mrcy-20240927

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 September 27, 2024


☐			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: 001-41194

________________________________________________________________

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
ANDOVER	MA
(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 Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	MRCY	Nasdaq 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

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 October 31, 2024: 59,632,512 shares.

MERCURY SYSTEMS, INC.

INDEX


		PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of September 2 7 , 2024 and June 28 , 202 4	3

	Consolidated Statements of Operations and Comprehensive Loss for the first quarters ended September 2 7 , 2024 and September 29 , 2023	4

	Consolidated Statements of Shareholders’ Equity for the first quarters ended September 2 7 , 2024 and September 29 , 2023	5

	Consolidated Statements of Cash Flows for the first quarters ended September 2 7 , 2024 and September 2 9 , 2023	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

	Signatures	38

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERCURY SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	September 27, 2024		June 28, 2024
Assets
Current assets:
Cash and cash equivalents	$	158,123	$	180,521

Accounts receivable, net of allowance for credit losses of $1,989 and $2,020 at September 27, 2024 and June 28, 2024, respectively	124,546		111,441
Unbilled receivables and costs in excess of billings, net of allowance for credit losses of $5,311 and $6,340 at September 27, 2024 and June 28, 2024, respectively	298,270		304,029
Inventory	351,088		335,300


Prepaid expenses and other current assets	22,289		22,493

Total current assets	954,316		953,784

Property and equipment, net	105,059		110,353
Goodwill	938,093		938,093
Intangible assets, net	239,306		250,512
Operating lease right-of-use assets, net	58,359		60,860
Deferred tax assets	66,362		58,612
Other non-current assets	7,486		6,691

Total assets	$	2,368,981	$	2,378,905
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	74,741	$	81,068

Accrued expenses	42,548		42,926
Accrued compensation	18,098		36,398
Income taxes payable	1,115		109
Deferred revenues and customer advances	96,292		73,915


Total current liabilities	232,794		234,416


Income taxes payable	7,713		7,713
Long-term debt	591,500		591,500
Operating lease liabilities	59,798		62,584
Other non-current liabilities	17,335		9,917

Total liabilities	909,140		906,130
Commitments and contingencies (Note L)
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding	—		—
Common stock, $0.01 par value; 85,000,000 shares authorized; 58,454,728 and 58,093,528 shares issued and outstanding at September 27, 2024 and June 28, 2024, respectively	584		581
Additional paid-in capital	1,253,249		1,242,402
Retained earnings	202,274		219,799
Accumulated other comprehensive income	3,734		9,993
Total shareholders’ equity	1,459,841		1,472,775
Total liabilities and shareholders’ equity	$	2,368,981	$	2,378,905

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

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

(Unaudited)


	First Quarters Ended
	September 27, 2024		September 29, 2023
Net revenues	$	204,431	$	180,991
Cost of revenues	152,641		130,464
Gross margin	51,790		50,527
Operating expenses:
Selling, general and administrative	33,153		35,794
Research and development	18,383		31,872
Amortization of intangible assets	11,235		12,547
Restructuring and other charges	2,260		9,546

Acquisition costs and other related expenses	177		969
Total operating expenses	65,208		90,728
Loss from operations	(13,418)		(40,201)
Interest income	544		103
Interest expense	(8,906)		(7,863)
Other expense, net	(1,339)		(1,774)
Loss before income tax benefit	(23,119)		(49,735)
Income tax benefit	(5,594)		(13,027)



Net loss	$	(17,525)	$	(36,708)





Basic net loss per share	$	(0.30)	$	(0.64)





Diluted net loss per share	$	(0.30)	$	(0.64)

Weighted-average shares outstanding:
Basic	58,260		57,105
Diluted	58,260		57,105

Comprehensive loss:
Net loss	$	(17,525)	$	(36,708)
Change in fair value of derivative instruments, net of tax	(5,885)		1,742
Foreign currency translation adjustments	(320)		420
Pension benefit plan, net of tax	(54)		(56)
Total other comprehensive (loss) income, net of tax	(6,259)		2,106
Total comprehensive loss	$	(23,784)	$	(34,602)

