MERCURY SYSTEMS, INC. FORWARD-LOOKING STATEMENTS From time to time, information provided, statements made by our employees or information included in our filings with theSecurities 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 use of 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, continued funding of defense programs, the timing and amounts of such funding, general economic and business conditions, including unforeseen weakness in the Company's markets, effects of epidemics and pandemics such as COVID, effects of anyU.S. Federal government shutdown or extended continuing resolution, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing 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 theU.S. Government's interpretation of, Federal export control or procurement rules and regulations, market acceptance of the Company's products, shortages in components, production delays or unanticipated expenses due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions and restructurings, or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, increases in interest rates, changes to interest rate swaps or other cash flow hedging arrangements, changes to industrial security and cyber-security regulations and requirements, changes in tax rates or tax regulations, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, 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 set forth under Part I-Item 1A (Risk Factors) in the Company's Annual Report on Form 10-K for the fiscal year endedJuly 3, 2020 . 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. OVERVIEWMercury Systems, Inc. is a leading technology company serving the aerospace and defense industry, positioned at the intersection of high-tech and defense. Headquartered inAndover, Massachusetts , we deliver solutions that power a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. We envision, create and deliver innovative technology solutions purpose-built to meet our customers' most-pressing high-tech needs, including those specific to the defense community. As a leading manufacturer of essential components, modules and subsystems, we sell to defense prime contractors, theU.S. government and OEM commercial aerospace companies. We have built a trusted, contemporary portfolio of proven product solutions purpose-built for aerospace and defense that we believe meets and exceeds the performance needs of our defense and commercial customers. Customers add their own applications and algorithms to our specialized, secure and innovative pre-integrated solutions. This allows them to complete their full system by integrating with their platform the sensor technology and, in some cases, the processing from Mercury. Our products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers. Mercury's transformational business model accelerates the process of making new technology profoundly more accessible to our customers by bridging the gap between commercial technology and aerospace and defense applications. Our long-standing deep relationships with leading high-tech companies, coupled with our high level of R&D investments and industry-leading trusted and secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. Our capabilities, technology and R&D investment strategy combine to differentiate Mercury in our industry. Our technologies and capabilities include secure embedded processing modules and subsystems, mission computers, secure and rugged rack-mount servers, safety-critical avionics, RF components, multi-function assemblies, subsystems and custom microelectronics. We maintain our technological edge by investing in critical capabilities and IP in processing and RF, leveraging open standards and open architectures to adapt quickly those building blocks into solutions for highly data-intensive applications, including emerging needs in areas such as AI. Our mission critical solutions are deployed by our customers for a variety of applications including C4ISR, electronic intelligence, avionics, EO/IR, electronic warfare, weapons and missile defense, hypersonics and radar. Since we conduct much of our business with our defense customers via commercial items, requests by customers are a primary driver of revenue fluctuations from quarter to quarter. Customers specify delivery date requirements that coincide with their need for our products. Because these customers may use our products in connection with a variety of defense programs or 21 -------------------------------------------------------------------------------- other projects of different sizes and durations, a customer's orders for one quarter generally do not indicate a trend for future orders by that customer. Additionally, order patterns do not necessarily correlate amongst customers and, therefore, we generally cannot identify sequential quarterly trends. As ofApril 2, 2021 , we had 2,359 