Mercury Systems Inc.

11/10/2026 | Press release | Distributed by Public on 11/10/2026 16:07

Quarterly Report for Quarter Ending October 2, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
From time to time, information provided, statements made by our employees or information included in our filings with the Securities and Exchange Commission ("SEC") may contain statements that are not historical facts but that are "forward-looking statements," which involve risks and uncertainties. You can identify these statements by the words "may," "will," "could," "should," "would," "plans," "expects," "anticipates," "continue," "estimate," "project," "intend," "likely," "forecast," "probable," "potential," and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, cost increases, our inability to increase production and deliver products on time and with appropriate quality, continued funding of defense programs, the timing and amounts of such funding, general economic and business conditions, including unforeseen weakness in our markets, effects of any U.S. federal government shutdown or extended continuing resolution, effects of increasingly volatile geopolitical events and regional conflicts, competition, changes in technology and methods of marketing, delays in or cost increases related to completing development, engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in, or in the U.S. government's interpretation of, federal export control or procurement rules and regulations, including tariffs, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of our products, shortages or delays in receiving components, supply chain delays or volatility for critical components, production delays or unanticipated expenses including due to quality issues or manufacturing execution issues, failure to meet contractual performance specifications, adherence to required manufacturing standards, capacity underutilization, increases in scrap or inventory write-offs, failure to achieve or maintain manufacturing quality certifications, such as AS9100, failure to achieve or maintain qualified business systems, such as those required by the DFARS, adverse findings in government audits or investigations, the impact of supply chain disruption, inflation and labor shortages, among other things, on program execution and the resulting effect on customer satisfaction, inability to fully realize the expected benefits from acquisitions, restructurings, and operational efficiency initiatives or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, effects of shareholder activism, increases in interest rates, changes to industrial security and cyber-security regulations and requirements and impacts from any cyber or insider threat events, including the risks from heightened, persistent, and increasingly sophisticated nation-state level cyberattacks and emerging threats associated with agentic AI-enabled cyber tools, changes in tax rates or tax regulations, changes to interest rate swaps or other cash flow hedging arrangements, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, litigation, including the state law claim related to our settled federal securities class action lawsuit, unanticipated costs under fixed-price service and system integration engagements, and various other factors beyond our control. These risks and uncertainties also include such additional risk factors as are discussed in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended July 3, 2026. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
OVERVIEW
Mercury Systems is a global leader in aerospace and defense electronics, providing breakthrough capabilities in signal and data processing. With a four-decade legacy of innovation that spans silicon to systems and radio frequency ("RF") front ends to effectors, we accelerate commercial technology adoption to deliver powerful and secure mission-critical processing solutions to the edge. We are headquartered in Andover, Massachusetts, and have multiple locations worldwide. Our end-to-end processing ecosystem, the Mercury Processing Platform, is built on technologies we have developed and acquired over 40 years. Our technologies are available as standard products or custom solutions from silicon to system scale to ensure interoperability, reduced complexity, optimized performance and speed development.
As a leading manufacturer of essential components, modules and subsystems, we sell to the top U.S. and European defense prime contractors, the U.S. government and original equipment manufacturers ("OEM") commercial aerospace companies. Our customers deploy our solutions for a variety of applications including sensor and radar processing, electronic warfare, avionics, weapons, and command, control, communications, computers, and intelligence ("C4I"). We deliver a trusted, robust portfolio of proven capabilities, built on the most advanced commercial silicon technologies to exceed the performance needs of our defense and commercial customers.
Our capabilities, technology, people, culture and research and development ("R&D") strategy all differentiate Mercury in the aerospace and defense industry. We maintain our technological edge by investing in the critical building blocks of processing, developing valuable IP and embracing open standards and architectures. This lets us rapidly shape these building blocks into products and solutions for highly data-intensive missions, including emerging areas like artificial intelligence ("AI") processing at the edge.