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

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	For the First Quarter Ended September 27, 2024
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount
Balance at June 28, 2024	58,094	$	581	$	1,242,402	$	219,799	$	9,993	$	1,472,775
Issuance of common stock under employee stock incentive plans	235	2		(2)		—		—		—

Issuance of common stock under defined contribution plan	126	1		4,511		—		—		4,512

Stock-based compensation	—	—		6,338		—		—		6,338
Net loss	—	—		—		(17,525)		—		(17,525)
Other comprehensive loss	—	—		—		—		(6,259)		(6,259)
Balance at September 27, 2024	58,455	$	584	$	1,253,249	$	202,274	$	3,734	$	1,459,841


	For the First Quarter Ended September 29, 2023
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount
Balance at June 30, 2023	56,962	$	570	$	1,196,847	$	357,439	$	11,829	$	1,566,685
Issuance of common stock under employee stock incentive plans	187	2		(2)		—		—		—

Issuance of common stock under defined contribution plan	125	1		4,637		—		—		4,638

Stock-based compensation	—	—		4,091		—		—		4,091
Net loss	—	—		—		(36,708)		—		(36,708)
Other comprehensive income	—	—		—		—		2,106		2,106
Balance at September 29, 2023	57,274	$	573	$	1,205,573	$	320,731	$	13,935	$	1,540,812

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

MERCURY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	First Quarters Ended
	September 27, 2024		September 29, 2023
Cash flows from operating activities:
Net loss	$	(17,525)	$	(36,708)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	21,220		22,692
Stock-based compensation expense	6,092		4,117
Stock-based matching contributions on defined contribution plan	4,432		4,841
Benefit for deferred income taxes	(7,847)		(12,795)




Provision for bad debt	218		36
Other non-cash items	2,707		150
Cash settlement for termination of interest rate swap	—		7,403
Changes in operating assets and liabilities:
Accounts receivable, unbilled receivables, and costs in excess of billings	(6,148)		27,046
Inventory	(13,907)		(27,630)
Prepaid income taxes	(63)		(765)
Prepaid expenses and other current assets	1,982		(1,813)
Other non-current assets	1,840		2,315
Accounts payable, accrued expenses, and accrued compensation	(27,004)		(13,020)
Deferred revenues and customer advances	21,239		1,760
Income taxes payable	978		(13,863)
Other non-current liabilities	(2,874)		(2,834)
Net cash used in operating activities	(14,660)		(39,068)
Cash flows from investing activities:

Purchases of property and equipment	(6,236)		(8,015)



Net cash used in investing activities	(6,236)		(8,015)
Cash flows from financing activities:

Borrowings under credit facilities	—		65,000




Payments of deferred financing and offering costs	(2,249)		—




Net cash (used in) provided by financing activities	(2,249)		65,000
Effect of exchange rate changes on cash and cash equivalents	747		(111)
Net (decrease) increase in cash and cash equivalents	(22,398)		17,806
Cash and cash equivalents at beginning of period	180,521		71,563
Cash and cash equivalents at end of period	$	158,123	$	89,369
Cash paid (received) during the period for:
Interest	$	8,898	$	6,417
Income taxes (refunded) paid, net	$	(923)	$	14,568
Supplemental disclosures—non-cash activities:
Non-cash investing activity: Purchases of property and equipment incurred but not yet paid	$	3,300	$	6,192

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

MERCURY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data)

(Unaudited)

A.Description of Business

Mercury Systems, Inc. (the Company) is a technology company that delivers mission-critical processing power to the edge - where signals and data are collected - to solve the most pressing aerospace and defense challenges. Mercury’s products and solutions are deployed in more than 300 programs and across 35 countries. The Company is headquartered in Andover, Massachusetts, and has over 20 locations worldwide.

The Mercury Processing Platform is the unique advantage the Company provides to its customers. It comprises the innovative technologies the Company has developed and acquired for more than 40 years that brings integrated, mission-critical processing capabilities to the edge. The Company's processing platform spans the full breadth of signal processing—from RF front end to the human-machine interface—to rapidly convert meaningful data, gathered in the most remote and hostile environments, into critical decisions. It allows the Company to offer standard products and custom solutions from silicon to system scale, including components, modules, subsystems, and systems, and it embodies the customer-centric approach the Company takes to delivering capabilities that are mission-ready, trusted and secure, software-defined, and open and modular.