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 embrace diversity company-wide and realize the benefits of a diverse workforce that includes a greater variety of solutions to problems, a broader collection of skills and experiences and an array of viewpoints to consider. Mercury is strongly focused on providing an inclusive environment that respects the diversity of the world. We believe that the workforce required to grow our business and deliver creative solutions must be rich in diversity of thought, experience and culture. Our diversity and inclusion initiatives focus on building and maintaining the talent that will create cohesive and collaborative teams that drive innovation. We believe that these values will help our employees realize their full potentials at work to provide Innovation That Matters®. Our consolidated revenues, acquired revenues, net income, diluted net earnings per share, adjusted earnings per share ("adjusted EPS"), and adjusted EBITDA for the third quarter endedApril 2, 2021 were$256.9 million ,$38.5 million ,$15.6 million ,$0.28 ,$0.64 , and$54.8 million , respectively. Our consolidated revenues, acquired revenues, net income, diluted net earnings per share, adjusted EPS, and adjusted EBITDA for the nine months endedApril 2, 2021 were$673.2 million ,$47.5 million ,$44.1 million ,$0.80 ,$1.69 , and$142.8 million , respectively. See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. OUR RESPONSE TO COVID The COVID pandemic continues to impact people and countries around the world. This is a time of extraordinary uncertainty. It is also a time when the work we do in support of strategic national priorities is recognized as critical. At Mercury, we remain focused on the four goals we established at the outset of the COVID crisis: to protect the health, safety, and livelihoods of our people; to mitigate or reduce operational and financial risks to the Company; to continue to deliver on our commitments to customers and shareholders; and to continue the mission-critical work Mercury does every day to support the ongoing security of our nation, our brave men and women in uniform, and the communities in which we all live. To protect the health, safety, and livelihoods of our employees, we took immediate action on several fronts, instituting a variety of new policies and programs including, but not limited to, additional sick leave for COVID-related circumstances, a work-from-home policy for all employees who can perform their duties remotely as well as increasing overtime pay for eligible employees. We also established a relief fund, with an initial$1 million budget, to assist eligible Mercury employees, including temporary agency employees, experiencing unexpected financial burdens as a result of the COVID crisis. The intent of theMercury COVID Relief Fund was to provide financial assistance to employees who may otherwise be unable to pay for basic necessities, unexpected care for immediate family members, or other urgent needs that promote their health and safety during the current COVID crisis. As we have been designated an "essential business" as a part of the defense industrial base, during the year, our facilities continued to operate while complying with social distancing requirements consistent withCenters for Disease Control and Prevention ("CDC") guidelines and requirements. We implemented numerous preventive measures to maximize the safety of our facilities, including but not limited to, establishing physical segregation areas, implementing environmental cleaning and disinfection protocols in compliance withCDC guidelines and requirements, temperature and COVID testing at our facilities, and limiting non-essential site visits by internal and external visitors. We will continue to monitor the COVID pandemic and adapt our policies and programs as needed to protect the health, safety and livelihoods of our people. RESULTS OF OPERATIONS: Results of operations for the third quarter endedApril 2, 2021 includes a full period of results from the acquisition ofPhysical Optics Corporation ("POC"). Results of operations for the nine months endedApril 2, 2021 include only results from the acquisition date for POC which was acquired onDecember 30, 2020 . Results of operations for the third quarter endedMarch 27, 2020 include full period results from the acquisition ofAmerican Panel Corporation ("APC"). Results of operations for the nine months endedMarch 27, 2020 include only results from the acquisition date for APC which was acquired onSeptember 23, 2019 . Accordingly, the periods presented below are not directly comparable. 