As of October 2, 2026, we had 2,057 employees. We employ hardware and software architects and design engineers, primarily engaged in engineering and research and product development activities to achieve our objectives to fully capitalize upon and maintain our technological leads in the high-performance, real-time sensor processing industry and in mission computing, platform management and other safety-critical applications. Our talent attraction, engagement and retention is critical to execute on our long-term strategy. We invest in our culture and values to drive employee engagement that turns ideas into action, delivering trusted and secure solutions at the speed of innovation. We believe that our success depends on our ability to foster a company-wide culture that values a broad range of solutions to problems, a wide array of skills and experiences, and multiple perspectives. We are committed to providing an inclusive environment that respects the varied backgrounds and viewpoints of our employees. We believe that the workforce required to grow our business and deliver creative solutions must be rich in diverse thought and experience. Our initiatives focus on building and maintaining the talent that will create cohesive and collaborative teams that drive innovation. By adhering to these values, it will help our employees to realize their full potential at work to provide Innovation That Matters®.
Our consolidated revenues, net income, diluted net income per share, adjusted earnings per share ("adjusted EPS"), and adjusted EBITDA for the first quarter ended October 2, 2026 were $253.2 million, $13.1 million, $0.21, $0.52, and $56.4 million, respectively.
RESULTS OF OPERATIONS:
There were 13 weeks included in the results of operations for the first quarters ended October 2, 2026 and September 26, 2025, respectively. The results for the first quarter ended October 2, 2026 are not necessarily indicative of the results to be expected for the full fiscal year.
The first quarter ended October 2, 2026 compared to the first quarter ended September 26, 2025
The following table sets forth, for the first quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income (Loss):
(In thousands) October 2, 2026 As a % of
Total Net
Revenue 		September 26, 2025 As a % of
Total Net
Revenue
Net revenues $ 253,153 100.0 % $ 225,209 100.0 %
Cost of revenues 163,965 64.8 162,310 72.1
Gross margin 89,188 35.2 62,899 27.9
Operating expenses:
Selling, general and administrative 43,029 17.0 45,906 20.3
Research and development 16,051 6.3 13,184 5.9
Amortization of intangible assets 9,303 3.7 10,259 4.6
Restructuring and other charges 2,018 0.8 1,584 0.7
Acquisition costs and other related expenses 253 0.1 563 0.2
Total operating expenses 70,654 27.9 71,496 31.7
Income (loss) from operations 18,534 7.3 (8,597) (3.8)
Interest income 1,327 0.5 2,027 0.9
Interest expense (5,406) (2.1) (7,886) (3.5)
Other expense, net (1,147) (0.4) (2,080) (1.0)
Income (loss) before income tax provision (benefit) 13,308 5.3 (16,536) (7.4)
Income tax provision (benefit) 220 0.1 (4,021) (1.8)
Net Income (loss) $ 13,088 5.2 % $ (12,515) (5.6) %
REVENUES
Total revenues increased $27.9 million, or 12.4%, to $253.2 million during the first quarter ended October 2, 2026, as compared to $225.2 million during the first quarter ended September 26, 2025. Over time revenue and point in time revenue each represented 50% of total revenues during the first quarter ended October 2, 2026, an increase of $18.4 million and $9.5 million, respectively, as compared to the first quarter ended September 26, 2025. Point in time revenue and over time revenue represented 52% and 48% respectively, of total revenues during the first quarter ended September 26, 2025.
Revenue increases were driven by the components, integrated solutions, as well as the modules and sub-assemblies product groupings which increased $17.8 million, $9.0 million, and $1.1 million, respectively, during the first quarter ended October 2, 2026, when compared to the prior period. The increase in total revenue was primarily driven by the radar, electronic warfare, other sensor and effector, as well as other end applications with increases of $26.5 million, $12.8 million, $10.5 million, and $1.3 million respectively, partially offset by C4I which decreased $23.2 million. The increase in total revenue was also driven by the Land, Other, Naval, and Airborne platforms with increases of $15.8 million, $5.8 million, $4.0 million, and $2.2 million, respectively. The largest program increases were related to LTAMDS, Patriot, F-16, F-15, and an airborne processing program, partially offset by decreases in SCAR, F-35, and an electronic warfare program when compared to the prior period. There were no programs comprising 10% or more of our revenues for the first quarters ended October 2, 2026 or September 26, 2025.
