Mercury Systems, Inc. (MRCY) Misled Investors Regarding its Business Prospects
A shareholder filed a class action on behalf of all persons and entities that purchased or otherwise acquired Mercury Systems, Inc. (NASDAQ: MRCY) common stock between December 7, 2020 and June 23, 2023. Mercury is a technology company that produces component modules and subsystems for the aerospace and defense industries.
According to the complaint, during the class period, Mercury Systems, Inc. misled investors regarding its finances. Specifically, defendants failed to disclose that: (a) Mercury’s serial acquirer strategy was not working and the Company was using improper revenue recognition practices such as changing to long-term contracts to mask deteriorating organic growth; (b) the acquisition of Physical Optics Corporation (“POC”) would cause POC to lose its small business accreditation, which would prevent POC from winning contracts that made up a large portion of its historical business; and (c) Mercury’s IMPACT initiative to increase margins was not working and was in fact cutting into margins.
Plaintiff alleges that a short seller report issued by Glasshouse Research on July 26, 2022, revealed that: (i) Mercury overstated organic growth; (ii) the Acquisition had been a “disaster” which was utilized to obscure Mercury’s financial results; (iii) 1MPACT was a failure; and (iv) Mercury’s management prematurely recognized revenue on significant projects to artificially boost both revenue and earnings unsustainably which also caused the Company’s working capital and unbilled receivables to balloon far beyond industry norms. The Glasshouse Report attributed this premature revenue recognition to Mercury’s executives, noting that management “juice[d] the numbers in their favor” in order to meet revenue and adjusted EBITDA targets, on which the executives’ compensation was based. On this news, the Company’s share price fell $4.87 per share, from $62.13 per share on July 25, 2022, to $57.26 per share on July 26, 2022.
Then, on May 2, 2023, Mercury announced weak third quarter 2023 earnings and lower margins that caused the Company to slash its full year 2023 guidance. Mercury also disclosed that approximately a dozen of its 300-plus active programs had been negatively affected by higher costs related to labor and supply chain inefficiencies, manufacturing constraints, and inflation. However, the Company continued to downplay the significance of these issues, claiming that these “challenges” were “not unique to Mercury” and that “structurally, our business model and financial outlook are sound.” On this news, the price of the Company’s common stock declined $7.84 per share, or 17.3%, to close at $37.44 per share on May 3, 2023.
Then, on June 23, 2023, Mercury announced that its CEO had abruptly resigned and that the Company’s recent strategic review of acquisition alternatives did not result in the sale of the Company. On this news, Mercury’s share price declined an additional $3.37 per share, or 9.6%, to close at $31.50 per share on June 26, 2023, wiping out billions in market capitalization.
What Now: Similarly situated shareholders may be eligible to participate in the class action against Mercury Systems, Inc. Shareholders who want to act as lead plaintiff for the class should contact Robbins LLP. Plaintiffs must file their lead plaintiff papers by February 12, 2024. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. You do not have to participate in the case to be eligible for a recovery. If you choose to take no action, you can remain an absent class member.
All representation is on a contingency fee basis. Shareholders pay no fees or expenses.