22 -------------------------------------------------------------------------------- The third quarter endedApril 2, 2021 compared to the third quarter endedMarch 27, 2020 The following table sets forth, for the third quarter ended indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income: As a % of As a % of Total Net Total Net (In thousands) April 2, 2021 Revenue March 27, 2020 Revenue Net revenues$ 256,857 100.0 %$ 208,016 100.0 % Cost of revenues 151,234 58.9 114,691 55.1 Gross margin 105,623 41.1 93,325 44.9 Operating expenses: Selling, general and administrative 38,250 14.9 33,991 16.3 Research and development 30,218 11.8 24,967 12.0 Amortization of intangible assets 12,717 5.0 7,848 3.8 Restructuring and other charges (4) - 66 - Acquisition costs and other related expenses 2,730 1.0 111 0.1 Total operating expenses 83,911 32.7 66,983 32.2 Income from operations 21,712 8.5 26,342 12.7 Interest income 34 - 458 0.2 Interest expense (549) (0.2) (58) - Other (expense) income, net (200) (0.1) 2,186 1.0 Income before income taxes 20,997 8.2 28,928 13.9 Income tax provision 5,362 2.1 5,363 2.6 Net income$ 15,635 6.1 %$ 23,565 11.3 % REVENUES Total revenues increased$48.8 million , or 23.5%, to$256.9 million during the third quarter endedApril 2, 2021 , as compared to$208.0 million during the third quarter endedMarch 27, 2020 , including "acquired revenue" which represents net revenue from acquired businesses that have been part of Mercury for completion of four full quarters or less (and excludes any intercompany transactions). After the completion of four fiscal quarters, acquired businesses will be treated as organic for current and comparable historical periods. The increase in total revenue was primarily due to an additional$38.5 million and$10.3 million of acquired and organic revenues, respectively. These increases were driven by higher demand for integrated subsystems which increased$69.3 million or 55.3% which was partially offset by decreases in components and modules and sub-assemblies of$16.4 million and$4.1 million , respectively. The increase in total revenue was primarily from the C4I end application which increased$59.8 million and was partially offset by an$11.6 million decrease to electronic warfare ("EW"). The increase was across all platforms and, in particular, land which grew$28.3 million during the third quarter endedApril 2, 2021 . The largest program increases were related to a classified radar program, as well as the E2D Hawkeye, Abrams and CPS programs. There were no programs comprising 10% or more of our revenues for the third quarters endedApril 2, 2021 orMarch 27, 2020 . See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. 23 -------------------------------------------------------------------------------- GROSS MARGIN Gross margin was 41.1% for the third quarter endedApril 2, 2021 , a decrease of 380 basis points from the 44.9% gross margin achieved during the third quarter endedMarch 27, 2020 . The lower gross margin was primarily driven by the acquisition of POC which contributed to the increasedCustomer Funded Research and Development ("CRAD") of$12.7 million in the quarter, as well as incremental COVID related expenses of$2.3 million and program mix. These gross margin decreases were partially offset by operational efficiencies and$0.6 million lower margin associated with fair value adjustments from purchase accounting for recent acquisitions. CRAD primarily represents engineering labor associated with long-term contracts for customized development, production and service activities. Due to the nature of these efforts, they typically carry a lower margin. These products are predominately grouped within integrated subsystems and to a lesser extent modules and sub-assemblies. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased$4.3 million , or 12.5%, to$38.3 million during the third quarter endedApril 2, 2021 , as compared to$34.0 million in the third quarter endedMarch 27, 2020 . The increase was primarily related to the recent acquisition of POC of$4.3 million . Selling, general and administrative expenses decreased as a percentage of revenue to 14.9% for the third quarter endedApril 2, 2021 from 16.3% for the third quarter endedMarch 27, 2020 due to improved operating leverage. The acquisition of POC resulted in a 66 basis point reduction in selling, general and administrative expenses as a percentage of revenue for the third quarter endedApril 2, 2021 . RESEARCH AND DEVELOPMENT Research and development expenses increased$5.2 million , or 21.0%, to$30.2 million during the third quarter endedApril 2, 2021 , as compared to$25.0 million during the third quarter endedMarch 27, 2020 . The increase was primarily related to$4.3 million of additional employee related compensation from organic growth and the recent acquisition of POC. The increase during the third quarter endedApril 2, 2021 was primarily driven by the continued investment in internal R&D to promote future growth, including new opportunities in avionics mission computers, secure processing, radar modernization and our trusted custom microelectronics