GROSS MARGIN
Gross margin was 35.2% for the first quarter ended October 2, 2026, an increase of 730 basis points from the 27.9% gross margin realized during the first quarter ended September 26, 2025. The higher gross margin was driven by program mix, lower inventory reserves of $5.4 million, and lower net estimate at completion ("EAC") change impact on our programs recognized over time of approximately $3.1 million recorded in the quarter, an incremental improvement of approximately $1.0 million, or 60 basis points, when compared to the prior period. These decreases were partially offset by higher scrap of $0.8 million.
We had the following aggregate effects of favorable and unfavorable margin impacts as a result of changes in estimates across our portfolio for the period presented:
First Quarters Ended
(in thousands) October 2, 2026 September 26, 2025
Gross favorable $ 9,039 $ 8,455
Gross unfavorable (12,098) (12,505)
Net impact of changes in estimates $ (3,059) $ (4,050)
The changes in estimates are assessed based on historical results and cumulative adjustments are recorded to recognize revenue to date based on changes in estimated margin on programs, including impact of contract amendments factored for potential risks and opportunities. We utilize the latest and best information available when revising our estimates and apply consistent judgment across the full portfolio of programs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased $2.9 million, or 6.3%, to $43.0 million during the first quarter ended October 2, 2026, as compared to $45.9 million in the first quarter ended September 26, 2025. The decrease was primarily driven by lower litigation and settlement, compensation, and facilities expense of $6.1 million, $1.2 million, and $0.3 million, respectively. The lower compensation expense was driven by headcount reductions of approximately 30 employees as a result of workforce reductions initiated in fiscal 2026 and the first quarter ended October 2, 2026. These decreases were partially offset by higher stock compensation, software licensing fees, outside commissions, and bad debt expense of $3.0 million, $0.6 million, $0.5 million, and $0.5 million, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $2.9 million, or 21.7%, to $16.1 million during the first quarter ended October 2, 2026, as compared to $13.2 million during the first quarter ended September 26, 2025. The increase was primarily driven by higher engineering utilization on internal projects of $2.9 million.
AMORTIZATION OF INTANGIBLE ASSETS
We recognized $9.3 million of amortization of intangible assets during the first quarter ended October 2, 2026, as compared to $10.3 million during the first quarter ended September 26, 2025. The decrease from the prior period is primarily due to various customer relationship intangibles being fully amortized in fiscal 2026.
RESTRUCTURING AND OTHER CHARGES
We incurred $2.0 million of restructuring and other charges during the first quarter ended October 2, 2026, as compared to $1.6 million during the first quarter ended September 26, 2025. Restructuring and other charges during the first quarter ended October 2, 2026 were primarily related to severance related charges of $1.5 million associated with a workforce reduction initiated during the quarter that eliminated approximately 35 positions, predominantly in manufacturing, SG&A, and R&D, $0.3 million of exit costs for the closure of two of our facility leases, as well as $0.2 million of information systems transformation costs. Restructuring and other charges during the first quarter ended September 26, 2025 were primarily related to severance related charges associated with a workforce reduction initiated during the quarter that eliminated approximately 40 positions.
ACQUISITION COSTS AND OTHER RELATED EXPENSES
There were an immaterial amount of acquisition costs and other related expenses during the first quarters ended October 2, 2026 and September 26, 2025.
We could incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our technological capabilities and especially within the sensor and effector and C4I markets. Transaction costs incurred by the acquiree prior to the consummation of an acquisition would not be reflected in our historical results of operations.
INTEREST INCOME
We recognized $1.3 million of interest income during the first quarter ended October 2, 2026, as compared to $2.0 million during the first quarter ended September 26, 2025. The decrease was driven by lower average cash and cash equivalents during the period.
