — %— — %
Total revenuesTotal revenues$263,479 100 %$253,075 100 %$10,404 4 %Total revenues$180,991 100 %$227,579 100 %$(46,588)(20)%
(In thousands)March 31, 2023As a % of
Total Net
Revenue		April 1, 2022As a % of
Total Net
Revenue		$ Change% Change
Organic revenue$695,578 97 %$692,424 99 %$3,154 — %
Acquired revenue25,068 3 %6,044 1 %19,024 100 %
Total revenues$720,646 100 %$698,468 100 %$22,178 3 %
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note B to our consolidated financial statements (under the caption "Recently Issued Accounting Pronouncements").
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note B to our consolidated financial statements (under the caption "Recently Adopted Accounting Pronouncements").
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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in our exposure to market risk from July 1, 2022June 30, 2023 to March 31,September 29, 2023.
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 interim 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 interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31,September 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 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31,September 29, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
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 ourself 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.
In June 2021, Embedded Reps of America, LLC (“ERA”), a former sales representative, and James Mazzola, a principal of ERA, filed for binding arbitration related to the termination of ERA’s sales representative agreement raising multiple claims that aggregate to approximately $9 million in direct damages, with treble damages requested on a number of those claims. ERA was a sales representative of Themis when Themis was acquired by Mercury. The sales representative agreement provided for termination by either party upon 30 days written notice with ERA entitled to commissions for orders obtained by ERA with product shipment occurring prior to termination. We responded to the complaint in July 2021. An arbitration proceeding was held during September 2022, with final motions in October 2022 and oral arguments in November 2022. The arbitrator issued its final ruling in January 2023, awarding ERA less than $0.1 million in damages and fees.
InOn 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 whichthat was acquired in our acquisition of the Microsemi carve-out businessCarve-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 the 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”). We responded and asserted our counterclaims in a filing with the AAA on November 1, 2023. The response by our former CEO is due in mid-November 2023, with further proceedings to be scheduled during 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.
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 July 1, 2022.June 30, 2023. There have been no changes from the factors disclosed in our 20222023 Annual Report on Form 10-K filed on August 16, 2022,15, 2023, although we may disclose changes to such factors from time to time in our future filings with the Securities and Exchange Commission.
ITEM 5.     OTHER INFORMATION
During the quarter ended September 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
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.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
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 Exhibit 101)
 +    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 May 9,November 7, 2023.
MERCURY SYSTEMS, INC.
By: 
/S/    MICHELLE M. MCCARTHYDAVID E. FARNSWORTH
 Michelle M. McCarthyDavid E. Farnsworth
 SeniorExecutive Vice President,
 Chief Accounting Officer, Chief Financial Officer (interim) and Treasurer (interim)

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