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, inflation, 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, changes in, or in the interpretation or enforcement of, environmental rules and regulations, market acceptance of the Company's products, shortages in or delays in receiving components, supply chain delays or volatility for critical components such as semiconductors, production delays or unanticipated expenses including due to performance quality issues or manufacturing execution issues, the impact of the COVID pandemic and 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 value creation initiatives such as 1MPACT, 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, changes in tax rates or tax regulations, such as the deductibility of internal research and development, changes to interest rate swaps or other cash flow hedging arrangements, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, which difficulties may be enhanced by our announced strategic review initiative, including a potential sale of the Company, unanticipated challenges with the transition of the Company's Chief Financial Officer role, 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 1, 2022 . 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, Inc. is a technology company that delivers commercial innovation to rapidly transform the global aerospace and defense industry. Headquartered inAndover, Massachusetts , our end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. Our Processing Platform includes signal solutions, display, software applications, networking, storage and secure processing. Our innovative solutions are mission-ready, trusted and secure, software-defined and open and modular to meet our customers' most-pressing high-tech needs, including those specific to the aerospace and defense community. Customers access our solutions via the Mercury platform, which encompasses the broad scope of our investments in technologies, companies, products, services and the expertise of our people. Ultimately, we connect our customers to what matters most to them. We connect commercial technology to defense, people to data, partners to opportunities and the present to the future. And, at the most human level, we connect what we do to our customers' missions; supporting the people for whom safety, security and protecting freedom are of paramount importance. As a leading manufacturer of essential components, products, modules and subsystems, we sell to defense prime contractors, theU.S. government and original equipment manufacturers ("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 products and pre-integrated solutions. This allows them to complete their full system by integrating with their platform, the sensor technology and, increasingly, the processing from us. Our products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers. Our 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 and other commercial companies, coupled with our high level of research and development ("R&D") investments on a percentage basis and industry-leading trusted and secure design and manufacturing capabilities, are the foundational tenets of this highly successful model. We are leading the development and adaptation of commercial 24 -------------------------------------------------------------------------------- technology for aerospace and defense solutions. From chip-scale to system scale and from data, including radio frequency ("RF") to digital to decision, we make mission-critical technologies safe, secure, affordable and relevant for our customers. Our capabilities, technology, people and R&D investment strategy combine to differentiate us in our industry. We maintain our technological edge by investing in critical capabilities and intellectual property ("IP" or "building blocks") in processing, 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 artificial intelligence ("AI"). Our mission critical solutions are deployed by our customers for a variety of applications including command, control, communications, computers, intelligence, surveillance and reconnaissance ("C4ISR"), electronic intelligence, mission computing avionics, electro-optical/infrared ("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 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 ofDecember 30, 2022 , we had 2,486 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. We are 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 loss, diluted net loss per share, adjusted earnings per share ("adjusted EPS"), and adjusted EBITDA for the second quarter endedDecember 30, 2022 were$229.6 million ,$13.3 million ,$(10.9) million ,$(0.19) ,$0.26 , and$35.7 million , respectively. Our consolidated revenues, acquired revenues, net loss, diluted net loss per share, adjusted earnings per share ("adjusted EPS"), and adjusted EBITDA for the six months endedDecember 30, 2022 were$457.2 million ,$25.1 million ,$(25.3) million ,$(0.45) ,$0.50 , and$66.9 million . See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. 25 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Results of operations for the second quarter and six months endedDecember 30, 2022 includes full period results from the acquisitions ofAtlanta Micro, Inc ("Atlanta Micro") andAvalex Technologies, LLC . ("Avalex"). Results of operations for the second quarter and six months endedDecember 31, 2021 include only results from the acquisition dates for Atlanta Micro and Avalex. Accordingly, the periods presented below are not directly comparable.