business. Research and development expenses accounted for 11.8% and 12.0% of our revenues for the third quarters endedApril 2, 2021 andMarch 27, 2020 , respectively. The acquisition of POC resulted in a 140 basis point reduction in research and development expenses as a percentage of revenue for the third quarter endedApril 2, 2021 . AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets increased$4.9 million to$12.7 million during the third quarter endedApril 2, 2021 , as compared to$7.8 million to the third quarter endedMarch 27, 2020 , due to the acquisition of POC. RESTRUCTURING AND OTHER CHARGES We did not incur restructuring and other charges during the third quarter endedApril 2, 2021 , as compared to$0.1 million during the third quarter endedMarch 27, 2020 . Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. ACQUISITION COSTS AND OTHER RELATED EXPENSES Acquisition costs and other related expenses were$2.7 million during the third quarter endedApril 2, 2021 , as compared to$0.1 million during the third quarter endedMarch 27, 2020 . The acquisition costs and other related expenses during the third quarter endedApril 2, 2021 were primarily related to costs associated with our continuous evaluation of potential acquisition opportunities. We expect to incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our technological capabilities, 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 Interest income decreased to less than$0.1 million during the third quarter endedApril 2, 2021 , as compared to$0.5 million for the third quarter endedMarch 27, 2020 . This was driven by lower cash on hand during the third quarter endedApril 2, 2021 , as compared to the prior year. 24 -------------------------------------------------------------------------------- INTEREST EXPENSE We incurred$0.5 million of interest expense during the third quarter endedApril 2, 2021 , related to the$160.0 million balance on our Revolver to facilitate the acquisition of POC during the second quarter endedJanuary 1, 2021 , compared to$0.1 million interest expense during the third quarter endedMarch 27, 2020 . OTHER (EXPENSE) INCOME, NET Other (expense) income, net decreased to$0.2 million of Other expense during the third quarter endedApril 2, 2021 , as compared to$2.2 million of Other income for the third quarter endedMarch 27, 2020 . The third quarter endedApril 2, 2021 includes net foreign currency translation gains of$0.7 million , which were partially offset by$0.6 million of financing costs and$0.3 million of litigation and settlement costs. The third quarter endedMarch 27, 2020 includes a$3.8 million gain on the sale of a cost-method investment, partially offset by foreign currency translation losses of$1.2 million . INCOME TAXES We recorded an income tax provision of$5.4 million and$5.4 million on income before income taxes of$21.0 million and$28.9 million for the third quarters endedApril 2, 2021 andMarch 27, 2020 , respectively. During each of the third quarters endedApril 2, 2021 andMarch 27, 2020 , we recognized a discrete tax benefit of$0.2 million , related to excess tax benefits on stock-based compensation. We also recognized a discrete tax benefit of$1.0 million , net of a$0.3 million tax reserve, related to research and development credits and a$0.8 million discrete tax benefit from releasing a valuation allowance on a capital loss carryforward during the third quarter endedMarch 27, 2020 . The effective tax rate for the third quarter endedApril 2, 2021 differed from the Federal statutory rate primarily due to Federal and State research and development credits, excess tax benefits related to stock-based compensation, non-deductible compensation, and state taxes. The effective tax rate for the third quarter endedMarch 27, 2020 differed from the Federal statutory rate primarily due to Federal research and development credits, excess tax benefits related to stock-based compensation, a release of a valuation allowance on a capital loss carryforward, a modified territorial tax system and a minimum tax on certain foreign earnings, and state taxes. Within the calculation of our annual effective tax rate, we have used assumptions and estimates that may change as a result of future guidance and interpretation from the Internal Revenue Service ("IRS"). 