FinanceLooker

Excrept from filing document 2025-04-30

This Annual Report on Form 10 K Annual Report contains forward looking statements which reflect our current views about future events and financial results We have made these statements in reliance on the safe harbor created by the Private Securities Litigation Reform Act of 1995 set forth in Section 27A of the Securities Act of 1933 as amended the Securities Act and Section 21E of the Securities Exchange Act of 1934 as amended the Exchange Act Forward looking statements include our views on future financial results financing sources product development capital requirements market growth and the like and are generally identified by terms including but not limited to may will should could targets projects predicts contemplates anticipates believes estimates expects intends plans forecasts seeks and similar words Forward looking statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results to differ materially from the forward looking statement These uncertainties and other factors include among other things
Set forth below in Item 1A Risk Factors are additional significant uncertainties and other factors affecting forward looking statements The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive list of all the uncertainties and other factors that may affect forward looking statements We do not undertake any obligation to update or revise any forward looking statements or the list of uncertainties and other factors that could affect those statements
On May 1 2025 we closed our acquisition of BlueHalo a Delaware limited liability company pursuant to the Agreement and Plan of Merger dated as of November 18 2024 the Merger Agreement by and among us Archangel Merger Sub LLC a Delaware limited liability company the Merger Sub BlueHalo and BlueHalo Holdings Parent LLC a Delaware limited liability company and sole member of BlueHalo Seller
Other than financial data the disclosures and references in this Item 1 to this Annual Report including the description of our business operations in this Item 1 and risk factors related to our operations included in Item 1A include the BlueHalo acquisition unless otherwise specifically noted References to financial data unless otherwise indicated do not include the BlueHalo acquisition The assets liabilities and results of operations of BlueHalo have not been consolidated into our results as of and for the period ended April 30 2025 or any of the historical periods presented
We are a defense technology provider delivering integrated capabilities across air land sea space and cyber We develop and deploy autonomous systems precision strike systems counter UAS technologies space based platforms directed energy systems and cyber and electronic warfare capabilities We operate a national manufacturing footprint to deliver proven systems and capabilities whose markets offer the potential for significant long term growth In addition we believe that some of the innovative potential products services and technologies in our R D pipeline will emerge as new growth platforms in the future creating additional market opportunities Effective May 1 2025 we operate our business in two reportable segments 1 Autonomous Systems and 2 Space Cyber and Directed Energy
Counter UAS C UAS and Precision Strike Precision Strike includes our family of loitering munitions solutions LMS that deliver actionable intelligence and precision firepower modern warfighters need to achieve mission success across multiple domains C UAS includes our family of radio frequency and kinetic C UAS products which when combined with our Directed Energy C UAS solution provide a comprehensive suite of counter drone solutions with rapid deployment and advanced threat detection and defeat as well as our Electronic Warfare EW solutions which provide critical tactical communication geolocation and cyber effects capabilities utilizing modular architectures and open standards
Space and Directed Energy As space becomes a more contested domain investments in satellite operations and communications missile warning systems and space based ISR ensure dominance and resilience in potential conflicts Directed energy C UAS systems use high energy laser systems paired with AI ML enabled sensing technology to track identify and defeat targets
As a leading defense technology provider our strategy is to grow our business by delivering innovative mission critical safe and reliable multi domain solutions tailored to our customers most pressing challenges Delivering these capabilities enables us to create new markets gain share in existing markets and benefit from overall market expansion with increased adoption of these critical new technologies Our strategy involves introducing new solutions or acquiring differentiated solutions developed by others to enhance the value we provide to customers while supporting profitable growth across both existing and emerging markets By providing differentiated solutions we believe we are positioned to compete effectively against large well funded and or incumbent competitors that may possess advantages in scope scale resources and relationships Key components of this strategy include the following
Expand the market penetration of existing products and services Our UAS C UAS and Precision Strike Space and Directed Energy Cyber and Mission Systems and other businesses have gained reputations as performance leaders and technology innovators in their respective markets We intend to increase the penetration of our products and services within the U S military the militaries of allied nations other government agencies and non government organizations including commercial entities Our strategy is based on the expectation that continued adoption of our solutions by the U S military will stimulate demand among allied nations and that exploring new applications will generate opportunities beyond the initial military market
Deliver innovative new solutions into existing and new markets Customer focused innovation is the primary driver of our growth We plan to continue investing in internally funded R D projects while expanding our pursuit of customer funded R D projects to generate revenue and develop better more capable products services and business models both in response to and in anticipation of emerging customer needs In some cases such innovations result in upgrades to existing offerings while expanding their value among existing customers and markets In other cases such innovations become entirely new solutions that enable us to address new markets customers and business opportunities
We believe our strategy which is focused on R D investments will allow us to deliver innovative new products and services that address market needs both within and beyond our current target markets enabling the creation of new growth opportunities We view strategic partnerships as a means by which to further the reach of our innovative solutions by accessing new markets customers and complementary capabilities We also consider acquisitions as a method to obtain valuable products capabilities or technologies that can further enable our growth strategy
Foster our entrepreneurial culture and continue to attract develop and retain highly skilled personnel Our company culture encourages innovation and entrepreneurship which helps to attract and retain highly skilled mission focused professionals This culture encourages the development of innovative highly technical system solutions and business models that give us our competitive advantage Our values guide the behavior of our team members and help maintain a positive work environment that fosters loyalty among both employees and customers These values also support the successful integration of new team members who join through acquisitions
Preserve our agility and flexibility We respond rapidly to evolving markets address complex customer challenges and aim to deliver new products services and capabilities quickly efficiently and affordably compared to available alternatives We believe our agility and flexibility strengthen relationships with customers and partners and serve as key differentiators when competing against organizations with greater resources
Effectively manage our growth portfolio for long term value creation Our production and development programs and services present numerous investment opportunities that are expected to deliver long term growth by providing customers with valuable new capabilities We evaluate each opportunity independently and against other investment opportunities to determine its relative cost timing and potential for generation of returns This process helps us make informed decisions regarding potential growth capital requirements It also supports our allocation of resources based on relative risks and returns to maximize long term value creation which is the key objective of our value creation strategy We regularly review our portfolio to determine if and when to narrow our focus on the highest potential opportunities and exit unattractive or non core product lines
Stay engaged with our key defense customers We receive support from members within our Strategic Advisory Group SAG which provides executive level advice to our senior leaders on all matters relating to the DoD SAG members are highly qualified former members of the U S DoD including retired General and Flag Officers and Senior Executive Service members each with many decades of experience We also have a government relations team comprised of individuals with prior military government and policy making experience who regularly meet with key decision makers within the Pentagon Congress and other key organizations within the U S government Our global business development organization seeks to understand customer needs responds to information requests submits proposals solicits feedback on the performance of our products furnishes spares and provides training and customer support Finally our project and program managers work intimately with customers to oversee the design development testing manufacturing and delivery of solutions the customers want and need
We sell the majority of our products and services to the U S DoD serving branches such as the U S Army Marine Corps Special Operations Command Air Force Navy Space Force and Cyber Command the intelligence community agencies public safety agencies allied governments and coalition partners through direct commercial sales or foreign military sales and to commercial customers supporting critical infrastructure protection open source intelligence operations and advanced research initiatives
During our fiscal year ended April 30 2025 prior to the acquisition of BlueHalo we generated approximately 20 of our revenue from the U S Army pursuant to orders placed under contract by the U S Army on behalf of itself as well as for several other organizations within the U S DoD For that same period other U S government agencies and government subcontractors accounted for 27 of our sales revenue Sales revenue to foreign customers inclusive of foreign military sales made through the U S DoD commercial and consumer customers accounted for the remaining 53 of sales revenue during our fiscal year ended April 30 2025 of which Ukraine accounted for 18 of our total sales revenue With the acquisition of BlueHalo we expect the proportion of total revenue attributable to sales to the U S DoD and other U S government agencies to increase in fiscal year 2026
A component of our ongoing innovation is a screening process that helps our business managers identify early market needs which assists us in making timely investments in critical technologies necessary to develop solutions to address these needs Similarly we manage new product and business concepts through a commercialization process that balances spending resources time and intellectual property considerations against market requirements and potential returns on investment Strongly linking our technology and business development activities to customer needs in attractive growth markets constitutes an important element of this process We constantly revisit our customer requirement assumptions to evaluate continued investment and to seek to ensure that our products and services deliver high value and conversely high returns
As of April 30 2025 prior to the BlueHalo acquisition we had issued and retained 353 U S patents as well as 103 pending U S patent applications and numerous foreign patents and pending applications In many cases when appropriate and to preserve confidentiality we opt to protect our intellectual property through trade secrets as opposed to filing for patent protection We recently filed trademark applications for our new stylized corporate AV logo incorporating a halo feature as well as the mark All Domain Dominance Further we have many U S registered trademarks including those for AeroVironment AV Switchblade Raven VAPOR Arcturus UAV JUMP Tomahawk Robotics and Kinesis and have several pending applications for trademark registration
The U S government licenses some of our intellectual property that was specifically developed in performance of government contracts and may use or authorize others to use this intellectual property In some cases we fund the development of certain intellectual property to maximize its value and limit its use by potential competitors While the development and protection of our intellectual property are integral to the continued success of our business the loss or limitation of rights to any particular piece of intellectual property is not expected to have a material adverse effect on our overall business
A core component of our business strategy is the focused development and commercialization of innovative solutions that we believe have the potential to become new products or services that create large new markets or accelerate growth within our existing markets We invest in an active pipeline of these commercialization projects ranging in maturity from technology validation to early market adoption We cannot predict when if ever we will successfully commercialize these projects or the exact level of capital expenditures they could require which could be substantial
Our core technological capabilities developed over more than 50 years of innovation include robotics and robotics systems autonomy modular open systems architecture sensor design development miniaturization and integration embedded software and firmware miniature low power secure wireless digital communications and networks lightweight aerostructures high altitude systems design integration and operations machine vision machine learning AI and autonomy land maritime and air deployment of munitions and aircraft systems design and qualification for robotics in extreme terrestrial and space environments low SWaP Size Weight and Power system
design and integration collaborative multi robotic crewed and uncrewed mission operation power electronics and electric propulsion systems efficient electric power conversion storage systems and high density energy packaging controls and systems integration vertical takeoff and landing for fixed wing and hybrid aircraft and rotocraft systems image stabilization and target tracking advanced flight control systems fluid dynamics human machine interface development modular dismounted networked multi domain robotic control interfaces and analytic processing architecture and integrated mission solutions for austere environments
The BlueHalo acquisition significantly enhanced our core technological capabilities which now include advanced RF system design and development software defined digital phased array antennas and radars space qualified electronics laser communication technologies software defined radios electronic warfare technology target acquisition and tracking directed energy based weapons systems for counter uncrewed systems RF based systems for counter uncrewed next generation counter uncrewed system missile technology XR VR system for training modeling and simulation hardware in the loop simulations C2 sensing and tracking uncrewed maritime platforms uncrewed aerial platforms full spectrum cyber operations tactical mission networks multi int data analytics and threat intelligence tools and analytics for GEOINT SIGNINT MASINT and OSINT aerospace power and propulsion material and processes directed energy photonics and electronics biological and nanoscale technology and health and human performance
We believe the principal competitive factors in the markets for our products and services include product performance safety innovative features acquisition cost lifetime operating cost including maintenance and support ease of use rapid integration with existing equipment and processes quality reliability customer support and brand reputation Several companies across the globe primarily in the U S attempt to compete in our markets to some degree although we believe none matches the breadth and depth of our product line nor our expertise in core capabilities
The defense market for UAS continues to evolve in response to changing technologies shifting customer needs and expectations and the potential introduction of new products Our current principal competitors include Elbit Systems Ltd Quantum Systems Inc Edge Autonomy Teledyne Technologies Inc Sierra Nevada Corporation Lockheed Martin Corporation The Boeing Company Textron Inc Shield AI Inc Northrop Grumman Corporation Griffon Aerospace Inc L3Harris Technologies Inc and Israeli Aircraft Industries
The defense and technology markets for the C UAS and Precision Strike products and solutions are highly competitive evolving with rapid technological advancements and shifting customer needs Competitors in the LMS market include Textron Inc RTX Corporation Lockheed Martin Corporation Anduril Industries Inc Aevex Holdings LLC and UVision Air Ltd Competitors in the C UAS and Electronic Warfare markets include Anduril Industries Inc The Boeing Company Lockheed Martin Corporation RTX Corporation and other emerging technology firms and international players
The space technology and directed energy market includes competitors such as The Boeing Company Lockheed Martin Corporation L3Harris Technologies Inc BAE Systems Inc and RTX Corporation These companies have extensive experience and resources offering satellite systems and spacecraft engineering solutions that compete with our offerings
We pursue a lean and efficient production strategy across our business focusing on rapid prototyping and design supply chain management initial and final assembly integration quality and in process final acceptance testing Using concurrent engineering techniques within an integrated product team structure we rapidly prototype design concepts and products while optimizing our designs to meet manufacturing requirements and mission capabilities which address rapidly evolving threats and customer specifications
We continue to invest in infrastructure that has enabled us to meet growing demand and efficiently scale capacity to produce thousands of systems annually By drawing upon experienced personnel across various manufacturing industries including aerospace automotive and volume commodities we have instituted lean production systems and leverage our International Organization for Standardization ISO certification for Quality Management Systems integrated supply chain strategy document control systems and process control methodologies for production Our ISO 9001 2015 AS9100D certified manufacturing facilities which focus on continuous improvement in order to increase acceptance rates reduce lead times improve efficiency and lower cost
No material portion of our business is considered to be seasonal Historically revenue in the second half of our fiscal years has exceeded revenue in the first half This trend is expected to continue in fiscal year 2026 following the acquisition of BlueHalo The factors that affect our revenue recognition between accounting periods include the timing of new contract awards the availability of U S government and international government funding lead time to manufacture our systems to customer specification customer acceptance and other regulatory requirements
We are dependent upon the availability of materials and major components and the performance of our suppliers Historically we have been successful in obtaining the materials required in our manufacturing processes We seek to manage materials supply risk through long term non binding agreements with certain key suppliers that help stabilize pricing reduce lead times enhance planning accuracy and to some degree mitigate risk While we believe that all such raw materials and components are available to meet our needs from various suppliers certain supply chain constraint trends such as increased demand for domestic suppliers could cause delays in production and development programs and negatively impact our operating results see Item 1A Risk Factors If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable then we may incur delays in manufacturing and delivery of our products and in completing our development programs which could damage our business for more information
We recognize our employees as the most invaluable assets of our company serving as the cornerstone of our accomplishments With this in mind we endeavor to establish ourselves as an employer renowned for fostering a positive work environment that encourages personal development ensures workplace safety and promotes opportunity We firmly believe that such a corporate culture enhances employee satisfaction while also nurturing creativity and productivity thereby driving our continuous innovation efforts Central to our ethos is prioritizing the employee experience a commitment underscored by our esteemed certification from the Great Place to Work Institute Inc designating us as a Great Place to Work each year since 2019
As of April 30 2025 we had 1 456 full time employees and 19 part time employees of whom 528 were in R D and engineering 75 were in sales and marketing 533 were in operations and 339 were general and administrative personnel Upon closing of our acquisition of BlueHalo on May 1 2025 our workforce increased to 3 594 full time employees and 137 part time employees including over 200 employees with a PhD
Our ability to attract cultivate and retain highly skilled individuals particularly those with technical and engineering expertise and high level security clearances is paramount for the successful execution of our strategic objectives and the expansion of our enterprise We maintain vigilant oversight of recruitment employee retention and management practices A pivotal component of our People and Culture strategy involves the recruitment of early career professionals through collegiate programs and internships with a specific focus on technical disciplines
Furthermore we engage in regular confidential surveys to gather insights from our workforce using the feedback to enhance our organizational environment Our commitment to our employees is demonstrated through competitive compensation packages including performance incentives and recognition schemes that encompass all levels within our company We prioritize the development of our workforce through educational initiatives training programs and support for further education and professional certifications Moreover we conduct meticulous succession planning for leadership roles to ensure the sustained cultivation of a talented management cadre essential for the realization of our strategic vision
Our safety and health program enhances operational efficiency by offering tailored safety health and wellness initiatives This program establishes secure working conditions fosters a positive work atmosphere enhances employee resilience and bolsters the company s overall value We diligently track employee health and safety metrics setting monthly and annual goals to minimize work related injuries and illnesses thereby reducing the number of lost workdays and mitigating productivity setbacks resulting from such incidents Furthermore we extend health and wellness benefits to our employees for their well being
Consistent with ASC Topic 606 Revenue from Contracts with Customers ASC 606 we define backlog as remaining unsatisfied performance obligations under firm orders for which work has not been performed As of April 30 2025 and 2024 our backlog was approximately 726 6 million and 400 2 million respectively We expect that approximately 90 of our backlog will be recognized as revenue during our fiscal year ending April 30 2026
In addition to funded backlog we also had unfunded backlog of 774 6 million and 135 4 million as of April 30 2025 and 2024 respectively Unfunded backlog does not meet the definition of a performance obligation under ASC 606 We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with i multiple one year options and indefinite delivery indefinite quantity IDIQ contracts or ii incremental funding Unfunded backlog does not obligate the customer to purchase goods or services There can be no assurance that unfunded backlog will result in any orders in any particular period if at all Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts
Because of possible future changes in delivery schedules and or cancellations of orders backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period and actual sales for the year may not meet or exceed the backlog represented Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire are renewed or new contracts awarded A majority of our contracts specifically IDIQ ones do not currently obligate the U S government to purchase any goods or services Additionally all U S government contracts included in backlog whether or not they are funded may be terminated at the convenience of the U S government
