mrcy-20250926

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 26, 2025


☐			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, 2025: 60,100,136 shares.

MERCURY SYSTEMS, INC.

INDEX


		PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of September 26, 2025 and June 27, 2025	3

	Consolidated Statements of Operations and Comprehensive Loss for the first quarters ended September 26, 2025 and September 27, 2024	4

	Consolidated Statements of Shareholders’ Equity for the first quarters ended September 26, 2025 and September 27, 2024	5

	Consolidated Statements of Cash Flows for the first quarters ended September 26, 2025 and September 27, 2024	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	34

Item 5.	Other Information	34

Item 6.	Exhibits	36

	Signatures	37

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MERCURY SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	September 26, 2025		June 27, 2025
Assets
Current assets:
Cash and cash equivalents	$	304,716	$	309,099

Accounts receivable, net of allowance for credit losses of $1,832 and $1,767 at September 26, 2025 and June 27, 2025, respectively	92,648		109,588
Unbilled receivables and costs in excess of billings, net of allowance for credit losses of $5,311 for both September 26, 2025 and June 27, 2025	274,835		278,475
Inventory	340,246		332,920

Prepaid income taxes	1,389		457
Prepaid expenses and other current assets	70,789		27,639

Total current assets	1,084,623		1,058,178

Property and equipment, net	102,634		101,440
Goodwill	938,093		938,093
Intangible assets, net	200,407		210,611
Operating lease right-of-use assets, net	53,869		52,264
Deferred tax assets	72,861		69,016
Other non-current assets	5,105		5,162

Total assets	$	2,457,592	$	2,434,764
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	97,814	$	79,116

Accrued expenses	75,331		43,143
Accrued compensation	23,540		51,321

Deferred revenues and customer advances	125,498		126,797


Total current liabilities	322,183		300,377


Income taxes payable	4,046		4,046
Long-term debt	591,500		591,500
Operating lease liabilities	53,630		52,738
Other non-current liabilities	11,224		12,642

Total liabilities	982,583		961,303
Commitments and contingencies (Note M)
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding	—		—
Common stock, $0.01 par value; 85,000,000 shares authorized; 59,426,779 and 59,003,174 shares issued and outstanding at September 26, 2025 and June 27, 2025, respectively	594		590
Additional paid-in capital	1,301,397		1,287,478
Retained earnings	169,380		181,895
Accumulated other comprehensive income	3,638		3,498
Total shareholders’ equity	1,475,009		1,473,461
Total liabilities and shareholders’ equity	$	2,457,592	$	2,434,764

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 26, 2025		September 27, 2024
Net revenues	$	225,209	$	204,431
Cost of revenues	162,310		152,641
Gross margin	62,899		51,790
Operating expenses:
Selling, general and administrative	45,906		33,153
Research and development	13,184		18,383
Amortization of intangible assets	10,259		11,235
Restructuring and other charges	1,584		2,260

Acquisition costs and other related expenses	563		177
Total operating expenses	71,496		65,208
Loss from operations	(8,597)		(13,418)
Interest income	2,027		544
Interest expense	(7,886)		(8,906)
Other expense, net	(2,080)		(1,339)
Loss before income tax benefit	(16,536)		(23,119)
Income tax benefit	(4,021)		(5,594)
Net loss	$	(12,515)	$	(17,525)





Basic net loss per share	$	(0.21)	$	(0.30)
Diluted net loss per share	$	(0.21)	$	(0.30)

Weighted-average shares outstanding:
Basic	59,191		58,260
Diluted	59,191		58,260

Comprehensive loss:
Net loss	$	(12,515)	$	(17,525)
Change in fair value of derivative instruments, net of tax	(256)		(5,885)
Foreign currency translation adjustments	437		(320)
Deferred compensation and pension benefit plan, net of tax	(41)		(54)
Total other comprehensive income (loss), net of tax	140		(6,259)
Total comprehensive loss	$	(12,375)	$	(23,784)