25 -------------------------------------------------------------------------------- Nine months endedApril 2, 2021 compared to the nine months endedMarch 27, 2020 The following tables set forth, for the nine month periods indicated, financial data from the Consolidated Statements of Operations and Comprehensive Income: As a % of As a % of Total Net Total Net (In thousands) April 2, 2021 Revenue March 27, 2020 Revenue Net revenues$ 673,154 100.0 %$ 579,233 100.0 % Cost of revenues 390,745 58.0 319,002 55.1 Gross margin 282,409 42.0 260,231 44.9 Operating expenses: Selling, general and administrative 102,750 15.3 96,765 16.7 Research and development 85,763 12.7 71,497 12.3 Amortization of intangible assets 28,091 4.2 22,859 3.9 Restructuring and other charges 2,244 0.3 1,815 0.3 Acquisition costs and other related expenses 4,966 0.7 2,652 0.5 Total operating expenses 223,814 33.2 195,588 33.7 Income from operations 58,595 8.8 64,643 11.2 Interest income 166 - 1,957 0.3 Interest expense (622) (0.1) (58) - Other (expense) income, net (2,027) (0.3) 401 0.1 Income before income taxes 56,112 8.4 66,943 11.6 Income tax provision 11,993 1.8 8,455 1.5 Net income$ 44,119 6.6 %$ 58,488 10.1 % REVENUES Total revenues increased$93.9 million , or 16.2%, to$673.2 million during the nine months endedApril 2, 2021 , as compared to$579.2 million during the nine months endedMarch 27, 2020 . The increase in total revenue was primarily due to an additional$47.3 million and$46.6 million of organic and acquired revenues, respectively. These increases were driven by higher demand for integrated subsystems which increased$149.5 million or 47% which was partially offset by decreases in components and modules and sub-assemblies of$39.2 million and$16.4 million , respectively, during the nine months endedApril 2, 2021 . The increase in total revenue was primarily from the radar and C4I end applications which increased$74.3 million and$65.1 million and were partially offset by decreases of$18.8 million and$18.3 million from other end applications and EW, respectively. The increase was primarily across the land and naval platforms which grew$83.4 million and$13.8 million during the nine months endedApril 2, 2021 . The largest program increases were related to a classified radar program, as well as the LTAMDS, Patriot and Abrams programs. There were no programs comprising 10% or more of our revenues for the nine months endedApril 2, 2021 orMarch 27, 2020 . See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. GROSS MARGIN Gross margin was 42.0% for the nine months endedApril 2, 2021 , a decrease of 290 basis points from the 44.9% gross margin achieved during the nine months endedMarch 27, 2020 . The lower gross margin was primarily due to the acquisition of POC which contributed to the increase in CRAD of$17.5 million , as well as incremental COVID related expenses of$7.9 million and program mix. These gross margin decreases were partially offset by operational efficiencies and$1.2 million lower margin associated with fair value adjustments from purchase accounting for recent acquisitions. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased$6.0 million , or 6.2%, to$102.8 million during the nine months endedApril 2, 2021 , as compared to$96.8 million during the nine months endedMarch 27, 2020 . The increase was primarily related to$7.9 million of additional employee related compensation from organic growth and our recent acquisitions as well as incremental COVID related expenses of$0.8 million . Selling, general and administrative expenses as a percentage of revenues decreased to 15.3% for the nine months endedApril 2, 2021 from 16.7% for the nine months endedMarch 27, 2020 due to improved operating leverage. The acquisition of POC resulted in a 20 basis point reduction in selling, general and administrative expenses as a percentage of revenue for the nine months endedApril 2, 2021 . 26 -------------------------------------------------------------------------------- RESEARCH AND DEVELOPMENT Research and development expenses increased$14.3 million , or 20.0%, to$85.8 million during the nine months endedApril 2, 2021 , as compared to$71.5 million during the nine months endedMarch 27, 2020 . The increase was primarily related to$10.9 million of additional employee related compensation from organic growth and our recent acquisition of POC. The increase during the third quarter endedApril 2, 2021 was primarily driven by the continued investment in internal R&D to promote future growth, including new opportunities in avionics missions computers, secure processing, radar modernization and our trusted custom microelectronics business. Research and development expenses accounted for 12.7% and 12.3% of our revenues for the nine months endedApril 2, 2021 andMarch 27, 2020 , respectively. The acquisition of POC resulted in a 60 basis point reduction in research and development expenses as a percentage of revenue for the nine months endedApril 2, 2021 . RESTRUCTURING AND OTHER CHARGES Restructuring and other charges were$2.2 million during the nine months endedApril 2, 2021 , as compared to$1.8 million during the nine months endedMarch 27, 2020 . Restructuring and other charges during the nine months endedApril 2, 2021 primarily related to severance costs associated with the elimination of 42 positions, predominantly in the manufacturing, SG&A and R&D functions. These charges related to changing