INTEREST EXPENSE
We incurred $5.4 million of interest expense during the first quarter ended October 2, 2026, as compared to $7.9 million during the first quarter ended September 26, 2025. The decrease was driven by lower average borrowings on our existing credit facility (the "Revolver").
OTHER EXPENSE, NET
Other expense, net was $1.1 million during the first quarter ended October 2, 2026, as compared to $2.1 million during the first quarter ended September 26, 2025. The first quarter ended October 2, 2026 includes $0.6 million of financing costs and $0.5 million of net foreign currency transaction losses. The first quarter ended September 26, 2025 includes $0.9 million of financing costs, $0.8 million net foreign currency transaction losses, and $0.4 million of securities class action expense.
INCOME TAXES
We recorded an income tax provision of $0.2 million and an income tax benefit of $4.0 million on income before income taxes of $13.3 million and losses before income taxes of $16.5 million for the first quarters ended October 2, 2026 and September 26, 2025, respectively.
For the first quarter ended October 2, 2026, we calculated the U.S. income tax provision using the discrete method as though the three-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.
During the first quarters ended October 2, 2026 and September 26, 2025, we recognized tax benefits of $5.4 million and $1.1 million related to stock compensation windfalls, respectively.
The effective tax rate for the first quarters ended October 2, 2026 and September 26, 2025 differed from the federal statutory rate primarily due to stock compensation windfalls, non-deductible compensation, state taxes, and federal and state research and development credits.
We continue to maintain a valuation allowance on all of our foreign net operating loss carryforwards and the majority of our state research and developmental tax credit carryforwards. Based on forecasted taxable income and the scheduled reversal of the remaining deferred tax assets, we believe it is more likely than not that all other deferred tax assets will be recognized.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity come from existing cash and cash generated from operations, our Revolver, and our ability to raise capital under our universal shelf registration statement. Our near-term fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments. Our working capital balance, which we define as Total current assets less Cash and cash equivalents and Total current liabilities, as of October 2, 2026 was $490.9 million, as compared to $430.6 million as of July 3, 2026.
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.
Shelf Registration Statement
On October 4, 2023, we filed a shelf registration statement on Form S-3ASR with the SEC. The shelf registration statement, which was effective upon filing with the SEC, registered each of the following securities: debt securities, preferred stock, common stock, warrants and units. We intend to use the proceeds from financings using the shelf registration statement for general corporate purposes, which may include the following:
•the acquisition of other companies or businesses;
•the repayment and refinancing of debt;
•capital expenditures;
•working capital; and
•other purposes as described in the prospectus supplement.
We have an unlimited amount available under the shelf registration statement. We anticipate renewing our shelf registration statement during the second quarter of fiscal 2027.
Revolving Credit Facilities
We have an $850.0 million revolving credit facility that matures on November 4, 2030. The borrowing capacity as defined under the Revolver as of October 2, 2026 is the total availability of $850.0 million less outstanding borrowings of $341.5 million and outstanding letters of credit of $6.2 million. During the first quarter ended October 2, 2026, we made payments of $100.0 million on the Revolver with no additional borrowings. As of October 2, 2026, we were in compliance with all covenants and conditions under the Revolver.
On November 4, 2025, we executed Amendment No. 7 to the Revolver. This amendment extended the maturity date of the credit facility by five years to November 4, 2030 with a facility size of $850.0 million.
See Note I in the accompanying consolidated financial statements for further discussion of the Revolver.
Receivables Purchase Agreement
On June 1, 2026, we entered into a $100.0 million committed RPA. The RPA has an initial term of one year. Pursuant to the RPA, the counterparty committed to purchase receivables at a discount from a list of certain of our customers, maintaining a balance of purchased receivables at or below $100.0 million. We had $98.6 million of factored accounts receivable, of which $91.6 million was included within Accounts receivable, net of allowance for credit losses on our Consolidated Balance Sheet and $7.0 million was recorded in Due to factoring facility on our Consolidated Balance Sheet as of October 2, 2026. We incurred factoring fees of approximately $0.5 million during the first quarter ended October 2, 2026. We had $51.1 million of factored accounts receivable, of which $45.5 million was included within Accounts receivable, net of allowance for credit losses on our Consolidated Balance Sheet and $5.6 million was recorded in Due to factoring facility on our Consolidated Balance Sheet as of September 26, 2025. We incurred factoring fees of approximately $0.4 million during the first quarter ended September 26, 2025.