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 26, 2025
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount
Balance at June 27, 2025	59,003	$	590	$	1,287,478	$	181,895	$	3,498	$	1,473,461
Issuance of common stock under employee stock incentive plans	345	3		(3)		—		—		—

Issuance of common stock under defined contribution plan	79	1		5,205		—		—		5,206

Stock-based compensation	—	—		8,717		—		—		8,717
Net loss	—	—		—		(12,515)		—		(12,515)
Other comprehensive income	—	—		—		—		140		140
Balance at September 26, 2025	59,427	$	594	$	1,301,397	$	169,380	$	3,638	$	1,475,009


	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

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 26, 2025		September 27, 2024
Cash flows from operating activities:
Net loss	$	(12,515)	$	(17,525)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	18,913		21,220
Stock-based compensation expense	9,573		6,092
Stock-based matching contributions on defined contribution plan	6,750		4,432
Benefit for deferred income taxes	(3,855)		(7,847)




Provision for bad debt	(36)		218
Other non-cash items	288		2,707

Changes in operating assets and liabilities:
Accounts receivable, unbilled receivables, and costs in excess of billings	20,138		(6,148)
Inventory	(12,129)		(13,907)
Prepaid income taxes	(933)		(63)
Prepaid expenses and other current assets	(35,317)		1,982
Other non-current assets	(2,097)		1,840
Accounts payable, accrued expenses, and accrued compensation	20,893		(27,004)
Deferred revenues and customer advances	(8,339)		21,239
Income taxes payable	8		978
Other non-current liabilities	840		(2,874)
Net cash provided by (used in) operating activities	2,182		(14,660)
Cash flows from investing activities:

Purchases of property and equipment	(6,548)		(6,236)



Net cash used in investing activities	(6,548)		(6,236)
Cash flows from financing activities:






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




Net cash used in financing activities	—		(2,249)
Effect of exchange rate changes on cash and cash equivalents	(17)		747
Net decrease in cash and cash equivalents	(4,383)		(22,398)
Cash and cash equivalents at beginning of period	309,099		180,521
Cash and cash equivalents at end of period	$	304,716	$	158,123
Cash paid (refunded) during the period for:
Interest	$	8,523	$	8,898
Income taxes paid (refunded), net	$	486	$	(923)
Supplemental disclosures—non-cash activities:
Non-cash investing activity: Purchases of property and equipment incurred but not yet paid	$	3,298	$	3,300

Non-cash investing activity: Inventory transfer to property and equipment, net	$	4,444	$	—

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 global technology company that delivers mission-critical processing 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 bring integrated, mission-critical processing to the edge. The Company's processing platform spans the full breadth of signal processing—from radio frequency (“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 27, 2025, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on August 11, 2025. The results for the first quarter ended September 26, 2025 are not necessarily indicative of the results to be expected for the full fiscal year.

The 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 2026 are to the quarter ended September 26, 2025. There were 13 weeks during the first quarters ended September 26, 2025 and September 27, 2024, 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, and Spain. 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 August 13, 2024, the Company entered into a $60,000 committed receivables purchase and servicing agreement (“RPSA”). The RPSA has an initial term of two years. Pursuant to the RPSA, the counterparty 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 $45,468 and $419 of factored accounts receivables and factoring fees, respectively, for the first quarter ended September 26, 2025. The Company had $43,659 and $362 of factored accounts receivables and factoring fees, respectively, for the first quarter ended September 27, 2024.

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 26, 2025.

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 52% and 45% of revenues for the first quarters ended September 26, 2025 and September 27, 2024, 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.

Total revenue recognized over time was 48% and 55% of total revenues for the first quarters ended September 26, 2025 and September 27, 2024, respectively.