The second quarter ended
The following table sets forth, for the second quarter ended indicated,
financial data from the Consolidated Statements of Operations and Comprehensive
Loss:
As a % of As a % of
December 30, Total Net December 31, Total Net(In thousands) 2022 Revenue 2021 Revenue Net revenues$ 229,588 100.0 %$ 220,380 100.0 % Cost of revenues 148,628 64.7 133,158 60.4 Gross margin 80,960 35.3 87,222 39.6 Operating expenses: Selling, general and administrative 45,057 19.6 36,810 16.7 Research and development 26,906 11.7 28,335 12.9 Amortization of intangible assets 13,536 5.9 16,002 7.3 Restructuring and other charges 2,069 1.0 3,802 1.7 Acquisition costs and other related expenses 939 0.4 2,660 1.2 Total operating expenses 88,507 38.6 87,609 39.8 Loss from operations (7,547) (3.3) (387) (0.2) Interest income 220 0.1 5 - Interest expense (6,590) (2.9) (1,094) (0.5) Other income (expense), net 846 0.4 (1,318) (0.6) Loss before income taxes (13,071) (5.7) (2,794) (1.3) Income tax benefit (2,151) (0.9) (155) (0.1) Net loss$ (10,920) (4.8) %$ (2,639) (1.2) % REVENUES Total revenues increased$9.2 million , or 4.2%, to$229.6 million during the second quarter endedDecember 30, 2022 , as compared to$220.4 million during the second quarter endedDecember 31, 2021 , 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 full 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$7.2 million of acquired revenues from the Atlanta Micro and Avalex businesses and an additional$2.0 million of organic revenues. These increases were driven by modules and sub-assemblies and components product groupings which increased$15.6 million and$13.7 million , respectively, partially offset by decreases to integrated subsystems of$20.1 million . The increase in total revenue was primarily from C4I, other sensor and effector and electronic warfare end applications which increased$12.8 million ,$7.2 million and$1.3 million , respectively, partially offset by decreases to radar end applications and other end applications of$7.5 million and$4.6 million , respectively. The increase was primarily across the airborne and other platforms which grew$9.0 million and$2.5 million , respectively, partially offset by a decrease to the naval platform of$3.0 million during the second quarter endedDecember 30, 2022 . The largest program increases were related to the F-35, NDSA Tranche Tracking Layer, F-16, and LTAMDS programs. There were no programs comprising 10% or more of our revenues for the second quarters endedDecember 30, 2022 orDecember 31, 2021 . See the Non-GAAP Financial Measures section for a reconciliation to our most directly comparable GAAP financial measures. 26 --------------------------------------------------------------------------------
GROSS MARGIN
Gross margin was 35.3% for the second quarter endedDecember 30, 2022 , a decrease of 430 basis points from the 39.6% gross margin realized during the second quarter endedDecember 31, 2021 . The lower gross margin was primarily driven by program mix, incremental depreciation expense. Program mix was heavily impacted by a customer funding delay on a large FMS sale as well as a higher proportion of lower-margin development programs. These programs generally include higher engineering content evidenced by an increase of$1.9 million inCustomer Funded Research and Development ("CRAD") compared to the second quarter endedDecember 31, 2021 . CRAD primarily represents engineering labor associated with long-term contracts for customized development, production and service activities. The nature of these efforts result in lower margin content, but serve as pre-cursors to higher margin production awards. These products are predominantly grouped within integrated subsystems and to a lesser extent modules and sub-assemblies. Incremental depreciation expense of$2.5 million was recorded in the second quarter endedDecember 30, 2022 . In connection with our 1MPACT facility optimization efforts, we are exiting certain facilities prior to contractual lease terms and consolidating operations across other existing sites. As part of our assessment of future benefits of certain long-lived assets, we identified an immaterial correction of an error in the useful lives assigned to certain leasehold improvements resulting in a cumulative adjustment to depreciation expense.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased$8.3 million , or 22.4%, to$45.1 million during the second quarter endedDecember 30, 2022 , as compared to$36.8 million in the second quarter endedDecember 31, 2021 . The increase was primarily related to increased stock compensation expense of$3.0 million related to share-based matching contributions as well as changes to our performance factors associated with performance-based restricted stock awards. The increase was also driven by additional compensation costs and depreciation expense of$2.0 million and$1.9 million , respectively. Full quarter results from our Avalex and Atlanta Micro acquisitions also contributed to the increase, driving$0.4 million of incremental expense.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased$1.4 million , or 5.0%, to$26.9 million during the second quarter endedDecember 30, 2022 , as compared to$28.3 million during the second quarter endedDecember 31, 2021 . The decrease was primarily related to an incremental$1.9 million of CRAD, partially offset by$0.7 million of incremental expense from our recent acquisitions of Avalex and Atlanta Micro during the second quarter endedDecember 30, 2022 .