Share Repurchase Agreement
On November 3, 2025, the Board of Directors authorized a share repurchase program for the purchase of up to $200.0 million of our outstanding common stock. The program has no expiration date and repurchases may be made through open market or privately negotiated transactions from time to time at prevailing market prices. The timing and amount of repurchases will depend on market conditions and other factors. Repurchased shares are accounted for as authorized and unissued shares. All share repurchases are made in accordance with Rule 10b-18. During the first quarter ended October 2, 2026, no shares of our common stock was repurchased under the share repurchase program. As of October 2, 2026, there was $185.0 million available for future share repurchases under this share repurchase program.
CASH FLOWS
As of and For the First Quarters Ended,
(In thousands) October 2, 2026 September 26, 2025
Net cash (used in) provided by operating activities $ (13,966) $ 2,182
Net cash used in investing activities $ (10,413) $ (6,548)
Net cash used in financing activities $ (80,152) $ -
Net decrease in cash and cash equivalents $ (104,627) $ (4,383)
Cash and cash equivalents at end of period $ 109,679 $ 304,716
Our cash and cash equivalents decreased by $104.6 million from July 3, 2026 to October 2, 2026, as the result of the $100.0 million repayment on the Revolver, $14.0 million of cash used in operating activities, and $10.4 million invested in purchases of property and equipment, partially offset by $19.8 million of proceeds from stock option exercises.
Operating Activities
During the first quarter ended October 2, 2026, we had an outflow of $14.0 million in cash from operating activities compared to a $2.2 million inflow during the first quarter ended September 26, 2025. The outflow during the first quarter ended October 2, 2026 was primarily due to an outflow of $17.5 million from accounts receivable, unbilled receivables, and costs in excess of billings, as compared to an inflow of $20.1 million in the prior period, an outflow of $10.4 million due to accounts payable, accrued expenses, accrued compensation, and due to factoring, as compared to an inflow of $20.9 million in the prior period, and a $20.1 million greater outflow from inventory. This activity was partially offset by a lower outflow of $33.7 million from prepaid expenses and other current assets. The outflow of cash from operating activities was also partially offset by net income of $13.1 million, as compared to a net loss of $12.5 million in the prior period.
Investing Activities
During the first quarter ended October 2, 2026, we invested $10.4 million, an increase of $3.9 million, as compared to $6.5 million during the first quarter ended September 26, 2025 due to higher purchases of property and equipment.
Financing Activities
During the first quarter ended October 2, 2026, we made payments of $100.0 million on the Revolver and received $19.8 million of proceeds from stock option exercises. During the first quarter ended September 26, 2025, we had no financing cash flows.
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The following is a schedule of our commitments and contractual obligations outstanding at October 2, 2026:
(In thousands) Total Less Than
1 Year 		1-3
Years 		3-5
Years 		More Than
5 Years
Purchase obligations $ 359,012 $ 332,247 $ 22,515 $ 4,250 $ -
Operating leases 63,349 16,129 25,662 16,422 5,136
$ 422,361 $ 348,376 $ 48,177 $ 20,672 $ 5,136
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 aggregated approximately $359.0 million at October 2, 2026. We are experiencing higher levels of purchase obligations in an effort to secure materials to support execution on performance obligations.
We have a liability at October 2, 2026 of $3.5 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.
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, and free cash flow.