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 26, 2025		September 27, 2024
Loss from operations	$	(4,050)	$	(8,293)
Net loss(1)	$	(2,957)	$	(6,054)
Diluted net loss per share	$	(0.05)	$	(0.10)
Diluted Shares	59,191		58,260
(1) Federal and state statutory rate of 27%

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 L 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 $274,835 and $278,475 as of September 26, 2025 and June 27, 2025, respectively. The contract asset balance decreased due to $111,295 of billings, partially offset by revenue recognized under over time contracts of $107,655 during the first quarter ended September 26, 2025. The contract liability balances were $125,871 and $127,605 as of September 26, 2025 and June 27, 2025, respectively. The contract liability decreased due to the timing of revenue recognized across multiple programs.

Revenue recognized for the first quarter ended September 26, 2025 that was included in the contract liability balance at June 27, 2025 was $39,642. 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.

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 26, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was $782,643. 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 F). 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 27, 2025	$	2,945
Accruals for warranties issued during the period	704
Settlements made during the period	(897)
Balance at September 26, 2025	$	2,752

WEIGHTED-AVERAGE SHARES

Weighted-average shares were calculated as follows:


	First Quarters Ended
	September 26, 2025	September 27, 2024
Basic weighted-average shares outstanding	59,191	58,260
Effect of dilutive equity instruments	—	—
Diluted weighted-average shares outstanding	59,191	58,260

Equity instruments to purchase 2,590 and 2,694 shares of common stock were not included in the calculation of diluted net loss per share for the first quarters ended September 26, 2025 and September 27, 2024, respectively, because the equity instruments were anti-dilutive.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures, an amendment of the FASB Accounting Standard Codification. The amendments in this ASU address improvements to disclosures surrounding operating expenses, including purchases of inventory, employee compensation, depreciation, amortization, and depletion, which are all normally included in common expense captions on the face of the income statement. Any expenses remaining in relevant expense captions that are not disaggregated should be accompanied with a qualitative disclosure as to their nature. This ASU is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In May 2025, the FASB issued ASU No. 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU are intended to clarify guidance surrounding who the accounting acquirer is in a business combination, specifically when a Variable Interest Entity ("VIE") is involved. The ASU is effective for fiscal years beginning after December 15, 2026, and all interim periods within applicable annual periods, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU affect entities that apply the practical expedient and accounting policy election (if applicable) when estimating expected credit losses on current accounts receivable and/or current contract assets arising from transactions under Topic 606, including those assets acquired in a transaction accounted for under Topic 805, Business Combinations. The ASU is effective for fiscal years beginning after December 15, 2025, and all interim periods within applicable annual periods, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal Use Software, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU apply to all entities subject to the internal-use software guidance in Subtopic 350-40. The main provisions are improving operability of the guidance and removing references of different software development stages to remain neutral to different methods. The ASU is effective for fiscal years beginning after December 15, 2027, and all interim periods within applicable annual periods, with early adoption permitted at beginning of annual reporting period. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Effective June 28, 2025, the company adopted 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. The adoption of this update did not have a material impact on the Company's consolidated financial statements but will result in expanded income tax disclosures in the Company's annual financial statements for the fiscal period ending July 3, 2026.

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 26, 2025:


	Fair Value Measurements
	September 26, 2025		Level 1		Level 2		Level 3
Liabilities:



Interest rate swap	$	4,778	$	—	$	4,778	$	—

Total measured at fair value	$	4,778	$	—	$	4,778	$	—

The carrying values of cash and cash equivalents, including money market funds, restricted cash, accounts receivable and payable, contract assets and liabilities and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The Company determined the carrying value of long-term debt approximated fair value due to variable interest rates charged on the borrowings, which reprice frequently.

During the first quarter ended September 29, 2023, the Company entered into an interest rate hedging agreement (the “September 2023 Swap”). The fair value of the 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 September 26, 2025, the fair value of the September 2023 Swap was a liability of $4,778 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 27, 2025:


	Fair Value Measurements
	June 27, 2025		Level 1		Level 2		Level 3
Liabilities:
Interest rate swap	$	5,391	$	—	$	5,391	$	—
Total measured at fair value	$	5,391	$

SEC Form 10-Q filed by Mercury Systems Inc