Company: MRCY
Filing Date: 2025-05-06
Form Type: 10-Q
Source: 0001049521-25-000017
Chunk: 123

Company: MERCURY SYSTEMS INC
Filing Date: 2025-05-06
Form: 10-Q
Item: Item 8
Chunk 123
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 quarter ended March 29, 2024. The higher gross margin was driven primarily by net Estimate at completion ("EAC") change impact on our programs recognized over time of approximately $3.7 million recorded in the quarter, an incremental improvement of approximately $12.3 million, or 600 basis points, when compared to the prior period as well as lower inventory reserves of $9.6 million and lower warranty provisions of $5.0 million. The increase in inventory reserves in fiscal 2024 was primarily related to programs with end of life components, where design changes have occurred, as well as configuration changes necessary to drive efficient production in our common processing architecture programs. We may experience increases in our manufacturing costs related to the imposition of tariffs on the import of components from other countries. We do not expect to see material increases to these costs in fiscal 2025, but they could impact our gross margins in fiscal 2026.

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:

Third Quarters Ended(in thousands)March 28, 2025March 29, 2024Gross favorable$5,448 $9,667 Gross unfavorable(9,101)(25,644)Net impact of changes in estimates$(3,653)$(15,977)

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 judgement across the full portfolio of programs. 

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses decreased $0.2 million, or 0.4%, to $43.0 million during the third quarter ended March 28, 2025, as compared to $43.2 million in the third quarter ended March 29, 2024. The decrease was primarily driven by lower bad debt expense of $6.4 million as well as the savings from reductions in force initiated in fiscal 2024, resulting in lower compensation costs of $6.1 million. These decreases were partially offset by higher legal and consulting costs of $5.7 million, additional bonus and stock compensation expense of $4.6 million, and higher depreciation expense of $1.3 million.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased $