Company: MRCY
Filing Date: 2025-08-11
Form Type: 10-K
Source: 0001049521-25-000024
Chunk: 29

Company: MERCURY SYSTEMS INC
Filing Date: 2025-08-11
Form: 10-K
Item: Item 1A
Chunk 29
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 customer or program order patterns;

•production delays due to quality problems;

•failure to achieve or maintain quality certifications, such as AS9100;

•nonconformity with contractual or other requirements, including the need to respond to corrective action requests;

•inability to scale quick reaction capability products due to low product volume;

•shortages and increased costs of components;

•excess and obsolescence of inventory;

•delays due to the implementation of new tariffs or other trade barriers;

•the timing of product line transitions;

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•declines in quarterly revenues from previous generations of products following announcement of replacement products containing more advanced technology; and

•changes in estimates of completion (EAC) on fixed price engagements, which represent a substantial percentage of our business.

In addition, from time to time, we have entered into contracts, referred to as development contracts, to engineer a specific solution based on modifications to standard products. Gross margins from development contract revenues are typically lower than gross margins from standard product revenues. We intend to continue to enter into development contracts and anticipate that the gross margins associated with development contract revenues will continue to be lower than gross margins from standard product sales.

Many of our contracts require that our facilities remain certified at the AS9100 or ISO9001 level in order to ship products from the relevant facility. Failure to obtain or maintain the required certification may require a waiver by the customer for shipments to continue until the certification is obtained. There can be no assurance that we will receive any customer waivers if a required certification is lost or delayed. 

Another factor contributing to fluctuations in our quarterly results is the fixed nature of expenditures on personnel, facilities, and information technology. Expense levels for these programs are based, in significant part, on expectations of future revenues. If actual quarterly revenues are below management’s expectations, our results of operations could be adversely affected.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us 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. Over time revenue recognition is more reliant on estimates than the accounting for our component sales. Changes in estimates of completion ("EACs") on fixed price engagements, which represent a substantial percentage of our business, also requires judgement, including in assessing risks, estimating contract revenue and costs, and predicting future performance. Actual results could differ from those estimates, and changes in estimates in subsequent periods could