market and business conditions including talent shifts and resource redundancy resulting from the internal reorganization the Company completed in the first quarter. Restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. ACQUISITION COSTS AND OTHER RELATED EXPENSES Acquisition costs and other related expenses were$5.0 million during the nine months endedApril 2, 2021 , as compared to$2.7 million during the nine months endedMarch 27, 2020 . The acquisition costs and other related expenses we incurred during the nine months endedApril 2, 2021 were primarily related to our continuous evaluation of potential acquisition opportunities and the acquisition of POC which was completed onDecember 30, 2020 while those incurred during the nine months endedMarch 27, 2020 were related to the acquisition of APC as well as costs associated with our evaluation of potential acquisition opportunities. We expect to incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our technological capabilities, 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 Interest income decreased to$0.2 million during the nine months endedApril 2, 2021 , as compared to$2.0 million during the nine months endedMarch 27, 2020 . The decrease was driven by lower cash on hand during the nine months endedApril 2, 2021 compared to the prior period. INTEREST EXPENSE We incurred$0.6 million of interest expense during the nine months endedApril 2, 2021 , related to the$160.0 million draw on our Revolver to facilitate the acquisition of POC, compared to less than$0.1 million of interest expense during the nine months endedMarch 27, 2020 . OTHER (EXPENSE) INCOME, NET Other (expense) income, net decreased to$2.0 million of Other expense during the nine months endedApril 2, 2021 as compared to$0.4 million of Other Income for the nine months endedMarch 27, 2020 . There were$2.3 million and$2.4 million of financial and registration fees, respectively, for the nine months endedApril 2, 2021 andMarch 27, 2020 . The nine months endedApril 2, 2021 includes$0.8 million in litigation and settlement expenses and a$0.4 million loss on the sale of a cost-method investment which were partially offset by net foreign currency translation gains of$1.3 million . The nine months endedMarch 27, 2020 includes a$3.8 million gain on sale of a cost-method investment, partially offset by$0.8 million net foreign currency translation losses during the nine months endedMarch 27, 2020 . INCOME TAXES We recorded an income tax provision of$12.0 million and$8.5 million on income before income taxes of$56.1 million and$66.9 million for the nine months endedApril 2, 2021 andMarch 27, 2020 , respectively. During the nine months endedApril 2, 2021 andMarch 27, 2020 , we recognized a discrete tax benefit of$2.8 million and$6.6 million , respectively, related to excess tax benefits on stock-based compensation. We also recognized a discrete tax benefit of$1.0 million , net of a$0.3 million tax reserve, related to research and development credits and a$0.8 million discrete tax benefit from releasing a valuation allowance on a capital loss carryforward during the nine months endedMarch 27, 2020 . 27 -------------------------------------------------------------------------------- The effective tax rate for the nine months endedApril 2, 2021 differed from the Federal statutory rate primarily due to Federal and State research and development credits, excess tax benefits related to stock-based compensation, non-deductible compensation, and state taxes. The effective tax rate for the nine months endedMarch 27, 2020 differed from the Federal statutory rate primarily due to Federal research and development credits, excess tax benefits related to stock-based compensation, a release of a valuation allowance on a capital loss carryforward, a modified territorial tax system and a minimum tax on certain foreign earnings, and state taxes. Within the calculation of our annual effective tax rate we have used assumptions and estimates that may change as a result of future guidance and interpretation from theIRS . 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. We plan to continue to invest in improvements to our facilities, continuous evaluation of potential acquisition opportunities and internal R&D to promote future growth, including new opportunities in avionics mission computers, secure processing, radar modernization and trusted custom microelectronics. Our facilities improvements include buildouts inAndover, Massachusetts ,Cypress, California andHudson, New Hampshire , along with the ongoing expansion of our trusted custom microelectronics business during fiscal 2021. Based on our current plans, business conditions, including the COVID pandemic, and essential business status, 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 OnSeptember 14, 2020 , we filed a shelf registration statement on Form S-3ASR with theSEC . The shelf registration statement, which was effective upon filing with theSEC , registered each of the following securities: debt securities, preferred stock, common stock, warrants and units. We intend to use the proceeds from financings under 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. Additionally, as part of the shelf registration statement, we have entered into an equity distribution agreement which allows us to sell an aggregate of up to$200.0 million of our common stock from time to time through our agents. The actual dollar amount and number of shares of common stock we sell pursuant to the equity distribution agreement will be dependent on, among other things, market conditions and our fund raising requirements. The agents may sell the common stock by any method deemed to be an "at the market offering" as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation sales made directly on Nasdaq, on any other existing trading market for the common stock or to or through a market maker. In addition, our common stock may be offered and sold by such other methods, including privately negotiated transactions, as we and the agents may agree. Revolving Credit Facility OnSeptember 28, 2018 , we amended the Revolver to increase and extend the borrowing capacity to a$750.0 million , 5-year revolving credit line, with the maturity extended toSeptember 2023 . As ofApril 2, 2021 , we had$160.0 million of outstanding borrowings on the Revolver. See Note I in the accompanying consolidated financial statements for further discussion of the Revolver. 28 --------------------------------------------------------------------------------
CASH FLOWS
As of and For the Nine Months Ended,
(In thousands) April 2, 2021 March 27, 2020
Net cash provided by operating activities $ 70,053 $ 86,458
Net cash used in investing activities $ (338,433) $ (123,980)
Net cash provided by financing activities $ 163,133 $ 186,713
Net (decrease) increase in cash and cash equivalents $ (104,895) $ 149,214
Cash and cash equivalents at end of period $
121,943
Our cash, cash equivalents and restricted cash decreased by$104.9 million fromJuly 3, 2020 toApril 2, 2021 , primarily as the result of$305.3 million used for the acquisition of POC and$34.7 million invested in purchases of property and equipment, partially offset by$160.0 million of borrowings on our Revolver to facilitate the acquisition of POC and$70.1 million provided by operating activities. Operating Activities During the nine months endedApril 2, 2021 , we generated$70.1 million in cash from operating activities, a decrease of$16.4 million , as compared to the nine months endedMarch 27, 2020 . The decrease was primarily the result of higher inventory purchases resulting from an increase in demand, especially for larger, more complex integrated subsystems and the advanced purchases of inventory intended to mitigate disruptions to the supply chain or unforeseen changes in customer behavior resulting from the COVID pandemic. In addition, the decrease was also attributable to lower comparable net income. These decreases were partially offset by higher sources of cash from deferred revenues and customer advances and prepaid income taxes as well as lower uses of cash from accounts receivable, unbilled receivables, and costs in excess of billings. Investing Activities During the nine months endedApril 2, 2021 , we invested$338.4 million , an increase of$214.5 million , as compared to the nine months endedMarch 27, 2020 . The increase was driven by$305.3 million in cash used for the acquisition of POC and an additional$2.9 million invested in purchases of property and equipment, primarily related to our facilities, during the nine months endedApril 2, 2021 . We invested$96.5 million in the acquisition of APC which was partially offset by$4.3 million of proceeds from the sale of an investment during the nine months endedMarch 27, 2020 . Financing Activities During the nine months endedApril 2, 2021 , we had$163.1 million in cash provided by financing activities, a decrease of$23.6 million as compared to the nine months endedMarch 27, 2020 . During the nine months endedApril 2, 2021 , we borrowed$160.0 million on our Revolver to facilitate the acquisition of POC. During the nine months endedMarch 27, 2020 , we had borrowings under the Revolver of$200.0 million , which was drawn to provide access to capital and flexibility in managing operations through the COVID pandemic. Our decrease of$15.6 million in cash used during the nine months endedApril 2, 2021 for payments related to the purchase and retirement of common stock used to settle individual employees' tax liabilities associated with vesting of restricted stock awards is due to a change in our incentive stock plan tax withholding methods.
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