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets decreased$2.5 million to$13.5 million during the second quarter endedDecember 30, 2022 , as compared to$16.0 million during the second quarter endedDecember 31, 2021 , primarily due to the backlog from ourPhysical Optics Corporation ("POC") acquisition being fully amortized in fiscal 2022, partially offset by the amortization over intangible assets associated with the acquisitions of Avalex and Atlanta Micro.
RESTRUCTURING AND OTHER CHARGES
During the second quarter endedDecember 30, 2022 , the Company incurred$2.1 million of restructuring and other charges, as compared to$3.8 million during the second quarter endedDecember 31, 2021 . Restructuring and other charges includes$1.0 million of costs related to facility optimization efforts associated with 1MPACT, including$0.8 million related to lease asset impairment, as well as$0.6 million related to severance costs and the remaining$0.4 million related to third-party consulting costs associated with 1MPACT. During the second quarter endedDecember 31, 2021 , restructuring and other charges related to third-party consulting costs associated with 1MPACT.
ACQUISITION COSTS AND OTHER RELATED EXPENSES
Acquisition costs and other related expenses were$0.9 million during the second quarter endedDecember 30, 2022 as compared to$2.7 million during the second quarter endedDecember 31, 2021 . The acquisition costs and other related expenses during the second quarter endedDecember 30, 2022 were primarily related to$0.6 million for third-party advisory fees in connection with engagements by activist investors and other acquisition related costs. We expect to continue to incur such acquisition costs and other related expenses in the future as we continue to seek acquisition opportunities to expand our technological capabilities and especially within secure processing, open mission systems, C3 and trusted microelectronics. Transaction costs incurred by the acquiree prior to the consummation of an acquisition would not be reflected in our historical results of operations. We also expect to incur costs related to the Board of Directors' review of strategic alternatives to enhance shareholder value. 27 --------------------------------------------------------------------------------
INTEREST EXPENSE
We incurred$6.6 million of interest expense during the second quarter endedDecember 30, 2022 , related to the$511.5 million outstanding balance on our existing credit facility (the "Revolver") as compared to$1.1 million during the second quarter endedDecember 31, 2021 as a result of$451.5 million of total borrowings on our Revolver. The increase in interest expense was primarily related to the timing and duration of borrowings on our Revolver.
OTHER INCOME (EXPENSE), NET
Other income (expense), net increased to$0.8 million during the second quarter endedDecember 30, 2022 , as compared to$(1.3) million during the second quarter endedDecember 31, 2021 . The second quarter endedDecember 30, 2022 includes net foreign currency translation gains of$1.3 million , as compared to net foreign currency translation losses of$0.2 million during the second quarter endedDecember 31, 2021 , and lower litigation and settlement expenses of$0.4 million , partially offset by an incremental$0.4 million of loss on disposal of fixed assets. INCOME TAXES We recorded an income tax benefit of$2.2 million and$0.2 million on a loss before income taxes of$13.1 million and$2.8 million for the second quarters endedDecember 30, 2022 andDecember 31, 2021 , respectively. During the second quarter endedDecember 30, 2022 , we recognized a tax benefit of$2.3 million related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the statute of limitations. The effective tax rate for the second quarters endedDecember 30, 2022 andDecember 31, 2021 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, stock compensation shortfalls and state taxes. The effective tax rate for the second quarter endedDecember 30, 2022 also differed from the federal statutory rate due to the release for previously unrecognized income tax benefits. OnAugust 16, 2022 ,President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning afterDecember 31, 2022 and a 1% excise tax on certain stock buybacks afterDecember 31, 2022 . We expect the impact of this legislation to be immaterial. Effective for tax years beginning afterDecember 31, 2021 , the Tax Cuts and Jobs Act of 2017 requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes. We estimate the cash impact from this provision to be approximately$36 million in fiscal 2023. 28 --------------------------------------------------------------------------------
