Company: MRCY
Filing Date: 2025-02-04
Form Type: 10-Q
Source: 0001049521-25-000009
Chunk: 5

Company: MERCURY SYSTEMS INC
Filing Date: 2025-02-04
Form: 10-Q
Item: Item 2
Chunk 5
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Gross margin was 27.3% for the second quarter ended December 27, 2024, an increase of 1,130 basis points from the 16.0% gross margin realized during the second quarter ended December 29, 2023. The higher gross margin was driven primarily by net EAC change impact on our programs recognized over time of approximately $4.4 million recorded in the quarter, an incremental improvement of approximately $26.2 million, or 1,355 basis points, when compared to the prior period as well as lower inventory reserves of $12.4 million. The increase in inventory reserves in fiscal 2024 related to specifically identified excess and obsolete inventory primarily resulting from a shift in customer demand for our next generation product offering. These improvements in gross margin were partially offset by higher manufacturing adjustments of $4.1 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:

Second Quarters Ended(in thousands)December 27, 2024December 29, 2023Gross favorable$7,040 $5,455 Gross unfavorable(11,448)(36,106)Net impact of changes in estimates$(4,408)$(30,651)

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 $4.0 million, or 8.9%, to $40.5 million during the second quarter ended December 27, 2024, as compared to $44.5 million in the second quarter ended December 29, 2023. The decrease was primarily driven by lower bad debt expense of $5.0 million as well as the savings from reductions in force initiated in fiscal 2024, resulting in lower compensation costs of $4.0 million. These decreases were partially offset by higher bonus expense of $2.4 million as well as legal and consulting costs of $3.0 million.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased $7.1 million, or 25.0%, to $21.4 million during the second quarter ended December 27,