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 June 28, 2024, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 13, 2024. The results for the first quarter ended September 27, 2024 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 first quarter of fiscal 2025 are to the quarter ended September 27, 2024. There were 13 weeks during the first quarters ended September 27, 2024 and September 29, 2023, 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.

FOREIGN CURRENCY

Local currencies are the functional currency for the Company’s subsidiaries in Switzerland, the United Kingdom, 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 (“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 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.

ACCOUNTS RECEIVABLES FACTORING

On September 27, 2022, the Company executed an uncommitted receivables purchase agreement (“RPA”), 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 the party has no obligation to purchase any receivables from the Company. Pursuant to the RPA, the party 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 the party, 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 RPA, 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 to increase the capacity from $30,600 to $60,000. On August 13, 2024, the Company terminated the RPA in conjunction with entering into a new receivables purchase and service agreement.

On August 13, 2024, the Company entered into a $60,000 committed receivables purchase and servicing agreement (“RPSA”) with a new party. The RPSA has an initial term of two years. Pursuant to the RPSA, the new party has committed to purchase receivables from a certain number of agreed upon customers, maintaining a balance of purchased receivables at or below $60,000. Under the RPSA, a portion of the factored receivables is paid by the counterparty in cash and classified as a deferred purchase price receivable, which is paid as receivables are collected by the Company.

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 factored receivables 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 Loss.

The Company had $43,659 and $362 of factored accounts receivables and factoring fees, respectively, for the first quarter ended September 27, 2024. At September 27, 2024, the Company had $18,835 of factored receivables included in Accounts receivable, net allowance for credit losses on Consolidated Balance Sheet. The Company had $28,826 and $308 of factored accounts receivables and factoring fees, respectively, for the first quarter ended September 29, 2023.

DERIVATIVES

The Company records the fair value of its derivative financial instruments in its 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 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 September 27, 2024.

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 solutions. 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. 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 solutions 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 45% and 42% of revenues for the first quarters ended September 27, 2024 and September 29, 2023, respectively.

The Company also engages in contracts for development, production and service activities and recognizes revenue for performance obligations over time. These over time contracts involve the design, development, manufacture, or modification of complex modules and sub-assemblies or integrated solutions 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.

Accounting for contracts recognized over time requires significant judgment relative to estimating total contract revenues and costs. In particular, this includes assumptions relative to the amount of time to complete the contract and the assessment of the nature and complexity of the work to be performed and the impact of contract amendments which may result in cumulative adjustments. The Company's estimates are based upon the professional knowledge and experience of its engineers, operations, program managers and other personnel, who review each over time contract monthly to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods. The aggregate effects of these favorable and unfavorable changes across the Company’s portfolio of programs can have a significant effect upon its reported Loss from operations, Net loss and Diluted net loss per share in each of the reporting periods. The net impact of changes in estimates had the following impact on the Company’s operating results:


	First Quarters Ended
(In thousands, except per share data)	September 27, 2024		September 29, 2023
Loss from operations	$	(8,293)	$	(16,463)
Net loss (1)	$	(6,054)	$	(12,018)
Diluted net loss per share	$	(0.10)	$	(0.21)
Diluted Shares	58,260		57,105
(1) Federal and state statutory rate of 27%

Total revenue recognized over time was 55% and 58% of total revenues for the first quarters ended September 27, 2024 and September 29, 2023, respectively.

The Company generally does not provide 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 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 K for disaggregation of revenue for the period.

CONTRACT BALANCES

Contract balances result from the timing of revenue recognized, billings and cash collections resulting in the generation of contract assets and liabilities. Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Instead, while the Company has an enforceable right to payment as progress is made over performance obligations, billings to customers are generally predicated on (i) completion of defined milestones, (ii) monthly costs incurred or (iii) final delivery of goods or services. Contract assets are presented as Unbilled receivables and costs in excess of billings, net of allowance for credit losses 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 $298,270 and $304,029 as of September 27, 2024 and June 28, 2024, respectively. The contract asset balance decreased due to $117,865 of billings, offset by revenue recognized under over time contracts of $112,106 during the first quarter ended September 27, 2024. The contract liability balances were $96,859 and $74,367 as of September 27, 2024 and June 28, 2024, respectively. The contract liability increased due to a higher volume of milestone billing events as well as timing of revenue recognized across multiple programs.

Revenue recognized for the first quarter ended September 27, 2024 that was included in the contract liability balance at June 28, 2024 was $26,411. Revenue recognized for the first quarter ended September 29, 2023 that was included in the contract liability balance at June 30, 2023 was $21,015.

REMAINING PERFORMANCE OBLIGATIONS

The Company includes in its computation of remaining performance obligations customer orders for which it has accepted executed 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 September 27, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $765,775. The Company expects to recognize approximately 54% 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.

GOODWILL AND INTANGIBLE ASSETS

Goodwill is the amount by which the purchase price of a business acquisition exceeded the fair values of the net identifiable assets on the date of purchase (see Note E). In accordance with the requirements of Intangibles-Goodwill and Other (“ASC 350”), goodwill is not amortized. Goodwill is assessed for impairment at least annually, on a reporting unit basis, or when events and circumstances (“triggering event”) occur indicating that the recorded goodwill may be impaired. Potential triggering events include macroeconomic conditions, industry and market considerations, financial performance and expectations of projected financial performance and cash flows, and changes in the Company's stock price in relation to the carrying value of its reporting units, among other relevant factors. Adverse changes to these events and circumstances could require the Company to perform an interim impairment test.

Intangible assets result from the Company’s various business acquisitions and certain licensed technologies, and consist of identifiable intangible assets, including completed technology, licensing agreements, patents, customer relationships, trademarks, backlog and non-compete agreements. Intangible assets are reported at cost, net of accumulated amortization and

are either amortized on a straight-line basis over their estimated useful lives of up to 12.5 years or over the period the economic benefits of the intangible asset are consumed.

PRODUCT WARRANTY ACCRUAL

The Company’s product sales generally include a 12 to 36 month standard hardware warranty. At time of product shipment, the Company accrues for the estimated cost to repair or replace potentially defective products. Estimated warranty costs are based upon prior actual warranty costs for substantially similar transactions and any specifically identified warranty requirements. Product warranty accrual is included as part of accrued expenses in the accompanying Consolidated Balance Sheets. The following table presents the changes in the Company's product warranty accrual.


	Total
Balance at June 28, 2024	$	5,721
Accruals for warranties issued during the period	97
Settlements made during the period	(998)
Balance at September 27, 2024	$	4,820

WEIGHTED-AVERAGE SHARES

Weighted-average shares were calculated as follows:


	First Quarters Ended
	September 27, 2024	September 29, 2023
Basic weighted-average shares outstanding	58,260	57,105
Effect of dilutive equity instruments	—	—
Diluted weighted-average shares outstanding	58,260	57,105

Equity instruments to purchase 2,694 and 1,912 shares of common stock were not included in the calculation of diluted net loss per share for the first quarters ended September 27, 2024 and September 29, 2023, respectively, because the equity instruments were anti-dilutive.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU address improvements to reportable segment disclosure requirements, specifically requiring disclosure of significant segment expenses. The amendment also extends certain annual disclosures to interim periods, and clarifies that single reportable segment entities must apply ASC 280 in its entirety, inclusive of this update. This ASU is effective for fiscal years beginning after December 15, 2023, as well as all interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, including adoption in an interim period. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Improvement to Income Tax Disclosures, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU enact new income tax disclosure requirements in addition to modifying existing requirements. The amendment requires entities to categorize and provide greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

The Company has evaluated all issued accounting pronouncements and determined there were no recently adopted accounting pronouncements.

C.Fair Value of Financial Instruments

The following table summarizes the Companies' financial instruments measured at fair value on a recurring basis as of September 27, 2024:

Fair Value Measurements

September 27, 2024

Level 1

Level 2

Level 3

Liabilities:

SEC Form 10-Q filed by Mercury Systems Inc