Six months ended
The following tables set forth, for the six month periods indicated, financial
data from the Consolidated Statements of Operations and Comprehensive Income:
As a % of As a % of
December 30, Total Net December 31, Total Net
(In thousands) 2022 Revenue 2021 Revenue
Net revenues $ 457,167 100.0 % $ 445,393 100.0 %
Cost of revenues 298,112 65.2 269,762 60.6
Gross margin 159,055 34.8 175,631 39.4
Operating expenses:
Selling, general and administrative 84,000 18.4 73,766 16.5
Research and development 54,672 12.0 57,217 12.8
Amortization of intangible assets 28,110 6.1 29,736 6.7
Restructuring and other charges 3,577 0.8 16,076 3.6
Acquisition costs and other related
expenses 3,437 0.8 4,798 1.1
Total operating expenses 173,796 38.1 181,593 40.7
Loss from operations (14,741) (3.3) (5,962) (1.3)
Interest income 249 0.1 14 -
Interest expense (11,137) (2.4) (1,689) (0.4)
Other expense, net (2,799) (0.6) (2,738) (0.6)
Loss before income taxes (28,428) (6.2) (10,375) (2.3)
Income tax benefit (3,173) (0.7) (596) (0.1)
Net loss $ (25,255) (5.5) % $ (9,779) (2.2) %
REVENUES
Total revenues increased $11.8 million , or 2.6%, to $457.2 million during the
six months ended December 30, 2022 , as compared to $445.4 million during the six
months ended December 31, 2021 . The increase in total revenue was primarily due
to an additional $19.0 million of acquired revenues, partially offset by $7.3
million less organic revenues. The increase was driven by higher demand for
modules and sub-assemblies and components which increased $36.5 million and
$10.5 million , respectively, and were partially offset by decreases in
integrated subsystems of $35.3 million during the six months ended December 30,
2022 . The increase in total revenue was primarily from the C4I and electronic
warfare end applications which increased $24.5 million and $2.5 million ,
respectively, and were partially offset by decreases of $13.0 million and $3.1
million from radar and other sensor and effector end applications, respectively.
The increase was primarily across the other and airborne platforms which grew
$11.5 million and $10.7 million , respectively, partially offset by a decrease to
the naval and land platforms which decreased $9.3 million and $1.2 million ,
respectively, during the six months ended December 30, 2022 . The largest program
increases were related to the LTAMDS, F-35, F-16 and NDSA Tranche Tracking Layer
programs. There were no programs comprising 10% or more of our revenues for the
six months ended December 30, 2022 or December 31, 2021 . See the Non-GAAP
Financial Measures section for a reconciliation to our most directly comparable
GAAP financial measures.
GROSS MARGIN
Gross margin was 34.8% for the six months ended December 30, 2022 , a decrease of
460 basis points from the 39.4% gross margin realized during the six months
ended December 31, 2021 . The lower gross margin was primarily driven by program
mix, incremental depreciation expense. Program mix was heavily impacted by a
customer funding delay on a large FMS sale as well as a higher proportion of
lower-margin development programs. These programs generally include higher
engineering content evidenced by an increase of $5.2 million in CRAD compared to
six months ended December 31, 2021 . Incremental depreciation expense of $2.5
million was recorded in the six months ended December 30, 2022 . In connection
with our 1MPACT facility optimization efforts, we are exiting certain facilities
prior to contractual lease terms and consolidating operations across other
existing sites. As part of our assessment of future benefits of certain
long-lived assets, we identified an immaterial correction of an error in the
useful lives assigned to certain leasehold improvements resulting in a
cumulative adjustment to depreciation expense.
29
--------------------------------------------------------------------------------SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased$10.2 million , or 13.9%, to$84.0 million during the six months endedDecember 30, 2022 , as compared to$73.8 million during the six months endedDecember 31, 2021 . The increase was primarily related to a full period of the Avalex and Atlanta Micro acquisitions driving an incremental$1.9 million of expense during the six months endedDecember 30, 2022 . There was also$1.6 million of additional employee related stock compensation as well as changes to our performance factors associated with performance-based restricted stock awards during the six months endedDecember 30, 2022 . RESEARCH AND DEVELOPMENT
Research and development expenses decreased
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges were$3.6 million during the six months endedDecember 30, 2022 , as compared to$16.1 million during the six months endedDecember 31, 2021 . Restructuring and other charges during the six months endedDecember 30, 2022 primarily related to 1MPACT including$1.7 million of third-party consulting costs,$1.0 million of costs for facility optimization efforts, including$0.8 million related to lease asset impairment, as well as$0.8 million of severance costs associated with the elimination of approximately 10 positions. Restructuring and other charges during the six months endedDecember 31, 2021 includes$8.7 million of third-party consulting costs associated with 1MPACT and$7.4 million of severance costs associated with the elimination of approximately 100 positions based on changes in the business environment and alignment with internal organization changes completed under 1MPACT.
ACQUISITION COSTS AND OTHER RELATED EXPENSES
Acquisition costs and other related expenses were$3.4 million during the six months endedDecember 30, 2022 , as compared to$4.8 million during the six months endedDecember 31, 2021 . The acquisition costs and other related expenses we incurred during the six months endedDecember 30, 2022 were primarily related to$2.5 million for third-party advisory fees in connection with engagements by activist investors and other acquisition related costs. Acquisition costs during the six months endedDecember 31, 2021 were primarily related to the acquisitions of Avalex and Atlanta Micro. We expect to continue to incur such acquisition costs and other related expenses in the future as we continue to seek acquisition opportunities to expand our technological capabilities and especially within secure processing, open mission systems, C3 and trusted microelectronics. Transaction costs incurred by the acquiree prior to the consummation of an acquisition would not be reflected in our historical results of operations. We also expect to incur costs related to the Board of Directors' review of strategic alternatives to enhance shareholder value.
INTEREST EXPENSE
We incurred
OTHER EXPENSE, NET Other expense, net remained consistent during the six months endedDecember 30, 2022 andDecember 31, 2021 . There was$1.2 million of net foreign currency translation gains, partially offset by$0.6 million of litigation and settlement expenses and$0.3 million of amortization of a previous unrealized gain during the six months endedDecember 30, 2022 . There was$0.9 million of litigation and settlement expenses and$0.7 million of net foreign currency translation losses during the six months endedDecember 31, 2021 . Both the six months endedDecember 30, 2022 andDecember 31, 2021 include$1.2 million of financing costs.
INCOME TAXES
We recorded an income tax benefit of$3.2 million and$0.6 million on a loss before income taxes of$28.4 million and$10.4 million for the six months endedDecember 30, 2022 andDecember 31, 2021 , respectively. During the six months endedDecember 30, 2022 , we recognized a tax benefit of$2.3 million related to a release of income tax reserves for unrecognized income tax benefits due to the expiration of the statute of limitations. During the six months endedDecember 30, 2022 andDecember 31, 2021 , we recognized a tax provision of$1.7 million and$0.9 million related to stock compensation shortfalls, respectively. 30 -------------------------------------------------------------------------------- The effective tax rate for the six months endedDecember 30, 2022 andDecember 31, 2021 differed from the federal statutory rate primarily due to federal and state research and development credits, non-deductible compensation, stock compensation shortfalls and state taxes. The effective tax rate for the six months endedDecember 30, 2022 also differed from the federal statutory rate due to the release of income tax reserves for previously unrecognized income tax benefits. OnAugust 16, 2022 ,President Biden signed the Inflation Reduction Act of 2022 into law which contained provisions that include a 15% corporate minimum tax effective for taxable years beginning afterDecember 31, 2022 and a 1% excise tax on certain stock buybacks afterDecember 31, 2022 . We expect the impact of this legislation to be immaterial. Effective for tax years beginning afterDecember 31, 2021 , the Tax Cuts and Jobs Act of 2017 requires companies to capitalize and amortize domestic research and development expenditures over five years for tax purposes, and foreign research and development expenditures over fifteen years for tax purposes. We estimate the cash impact from this provision to be approximately$36 million in fiscal 2023.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity come from existing cash and cash generated from operations, our Revolver, our ability to raise capital under our universal shelf registration statement and our ability to factor our receivables. 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. We also expect to incur costs related to the Board of Directors' review of strategic alternatives to enhance shareholder value.
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
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 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.
Revolving Credit Facilities
OnFebruary 28, 2022 , we amended the Revolver to increase and extend the borrowing capacity to a$1.1 billion , 5-year revolving credit line, with the maturity extended toFebruary 28, 2027 . As ofDecember 30, 2022 , we had$511.5 million of outstanding borrowings on the Revolver. See Note I in the accompanying consolidated financial statements for further discussion of the Revolver.
Receivables Purchase Agreement
OnSeptember 27, 2022 , we entered into an uncommitted receivables purchase agreement ("RPA") withBank of the West , as purchaser, pursuant to which we may offer to sell certain customer receivables, subject to the terms and conditions of the RPA. The RPA is an uncommitted arrangement such that we are not obligated to sell any receivables andBank of the West has no obligation to purchase any receivables from us. Pursuant to the RPA,Bank of the West may purchase certain of our customer receivables at a discounted rate, subject to a limit that as of any date, the total amount of purchased receivables held byBank of the West , less the amount of all collections received on such receivables, may not exceed$20.0 million . The RPA has an indefinite term and the agreement remains in effect until it is terminated by either party. We factored accounts receivable and incurred factoring fees of approximately$20.0 million and$0.1 million , respectively, for the six months endedDecember 30, 2022 . We did not factor any accounts receivable or incur any factoring fees for the six months endedDecember 31, 2021 . 31 --------------------------------------------------------------------------------
CASH FLOWS
As of and For the Six Months Ended,
December 31,
(In thousands) December 30, 2022 2021
Net cash (used in) provided by operating activities $ (30,647) $ 4,818
Net cash used in investing activities $ (20,402) $ (259,890)
Net cash provided by financing activities $ 62,330 $ 246,517
Net increase (decrease) in cash and cash equivalents $ 11,290 $ (8,670)
Cash and cash equivalents at end of period $
76,944
Our cash and cash equivalents increased by$11.3 million fromJuly 1, 2022 toDecember 30, 2022 , primarily as the result of$60.0 million of net borrowings on our Revolver and$2.4 million of proceeds from employee stock plans. These increases were partially offset by$30.6 million used in operating activities and$20.5 million invested in purchases of property and equipment.
Operating Activities
During the six months endedDecember 30, 2022 , we had an outflow of$30.6 million in cash from operating activities and we generated$4.8 million in cash from operating activities during the six months endedDecember 31, 2021 . The decrease was primarily due to higher outflows for inventory as we continue to accelerate raw material purchases to support customer delivery schedules and mitigate supply chain risk in future quarters, particularly in light of the long lead times for semiconductors. The decrease was also driven by net changes in benefit for deferred income taxes, prepaid income taxes and income taxes payable, as well as increases in accounts receivables, including unbilled receivables and costs in excess of billings, driven by contracting as well as supplier delays which impacted the timing of billing events and cash conversion. Higher outflows of accounts payable, accrued expenses and accrued compensation also contributed to the decrease. These decreases were partially offset by additional deferred revenues and customer advances as well as cash paid for income taxes.
Investing Activities
During the six months endedDecember 30, 2022 , we invested$20.4 million , a decrease of$239.5 million , as compared to the six months endedDecember 31, 2021 primarily driven by the acquisitions of Avalex and Atlanta Micro. The decrease was also driven by$3.3 million less other investing activities partially offset by$7.1 million higher purchases of property and equipment as compared to the second quarter endedDecember 31, 2021 .
Financing Activities
During the six months endedDecember 30, 2022 , we had$60.0 million of net borrowings on our Revolver as compared to$251.5 million of net borrowings during the six months endedDecember 31, 2021 . We also had$0.1 million of cash payments related to the purchase and retirement of common stock used to settle individual employees' tax liabilities associated with the annual vesting of restricted stock awards, as compared to$7.5 million in the second quarter endedDecember 31, 2021 . The decrease in the 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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