Adjusted EBITDA is defined as net income before other non-operating adjustments, interest income and expense, income taxes, depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, and stock-based and other non-cash compensation expense. We use adjusted EBITDA as an important indicator of the operating performance of our business. We use adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our board of directors, determining the portion of bonus compensation for executive officers and other key employees based on operating performance, evaluating short-term and long-term operating trends in our operations and allocating resources to various initiatives and operational requirements. We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period to period without any correlation to underlying operating performance. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. We believe that trends in our adjusted EBITDA are valuable indicators of our operating performance.
Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenses similar to the adjusted EBITDA financial adjustments described above, and investors should not infer from our presentation of this non-GAAP financial measure that these costs are unusual, infrequent or non-recurring.
The following table reconciles our net income (loss), the most directly comparable GAAP financial measure, to our adjusted EBITDA:
First Quarters Ended
(In thousands) October 2, 2026 September 26, 2025
Net income (loss) $ 13,088 $ (12,515)
Other non-operating adjustments, net 584 748
Interest expense, net 4,079 5,859
Income tax provision (benefit) 220 (4,021)
Depreciation 8,486 8,654
Amortization of intangible assets 9,303 10,259
Restructuring and other charges 2,018 1,584
Impairment of long-lived asset - -
Acquisition, financing and other third party costs 750 1,317
Fair value adjustments from purchase accounting 131 131
Litigation and settlement expense, net 545 7,224
Stock-based and other non-cash compensation expense 17,191 16,328
Adjusted EBITDA $ 56,395 $ 35,568
Adjusted income and adjusted EPS exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. We believe that exclusion of these items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry. These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. We use these measures along with the corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define adjusted income as net income before other non-operating adjustments, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, and stock-based and other non-cash compensation expense. The impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision. Adjusted EPS expresses adjusted income on a per share basis using weighted average diluted shares outstanding.
Adjusted income and adjusted EPS are non-GAAP financial measures and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. We expect to continue to incur expenses similar to the adjusted income and adjusted EPS financial adjustments described above, and investors should not infer from our presentation of these non-GAAP financial measures that these costs are unusual, infrequent or non-recurring.
The following table reconciles net income (loss) and diluted earnings (loss) per share, the most directly comparable GAAP measures, to adjusted income and adjusted EPS:
First Quarters Ended
(In thousands, except per share data) October 2, 2026 September 26, 2025
Net income (loss) and earnings (loss) per share $ 13,088 $ 0.21 $ (12,515) $ (0.21)
Other non-operating adjustments, net 584 748
Amortization of intangible assets 9,303 10,259
Restructuring and other charges 2,018 1,584
Impairment of long-lived assets - -
Acquisition, financing and other third party costs 750 1,317
Fair value adjustments from purchase accounting 131 131
Litigation and settlement expense, net 545 7,224
Stock-based and other non-cash compensation expense 17,191 16,328
Impact to income taxes(1)
(11,605) (9,516)
Adjusted income and adjusted earnings per share(2)
$ 32,005 $ 0.52 $ 15,560 $ 0.26
Diluted weighted-average shares outstanding 61,623 60,140
(1) Impact to income taxes is calculated by recasting income before income taxes to include the items involved in determining adjusted income and recalculating the income tax provision using this adjusted income from operations before income taxes. The recalculation also adjusts for any discrete tax provision or benefit related to the items.
(2) Adjusted earnings per share is calculated using diluted shares whereas Net loss per share is calculated using basic shares. There was no impact to the calculation of adjusted earnings per share as a result of this for the first quarter ended September 26, 2025.
Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less capital expenditures for property and equipment, which includes capitalized software development costs. We believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation. We believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity.
Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. We expect to continue to incur expenditures similar to the free cash flow adjustment described above, and investors should not infer from our presentation of this non-GAAP financial measure that these expenditures reflect all of our obligations which require cash.
The following table reconciles cash (used in) provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow:
First Quarters Ended
(In thousands) October 2, 2026 September 26, 2025
Net cash (used in) provided by operating activities $ (13,966) $ 2,182
Purchase of property and equipment (10,413) (6,548)
Free cash flow $ (24,379) $ (4,366)
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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