Due to the fact that we contract with the DoD and other agencies of the U S government we are subject to extensive federal regulations including the Federal Acquisition Regulations Defense Federal Acquisitions Regulations Truth in Negotiations Act Foreign Corrupt Practices Act False Claims Act and the regulations promulgated under the DoD Industrial Security Manual which establishes the security guidelines for classified programs and facilities as well as individual security clearances The federal government audits and reviews our performance on contracts pricing practices cost structure and compliance with applicable laws regulations and standards Like most government
In addition we are subject to industry specific regulations due to the nature of the products and services we provide For example certain aspects of our business are subject to further regulation by additional U S government authorities including i the Federal Aviation Administration FAA which regulates airspace for all air vehicles in the U S National Airspace System ii the National Telecommunications and Information Administration and the Federal Communications Commission which regulate the wireless communications upon which our UAS depend in the United States iii the Defense Trade Controls of the U S Department of State that administers the International Traffic in Arms Regulations which regulate the export of controlled technical data defense articles and defense services and iv the Export Administration Regulations as administered by the U S Department of Commerce s Bureau of Industry and Security which regulate the export of goods software and technology including items that have dual use for both commercial and military applications
Certain of these regulations impose substantial penalties for violations including suspension or debarment from government contracting or subcontracting for a period of time Furthermore our non U S operations are subject to the laws and regulations of foreign jurisdictions which may include regulations that are more stringent than those imposed by the U S government on our U S operations
We sell the majority of our products and services under contracts with the U S government Most of our current U S government contracts were awarded through a competitive bidding process The U S government awards competitive bid contracts based on proposal evaluation criteria established by the procuring agency Competitive bid contracts are awarded after a formal bid and proposal competition among providers Following award competitive bid contracts may be challenged by unsuccessful bidders The funding of U S government programs is subject to congressional appropriations The U S military funds its contracts for our products either through operational need statements or as programs of record defined as a program which after undergoing extensive DoD review and product testing is included in the five year government budget cycle
All contracts with the U S government contain provisions and are subject to laws and regulations that give the government rights and remedies not typically found in commercial contracts such as rights that allow the U S government to terminate existing contracts for convenience terminate contracts for default upon the occurrence of certain enumerated events unilaterally modify contracts with regard to certain performance requirements cancel multi year contracts and related orders if funds for contract performance for any subsequent year become unavailable potentially obtain rights in or ownership to intellectual property associated with products and systems developed or delivered by a contractor as a result of its performance of the contract adjust contract costs and fees on the basis of audits completed by its agencies suspend or debar a contractor from doing business with the U S government and control or prohibit the export of certain items
Compensation if any in the event of a termination for default is limited to payment for work completed at the time of termination In the event of a termination for convenience the contractor may receive the contract price for completed work as well as its costs of performance of terminated work including an allowance for profit and reasonable termination settlement costs
Fixed Price These contracts are not subject to adjustment by reason of costs incurred in the performance of the contract With this type of contract we assume the risk that we will not be able to perform at a cost below the fixed price except for costs incurred because of contract changes ordered by the customer
Cost Reimbursable These contracts reimburse allowable costs and include types such as cost plus fixed fee cost plus award fee and cost plus incentive fee Under each type of contract we assume the risk that we may not be able to recover costs if they are not allowable under the contract terms or applicable regulations or if the costs exceed the contract funding They typically present lower profit margins and risk Cost plus fixed fee contracts are cost reimbursable contracts that provide for payment of a negotiated fee that is fixed at the inception of the contract A cost plus award fee contract is a cost reimbursable contract that provides for a fee consisting of a base amount which may be zero fixed at inception of the contract and an award amount based upon the government s satisfaction with the performance under the contract A cost plus incentive fee contract is a cost reimbursable contract that provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs
Time and Materials Under these contracts our compensation is based on a fixed hourly rate established for specified labor or skill categories We risk reduced profitability if our actual costs exceed the costs incorporated into the fixed hourly labor rate One variation of a standard time and materials contract is a time and materials award fee contract Under this type of contract a positive or negative incentive can be earned based on achievement against specific performance metrics
IDIQ and IDIQ Type Contract Form The U S government frequently uses IDIQ and IDIQ type contracts to obtain contractual commitments to provide products or services over a period of time pursuant to established general terms and conditions IDIQ and IDIQ type contracts typically have multi year terms and unfunded ceiling amounts that enable but do not commit the U S government to purchase substantial amounts of products and services from one or more contractors
Undefinitized Contractual Actions UCA Depending on the urgency of the project and the complexity of the contract negotiation UCAs or Letter Contracts Basic Ordering Agreements or Provisional Item Orders are entered into prior to finalizing the terms of a definitive contract to allow for the contractor to immediately begin performing services and or manufacturing products
Unpriced Change Orders UCO UCOs are unilateral changes within the scope of a contract where the government and contractor have not reached an agreement on terms specifications and prices This type of change order allows the project to continue without delay while the contractor and government negotiate final terms specifications and prices The existing contract is formally modified to include an agreed upon price and other adjustments related to the change order
Other Transaction Authority OTA OTAs are legally binding instruments that are used to engage with non traditional defense contractors and to facilitate the rapid development and deployment of innovative technologies Unlike traditional government contracts OTAs are not subject to the Federal Acquisition Regulation FAR providing greater flexibility in terms and conditions
We supply our products and services to international allied governments Each international customer has its own laws regulations bureaucracy and forms of procurement agreements that present challenges in our international contracting process Our international contracts generally result from a competitive bidding process and to a lesser extent sole source awards for urgent requirements or sustainment Competitive bid contracts are awarded after a formal bid and proposal competition among providers International competitive bidding processes are highly competitive and sometimes we face disadvantages in the bidding and evaluation process in comparison to local domestic bidders that may receive priority or more favorable evaluations than non domestic suppliers due to stated requirements in the local
regulations that promote domestic procurements Sole source awards are direct engagements with the procuring agency Generally sole source awards are utilized by our existing customers to sustain or augment their use of our products commonly through multi year support agreements These agreements allow for customer logistics organizations to tailor procurement and support efforts to the needs of the end users International funding processes vary are generally allocated during the applicable country s fiscal year are often confidential and may be broadly allocated or targeted for specific purposes making it difficult to forecast demand Many of our international customers have established fleets of our UAS which generally allows them to seek and obtain budget for yearly incremental allocations of funding These allocations are contracted through existing multi year support agreements which provide the customer flexibility to procure products and services when funding is available
Our typical international customer contracts take the form of fixed price contracts and time and materials contracts Most of our international contracts are fixed price contracts as their finite nature is desired by customers Time and materials contracts are more common for our service work with a defined limit on funding and period of performance Contracts with international customers often include locally advantageous provisions differing from U S norms potentially complicating enforcement and receivable collection We minimize risks by assessing each contract individually and requiring banking guarantees or advance payments
We are subject to various federal state local and non U S laws and regulations relating to environmental protection including the discharge treatment storage disposal and remediation of hazardous substances and wastes We could also be affected by future laws and regulations relating to climate change including laws related to greenhouse gas emissions and regulating energy efficiency These laws and regulations could lead to increased environmental compliance expenditures increased energy and raw materials costs and new and or additional investment in designs and technologies We continually assess our compliance status and management of environmental matters to ensure that our operations comply with all applicable environmental laws and regulations Investigation remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal recurring part of our operations These costs often are allowable costs under our contracts with the U S government While environmental protection regulations have not had a significant adverse effect on our overall operations it is possible that costs incurred to ensure continued environmental compliance in the future could have a material impact on our results of operations financial condition or cash flows if additional work requirements or more stringent clean up standards are imposed by regulators new areas of soil air and groundwater contamination are discovered and or expansion of work scope are prompted as a result of investigations
Our principal executive offices are located at 241 18th Street South Suite 650 Arlington Virginia 22202 Our telephone number is 703 418 2828 Our website address is http www avinc com We make our website content available for information purposes only It should not be relied upon for investment purposes nor is it incorporated by reference into this Annual Report
We make our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and proxy statements for our annual stockholders meetings as well as any amendments to those reports available free of charge through our website as soon as reasonably practical after we electronically file that material with or furnish it to the Securities and Exchange Commission SEC You can learn more about us by reviewing our SEC filings Our SEC reports can be accessed through the investor relations page of our website at http investor avinc com The SEC also maintains a website at www sec gov that contains our reports proxy statements and other information regarding us
We may announce material business and financial information to our investors using our investor relations website at https investor avinc com investor relations We therefore encourage investors and others interested in the company to review the information that we make available on our website in addition to following our filings with the
A description of the risks and uncertainties associated with our business is set forth below You should carefully consider such risks and uncertainties together with the other information contained in this report and in our other public filings before investing in our common stock If any such risks and uncertainties actually occur our business financial condition or operating results could differ materially from the plans projections and other forward looking statements included in the section titled Management s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report and in our other public filings In addition if any of the following risks and uncertainties or if any other risks and uncertainties actually occurs our business financial condition or operating results could be harmed substantially which could cause the market price of our stock to decline perhaps significantly
The following is a summary of the risks and uncertainties that could cause our business financial condition or operating results to be harmed We encourage you to carefully review the full risk factors contained in this report in their entirety for additional information regarding these risks and uncertainties
Historically we have derived a significant portion of our total sales and our SUAS and LMS sales from the U S government and its agencies Sales to the U S government either as a prime contractor or subcontractor and inclusive of foreign military sales represented approximately 75 of our revenue for the fiscal year ended April 30 2025 The DoD our principal U S government customer accounted for approximately 35 of our revenue for the fiscal year ended April 30 2025 With the acquisition of BlueHalo we expect the proportion of total revenue attributable to sales to the U S DoD and other U S government agencies to increase in fiscal year 2026 We believe that the success and growth of our business for the foreseeable future will continue to depend to a significant degree on our ability to win government contracts in particular from the DoD Many of our government customers are subject to budgetary constraints and our continued performance under these contracts or award of additional contracts from these agencies could be jeopardized by spending reductions or budget cutbacks at these agencies Recently the reduction of government spending has been a primary focus of the federal government In January 2025 President Trump announced an executive order establishing the Department of Government Efficiency DOGE to maximize government efficiency and productivity In February 2025 President Trump stated that he has directed DOGE to review Pentagon spending for potential waste and fraud As a result of these recent developments and other factors the funding of U S government programs is uncertain We are dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline
The U S military funds a portion of our contracts through operational needs statements and to a lesser extent through programs of record which provides us with less visibility and certainty on future funding allocations for our contracts Furthermore all of our contracts with the U S government are terminable by the U S government at will and the increasing government spending reviews may result in revocation of previously awarded contracts A significant decline in government expenditures generally or with respect to programs for which we provide products and or
These developments and other factors could cause governmental agencies to reduce their purchases under existing contracts to exercise their rights to terminate contracts at will or to abstain from renewing contracts or entering into new contracts any of which would cause our revenue to decline and could otherwise harm our business financial condition and results of operations
Because we generate a significant portion of our total sales from the U S government and its agencies and from foreign governments our results of operations could be adversely affected by government spending caps delays in the government budget process program starts the award of contracts or orders under existing contracts or delays in release of funds by the federal government Delays in the definitization of a contract could result in delayed funding billing and payment Our business may be adversely impacted due to shifts in the political environment and resulting changes in the government and agency leadership positions and priorities for funding We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline or that such funding will be accessible consistent with previously realized timelines due to federal budgetary review activities and potential freezes on or cancellation of various governmental programs from time to time If annual budget appropriations or continuing resolutions are not enacted timely we could face U S government shutdowns which could adversely impact our programs and contracts with the U S government our ability to receive timely payment from U S government entities and our ability to timely obtain export licenses for our products and services to fulfill contracts with our international customers
Additionally there is a possibility that political decisions made by the U S government such as the establishment of DOGE and the related probes into and reductions in government spending policy changes regarding prior military commitments by the second Trump administration including those regarding ongoing conflicts including between Russia and Ukraine Israel and Hamas Israel and Iran or an impasse on policy issues between the executive branch and Congress could impact future spending and program authorizations which may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded contracts Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense related and other programs due to among other factors competing demands for federal funds and the number and intensity of military conflicts We previously received a stop work order which was lifted shortly after issuance on certain existing U S government contracts previously awarded to us for foreign military sales funded by the U S government via foreign military financing because of shifting foreign military aid priorities We may continue to receive future stop work orders and or contract cancellations for other existing U S government contracts due to shifting foreign military aid priorities including due to the recently announced pause on U S military assistance to Ukraine and we cannot project the aggregate negative impact on our results of operations due to any future stop work orders and or contract cancellations
We cannot predict whether and when a reduction in overseas operational levels will occur how future procurement priorities related to defense transformation will be impacted including by future events such as the conflicts between Russia and Ukraine or Israel and Hamas or how changes in the threat environment will impact opportunities and competition for our products for existing additional or replacement programs While strategically we have diversified our portfolio in an effort to mitigate the susceptibility of our business to reductions in overseas operational levels we cannot be certain that such actions have mitigated the risk of our business to such reductions If defense transformation or overseas operations slow down or cease in key operational areas then our business financial condition and results of operations could be impacted negatively
One of our key strategies is to invest in R D to drive innovation and spur growth Our innovative solutions are often sold in new and rapidly evolving markets Accordingly our business and future prospects may be difficult to evaluate We cannot accurately predict the extent to which demand for our products and services will increase if at all The challenges risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following
The defense industry is highly competitive and generally characterized by intense competition to win contracts Our current principal competitors in the UAS market include Elbit Systems Ltd Quantum Systems Inc Edge Autonomy Teledyne Technologies Inc Sierra Nevada Corporation Lockheed Martin Corporation The Boeing Company Textron Inc Shield AI Inc Northrop Grumman Corporation Griffon Aerospace Inc L3Harris Technologies Inc and Israeli Aircraft Industries
The defense and technology markets for the C UAS and Precision Strike products and solutions are highly competitive evolving with rapid technological advancements and shifting customer needs Competitors in the LMS market include Textron Inc RTX Corporation Lockheed Martin Corporation Anduril Industries Inc Aevex Holdings LLC and UVision Air Ltd Competitors in the C UAS and Electronic Warfare markets include Anduril Industries Inc The Boeing Company Lockheed Martin Corporation RTX Corporation and other emerging technology firms and international players
The space technology and directed energy market includes competitors such as The Boeing Company Lockheed Martin Corporation L3Harris Technologies Inc BAE Systems Inc and RTX Corporation These companies have extensive experience and resources offering satellite systems and spacecraft engineering solutions that compete with our offerings
Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications past contract performance geographic presence price and the availability of key professional personnel including those with security clearances Furthermore many of our competitors may be able to use their substantially greater resources and economies of scale to develop competing products and technologies manufacture in high volumes more efficiently divert sales from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages Small business competitors may be able to offer more cost competitive solutions due to their lower overhead costs and take advantage of small business incentive and set aside programs for which we are ineligible Foreign competitors may also be able to offer more cost competitive solutions as compared to our products and services The markets our products and services are expanding and competition intensifying as additional competitors enter such markets and current competitors expand their product lines In order to secure contracts successfully when competing with larger well financed companies we may need to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract which could adversely affect our margins In addition larger diversified competitors serving as prime contractors may be able to supply underlying products and services from affiliated entities which would prevent us from competing for subcontracting opportunities on these contracts Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business prospects financial condition or operating results
We cannot accurately predict the future growth rates or sizes of the markets for our products and services Demand for our products and services may not increase or may decrease either generally or in specific markets for particular types of products and services or during particular time periods Despite expanding our customer base to include international clients and non military domestic agencies and making initial export breakthroughs sustained increases in sales to international customers are not guaranteed Historically a large portion of our and BlueHalo s revenue has been with the U S government An increase of international sales of our product and services may not occur as anticipated The expansion of the markets for our products in general and the market for our products and services in particular depends on several factors including the following
We derived approximately 52 of our revenue from international sales including U S government foreign military sales in which an end user is a foreign government during the fiscal year ended April 30 2025 compared to 62 for the fiscal year ended April 30 2024 We expect to continue to derive a significant portion of our revenue from international sales including direct sales to allied nations and initiated through our international operations Telerob Gesellschaft für Fernhantierungstechnik mbH Telerob however we expect the proportion of our total revenue attributable to international sales will decrease in fiscal year 2026 due to BlueHalo s lower mix of international sales Our international revenue and operations are subject to a number of material risks including the following
Negative developments in any of these areas in one or more countries in which we operate could result in a reduction in demand for our products the cancellation or delay of orders already placed threats to our intellectual property destabilization of performance difficulty in collecting receivables and a higher cost of doing business any of which could negatively impact our business financial condition or results of operations While we have adopted policies and procedures to facilitate compliance with laws and regulations applicable to our international operations and sales
our failure or the failure by our employees or others working on our behalf to comply with such laws and regulations may result in administrative civil or criminal liabilities including fines suspension or debarment from government contracts or suspension of our export privileges Moreover our sales including sales to customers outside the United States substantially all are denominated in U S dollars and downward fluctuations in the value of foreign currencies relative to the U S dollar may make our products more expensive than other products which could harm our business
The complexity of our business has increased significantly over the last several years most recently with the closing of our acquisition of BlueHalo in May 2025 We have increased the number of product lines being pursued expanded international product sales and added commercial services and engaged in numerous acquisitions further expanding our operations domestically and abroad Further we have entered into certain credit facilities that include affirmative and negative covenants and place some restrictions on how we operate our business Our growth has placed and our expected growth will continue to place a strain on our management and our administrative operational and financial infrastructure We anticipate further growth of headcount and facilities will be required to address expansion in our product and service offerings and the geographic scope of our customer base However if we are unsuccessful in our efforts our business could decline Our success will depend in part upon the ability of our senior management to manage our increased complexity and expected growth effectively To do so we must continue to hire train manage and integrate a significant number of qualified managers and engineers as well as an adequate support structure If our new employees perform poorly or if we are unsuccessful in hiring training managing and integrating these new employees or retaining these or our existing employees then our business may experience declines
To support our expected growth we must continue to improve our operational financial and management information systems If we are unable to manage our growth while maintaining our quality of service or if new systems that we implement to assist in managing our growth do not produce the expected benefits then our business prospects financial condition or operating results could be adversely affected
Parties with which we do business and with which BlueHalo did business prior to the acquisition may experience uncertainty associated with the acquisition integration including with respect to current or future business relationships with the combined company Our and BlueHalo s business relationships may be subject to disruption as customers distributors suppliers vendors landlords joint venture partners and other business partners may attempt to delay or defer entering into new business relationships negotiate changes in existing business relationships or consider entering into business relationships with parties other than us These disruptions could have a material and adverse effect on our results of operations cash flows and financial position as well as a material and adverse effect on our ability to realize the expected cost savings and other benefits of the acquisition
The U S military represents our largest source of revenue We have however expanded our product sales into new market segments such as the AI enabled common control system from our Tomahawk acquisition Our efforts to expand our product and service offerings beyond our traditional markets may divert management resources from existing operations and require us to commit significant financial resources to unproven businesses that may not generate additional sales either of which could significantly impair our operating results
Continuing technological changes in the market for our products could make our products and services less competitive or obsolete either generally or for particular applications The length and severity of the cycles in the commercial and defense industries are difficult to predict Our future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements to our existing product offerings as well as introduce a variety of new product offerings to address the changing needs of the markets in which we offer our products Delays in introducing new products and enhancements the failure to choose correctly among technical alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our competitors products
If we are unable to devote adequate resources to develop new products or cannot otherwise successfully develop new products or enhancements that meet customer requirements on a timely basis our products could lose market share our revenue and profits could decline and we could experience operating losses
We currently incorporate machine learning and AI capabilities into certain of our products and solutions and may seek to expand the use of AI in our offerings in the future As with many innovations AI presents risks challenges and unintended consequences that could affect our business AI algorithms and training methodologies may be flawed These deficiencies and other failures of AI systems could subject us to competitive harm regulatory action legal liability and brand or reputational harm Further incorporating AI could give rise to litigation risk and risk of non compliance and unknown cost of compliance as AI is an emerging technology for which the legal and regulatory landscape is not fully developed including potential liability for breaching intellectual property or privacy rights or laws While new AI initiatives laws and regulations are emerging and evolving what they ultimately will look like remains uncertain and our obligation to comply with them could entail significant costs negatively affect our business or entirely limit our ability to incorporate certain AI capabilities into our offerings
Additionally leveraging AI capabilities to potentially improve internal functions and operations presents further risks and challenges The use of AI to support business operations carries inherent risks related to data privacy and security such as intended unintended or inadvertent transmission of proprietary sensitive or export controlled information as well as challenges related to implementing and maintaining AI tools Additionally our competitors might move faster than us to gain efficiencies by incorporating AI into their design and development processes and our products and or cost structure could become less competitive as a result The rapid evolution of AI will require the application of resources by us to develop test and maintain our products services and operations to help ensure that AI is implemented ethically in order to minimize unintended harmful impact
Our future growth depends on penetrating new markets adapting existing products to new applications and introducing new products and services that achieve market acceptance We plan to incur substantial R D costs as part of our efforts to design develop and commercialize new products and services and enhance existing products We spent 100 7 million or 12 of our revenue in our fiscal year ended April 30 2025 on internal R D activities We believe that there are significant investment opportunities in a number of business areas Because we account for internal R D as an operating expense these expenditures will adversely affect our earnings in the future Further our R D programs may not produce successful results and our new products and services may not achieve market acceptance create
Our products rely on complex avionics space qualified electronics RF based systems digital phased array antennas and radars sensors user friendly interfaces and tightly integrated electromechanical designs to accomplish their missions Despite extensive testing our products have contained defects and errors and may in the future contain defects errors or performance problems when first introduced when new versions or enhancements are released or even after these products have been used by our customers for a period of time These problems could result in expensive and time consuming design modifications or warranty charges delays in the introduction of new products or enhancements significant increases in our service and maintenance costs exposure to liability for damages damaged customer relationships and harm to our reputation any of which could materially harm our results of operations and ability to achieve market acceptance In addition increased development and warranty costs could be substantial and could reduce our operating margins
The existence of any defects errors or failures in our products or the misuse of our products could also lead to product liability claims or lawsuits against us A defect error or failure in one of our products could result in injury death or property damage and significantly damage our reputation and support for our products in general We anticipate this risk will grow as our UAS products begin to be used in U S domestic airspace and urban areas
Although we maintain insurance policies we cannot be certain that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all A successful product liability claim could result in substantial cost to us Even if we are fully insured as it relates to a claim the claim could nevertheless diminish our brand and divert management s attention and resources which could have a negative impact on our business financial condition and results of operations
Our ability to meet customers demands depends in part on our ability to obtain timely and adequate delivery of high quality materials components and subsystems many of which are obtained from a select group of specialized suppliers including some sole source providers In order to mitigate potential disruptions we maintain long term non binding agreements with several key suppliers that help stabilize pricing reduce lead times and enhance planning accuracy We do not have long term agreements with all suppliers that obligate them to continue to sell components products required to build our systems or products to us Our reliance on suppliers without long term binding contracts involves significant risks and uncertainties including whether our suppliers will provide an adequate supply of required components or products of sufficient quality will increase prices for the components or products and will perform their obligations on a timely basis
If any of our supplier s face capacity constraints financial instability or an unwillingness to provide raw materials or components to us we may need to seek alternative suppliers or revise our designs particularly because some of our components are sourced from foreign countries Locating alternative sources may take significant time and even then we may encounter significant delays in manufacturing and shipping Additionally credit constraints among key suppliers could impact our cash flow We have also experienced rising costs for components shipping tariffs warehousing and inventory Our domestic suppliers have experienced increased demand for their products due to tariffs which could impact the availability or price of our components The permanence of these cost increases remains uncertain and obtaining replacement components within our required time frames may prove challenging Shortages could lead to excess inventory and potential obsolescence risks
In addition certain raw materials and components used in the manufacture of our products and in our development programs are periodically subject to supply shortages and our business is subject to the risks of price increases and periodic delays in delivery The electronic components industry has experienced significant shifts in supply levels in recent years Demand for components in the memory sector is poised for substantial growth driven by AI applications such as large language models and generative AI Due to the volatility of supply and increase in demand lead times and prices for certain components such as memory related microprocessors may continue to experience supply and price uncertainty
Our products including motors batteries and other advanced components rely on rare earth metals for their manufacturing of which a significant majority are sourced from China Any disruption in the supply of these metals could adversely affect our ability to produce and deliver our products Factors that might lead to such disruptions include geopolitical tensions trade restrictions supply chain bottlenecks and environmental regulations affecting mining operations A limited supply or increased cost of rare earth metals could lead to higher production costs delays in manufacturing schedules and potential inability to meet customer demand thereby impacting our revenue and growth plans Managing these risks necessitates close monitoring of supply chains diversification of suppliers and the pursuit of alternative materials or technologies where possible
Escalating restrictions between the U S and China contribute to supply chain complexities In January 2024 China imposed sanctions on AeroVironment in response to sales of military equipment by the U S Government to Taiwan Additionally in March 2025 China s Ministry of Commerce placed AeroVironment on China s export control list While we have not experienced and do not expect to experience a material negative impact on our business as a result of the announced sanctions and export restrictions we cannot be certain that a material negative effect will not occur in the future as a result of these sanctions and restrictions or future sanctions or restrictions that may be imposed Some of our components sourced from foreign countries including China are at risk of further sanctions and other trade restrictive actions and any escalation in global trade tensions or trade restrictions may hinder our ability to obtain these components from new suppliers Restrictions on semiconductor manufacturing equipment and raw materials could lead to higher material costs material unavailability and transportation uncertainty
As a U S based multinational business we are subject to income tax in the U S and numerous jurisdictions outside the U S The relevant tax rules and regulations are complex often changing and in some cases are interdependent If these or other tax rules and regulations should change our earnings and cash flows could be negatively impacted Our worldwide provision for income taxes is determined in part through the use of significant estimates and judgments Numerous transactions arise in the ordinary course of business where the ultimate tax determination is uncertain We undergo tax examinations by tax authorities on a regular basis While we believe our estimates of our tax obligations are reasonable the final outcome after the conclusion of any tax examinations and any litigation could be materially different from what has been reflected in our historical financial statements Also due to the U S Internal Revenue Service tax capitalization rules Section 174 which requires R D expenditures to be capitalized and amortized over a 5 year period for tax purposes we expect an increase in cash paid for U S federal income taxes in future fiscal years relative to prior periods The One Big Beautiful Bill Act features several tax reforms including suspending the capitalization and amortization of domestic R D expenditures for amounts paid or incurred in tax years beginning after December 31 2024 and before January 1 2030
In the first half of 2025 we observed a significant shift in U S trade policy with increased tariffs and the imposition of significant new tariffs that could have an adverse impact our supply chain and business operation While certain of the recently announced tariffs have been paused whether and to what degree they may be reinstated is uncertain at this time and may have implications for our supplier and our business Changes in trade policies such as new tariffs or increases in tariffs or reactionary measures including retaliatory tariffs legal challenges or currency manipulation could adversely impact us
We rely on imported materials components or finished goods and if tariffs increase our supply chain costs may rise adversely affecting our business results of operations and cash flows We also manufacture internationally through Telerob and if we are not granted exemptions from tariffs due to the nature of our business and customers we could see greater impacts than we currently expect Additionally retaliatory measures or prolonged uncertainty in trade relationships could result in supply chain disruptions delayed shipments or increased operational complexity which could also adversely affect our business results of operations and cash flows While we intend to take steps to mitigate any impacts of tariffs or other impacts resulting from changes in trade policy our ability to do so may be limited by operational and supply chain constraints especially in the short term
In general we perform our work under fixed price contracts and cost plus fee contracts Under fixed price contracts we deliver products or perform services under a contract at a stipulated price Under cost plus fee contracts which are subject to a contract ceiling amount we are reimbursed for allowable costs and paid a fee which may be fixed or performance based We typically experience lower profit margins under cost plus fee contracts than under fixed price contracts though fixed price contracts involve higher risks In general if the volume of services we perform under cost plus fee contracts increases relative to the volume of services we perform under fixed price contracts we expect that our operating margin will decline In addition our earnings and margins may decrease depending on the costs we incur in contract performance our achievement of other contract performance objectives and the stage of our performance at which our right to receive fees particularly under incentive and award fee contracts is finally determined
Contract accounting requires judgments relative to assessing risks including risks associated with estimating contract transaction prices and costs definitization of certain contract prices assumptions for schedule and technical issues customer directed delays and reductions in scheduled deliveries and unfavorable resolutions of claims and contractual matters Due to the size and nature of many of our contracts the estimation of total costs at completion is complicated and subject to many variables For example we must make assumptions regarding the length of time to complete the contract because costs also include expected increases in wages and prices for materials and consider incentives or penalties related to performance on contracts and include them in the variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the related uncertainty is resolved Because of the significance of the judgments and estimation processes described above it is likely that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change Changes in underlying assumptions circumstances or estimates may adversely affect our future results of operations and financial condition
Fixed price contracts including both government and commercial contracts represented approximately 91 of our revenue for the fiscal year ended April 30 2025 With the acquisition of BlueHalo we expect the proportion of fixed price contracts to decrease in fiscal year 2026 If we fail to anticipate technical problems estimate costs accurately or control costs during our performance of fixed price contracts then we may incur losses on these contracts because we absorb any costs in excess of the fixed price Under cost plus fee contracts if costs exceed the contract ceiling or are not allowable under the provisions of the contract or applicable regulations then we may not be able to obtain reimbursement for all such costs Under time and materials contracts we are paid for labor at negotiated hourly billing rates and for certain expenses Because many of our contracts involve advanced designs and innovative technologies we may experience unforeseen technological difficulties and cost overruns Under each type of contract if we are unable to control the costs we incur in performing under the contract then our financial condition and results of operations could be materially adversely affected Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards
We believe that our success depends in part on the continued contributions of our senior management and key employees We rely on our executive officers senior management and key employees to generate business and execute programs successfully In addition the relationships and reputation that members of our management team and key employees have established and maintain with government defense personnel contribute to our ability to maintain good customer relations and to identify new business opportunities We do not have employment agreements with any of our executive officers or key employees and these individuals could terminate their employment with us at any time The loss of any of our continuing executive officers members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business
We depend on our ability to recruit and retain employees who have advanced engineering and technical services skills and who work well with our customers These employees are in great demand and are likely to remain a limited resource in the foreseeable future Our ability to recruit and retain qualified technical personnel such as engineers has been adversely impacted by the labor market Increased restrictions on the import of foreign labor may also increase demand for engineering personnel and adversely impact our ability to hire and retain qualified personnel If we are unable to recruit and retain a sufficient number of these employees then our ability to maintain our competitiveness and grow our business could be negatively affected In addition because of the highly technical nature of our products the loss of any significant number of our existing engineering personnel could have a material adverse effect on our business and operating results Moreover some of our U S government contracts contain provisions requiring us to staff a program with certain personnel the customer considers key to our successful performance under the contract In the event we are unable to provide these key personnel or acceptable substitutes the customer may terminate the contract Certain of our programs also require staffing by employees who hold high level security clearances the market for which is extremely competitive and not limited to the aerospace defense industry We have experienced shortages of skilled employees that has negatively affected our progress on development programs and our results of operations We cannot predict the extent to which these shortages will continue or the extent to which they could negatively impact our development programs and results of operations in future periods
Our ability to stay competitive within our markets may be dependent upon increasing manufacturing capacity to support anticipated growth and achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products Failing to adequately increase production capacity and achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business
Our future growth depends on increasing manufacturing capacity of our products and our failure to adequately increase such capacity could have a material adverse impact on our business and financial results We do not know whether or when we will be able to develop efficient low cost manufacturing capabilities and processes that will enable us to manufacture or contract for the manufacture of our products in commercial quantities while meeting the volume speed quality price engineering design and production standards required to successfully market our products Our failure to develop such manufacturing processes and capabilities in locations that can efficiently service our clients and markets could have a material adverse effect on our business financial condition results of operations and prospects Our ability to remain competitive is in part dependent upon achieving increased savings from volume purchases of raw materials and component parts achieving acceptable manufacturing yield and capitalizing on machinery efficiencies We expect our suppliers to experience a sharp increase in demand for their products During the fiscal years ended April 30 2024 and 2023 global supply chain issues resulted in delays in procuring components for our products and we experienced significant increases in the costs to procure certain components The extent to which we will have reliable access to supplies that we require or be able to purchase such materials or components at cost effective prices is uncertain There is no assurance that we will ever be in a position to realize any material labor and machinery cost reductions associated with higher purchasing power and higher production levels Failure to achieve these cost reductions could adversely impact our business and financial results
We maintain a variety of parts and components in inventory to allow us to customize our UAS C UAS and space products for specific customer requirements which parts are subject to obsolescence and expiration Due to the long lead time for obtaining certain product components including in response to procurement issues caused by shortages in the supply chain for such components and the manufacturing cycles we need to make forecasts of demand and commit significant resources towards manufacturing our products As such we are subject to significant risks in managing the inventory needs of our business during the year including estimating the appropriate demand for our products Should orders and market conditions differ significantly from our estimates our future results of operations could be materially adversely affected In the future we may be required to record write downs of finished products and materials on hand and or additional charges for excess purchase commitments as a result of future changes in our sales forecasts or customer orders We may hold material amounts of inventory at third parties which are subject to separate management processes Additionally our failure to manage inventory effectively including in response to the effects of shortages of our components could expose us to losses
The development and manufacture of certain of our products involves the handling of a variety of explosive and flammable materials as well as high power equipment From time to time these activities may result in incidents that could cause us to temporarily shut down or otherwise disrupt some manufacturing processes which could cause production delays and could result in liability for workplace injuries and or fatalities We have safety and loss prevention programs that require detailed reviews of process changes and new operations along with routine safety audits of operations involving explosive materials to mitigate such incidents as well as a variety of insurance policies though our insurance coverage may be inadequate to cover all claims and losses related to such incidents We may experience such incidents in the future which could result in production delays or otherwise have a material adverse effect on our business and financial condition
Urban environments may present certain challenges to the operators of UAS and C UAS C UAS may cause and UAS may accidentally collide with other aircraft persons or property which could result in injury death or property damage and significantly damage the reputation of and support for UAS and C UAS in general As the usage of UAS and C UAS has increased particularly by military customers the danger of such collisions has increased Furthermore the incorporation of our Digital Data Link DDL technology into our SUAS has increased the number of vehicles which can operate simultaneously in a given area and with this increase has come an increase in the risk of accidental collision In addition obstructions to effective transmissions in urban environments such as large buildings may limit the ability of the operator to utilize the aircraft for its intended purpose The risks or limitations of operating UAS and C UAS in urban environments may limit their value in such environments which may limit demand for our UAS and C UAS and consequently materially harm our business and operating results
Changes in the volume of products and services provided under existing contracts and the number of contracts commenced completed or terminated during any quarter may cause significant variations in our cash flow from operations because a relatively large amount of our expenses are fixed We incur significant operating expenses during the start up and early stages of large contracts and typically do not receive corresponding payments in that same quarter We may also incur significant or unanticipated expenses when contracts expire or are terminated or are not renewed In addition payments due to us from government agencies may be delayed due to billing cycles or as a result of failures of governmental budgets to gain congressional and presidential approval in a timely manner
We depend on our R D activities to develop the core technologies used in our products and for the development of our future products A portion of our R D activities depends on funding by commercial companies and the U S government U S government and commercial spending levels can be impacted by a number of variables including budgeting policies and changes in government oversight general economic conditions specific companies financial performance and competition for U S government funding with other U S government sponsored programs in the budget formulation and appropriation processes To the extent that these external sources of funding are reduced or eliminated company funding for R D could be reduced Any reductions in available R D funding could harm our business financial condition and operating results
We face various security threats including cyber security attacks on our information technology infrastructure which may include attempts to gain access to our proprietary financial banking or classified information disrupt use of our systems or otherwise compromise the integrity of our operations The threats we face vary from those common to most industries to attacks by more advanced and persistent highly organized adversaries including nation state actors which target us for the national security information in our possession for our role in developing advanced technological systems or with the goal of committing fraudulent activity Our customers suppliers and subcontractors are likewise targeted and attack methods continue to evolve Some cyberattacks depend on human error or manipulation including phishing attacks or schemes that use social engineering or AI to gain access to systems or carry out disbursement of funds or other frauds Developments in AI and machine learning provide threat actors with the capability to use more sophisticated means to attack our systems and may exacerbate cybersecurity risk Although we use multiple procedures and controls to monitor and mitigate these threats there can be no assurance that these procedures and controls will be sufficient to prevent physical or cyber access or system disruptions including the unauthorized release of confidential technical financial or banking information or corruption of data Accordingly any significant operational delays or any destruction manipulation or improper use of our data information systems or networks could adversely affect our financial results and damage our reputation with customers suppliers and stockholders and the reputation of our products and services
The occurrence of some of these risks may be increased due to the increase in remote working by our employees suppliers contractors and other third parties Previous cyber attacks directed at us have not materially impacted our business or financial results but the impact of future incidents cannot be predicted due to the constantly evolving nature and complexity of cyber attacks If we or our partners are subject to data security breaches whether cyber or due to a failure in physical security protocols we may lose existing sales and new business opportunities see increased costs arising from remediation of the breach and the restoration or implementation of additional security measures be subject to regulatory investigations and litigation including fines and penalties and face increased insurance or audit requirements in our third party contracts any of which could materially and adversely affect our business and financial results Additionally expenses resulting from cyber security attacks and other security risks may not be fully insured or otherwise mitigated which could harm our financial results
We are exposed to the risk that employee fraud or other misconduct from our employees or others acting on our behalf could occur Misconduct by employees or others could include intentional failures to comply with U S government procurement regulations engaging in unauthorized activities insider threats to our cybersecurity or falsifying time records Misconduct by our employees or others acting on our behalf could also involve the improper use of our customers sensitive or classified information which could result in regulatory sanctions against us serious harm to our reputation a loss of contracts and a reduction in revenues or cause us to incur costs to respond to any related governmental inquiries It is not always possible to deter misconduct and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses which could cause us to lose contracts or cause a reduction in revenues In addition alleged or actual misconduct by employees or others acting on our behalf could result in investigations or prosecutions of persons engaged in the subject activities which could result in unanticipated consequences or expenses and management distraction for us regardless of whether we are alleged to have any responsibility
We may in the future experience such misconduct despite our various compliance programs Misconduct or improper actions by our employees agents subcontractors suppliers business partners and or joint ventures could subject us to administrative civil or criminal investigations and enforcement actions monetary and non monetary penalties liabilities and the loss of privileges and other sanctions including suspension and debarment which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position results of operations and or cash flows
As a government contractor given the enhanced sensitivity of the information to which we have access and the nature of our products and services we are at increased risk of being targeted for cyber and other security attacks including threats to the physical security of our facilities and employees In addition we work in international locations where there are high security risks which could result in harm to our employees contractors and remote assets and substantial protection or recovery costs Some of our services are performed in or adjacent to high risk locations where the country or location is experiencing political social or economic issues or war or civil unrest In those locations where we have employees or operations we may incur substantial costs to maintain the safety of our personnel our remote assets and our information As such international locations and the risks associated with them change rapidly such precautions may be insufficient to avoid such risks including possible possession of our remote assets and related access to our intellectual property by unintended third parties and the possible loss of our personnel in these locations which could harm our business and operating results
Our assets include a significant amount of cash and investments We adhere to an investment policy set by our Board of Directors which aims to preserve our financial assets maintain adequate liquidity and maximize returns Nearly all of our cash and bank deposits are not insured by the Federal Deposit Insurance Corporation Therefore our cash and any bank deposits that we now hold or may acquire in the future may be subject to risks including the risk of loss or of reduced value or liquidity Our investments classified as available for sale are recorded at fair value each reporting period Our investments classified as equity method investments are recorded using the equity method Unrealized gains and losses are recorded as other income or loss
Global credit and financial markets have experienced extreme disruptions in recent years including severely diminished liquidity and credit availability declines in consumer confidence declines in economic growth increases in unemployment rates and uncertainty about economic stability There can be no assurance that renewed deterioration in credit and financial markets and confidence in economic conditions will not occur Our general business strategy may be adversely affected by any economic downturn volatile business environment or continued unpredictable and unstable market conditions If the current equity and credit markets deteriorate or do not improve it may make any necessary debt or equity financing more difficult costlier and more dilutive Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy financial performance and stock price and could require us to delay or abandon implementing business initiatives These events and the continuing market upheavals could adversely affect our business in a number of ways including
Potential Deferment of Purchases and Orders by Customers Uncertainty about current and future global economic conditions may cause governments including the U S government which is our largest customer other customers and businesses to modify defer or cancel purchases in response to tighter credit decreased cash availability and declining consumer confidence Accordingly future demand for our products could differ materially from our current expectations Additionally if customers are not successful in generating sufficient revenue or are precluded from securing financing they may not be able to pay or may delay payment of accounts receivable that are owed to us Any inability of current and or potential customers to pay us for our products may adversely affect our earnings and cash flow
Negative Impact from Increased Financial Pressures on Key Suppliers Our ability to meet customers demands depends in part on our ability to obtain timely and adequate delivery of quality materials parts and components from our suppliers If certain key suppliers were to become capacity constrained or insolvent as a result of a market downturn or disruption then we may have to find new suppliers which can result in significant delays in manufacturing and shipping our products to customers and additional costs See above risk factor If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable
Customers Inability to Obtain Financing to Make Purchases from Us and or Maintain Their Business Some of our customers may require substantial financing in order to fund their operations and make purchases from us The inability of these customers to obtain sufficient credit to finance purchases of our products or services or otherwise meet their payment obligations to us could adversely impact our financial condition and results of operations In addition if a market downturn results in insolvencies for our customers it could adversely impact our financial condition and results of operations
In May 2025 we closed our acquisition of BlueHalo the most recent in a series of acquisitions beginning in February 2021 with the acquisition of Arcturus and the Intelligent Systems Group business segment ISG We then acquired Telerob in May 2021 Planck Aerosystems Inc Planck in August 2022 Tomahawk Robotics Inc Tomahawk in September 2023 We intend to consider additional acquisitions that could add to our customer base technological capabilities or system offerings Acquisitions involve numerous risks any of which could harm our business including the following
Acquisitions also frequently result in the recording of goodwill and other intangible assets that are subject to potential impairments in the future that could harm our financial results For example as part of our annual goodwill impairment test during the fiscal quarter ended April 30 2025 we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 Due to the changes in estimates we recorded a goodwill impairment charge of 18 4 million and accelerated amortization of certain UGV intangibles of 4 3 million for our fiscal year ended April 30 2025 During the fiscal year ended April 30 2023 we recorded a MUAS
goodwill impairment charge of 156 0 million and accelerated amortization of certain MUAS intangibles of 34 1 million for the MUAS reporting unit The MUAS related charges resulted from decreases in expected cash flows associated with us not being down selected for a U S DoD program of record and the closure of all of our MEUAS COCO sites in the fiscal year ended April 30 2023 In addition if we finance acquisitions by issuing equity or securities convertible into equity such as the stock issued as consideration for the purchases of BlueHalo Arcturus and Tomahawk then our existing stockholders may be diluted which could lower the market price of our common stock Further as lock up and other restrictions on such consideration shares lapse we could experience heightened trading activity that could disrupt the market price for our common stock If we finance acquisitions through debt such as the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus and subsequently amended with our acquisition of BlueHalo then such future debt financing may contain covenants or other provisions that limit our operational or financial flexibility and represent default risk if we are unable to maintain certain financial performance metrics while the debt remains outstanding
It is possible that following an acquisition the integration process could result in the loss of key employees the loss of customers the disruption of either or both of our and the acquired company s ongoing businesses inconsistencies in standards controls procedures and policies unexpected integration issues including the integration of IT systems higher than expected integration costs and an overall post completion integration process that takes longer than originally anticipated In addition the actual integration may result in additional and unforeseen expenses If we are not able to adequately address integration challenges we may be unable to successfully integrate operations and the anticipated benefits of the acquisition may not be realized
In addition we must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth If we are not able to successfully achieve these objectives the anticipated synergies and other benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected Additionally we may inherit from acquired companies legal regulatory and other risks that occurred prior to the acquisition whether known or unknown to us which may be material
Actual growth cost and capital expenditure synergies and other cost savings if achieved may be lower than what we expect and may take longer to achieve than anticipated Moreover at times the attention of the management and resources may be focused on the business integration and diverted from day to day business operations or other opportunities that may have been beneficial to us which may disrupt our ongoing business
If we fail to properly evaluate acquisitions or investments we may not achieve the anticipated benefits of any such acquisitions and we may incur costs in excess of what we anticipate The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results
As of April 30 2025 the carrying values of goodwill and identifiable intangible assets on our balance sheet were 256 8 million and 48 7 million respectively With the acquisition of BlueHalo the carrying values of goodwill and identifiable intangible assets will increase significantly in fiscal year 2026 We perform our annual impairment tests during the fourth quarter of each fiscal year or when events or circumstances change in a manner that indicates an asset might be impaired Events or circumstances that could trigger an impairment review include but are not limited to a significant adverse change in legal factors or in the business or political climate an adverse action or assessment by a regulator unanticipated competition a loss of key personnel significant changes in the manner of our use of the acquired assets or the strategy for our overall business significant negative industry or economic trends or significant underperformance relative to projected future results of operations
During our annual impairment test during the fiscal quarter ended April 30 2025 we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast
expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 The changes in estimates resulted in the recognition of a goodwill impairment charge of 18 4 million in the UGV reporting unit and accelerated intangible amortization expenses of 4 3 million during the fiscal year ended April 30 2025
In May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value Specifically we received notification that we were not down selected for a U S DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit As a result we updated our estimates of long term future cash flows used in the valuation of the MUAS reporting unit These changes in estimates resulted in the recognition of a goodwill impairment charge of 156 0 million in the MUAS reporting unit Additionally the closure of all of our MEUAS COCO sites resulted in accelerated intangible amortization expenses of 34 1 million during the fiscal year ended April 30 2023 Accordingly the MUAS reporting unit was considered at an increased risk of failing future quantitative goodwill impairment tests as the estimated fair value of the MUAS reporting unit did not substantially exceed its carrying value During the annual impairment test during the fiscal quarter ended April 30 2025 the MUAS reporting unit was no longer considered at an increased risk of failing future quantitative goodwill impairment tests due to an increase in the estimated fair value of the reporting unit from significant increases in forecasted results
Fair value determinations utilized in the quantitative goodwill impairment test require considerable judgment and are sensitive to changes in underlying assumptions estimates and market factors Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding future plans as well as industry economic and regulatory conditions These assumptions and estimates include estimated future annual net cash flows income tax rates discount rates growth rates and other market factors Estimated future annual net cash flows based in part upon our ability to obtain contracts from the U S DoD and foreign allied nations and negotiate the estimated pricing are considered the most significant sensitive assumptions Actual results can be materially different from the estimates and assumptions If current expectations of future growth rates and margins are not met if market factors outside of our control such as discount rates income tax rates or inflation change or if management s expectations or plans otherwise change including updates to long term operating plans then we could recognize further future impairment charges the amount of which could be material
On February 19 2021 in connection with the consummation of the Arcturus acquisition we entered into a credit agreement with certain lenders letter of credit issuers and others as amended February 4 2022 June 6 2023 October 4 2024 and May 1 2025 the Credit Agreement which together with its associated Security and Pledge Agreement provides for a 700 0 million term A loan the Term A Loan and provides for a revolving commitment in an aggregate principal amount of 350 0 million the Revolving Facility and together with the Term A Loan the Credit Facilities The Term A Loan matures on May 1 2027 the two year anniversary of the closing of the BlueHalo acquisition and amortizes at a rate of 5 00 per annum with the remaining outstanding principal amount due and payable on the maturity date The applicable margin on the Term A Loan is based upon our Consolidated Leverage Ratio as defined in the Credit Agreement and whether we elect as its benchmark rate i SOFR in which case the applicable margin ranges from 1 50 2 50 per annum depending on our Consolidated Leverage Ratio plus a credit spread adjustment of 0 10 or ii Base Rate in which case the applicable margin ranges from 0 50 1 50 per annum depending on our Consolidated Leverage Ratio Upon the occurrence of an event of default an additional 2 00 per annum default interest rate may apply Mandatory prepayments of the Term A Loan are required in connection with i the disposition of certain assets to the extent not reinvested and ii the incurrence of non permitted debt
On the closing date of the BlueHalo acquisition the Term A Loan was drawn in full for 700 0 million and we borrowed approximately 225 0 million from our available Revolving Facility the combined proceeds of which were used to repay certain outstanding indebtedness of BlueHalo upon the closing of the acquisition of BlueHalo and to pay for certain related transaction costs Following the BlueHalo acquisition as of May 1 2025 the total amount of borrowings outstanding under the Credit Facilities was 955 0 million
In support of our obligations under the Credit Facilities we have granted security interests in substantially all of our personal property and that of our domestic subsidiaries including a pledge of the equity interests in our subsidiaries limited to 65 of outstanding equity interests in the case of our foreign subsidiaries subject to customary exclusions and exceptions In addition our domestic subsidiaries including BlueHalo and Arcturus are required to be guarantors of the Credit Facilities
If we do not have sufficient funds to repay the Term A Loan when it becomes due in 2027 it may be necessary to refinance our debt through additional debt or equity financings Any refinancing with new debt could be at higher interest rates and may require us to comply with more onerous covenants than the Credit Agreement which could further restrict our business operations Any refinancing through our sale of equity or equity linked securities would result in further dilution to our stockholders or may provide for rights preferences or privileges senior to those of holders of our common stock
The Credit Agreement contains customary events of default upon the occurrence and during the continuation of which after any applicable grace period the lenders would have the ability to declare the loans due and payable in whole or in part Among other things if we fail to make required debt payments or if we fail to comply with financial or other covenants in the Credit Agreement we would be in default under the terms thereof The Credit Agreement contains customary negative covenants that include subject to customary exclusions
To the extent we would wish to engage in any of the prohibited behaviors we would need to obtain consent under the Credit Agreement which may not be timely forthcoming or at all If a default event were to occur we may not have sufficient available cash to repay such outstanding debt obligations at the time they become due or be able to refinance such debt on acceptable terms or at all
Global pandemics and similar public health crises such as the COVID 19 coronavirus pandemic Although our operations mostly continued uninterrupted during the COVID 19 pandemic we cannot predict the effect of future public health crises on our business and operations Pandemics and other public health crises may require the adoption of work from home protocols social distancing measures in the workplace international travel restrictions vaccine mandates and other responsive actions and other changes to our operations Public health crises may result in travel disruptions quarantine requirements or other similar logistics restrictions may further reduce our and our customers capabilities to travel domestically and internationally which may impact our ability to perform certain contracts develop and renew contracts or market our products or could otherwise disrupt portions of our business and have a material adverse effect on our results of operations
We have research and development and manufacturing operations located in California in regions known for seismic activity and wildfires and in other areas prone to natural disasters While we maintain insurance coverage to cover certain of risks of losses for damage or destruction to facilities and property and for interruption of our business such insurance may not cover specific losses and the amount of our insurance coverage may not be adequate to cover all of our losses A significant natural disaster such as an earthquake fire or other catastrophic event could severely affect our ability to conduct normal business operations and as a result our future operating results could be materially and adversely affected including if our losses are not adequately or timely covered by our insurance
We are self insured for the majority of our employee medical claims subject to individual and aggregate stop loss insurance policies We estimate liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the average period between the occurrence of a claim and the time it is reported to and paid by us However unanticipated changes in assumptions and management estimates underlying our recorded liabilities for medical claims could result in materially different amounts of expense than expected under our health insurance program which could have an adverse material impact on our financial condition and results of operations
If another global recession emerges we may experience declines in revenues profitability and cash flows from reduced orders payment delays collection difficulties increased price pressures for our products increased risk of excess and obsolete inventories or other factors caused by the economic problems of our customers If negative conditions in the global credit markets prevent our customers from having access to credit or render them insolvent orders for our products may decrease which would result in lower revenue Likewise if our suppliers face challenges in obtaining credit selling their products or otherwise in operating their businesses or remaining solvent they may become
unable to offer the materials we use to manufacture our products An economic or credit crisis could also have an impact on our ability to raise capital when needed These events could adversely impact our ability to manufacture affected products and could also result in reductions in our revenue increased price competition and increased operating costs which could adversely affect our business financial condition operational results and cash flows
As of April 30 2025 we had fewer than 1 500 employees and we are presently classified as a small business defense contractor under our primary North American Industry Classification Systems NAICS industry and product specific codes 336411 Aircraft Manufacturing which are regulated in the United States by the Small Business Administration SBA Businesses that meet the small business size standard for the relevant NAICS code are able to bid on small business set aside contracts While we do not presently derive a substantial portion of our business from contracts which are set aside for small businesses we have been able to bid on small business set aside contracts as well as contracts which are open to non small business entities With the acquisition of BlueHalo we exceed 1 500 employees and no longer qualify as a small business which could limit our ability to partner with other business entities that seek to team with small business entities as may be required under a specific contract We will not be eligible to serve as the prime contractor on small business set aside programs and may need to implement a small business subcontracting plan with other companies that qualify as a small business for SBA approval The loss of our small business classification could have a material adverse effect on our financial position and or results of operations
Additionally in accordance with 48 CFR 9903 201 1 b Cost Accounting Standards CAS Applicability if we are no longer eligible for the small business exemption and we receive a CAS triggering contract of more than 7 5 million we will be subject to the requirements of modified CAS If net CAS covered awards received in the prior year exceed 50 million or we receive a single CAS covered contract of 50 million or more in the current year we will be subject to full CAS requirements We would be required to demonstrate compliance with such standards upon the award of a contract subject to the full range of CAS which will impose additional administrative costs on our business and may significantly affect the manner in which we conduct our business with our customers and adversely affect our results of operations
As a contractor to the U S government we are subject to and must comply with various government regulations that impact our revenue operating costs profit margins and the internal organization and operation of our business The most significant regulations and regulatory authorities affecting our business include the following
Also we need special security clearances and regulatory approvals to continue working on certain of our projects with the U S government Classified programs generally require that we comply with various executive orders federal laws and regulations and customer security requirements that may include restrictions on how we develop store protect and share information and may require our employees and facilities to obtain government security clearances We also must implement controls to protect U S government CUI Failure to implement such controls to protect CUI could jeopardize our ability to continue receiving U S government contracts Additionally certain of our products are sold to the U S government as commercial items If the U S government were to dispute the commercial designation of such items and absent a successful appeal by us of such designation the profitability of sales of such items could be negatively affected Our failure to comply with applicable regulations rules and approvals changes in the government s interpretation of such regulations rules and approvals as have been and are applied to our contracts proposals or business or misconduct by any of our employees could result in the imposition of fines and penalties the loss of security clearances a decrease in profitability the loss of our government contracts or our suspension or debarment from contracting with the U S government generally any of which could harm our business financial condition and results of operations We are also subject to certain regulations of comparable government agencies in other countries and our failure to comply with these non U S regulations could also harm our business financial condition or results of operations
U S government agencies primarily the DCAA and the DCMA routinely audit and investigate government contractors These agencies review a contractor s performance under its contracts cost structure and compliance with applicable laws regulations and standards These agencies also may review the adequacy of and a contractor s compliance with its internal control systems and policies including the contractor s purchasing quality accounting property estimating compensation and management information systems
Like most government contractors our contracts are audited and reviewed on a continual basis by the DCMA and the DCAA The indirect costs we incur in performing government contracts have been audited or have been subject to audit on an annual basis The audits of our incurred cost claims through fiscal year 2022 have been settled and the audits of BlueHalo s incurred cost claims through fiscal 2021 have been settled As of April 30 2025 we had no reserve for open incurred cost claim audits In addition non audit reviews or investigations by the government may still be conducted on all our government contracts
Any costs found to be improperly allocated to a specific cost reimbursement contract will not be reimbursed while such costs already reimbursed must be refunded If an audit or investigation of our business were to uncover improper or illegal activities we could be subject to civil and criminal penalties and administrative sanctions including
termination of contracts suspension of payments fines and suspension or debarment from doing business with the U S government We could experience serious harm to our reputation if allegations of impropriety or illegal acts were made against us even if the allegations were inaccurate In addition responding to governmental audits or investigations may involve significant expense and divert management attention If any of the foregoing were to occur our financial condition and operating results could be materially adversely affected
Moreover if any of our administrative processes and business systems are found not to comply with the applicable requirements we may be subjected to increased government scrutiny or required to obtain additional governmental approvals that could delay or otherwise adversely affect our ability to compete for or perform contracts Our purchasing system was most recently reviewed and approved again in February 2025 and BlueHalo s purchasing system was recently reviewed and approved again in April 2025 An unfavorable outcome to such an audit or investigation by the DCAA U S Department of Justice DOJ or other government agency could materially adversely affect our competitive position affect our ability to obtain new government business and obtain the maximum price for our products and services and result in a substantial reduction of our revenues
If we were suspended or debarred from contracting with the federal government generally or any specific agency if our reputation or relationship with government agencies were impaired or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us our revenue and operating results could be materially harmed
Our reputation and relationship with the U S government and in particular with the agencies of the DoD and the U S intelligence community are key factors in maintaining and developing new business opportunities In addition we often act as a subcontractor or in arrangements in which we and other contractors bid together on particular contracts or programs for the U S government or government agencies We expect to continue to depend on relationships with other prime contractors for a portion of our revenue for the foreseeable future Negative press reports regarding conflicts of interest poor contract performance employee misconduct information security breaches or other aspects of our business regardless of accuracy could harm our reputation Additionally as a subcontractor or team member we often lack control over the fulfillment of a contract and poor performance on the contract could tarnish our reputation even when we perform as required As a result we may be unable to successfully maintain our relationships with government agencies or prime contractors and any failure to do so could adversely affect our ability to maintain our existing business and compete successfully for new business
Some of our contracts allow the U S government to use royalty free or have others use inventions or intellectual property developed under those contracts on behalf of the government Some of the contracts allow the federal government to disclose technical data without constraining the recipient on how that data is used The ability of third parties to use patents and technical data for government purposes creates the possibility that the government could attempt to establish alternative suppliers or to negotiate with us to reduce our prices The potential that the government may release some of the technical data without constraint creates the possibility that third parties may be able to use this data to compete with us which could have a material adverse effect on our business results of operations or financial condition
U S government contracts are generally not fully funded at inception contain certain provisions that may be unfavorable to us and may be undefinitized at the time of the start of performance which could prevent us from realizing our contract backlog and materially harm our business and results of operations
U S government contracts typically involve long lead times for design and development and are subject to significant changes in contract scheduling Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years Consequently programs are often only partially funded initially and additional
In addition U S government contracts generally contain provisions permitting termination in whole or in part at the government s convenience or for contractor default Since a substantial majority of our revenue is dependent on the procurement performance and payment under our U S government contracts the termination of one or more critical government contracts could have a negative impact on our results of operations and financial condition Termination arising out of our default could result in damage to our reputation expose us to liability and have a material adverse effect on our ability to re compete for future contracts and orders Moreover several of our contracts with the U S government do not contain a limitation of liability provision creating a risk of responsibility for indirect incidental damages and consequential damages These provisions could cause substantial liability for us especially given the use to which our products may be put
Furthermore we may operate from time to time under UCAs or UCOs under which we may begin performance at the direction of the U S government prior to completing contract negotiations regarding pricing specifications and other terms Under a UCA the U S government has the ability to unilaterally definitize contracts and absent a successful appeal of such action the unilateral definitization of the contract would obligate us to perform under terms and conditions imposed by the U S government Such unilaterally imposed contract terms could include less favorable pricing and or terms and conditions more burdensome than those negotiated in other circumstances which could negatively affect our expected profitability under such contract and could negatively affect our results of operations
U S government contracts are frequently awarded only after formal protracted competitive bidding processes and in many cases unsuccessful bidders for U S government contracts may protest contract awards through various agency administrative and judicial channels We derive significant revenue from U S government contracts that were awarded through a competitive bidding process Much of the business that we expect to seek in the foreseeable future will likely be awarded through competitive bidding Competitive bidding presents a number of risks including the following
We may not be provided the opportunity to bid on contracts that are held by other companies and are scheduled to expire if the government extends the existing contract If we are unable to win particular contracts that are awarded through a competitive bidding process then we may not be able to operate for a number of years in the market for goods and services that are provided under those contracts If we are unable to win new contract awards over any extended period consistently then our business and prospects will be adversely affected
We must comply with and are affected by laws and regulations relating to the formation administration and performance of U S government contracts These laws and regulations among other things require certification and disclosure of all cost and pricing data in connection with contract negotiation define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost based U S government contracts and restrict the use and dissemination of classified information and the exportation of certain products and technical data These requirements although customary in U S government contracts increase our performance and compliance costs These costs might increase in the future reducing our margins which could have a negative effect on our financial condition Although we believe we have implemented procedures to comply with these regulations and requirements the regulations and requirements are complex and change frequently Our or our agents failure to comply with these regulations and requirements under certain circumstances could lead to suspension or debarment from U S government contracting or subcontracting for a period of time and could have a negative effect on our reputation and ability to receive other U S government contract awards in the future
We could be prohibited from shipping our products to certain countries if we are unable to obtain U S government authorization regarding the export of our products and services or if current or future export laws limit or otherwise restrict our business In addition failure to comply with export laws could result in fines export restrictions and other sanctions and penalties
We must comply with U S and other laws regulating the export of our products and services In some cases explicit authorization from the relevant U S government authorities is needed to export our products and services The export regulations and the governing policies applicable to our business are subject to change We cannot provide assurance that such export authorizations will be available for our products and services in the future Compliance with these laws has not significantly limited our operations or our sales in the recent past but could significantly limit them in the future We maintain an export compliance program but there are risks that our compliance controls may be ineffective
Any failure to comply with the export laws and regulations in the future can subject us to additional fines penalties and sanctions including suspension of export privileges which could have a material adverse impact on our business operations and financial condition and limit or prevent us from being able to sell our products in certain international jurisdictions
U S government contractors are subject to extensive legal and regulatory requirements including International Traffic in Arms Regulations ITAR and U S Foreign Corrupt Practices Act FCPA and from time to time agencies of the U S government investigate whether we have been and are operating in accordance with these requirements Under U S government regulations an indictment of AeroVironment by a federal grand jury or an administrative finding against us as to our present responsibility to be a U S government contractor or subcontractor could result in us being suspended for a period of time from eligibility for awards of new government contracts or task orders or in a loss of export privileges which could have a material adverse effect on our business financial condition results of operations cash flows and equity A conviction or an administrative finding against us that satisfies the requisite level of seriousness could result in debarment from contracting with the U S government for a specific term which could have a material adverse effect on our business financial condition results of operations cash flows and equity
The regulation of SUAS MUAS and C UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain In 2006 the FAA issued a clarification of its existing policies stating that in order to engage in commercial use of SUAS and MUAS in the U S National Airspace System a public operator must obtain a COA from the FAA or fly in restricted airspace The FAA s COA approval process requires that the public operator certify the airworthiness of the aircraft for its intended purpose that a collision with another aircraft or other airspace user is extremely improbable that the small uncrewed aircraft system complies with appropriate cloud and terrain clearances and that the operator or spotter of the small uncrewed aircraft system is generally within one half mile laterally and 400 feet vertically of the small uncrewed aircraft system while in operation Furthermore the FAA s clarification of existing policy stated that the rules for radio controlled hobby aircraft do not apply to public or commercial use of SUAS and MUAS
On February 14 2012 the FAA Modernization and Reform Act of 2012 was enacted establishing various deadlines for the FAA to allow expanded use of SUAS and MUAS for both public and commercial applications On June 21 2016 the FAA released its final rules regarding the routine use of certain SUAS under 55 pounds in the U S National Airspace System pursuant to the act the Part 107 Rules The Part 107 Rules which became effective in August 2016 provided safety regulations for SUAS conducting non recreational operations and contain various limitations and restrictions for such operations including a requirement that operators keep UAS within visual line of sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS Additionally in December 2019 the FAA proposed rules regarding remote UAS identification which final rule became effective on September 16 2023 In April 2021 the final rule for operation of SUAS over people went into effect which permits routine operations of small uncrewed aircraft over people moving vehicles and at night under certain conditions The FAA has also introduced proposed rules for a new policy regarding the airworthiness certification of a newly created special class of UAS which rules are not yet in effect
It is unclear when if ever the FAA will create a new class of UAS and what the final rules regarding the certification of such new class of UAS will state We cannot assure you that the Part 107 Rules or any final rules enacted in furtherance on the FAA s announced proposals will result in the expanded use of our SUAS and MUAS by law enforcement or other non military government agencies or commercial entities and we may not be able to expand our sales of SUAS and MUAS beyond our military customers which could harm our business prospects
In addition there exists public concern regarding the privacy implications of U S commercial and law enforcement use of SUAS This concern has included calls to develop explicit written policies and procedures establishing usage limitations We cannot assure you that the response from regulatory agencies customers and privacy advocates to these concerns will not delay or restrict the adoption of SUAS MUAS and C UAS by non military customers
The deployment of C UAS that utilize RF and directed energy is subject to stringent regulatory scrutiny which could limit the sales and operational deployment of these technologies Non compliance with these evolving regulations could lead to fines operational restrictions or other penalties that may adversely affect our business
Certain of our U S government contracts require our employees to maintain various levels of security clearances and we are required to maintain certain facility security clearances complying with DoD requirements The DoD has strict security clearance requirements for personnel who work on classified programs Obtaining and maintaining security clearances for employees involves a lengthy process and it is difficult to identify recruit and retain employees who already hold security clearances If our employees are unable to obtain security clearances in a timely manner or at all or if our employees who hold security clearances are unable to maintain the clearances or terminate employment with us then a customer requiring classified work could terminate the contract or decide not to renew it
upon its expiration In addition we expect that many of the contracts on which we will bid will require us to demonstrate our ability to obtain facility security clearances and employ personnel with specified types of security clearances To the extent that we are not able to obtain facility security clearances or engage employees with the required security clearances for a particular contract we may not be able to bid on or win new contracts or effectively rebid on expiring contracts
We are subject to various legal proceedings and claims and additional lawsuits may arise in the future Occasionally we are also involved in governmental inquiries and investigations and administrative and regulatory proceedings Our activities relating to defending and responding to any such proceedings may result in substantial legal expenses may disrupt our sales and marketing or other business activities including our relationships with our customers suppliers employees and other third parties and divert management s and our employees attention from our day to day operations which may have an adverse impact on our financial performance The results of any such proceedings are unpredictable We record accruals for liabilities where we believe a loss is probable and reasonably estimable including when negotiating settlement where appropriate in response to such claims however our actual losses may differ significantly from our interim estimates An adverse or unfavorable resolution of any proceedings against us could have a material impact on our financial position cash flows and results of operations
Our business is subject to federal state and international laws regarding data protection privacy and information security as well as confidentiality obligations under various agreements and our actual or perceived failure to comply with such obligations could damage our reputation expose us to litigation risk and adversely affect our business and operating results
In connection with our business we receive collect process and retain certain sensitive and confidential customer information As a result we are subject to increasingly rigorous federal state and international laws regarding privacy and data protection Personal privacy data protection and information security are significant issues in the United States and the other jurisdictions where we offer our products and services The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future Our handling of data is subject to a variety of laws and regulations including regulation by various government agencies including the United States Federal Trade Commission FTC and various state local and foreign bodies and agencies We also execute confidentiality agreements with various parties under which we are required to protect their confidential information
The United States federal and various state and foreign governments have adopted or proposed limitations on the collection distribution use and storage of personal information of individuals including end customers and employees In the United States the FTC and many state attorneys general are applying federal and state consumer protection laws to the online collection use and dissemination of data Additionally many foreign countries and governmental bodies and other jurisdictions in which we operate or conduct our business have laws and regulations concerning the collection and use of personal information obtained from their residents or by businesses operating within their jurisdiction These laws and regulations often are more restrictive than those in the United States Such laws and regulations may require companies to implement new privacy and security policies permit individuals to access correct and delete personal information stored or maintained by such companies inform individuals of security breaches that affect their personal information and in some cases obtain individuals consent to use personal information for certain purposes
We also expect that there will continue to be new proposed laws regulations and industry standards concerning privacy data protection and information security in the United States the European Union and other jurisdictions and we cannot yet determine the impact of such future laws regulations and standards may have on our business For example the California Consumer Privacy Act which became effective in 2020 provides certain data privacy rights for consumers and employees and new operational requirements for companies Additionally we expect that existing laws regulations and standards may be interpreted differently in the future There remains significant uncertainty surrounding the regulatory framework for the future of personal data transfers from the European Union to the United States with
regulations such as the General Data Protection Regulation GDPR which imposes stringent E U data protection requirements provides an enforcement authority and imposes large penalties for noncompliance including for the transfer of personal data between the company and our German subsidiary Telerob Future laws regulations standards and other obligations including the adoption of the GDPR as well as changes in the interpretation of existing laws regulations standards and other obligations could impair our ability to collect use or disclose information relating to individuals which could decrease demand for our products require us to restrict our business operations increase our costs and impair our ability to maintain and grow our customer base and increase our revenue
Our business operations are subject to the evolving requirements of the U S DoD Cybersecurity Maturity Model Certification CMMC program CMMC mandates third party assessments for companies working with the U S DoD verifying such companies adherence to specific cybersecurity standards These certifications are essential for eligibility in new contract awards We have completed passed a DoD Defense Industrial Base Cybersecurity Assessment Center DIBCAC audit high confident assessment in 2022 which met the Level 3 requirements under the CMMC 1 0 framework The recently acquired BlueHalo passed a Level 2 audit using a Third Party Cybersecurity Assessor Organization 3CPAO demonstrating adherence to updated security practices outlined in CMMC 2 0 which went into effect December 16 2024
Our ongoing compliance with the CMMC framework is critical particularly as the National Institute of Standards and Technology NIST Special Publication 800 172 requirements designed to enhance protection for controlled unclassified information have not yet appeared in any government Requests for Proposals we have bid but are expected We are actively preparing to meet the more stringent requirements of CMMC Level 3 There s a potential risk of not achieving Level 3 certification before upcoming contract awards or failing to attain the level required for a specific contract Such a scenario could restrict us from bidding on those contracts including follow on awards for existing U S DoD work Such limitations could negatively impact our revenue profitability and cash flow Furthermore compliance with CMMC may extend to our subcontractors and certain vendors potentially requiring their certification as well Their non compliance could also pose challenges for our business The associated costs of CMMC compliance are significant and may increase in the future potentially affecting our operating results
Although we endeavor to comply with those federal state and foreign laws and regulations industry standards contractual obligations and other legal obligations that apply to us such laws regulations standards and obligations are evolving and may be modified interpreted and applied in an inconsistent manner from one jurisdiction to another and may conflict with one another other requirements or legal obligations our practices or the features of our products As such we cannot assure ongoing compliance with all such laws or regulations industry standards contractual obligations and other legal obligations and our efforts to do so may cause us to incur significant costs or require changes to our business practices which could adversely affect our business and operating results Any failure or perceived failure by us to comply with federal state or foreign laws or regulations industry standards contractual obligations or other legal obligations or any actual or suspected security incident whether or not resulting in unauthorized access to or acquisition release or transfer of personal information or other data may result in governmental enforcement actions and prosecutions private litigation fines and penalties or adverse publicity and could cause our customers to lose trust in us which could have an adverse effect on our reputation and business Any inability to adequately address privacy and security concerns even if unfounded or comply with applicable laws regulations policies industry standards contractual obligations or other legal obligations could result in additional cost and liability to us damage our reputation inhibit sales and adversely affect our business and operating results
The manufacture and sale of our products in certain states and countries may subject us to environmental and other regulations For example we obtain a significant number of our electronics components from companies located in East Asia where environmental rules may be less stringent than those in the United States Over time the countries where these companies are located may adopt more stringent environmental regulations resulting in an increase in our manufacturing costs Given the increasing focus on environmental compliance by regulators and the general public any incidence of non compliance could result in damage to our reputation beyond the fines and other sanctions that could be imposed Furthermore certain environmental laws including the U S Comprehensive Environmental Response
Compensation and Liability Act of 1980 impose strict joint and several liability on current and previous owners or operators of real property for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources These laws often impose liability even if the owner or operator did not know of or was not responsible for the release of such hazardous substances These environmental laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are later found to be contaminated Such persons can be held responsible for cleanup costs even if they never owned or operated the contaminated facility Although we have never been named a responsible party at a contaminated site we could potentially be named a responsible party in the future
The increasing global focus on climate change including greenhouse gas GHG emissions has resulted in legislative and regulatory efforts to address the causes and impacts of climate change New and more strict laws and regulations to reduce GHG emissions and address other aspects of climate change including carbon taxes cap and trade programs GHG reduction requirements requirements for the use of green energy and changes in procurement requirements may result in increased operational and compliance obligations which could adversely affect our financial condition and results of operations Such laws and regulations could result in increased energy costs and costs to upgrade our facilities or change our manufacturing processes Additionally our suppliers may also face similar increased costs which could result in them increasing the costs of components for our products and development programs Changes to government procurement laws including changes to the Federal Acquisition Regulations designed to require climate risk and GHG emissions to be taken into account in the procurement process could result in increased costs to change our operations and manufacturing processes to ensure we remain competitive in the bidding process We cannot predict the materiality of any potential additional costs associated with complying with such laws and regulations or whether we could raise prices to account for any such additional costs Any non compliance could negatively affect our reputation our ability to compete in competitive bidding processes including with the U S government and our ability to sell our products and services We cannot assure you that such existing laws or future laws addressing environmental concerns including climate change will not have a material adverse effect on our future earnings or results of operations
In August 2012 the SEC adopted disclosure rules regarding a company s use of conflict minerals in its products with substantial supply chain verification requirements in the event that the conflict minerals come from or could have come from the Democratic Republic of the Congo or adjoining countries These rules and verification requirements have imposed additional costs on us and on our suppliers including costs related to determining the source of conflict minerals used in our products which may adversely affect our results of operations We are dependent on information supplied by our first tier suppliers in conducting due diligence into the origins of conflict minerals in our products and in complying with our SEC reporting obligations To the extent that information we receive from our suppliers is inaccurate or inadequate we may not be able to determine whether our products are conflict mineral free We may face challenges in satisfying our customers who may require that our products be certified as conflict mineral free which could place us at a competitive disadvantage and could harm our business These regulations could also have the effect of limiting the pool of suppliers from which we source items containing conflict minerals and we may be unable to obtain conflict free minerals at competitive prices if at all which could increase our costs and adversely affect our results of operations
Our success depends in large part on our ability to protect our intellectual property and other proprietary rights We rely primarily on patents trademarks copyrights trade secrets and unfair competition laws as well as license agreements and other contractual provisions to protect our intellectual property and other proprietary rights However a significant portion of our technology is not patented and we may be unable or may not seek to obtain patent protection for this technology In addition the U S government has licenses under certain of our patents and certain other intellectual property that are developed or used in performance of government contracts and it may use or authorize
others to use such patents and intellectual property for government and other purposes Moreover existing U S legal standards relating to the validity enforceability and scope of protection of intellectual property rights offer only limited protection may not provide us with any competitive advantages and our rights may be challenged by third parties The laws of countries other than the United States may be even less protective of our intellectual property rights Accordingly despite our efforts we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property Moreover many of our employees have access to our trade secrets and other intellectual property Despite our efforts to protect such information if one or more of these employees leave our employment to work for one of our competitors then they may disseminate this proprietary information which may as a result damage our competitive position If we fail to protect our intellectual property and other proprietary rights then our business results of operations or financial condition could be materially harmed From time to time we have initiated lawsuits to protect our intellectual property and other proprietary rights Pursuing these claims is time consuming and expensive and could adversely impact our results of operations
In addition affirmatively defending our intellectual property rights and investigating whether any of our products or services violate the rights of others may entail significant expense Our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others then the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees even if we prevail
We may become subject to claims that our technologies infringe upon the intellectual property or other proprietary rights of third parties Defending against or otherwise addressing any such claims regardless of their merit could be time consuming and expensive and could divert our management s attention away from the execution of our business plan Moreover any settlement or adverse judgment resulting from such claims could require us to pay substantial amounts or obtain a license to continue to use the disputed technology or otherwise restrict or prohibit our use of the technology We cannot assure you that we would be able to obtain from the third party asserting the claim a license on commercially reasonable terms if at all develop alternative technology on a timely basis if at all or obtain a license to use a suitable alternative technology to permit us to continue offering and our customers to continue using our affected product An adverse determination could prevent us from offering our products to others Infringement claims asserted against us may have a material adverse effect on our business results of operations or financial condition
The market prices for securities of emerging technology companies have historically been highly volatile and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies The market price of our common stock may fluctuate significantly in response to a number of factors most of which we cannot control including the following
In addition the equity markets in general and NASDAQ in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies Further the market prices of securities of emerging technology companies have been particularly volatile These broad market and industry factors may affect the market price of our common stock adversely regardless of our operating performance In the past following periods of volatility in the market price of a company s securities securities class action litigation often has been instituted against that company This type of litigation if instituted against us could result in substantial costs and a diversion of management s attention and resources
Entities affiliated with Arlington Capital Partners the Arlington Entities in the aggregate beneficially own approximately 26 3 of our outstanding shares of common stock This concentration of voting power gives the Arlington Entities the power to significantly influence matters submitted to our stockholders for approval as well as our management and affairs For example the Arlington Entities could significantly influence the election of directors and approval of any merger consolidation or sale of all or substantially all of our assets In addition this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may believe are in your best interest as one of our stockholders
customary standstill covenants obligations to vote consistent with the recommendation of our Board of Directors and customary employee non solicit restrictions with respect to our and our subsidiaries employees including BlueHalo and its subsidiaries Under the shareholder s agreement we have among other things agreed to provide the Arlington Entities with certain board designation rights and following a lock up period as set forth in the shareholder s agreement customary registration rights including customary demand and piggyback rights The Arlington Entities will have such designation rights to designate two directors until they and their affiliates cease to collectively hold and own directly or indirectly at least 20 of our Adjusted Outstanding Shares and the Arlington Entities will have such designation rights to designate one director until they and their affiliates cease to collectively hold and own directly or indirectly at least 15 but less than 20 of our Adjusted Outstanding Shares Adjusted Outstanding Shares is defined in the shareholder s agreement to refer to the total number of our issued and outstanding shares of common stock less then number of shares issued by us within six months of May 1 2025 Our Board of Directors consists of ten members two of whom have been designated by the Arlington Entities
Moreover the shareholder s agreement provides that we renounce any interests or expectancy in being offered any business opportunities which the shareholder nominees the Arlington Entities or their affiliates conduct whether directly or indirectly whether or not such business is competitive with or in the same or similar lines of business as us This renunciation does not extend to business opportunities invested in on the basis of confidential information received from us or our representatives
The market price of our common stock may decline as a result of our acquisition activity if among other things we are unable to achieve the expected growth in revenue and earnings or if the operational cost savings estimates in connection with the integration of acquired businesses are not realized The market price of our common stock also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisitions on our financial results is not consistent with the expectations of financial or industry analysts The market price of our common stock may also be influenced by the issuance of our equity securities in acquisition transactions which may or may not be at prevailing market prices and may have a dilutive effect on other stockholders
We operate in emerging and rapidly evolving markets which makes our prospects difficult to evaluate It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs If this occurs then we may need additional financing to pursue our business strategies including to
If we raise additional funds through the issuance of equity or convertible debt securities the percentage ownership of our stockholders could be significantly diluted and these newly issued securities may have rights preferences or privileges senior to those of existing stockholders We have obtained capital from the Credit Facilities noted above including the Term Loan Facility and Revolving Facility We cannot assure you that additional financing
will be available on terms favorable to us or at all Our current Credit Facilities contain and future debt financing may contain covenants or other provisions that limit our operational or financial flexibility In addition certain of our customers require that we obtain letters of credit to support our obligations under some of our contracts
We must maintain effective internal controls in order to provide reasonable assurance regarding the financial reporting soundness for external purposes Internal controls over financial reporting is not intended to impart absolute assurance that we can prevent or detect misstatements of its financial statement or fraud due to its inherent limitations The failure to maintain an effective system of internal controls over financial reporting could limit our ability to report financial results accurately and in a timely manner or to detect and prevent fraud which could cause a loss of investor confidence in our reporting depress our stock price adversely limit our liquidity and access to the capital markets and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements
Prior to our acquisition of BlueHalo BlueHalo was not a U S public reporting company The obligations associated with integrating into a public company including to remediate BlueHalo s material weaknesses in internal control over financial reporting may require significant resources and management attention
Prior to being acquired by AeroVironment BlueHalo was a private company and not subject to public company reporting requirements Additionally from the time it was formed until the time it entered into the Merger Agreement BlueHalo consummated a number of acquisitions of companies of varying degrees of size and sophistication with varying degrees of disclosure controls and procedures As a public company we are required to document and test our internal controls over financial reporting pursuant to Section 404 b of the Sarbanes Oxley Act of 2002 so that our management can certify as to the effectiveness of our internal control over financial reporting in connection with our annual report BlueHalo including all of its prior acquisitions will be required to be included in the scope of our internal control over financial reporting in our annual report to be filed with the SEC following this annual report and thereafter which requires us to make and document significant changes to our internal controls over financial reporting
In connection with the preparation of its audited consolidated financial statements for the year ended December 31 2024 BlueHalo identified three material weaknesses in its internal control over financial reporting A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company s annual or interim financial statements will not be prevented or detected on a timely basis First BlueHalo did not design and maintain effective information technology IT general controls for information systems that are relevant to the preparation of its financial statements Specifically BlueHalo did not design and maintain i program change management controls to ensure that program and data changes are identified tested authorized and implemented appropriately ii user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel Second BlueHalo did not design and maintain an effective control environment commensurate with our financial reporting requirements Specifically it did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and accounting knowledge experience and training commensurate with its accounting and financial reporting requirements The limited personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives as demonstrated by among other things insufficient segregation of duties in the finance and accounting functions Third BlueHalo did not design and maintain effective monitoring activities of the design and operation of controls on a timely basis taking necessary corrective action to ensure that controls continue to operate effectively and are modified for changes in conditions as appropriate
Bringing BlueHalo into compliance with rules and regulations applicable to us as a public company and integrating BlueHalo into our current compliance and accounting system and disclosure controls and procedures is expected to increase our legal and financial compliance costs make some activities more difficult time consuming or costly and increase demand on our systems and resources We cannot predict or estimate the amount of additional costs we may incur to bring BlueHalo into compliance with these requirements including by remediating its outstanding material weaknesses and we cannot guarantee the measures we take will be sufficient to satisfy our obligations as a public company Ineffective internal control over financial reporting could also cause investors to lose confidence in our
reported financial information which would harm our business and likely have a negative effect on the trading price of shares of our common stock Furthermore the need to establish the necessary corporate infrastructure to integrate BlueHalo may divert management s attention from implementing our growth strategy which could prevent us from improving our business financial condition and results of operations
We have not declared any cash dividends since becoming a public company and currently intend to retain all earnings to finance the operation and expansion of our business Therefore we do not anticipate that we will pay any cash dividends on shares of our common stock in the foreseeable future We also do not expect to buy back any of our common stock for the foreseeable future In addition our ability to pay dividends and buy back shares of our common stock is restricted by the Credit Agreement Any determination to pay dividends or stock buybacks in the future will be at the discretion of our board of directors and will be dependent upon our future financial condition results of operations capital requirements legal restrictions general business conditions and other relevant factors as determined by our Board of Directors See the section herein titled Dividends
We are also subject to Section 203 of the Delaware General Corporation Law which subject to certain exceptions prohibits business combinations between a publicly held Delaware corporation and an interested stockholder which is generally defined as a stockholder who becomes a beneficial owner of 15 or more of a Delaware corporation s voting stock for a three year period following the date that such stockholder became an interested stockholder This statute as well as the provisions in our organizational documents could have the effect of delaying deterring or preventing certain potential acquisitions or a change in control of us
Although historically our operations have not been materially affected by inflation and we have been successful in adjusting prices to our customers to reflect changes in our material and labor costs the rate of current inflation and resulting pressures on our costs and pricing could adversely impact our business and financial results Inflation can
adversely affect us by increasing our operating costs including our materials freight and labor costs which are already under pressure due to supply chain constraints As interest rates rise to address inflation such increases will also impact the base rates applicable in our credit arrangements and will result in borrowed funds becoming more expensive to us over time similar financing pressures from inflation also can have a negative impact on customers willingness to purchase our products in the same volumes and at the same rates as previously anticipated In a highly inflationary environment we may be unable to raise the sales prices of our products at or above the rate of inflation which could reduce our profit margins having a material adverse effect on our financial performance
We face various cybersecurity threats as a prominent target including denial of service attacks ransomware phishing and advanced persistent threats As an aerospace and defense company providing advanced defense technologies and services to the U S and foreign governments these threats are not just from low level threat actors but rise to the level of sophisticated threat actors from organized and funded adversaries including groups affiliated with various nation states Our customers suppliers subcontractors and vendors also face similar threats Cybersecurity incidents impacting us or any of these third parties could have a material adverse effect on our operations financial condition and results of operations Given the cybersecurity risks we face we dedicate ample resources to addressing and mitigating our cyber risks
Our Chief Information Officer CIO Chief Information Security Officer CISO and Vice President of Cybersecurity all within our CIO organization lead our Detection and Response Team DART which is responsible for our cybersecurity incident response processes pursuant to our Incident Response Plan and playbooks The DART also includes members of our IT department responsible for supporting the technologies and processes to protect against detect contain mitigate and recover from cybersecurity incidents The DART evaluates and assigns severity levels to cybersecurity incidents and based on the severity escalates and engages incident response teams to respond to and mitigate the risks
Our cybersecurity team proactively hunts for cyber threats and vulnerabilities in our networks and information systems as part of our cyber risk management program This includes monitoring our networks and systems for indicators of compromise IOCs active intrusion attempts and other suspicious activity including insider threat risks The cybersecurity team stays apprised of existing and emerging cybersecurity threats through commercial threat intelligence feeds and by partnering and data sharing with third parties such as the U S government law enforcement agencies customers and other Defense Industrial Base DIB participants We also engage third parties to conduct
We require our employees to take cybersecurity related training regularly to promote awareness of how to detect report and respond to cybersecurity threats Employees with certain roles and responsibilities are also assigned cyber training for their specific functions We also maintain an Insider Threat program headed by our Director of Security to identify assess and deal with potential risks from within our company including cybersecurity risks
We have aligned our cybersecurity program to the National Institute of Standards and Technology s NIST published cybersecurity standards and our policies and processes are compliant with NIST Special Publication 800 171 and other applicable publications Given our status as a defense contractor we are subject to numerous regulations including those pursuant to the Defense Federal Acquisition Regulation Supplement DFARS requiring us to have controls in place to protect U S government CUI and to report cybersecurity incidents to the DoD
We are also subject to the DoD CMMC requirements which necessitates that companies receiving storing or processing federal contract information FCI and CUI be formally assessed by a CMMC C3PAO AeroVironment Inc including its subsidiaries Arcturus UAS and Tomahawk Robotics but excluding any of the BlueHalo acquired entities is scheduled for a formal Level 2 assessment The recently acquired BlueHalo passed a formal CMMC Level 2 assessment under the CMMC 2 0 framework which went into effect December 16 2024 If we fail to achieve or maintain certification ahead of contract awards or if we fail to achieve the level required for a particular contract we will be unable to bid on new contracts or follow on efforts containing CMMC clauses which could adversely impact the success of our operations Additionally our subcontractors and certain vendors may need to obtain CMMC certification and we may be negatively impacted if they are not compliant with the CMMC requirements
Our CIO CISO and VP of Cybersecurity each with 20 years of related experience are responsible for the day to day management of our cybersecurity program and cybersecurity risks Our CISO and team are primarily responsible for our overall cybersecurity risk management program and supervise both internal and external resources to identify protect against detect respond to and recover from cybersecurity risks threats and incidents
We have internal Cybersecurity Council which meets monthly to help communicate our enterprise cybersecurity strategy and ensure it is implemented across the business as well as maintain awareness of events and changes occurring throughout the business The Cybersecurity Council consists of members from our CIO organization as well as senior leadership from various functional areas of the business
Pursuant to its charter the Cybersecurity Committee of our Board of Directors is responsible for reviewing discussing and making recommendations to the full board regarding cybersecurity matters Our CIO CISO and VP of Cybersecurity provide presentations to the Cybersecurity Committee on our cybersecurity program at each of the committee s regularly scheduled quarterly meetings These briefings include assessments of the cyber risk and threats landscape updates on incidents policies and procedures and our investments and plans in cybersecurity risk mitigation and governance The Cybersecurity Committee also meets with members of the Cybersecurity Council to discuss various aspects of our cybersecurity program between regular meetings All members of the Board of Directors are invited to attend all meetings of the Cybersecurity Committee and the committee regularly briefs the entire board regarding their oversight of our cybersecurity program
We have experienced cybersecurity incidents in the past and will experience cybersecurity incidents in the future Prior cybersecurity incidents have not materially affected or are reasonably likely to affect our business strategy results of operations or financial condition however there is no guarantee that a future cybersecurity incident would not have a material adverse effect on such items While our cybersecurity program is designed to mitigate cybersecurity risks we cannot eliminate all risks from cybersecurity threats See Item 1A Risk Factors for more information on our cybersecurity risks
As of April 30 2025 our facilities are primarily leased Our corporate headquarters are located in Arlington Virginia where we currently occupy approximately 7 400 square feet under an amended lease agreement expiring in June 2030 Under leases in effect prior to the closing of the BlueHalo acquisition we also lease i a total of approximately 280 000 square feet of space in Simi Valley California which leases expire between 2027 and 2030 ii approximately 150 000 square feet of space in Moorpark California which lease expires in 2027 used for administration and to design engineer test and manufacture UAS and iii other facilities in California Alabama Kansas Massachusetts Florida Pennsylvania Minnesota and Virginia We have international locations in Hampton Bishop United Kingdom used for business development and program management support and Stuttgart Germany which facilities are used for administration research and development logistics testing and manufacturing of UGV products
On August 9 2021 a former employee filed a class action complaint against AeroVironment in California Superior Court in Los Angeles California alleging various claims pursuant to the California Labor Code related to wages meal breaks overtime unreimbursed business expenses and other recordkeeping matters The complaint seeks a jury trial and payment of various alleged unpaid wages penalties interest and attorneys fees in unspecified amounts We filed our answer on December 16 2021 The parties participated in a mediation session on May 8 2025 but did not reach a resolution during the session
On March 29 2024 a former employee filed a complaint against AeroVironment in the Ventura County Superior Court in California alleging violations of the California Labor Code related to wages meal breaks overtime unreimbursed business expenses and other recordkeeping matters and seeking penalties recoverable under California Labor Code section 2698 et seq Private Attorney General Act of 2004 PAGA and all other remedies available under PAGA The complaint seeks civil penalties on behalf of the plaintiff and similarly situations persons pursuant to PAGA We filed our answer on June 20 2024 The parties stipulated to stay this PAGA case ahead of the mediation in the class action matter listed in the immediately preceding paragraph above
On June 11 2025 the parties reached an agreement in principle to settle all claims in the class action complaint and PAGA complaint pursuant to a mediator s proposal made on such a date by the mediator from the May 8 2025 class action mediation session A court must approve the terms of the settlement before we will pay any amounts pursuant to the settlement The estimated settlement was accrued in our consolidated statements of income loss for the year ended April 30 2025
We are subject to lawsuits government investigations audits and other legal proceedings from time to time in the ordinary course of our business It is not possible to predict the outcome of any legal proceeding with any certainty The outcome or costs we incur in connection with a legal proceeding could adversely impact our operating results and financial position
To date we have retained all earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future Any future determination related to dividend policy will be made at the discretion of our board of directors and will depend upon among other factors our results of operations financial condition capital requirements capital allocation policy expected return on invested capital contractual restrictions and such other factors as our board of directors deems relevant The terms of our Credit Agreement restrict our ability to pay dividends
The stock price performance shown on the graph above is not necessarily indicative of future price performance Factual material was obtained from sources believed to be reliable but we are not responsible for any errors or omissions contained therein No portions of this graph shall be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act through any general statement incorporating by reference in its entirety the report in which this graph appears except to the extent that we specifically incorporate this graph or a portion of it by reference In addition this graph shall not be deemed filed under either the Securities Act or the Exchange Act
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included herein as Item 8 This discussion contains forward looking statements Refer to Part I Forward Looking Statements on page 2 and Item 1A Risk Factors beginning on page 14 for a discussion of the uncertainties risks and assumptions associated with these statements The disclosures and references in Item 7 of this Annual Report including the description of our business financial data management s discussion and analysis of financial condition and results of operations do not include the BlueHalo acquisition which closed on May 1 2025 unless otherwise specifically noted The assets liabilities and results of operations of BlueHalo have not been consolidated into our results as of and for the period ended April 30 2025 or any of the historical periods presented
We design develop produce deliver and support a technologically advanced portfolio of intelligent multi domain robotic systems and related services for government agencies and businesses We supply uncrewed aircraft and ground robot systems loitering munitions systems and related services primarily to organizations within or supplying the U S DoD other federal agencies and to international allied governments We derive the majority of our revenue from these business areas and we believe that the markets for these solutions offer the potential for significant long term growth In addition we believe that some of the innovative potential products services and technologies in our research and development pipeline will emerge as new growth platforms in the future creating additional market opportunities
The success of our current product and service offerings stems from our investments in R D to invent and deliver advanced solutions utilizing proprietary and commercially available technologies and in acquiring leading businesses that help our customers achieve their desired outcomes We develop and acquire these highly innovative solutions by working closely with our key customers to solve their most important challenges related to our areas of expertise Our core technological capabilities developed over more than 50 years of innovation or acquired through acquisitions include robotics and robotics systems autonomy modular open systems architecture sensor design development miniaturization and integration embedded software and firmware miniature low power secure wireless digital communications and networks lightweight aerostructures high altitude systems design integration and operations machine vision machine learning and autonomy land maritime and air deployment of munitions and aircraft systems design and qualification for robotics in extreme terrestrial and space environments munitions systems warhead integration low SWaP Size Weight and Power system design and integration collaborative multi robotic crewed and uncrewed mission operation power electronics and electric propulsion systems efficient electric power conversion storage systems and high density energy packaging controls and systems integration vertical takeoff and landing for fixed wing and hybrid aircraft and rotocraft systems image stabilization and target tracking advanced flight control systems fluid dynamics human machine interface development modular dismounted networked multi domain robotic control interfaces and analytic processing architecture and integrated mission solutions for austere environments
Our business focuses primarily on the design development production marketing support and operation of innovative UxS and LMS products that provide situational awareness remote sensing multi band communications force protection and other information and mission effects to increase the safety and effectiveness of our customers operations
We generate our revenue primarily from the sale support design and operation of our UxS LMS and HAPS products Support for our SUAS MUAS and LMS customers includes training spare parts product repair and product replacement Under ISR services contracts we deliver the information our MUAS produce to our customers who use that information to support their missions We refer to these support activities in conjunction with customer funded R D as our services operation We derive most of our SUAS MUAS LMS and HAPS revenue from fixed price and cost plus fee contracts with the majority from U S government and allied foreign governments for SUAS MUAS and LMS
Cost of sales consists of direct costs and allocated indirect costs Direct costs include labor materials travel subcontracts and other costs directly related to the execution of a specific contract Indirect costs include overhead expenses fringe benefits depreciation of in service ISR assets amortization of acquired intangible assets and other costs that are not directly charged to a specific contract
Our selling general and administrative expenses SG A include salaries fringe benefits and other expenses related to selling marketing and proposal activities and other administrative costs and amortization of acquired intangible assets Some SG A expenses relate to marketing commissions on certain direct commercial sales to international customers and business development activities that support both ongoing business areas as well as new and emerging market areas These activities can be directly associated with developing requirements for and applications of capabilities created in our R D activities SG A is an important financial metric that we analyze to help us evaluate the contribution of our selling marketing and proposal activities to revenue generation
As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30 2025 we determined carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 These changes in estimates resulted in the recognition of a goodwill impairment charge of 18 4 million during the three months ended April 30 2025 in the UGV reporting unit
For the fiscal year ended April 30 2025 we determined that it was more likely than not that the fair value of each of the other reporting units other than UGV was more than their carrying values as of the annual goodwill impairment test date including the MUAS reporting unit which was no longer considered at an increased risk of failing future quantitative goodwill impairment tests due to an increase in the estimated fair value of the reporting unit from significant increases in forecasted results
Subsequent to the performance of our annual goodwill impairment test for the fiscal year ended April 30 2023 in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value Specifically we received notification that we were not down selected for a U S DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit As a result we updated our estimates of long term future cash flows to reflect lower revenue and EBITDA growth rate expectations used in the valuation of the MUAS reporting unit These changes in estimates resulted in the recognition of a goodwill impairment charge of 156 0 million recorded during the year ended April 30 2023
Equity method investment loss income net of tax includes equity method income or loss related to our investment in limited partnership funds for which we have concluded we have influence for holding more than a minor interest Beginning October 14 2022 equity method investment loss income net of tax also includes our proportion of any gains or losses of our Turkish joint venture Altoy Savunma Sanayi ve Havacilik Anonim Sirketi Altoy due to our share sale in which we decreased our ownership interest to 15 but concluded we retain the ability to exercise significant influence
This Management s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States When we prepare these consolidated financial statements we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period Some of our accounting policies require that we make subjective judgments including estimates that involve matters that are inherently uncertain Our most critical estimates include those related to revenue recognition inventory reserves for excess and obsolescence intangible assets acquired in a business combination goodwill and income taxes We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources Our actual results may differ from these estimates under different assumptions or conditions
We believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements Please see Note 1 to our consolidated financial statements entitled Organization and Significant Accounting Policies which is included in Part II Item 8 Financial Statements and
Significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period Material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management s estimates change on the basis of development of the business or market conditions Management judgments and estimates have been applied consistently and have been reliable historically We believe that there are two key factors which impact the reliability of management s estimates The first of those key factors is that the terms of our contracts are typically less than six months The short term nature of such contracts reduces the risk that material changes in accounting estimates will occur on the basis of market conditions or other factors The second key factor is that we have hundreds of contracts in any given accounting period which reduces the risk that any one change in an accounting estimate on one or several contracts would have a material impact on our consolidated financial statements
The substantial majority of our revenue is generated pursuant to written contractual arrangements to design develop manufacture and or modify complex products and to provide related engineering technical and other services according to customer specifications These contracts may be fixed price cost reimbursable or time and materials We account for all revenue contracts in accordance with ASC 606 A performance obligation is a promise in a contract to transfer distinct goods or services to a customer and it is the unit of account in ASC 606 A contract s transaction price is allocated to each distinct performance obligation and revenue is recognized when each performance obligation under the terms of a contract is satisfied For contracts with multiple performance obligations we allocate the contract s transaction price to each performance obligation using observable standalone selling prices for similar products and services When the standalone selling price is not directly observable we use our best estimate of the standalone selling price of each distinct good or service in the contract using the cost plus reasonable margin approach
Our performance obligations are satisfied over time or at a point in time Revenue for LMS product deliveries customization of UGV transport vehicles and customer funded R D contracts is recognized over time as costs are incurred Contract services revenue is composed of revenue recognized on contracts for the provision of services including repairs and maintenance training engineering design development and prototyping activities and technical support services Contract services revenue including ISR services is recognized over time as services are rendered We elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity s performance completed to date such as flight hours for ISR services the entity may recognize revenue in the amount to which the entity has a right to invoice Training services are recognized over time using an output method based on days of training completed For performance obligations satisfied over time revenue is generally recognized using costs incurred to date relative to total estimated costs at completion to measure progress Incurred costs represent work performed which correspond with and thereby best depict transfer of control to the customer Contract costs include labor materials subcontractors costs other direct costs and indirect costs applicable on government and commercial contracts
For performance obligations which are not satisfied over time per the aforementioned criteria above revenue is recognized at the point in time in which each performance obligation is fully satisfied Our UxS product sales revenue is primarily composed of revenue recognized on contracts for the delivery of UxS systems and spare parts respectively Revenue is recognized at the point in time when control transfers to the customer which generally occurs when title and risk of loss have passed to the customer
We review cost performance estimates to complete and variable consideration at least quarterly and in many cases more frequently Adjustments to original estimates for a contract s revenue estimated costs at completion and estimated profit or loss are often required as work progresses under a contract as experience is gained and as more information is obtained even though the scope of work required under the contract may not change or if contract modifications including the finalization of undefinitized contract actions occur The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch up basis in the period in which the revisions are made Changes in variable consideration associated with the finalization of
undefinitized contract actions or unpriced change orders could result in cumulative catch up adjustments to revenue that could be material During the fiscal years ended April 30 2025 2024 and 2023 changes in accounting estimates on contracts recognized using the over time method are presented below Amounts representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or contract modification in accordance with ASC 606 Incentives or penalties and awards applicable to performance on contracts are considered in estimating revenue and profit rates and are recorded when there is sufficient information to assess anticipated contract performance
For the year ended April 30 2025 favorable cumulative catch up adjustments of 11 1 million were primarily due to favorable adjustments on eight contracts Four LMS undefinitized contract actions were definitized during the year ended April 30 2025 which resulted in cumulative catch up revenue adjustments that increased revenue by approximately 9 9 million The remaining adjustments individually were not material For the same period unfavorable cumulative catch up adjustments of 5 1 million were primarily related to unfavorable adjustments on 17 contracts for higher revised estimates of the total expected costs to complete the contract including one LMS contract which decreased revenue by approximately 2 9 million The remaining adjustments individually were not material
For the year ended April 30 2024 favorable cumulative catch up adjustments of 7 4 million were primarily due to final cost adjustments on 17 contracts During the year ended April 30 2024 we revised our estimates of the total expected costs to complete two LMS contracts The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately 2 7 million For the same period unfavorable cumulative catch up adjustments of 2 0 million were primarily related to higher than expected costs on 11 contracts which individually were not material
For the year ended April 30 2023 favorable cumulative catch up adjustments of 2 9 million were primarily due to final cost adjustments on 23 contracts which individually were not material For the same period unfavorable cumulative catch up adjustments of 3 8 million were primarily related to unfavorable adjustments on 5 contracts for higher revised estimates of the total expected costs to complete the contract including one LMS variant contract which decreased revenue by approximately 1 9 million The remaining adjustments individually were not material
Our policy for valuation of inventory including the determination of obsolete or excess inventory requires us to perform a detailed assessment of inventory at each balance sheet date which includes a review of among other factors an estimate of future demand for products within specific time horizons valuation of existing inventory as well as product lifecycle and product development plans Inventory reserves are also provided to cover risks arising from slow moving items We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market conditions and record to cost of sales We may be required to record additional inventory write downs if actual market conditions are less favorable than those projected by our management
intangible assets Acquired intangible assets include technology backlog in process research and development customer relationships licenses trademarks and tradenames and non compete agreements We use valuation techniques to value these intangibles assets with the primary technique being a discounted cash flow analysis A discounted cash flow analysis requires us to make various assumptions and estimates including projected revenue gross margins operating costs growth rates useful lives and discount rates Intangible assets are amortized over their estimated useful lives using the straight line method which approximates the pattern in which the economic benefits of such assets are consumed As part of our annual goodwill impairment and identifiable asset test performed during the quarter ended April 30 2025 a decrease in forecasted results for the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 resulted in accelerated intangible amortization expenses of 4 3 million which were recorded during the three months ended April 30 2025 Due to the closure of all of our MUAS COCO sites during the three months ended April 30 2023 we revised the estimated useful life for MUAS customer relationships which resulted in accelerated intangible amortization expenses of 34 1 million during the fiscal year ended April 30 2023 Additionally in conjunction with the goodwill impairment test performed during the year ended April 30 2023 the remaining intangibles in the MUAS reporting unit were tested for recoverability The asset recoverability test did not result in an impairment for the remaining intangibles in the MUAS reporting unit Refer to Note 6 Goodwill for further details
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets We test goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired Events or circumstances that could trigger an impairment review include but are not limited to a significant adverse change in legal factors or in the business or political climate an adverse action or assessment by a regulator unanticipated competition a loss of key personnel significant changes in the manner of our use of the acquired assets or the strategy for our overall business significant negative industry or economic trends or significant underperformance relative to projected future results of operations
Our evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value For the impairment test we first assess qualitative factors macroeconomic conditions industry and market considerations triggering events cost factors and overall financial performance to determine whether it is necessary to perform a quantitative goodwill impairment test Alternatively we may bypass the qualitative assessment for some or all of its reporting units and apply the quantitative impairment test If determined to be necessary the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized if any For the quantitative impairment test we estimate the fair value by weighting the results from the income approach and the market approach These valuation approaches consider a number of factors that include but are not limited to prospective financial information growth rates terminal value discount rates and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of its business
As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30 2025 we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 These changes in estimates resulted in the recognition of a goodwill impairment charge of 18 4 million during the three months ended April 30 2025 in the UGV reporting unit We determined that it was more likely than not that the fair value of our other reporting units were more than their carrying values as of the annual goodwill impairment test date
Subsequent to the performance of our annual goodwill impairment test for the fiscal year ended April 30 2023 in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value Specifically we received notification that we were not down selected for a U S DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit As a result we updated our estimates of long term future cash flows to reflect lower revenue and EBITDA growth rate expectations
The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature Actual results can be materially different from the estimates and assumptions If actual market conditions are less favorable than those projected by the industry or by us or if events occur or circumstances change that would reduce the estimated fair value of our indefinite lived intangible assets below the carrying amounts we could recognize future impairment charges the amount of which could be material
Our income tax provision and related income tax assets and liabilities are based on actual and expected future income U S and foreign statutory income tax rates and tax regulations and planning opportunities in the various jurisdictions in which it operates Significant judgment is required in interpreting tax regulations in the United States and in foreign jurisdictions evaluating our worldwide uncertain tax positions and assessing the likelihood of realizing certain tax benefits Actual results could differ materially from those judgments and changes in judgments could materially affect our consolidated financial statements
We are required to estimate our income taxes which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes We currently have significant deferred tax assets which are subject to periodic recoverability assessments Realizing our deferred tax assets principally depends on our achieving projected future taxable income We may change our judgments regarding future profitability due to future market conditions and other factors which may result in recording a valuation allowance against those deferred tax assets We record a valuation allowance to reduce our deferred tax assets if based on the weight of available evidence we believe expected future taxable income is not likely to support the use of a deduction or credit in that jurisdiction We evaluate the level of our valuation allowances during the interim and annually
We record unrecognized tax benefits for U S federal state local and foreign tax positions related primarily to tax credits claimed and tax nexus For each reporting period we apply a consistent methodology to measure unrecognized tax benefits and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant Our measurement of our unrecognized tax benefits is based on our assessment of all relevant information including prior audit experience the status of audits conclusions of tax audits lapsing of applicable statutes of limitations identification of new issues and any administrative guidance or developments We recognize unrecognized tax benefits in the first financial reporting period in which information becomes available indicating that such benefits will more likely than not a greater than 50 likelihood be realized
We have the following reportable segments through its fiscal year ended April 30 2025 Uncrewed Systems UxS segment Loitering Munition Systems LMS segment and the MacCready Works MW segment The following table in thousands sets forth our revenue and segment adjusted gross margin generated by each reporting segment for the periods indicated Segment adjusted gross margin is defined as gross margin before intangible amortization and amortization of other purchase accounting adjustments
Effective May 1 2025 due to the acquisition of BlueHalo and our reorganization reportable segments will be updated into the two reportable segments i Autonomous Systems and ii Space Cyber and Directed Energy Autonomous Systems will include the historical AeroVironment businesses UxS LMS and MW as well as Unmanned Maritime Radio Frequency and Kinetic C UAS Electronic Warfare Systems and Autonomous R D Space Cyber and Directed Energy will include the remaining acquired BlueHalo businesses including Digital beamforming technology Laser Communications Space Qualified Hardware Phased Array Antenna Technology Directed Energy Cyber and Mission Systems We will begin to report our segments in the new structure in our Quarterly Report on Form 10 Q for the quarter ending July 26 2025 the period in which the new organizational structure became effective
Also effective May 1 2025 due to the increased size and complexity of the businesses the significant amount of debt to finance the acquisition and the related debt covenants the Chief Operating Decision Maker s CODM measure of profitability for the new reportable segments will be Segment Adjusted EBITDA defined as income from operations before interest income interest expense income tax expense benefit and depreciation and amortization adjusted for the impact of certain other non cash items including goodwill impairment amortization of implementation of cloud computing arrangements stock based compensation other purchase accounting adjustments and cash items including acquisition related expenses
Revenue Revenue for the fiscal year ended April 30 2025 was 820 6 million as compared to 716 7 million for the fiscal year ended April 30 2024 representing an increase of 103 9 million or 14 The increase in revenue was due to an increase in product revenue of 107 0 million partially offset by a decrease in service revenue of 3 0 million The increase in product revenue was primarily due to an increase of 164 7 million from the production of our Switchblade products driven by increased global demand for our LMS associated with the current global conflicts as well as U S DoD resupply and an increase of 4 4 million from the delivery of MW products driven by demand for new product releases partially offset by a decrease of 62 1 million of product deliveries of our UxS products primarily due to a decrease in international sales to Ukraine Fiscal 2025 also included favorable cumulative catch up revenue adjustments of 12 0 million due to changes in estimates associated with the definitization of certain LMS contracts The decrease in service revenue was primarily due to a decrease of 2 8 million in other engineering services and customer funded R D activities primarily associated with the shift from development to production of certain LMS products With the acquisition of BlueHalo we expect the proportion of service revenue to total revenue to increase in fiscal year 2026 and beyond
Cost of Sales Cost of sales for the fiscal year ended April 30 2025 was 502 0 million as compared to 432 8 million for the fiscal year ended April 30 2024 representing an increase of 69 2 million or 16 The increase in cost of sales was a result of an increase in product cost of sales of 64 2 million and an increase in service costs of sales of 5 0 million The increase in product cost of sales was primarily due to approximately 62 million associated with the increase in product sales volume 4 6 million due to the UGV accelerated intangible amortization expenses partially offset by a decrease of approximately 3 million due to product mix shift primarily to the definitization of LMS contracts The increase of 5 0 million in service costs of sales was primarily due to approximately 7 million increase due to mix shift associated with a higher proportion of engineering services partially offset by approximately 2 million associated with the decreased service volume Cost of sales for the fiscal year ended April 30 2025 included 19 4 million of intangible amortization as compared to 13 5 million of intangible amortization and other related non cash purchase accounting expenses for the fiscal year ended April 30 2024 As a percentage of revenue cost of sales increased from 60 to 61 primarily due to the accelerated amortization of UGV intangibles of 4 6 million partially offset by an increase in the proportion of product revenue to total revenue resulting in a decrease in gross margin from 40 to 39
Selling General and Administrative SG A expense for the fiscal year ended April 30 2025 was 158 8 million or 19 of revenue as compared to SG A expense of 114 4 million or 16 of revenue for the fiscal year ended April 30 2024 The increase in SG A expense was primarily due to an increase of 17 2 million in acquisition related expenses related to the BlueHalo acquisition an increase in employee related expenses of 10 0 million driven by an increase in average headcount and expansion of our global business development team and an increase in sales and marketing expense of 9 4 million driven by an increase in bid and proposal efforts associated with the higher sales volume
Interest Expense net Interest expense net for the fiscal year ended April 30 2025 was 2 2 million as compared to interest expense net of 4 2 million for the fiscal year ended April 30 2024 The decrease in interest expense net was primarily due to a decrease of 5 0 million in interest expense primarily due to lower average outstanding balances on our debt facility partially offset by a decrease in interest income of 2 5 million primarily due to lower interest rates and a decrease in our average investment balances On May 1 2025 in connection with the closing of the BlueHalo acquisition we entered into a new Term A Loan and borrowed from our revolving credit facility the Revolving Credit Facility and together with the Term A Loan the Credit Facilities As of May 1 2025 the outstanding balance of the Credit Facilities was 955 0 million which bears a variable interest rate Interest expense for fiscal year 2026 is expected to increase significantly
Other Income Expense net Other income net for the fiscal year ended April 30 2025 was 1 1 million as compared to other expense net of 4 4 million for the fiscal year ended April 30 2024 The increase in other income net is primarily due to a decrease in unrealized losses associated with increases in fair market value for equity security investments of 4 1 million
Income Taxes Our effective income tax rate was 2 2 for the fiscal year ended April 30 2025 as compared to 3 0 for the fiscal year ended April 30 2024 The decrease in our effective tax rate in fiscal 2025 compared with fiscal 2024 was primarily due to a decrease in net income a decrease in our FDII deduction offset by non deductible goodwill impairment expense from our foreign subsidiary
LMS Revenue LMS revenue for the fiscal year ended April 30 2025 was 352 0 million as compared to 192 6 million for the fiscal year ended April 30 2024 representing an increase of 159 4 million or 83 The increase in revenue was due to an increase in product revenue of 164 6 million partially offset by a decrease in service revenue of 5 2 million The increase in product revenue was primarily due to increased production of our LMS systems due to global demand for our LMS systems associated with the current global conflicts as well as U S DoD resupply Fiscal 2025 also included favorable cumulative catch up revenue adjustments of 12 0 million due to changes in estimates associated with the definitization of certain LMS contracts The decrease in service revenue was primarily due to a decrease of 4 2 million in customer funded R D activities primarily associated with the shift from development to production of certain Switchblade products
LMS Segment Adjusted Gross Margin LMS segment adjusted gross margin for the fiscal year ended April 30 2025 was 128 6 million as compared to 68 2 million for the fiscal year ended April 30 2024 representing an increase of 60 4 million The increase in LMS segment adjusted gross margin was primarily due to an increase of 159 4 million in revenue inclusive of the cumulative catch up revenue adjustments of 12 0 million partially offset by an increase of 99 0 million in cost of sales excluding amortization of intangibles of which approximately 103 million is associated with the increased sales volume partially offset by approximately 4 million due to shift in mix primarily related to the definitization of LMS contracts
UxS Revenue UxS revenue for the fiscal year ended April 30 2025 was 381 8 million as compared to 448 0 million for the fiscal year ended April 30 2024 representing a decrease of 66 2 million or 15 The decrease in revenue was due to a decrease in product revenue of 62 1 million and a decrease in service revenue of 4 1 million The decrease in product revenue was primarily due to a decrease of 51 0 million for product shipments of our SUAS and MUAS family of systems driven by decreased international sales most significantly to Ukraine The decrease in service revenue was primarily due to a decrease of 3 3 million of customer funded R D and engineering services primarily due to the completion of certain MUAS contracts during the fiscal year ended April 30 2024
UxS Segment Adjusted Gross Margin UxS segment adjusted gross margin for the fiscal year ended April 30 2025 was 187 1 million as compared to 210 5 million for the fiscal year ended April 30 2024 representing a decrease of 23 4 million The decrease in UxS segment adjusted gross margin was primarily due to a decrease of 66 2 million in revenue partially offset by a decrease of 42 8 million in cost of sales excluding intangible amortization The decrease of 42 8 million in costs of sales excluding intangible amortization is primarily due to a decrease of approximately 35 million associated with the decreased sales volume and shift in mix of approximately 8 million due to mix
MW Revenue MW revenue for the fiscal year ended April 30 2025 was 86 9 million as compared to 76 1 million for the fiscal year ended April 30 2024 representing an increase of 10 8 million or 14 The increase in revenue was primarily due to an increase of 6 3 million in service revenue and an increase of 4 5 million in product sales The increase in service revenue is primarily due to an increase in engineering services and customer funded R D in part due to HAPS return to flight services The increase in product sales is primarily due to the shift from development to early stage production of certain new products
MW Segment Adjusted Gross Margin MW segment adjusted gross margin for the fiscal year ended April 30 2025 was 22 4 million as compared to MW segment adjusted gross margin of 18 7 million for the fiscal year ended April 30 2024 representing an increase of 3 7 million The increase in MW segment adjusted gross margin was primarily due to an increase of 10 8 million in revenue partially offset by an increase of 7 1 million in cost of sales excluding amortization of intangibles of which approximately 8 million is associated with the increased sales volume
Revenue Revenue for the fiscal year ended April 30 2024 was 716 7 million as compared to 540 5 million for the fiscal year ended April 30 2023 representing an increase of 176 2 million or 33 The increase in revenue was due to an increase in product revenue of 232 7 million partially offset by a decrease in service revenue of 56 5 million The increase in product revenue was primarily due to an increase of 147 1 million of product deliveries of our UxS products including 10 6 million associated with the recent Tomahawk acquisition and an increase of 84 2 million from the production of our Switchblade products These increases were primarily driven by increased global demand for our uncrewed systems and loitering munitions systems associated with the current global conflicts as well as U S DoD resupply The decrease in service revenue was primarily due to a decrease of 49 7 million due to the closure of all COCO site locations during fiscal year 2023 and a decrease of 11 1 million in other engineering services and
Cost of Sales Cost of sales for the fiscal year ended April 30 2024 was 432 8 million as compared to 367 0 million for the fiscal year ended April 30 2023 representing an increase of 65 8 million or 18 The increase in cost of sales was a result of an increase in product cost of sales of 136 8 million partially offset by a decrease in service costs of sales of 71 0 million The increase of 136 8 million in product cost of sales was primarily due to approximately 126 million associated with the increase in product sales volume an increase in inventory reserve charges of 5 8 million primarily related to the introduction of our next generation products and an increase of 4 1 million in intangible amortization expense primarily resulting from the Tomahawk acquisition The decrease of 71 0 million in service costs of sales was primarily due to approximately 47 million associated with the decreased service volume of which 44 4 million is due to the closure of all COCO site locations in the prior year mix shift of approximately 20 million due to the continuation of services with higher margins than the ceased COCO services and a decrease of 4 6 million in intangible amortization expense due to intangible assets being fully amortized Cost of sales for the fiscal year ended April 30 2024 included 13 5 million of intangible amortization and other related non cash purchase accounting expenses as compared to 14 0 million for the fiscal year ended April 30 2023 As a percentage of revenue cost of sales decreased from 68 to 60 primarily due to an increase in the proportion of product revenue to total revenue and the prior year COCO accelerated depreciation and amortization expenses resulting in an increase in gross margin from 32 to 40
Selling General and Administrative SG A expense for the fiscal year ended April 30 2024 was 114 4 million or 16 of revenue as compared to SG A expense of 131 9 million or 24 of revenue for the fiscal year ended April 30 2023 The decrease in SG A expense was primarily due to a decrease of 44 6 million in intangible amortization and other non cash purchase accounting expenses The decrease in intangible amortization expense was primarily driven by a decrease in COCO customer relationship amortization of 46 5 million due to the accelerated amortization of COCO customer relationships recorded during the three months ended April 30 2023 partially offset by an increase of 1 7 million resulting from the Tomahawk acquisition The decrease in SG A expense was partially offset by an increase in employee related expenses of 15 7 million driven by an increase in average headcount and expansion of our global business development team an increase in sales and marketing expense of 6 4 million primarily due to an increase in bid and proposal efforts and an increase in depreciation expense of 1 4 million driven by increased capital requirements to support our growth
Research and Development R D expense for the fiscal year ended April 30 2024 was 97 7 million or 14 of revenue as compared to R D expense of 64 3 million or 12 of revenue for the fiscal year ended April 30 2023 R D expense increased by 33 4 million or 52 for the fiscal year ended April 30 2024 primarily due to an increase in development activities regarding enhanced capabilities for our products development of new product lines and to support our acquired businesses
Impairment of Goodwill During the fiscal year ended April 30 2023 we recorded a goodwill impairment charge of 156 0 million in the MUAS reporting unit due to a trigger event identified once we received notification that we were not down selected for a U S DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit
Interest Expense net Interest expense net for the fiscal year ended April 30 2024 was 4 2 million as compared to interest expense net of 9 4 million for the fiscal year ended April 30 2023 The decrease in interest expense net was primarily due to an increase of 2 7 million in interest income due to an increase in the average interest rate earned on our cash balances and a decrease in interest expense of 2 5 million due to lower average outstanding balances on our debt facility partially offset by higher interest rates applicable to our debt facility
Income Taxes Our effective income tax rate was 3 0 for the fiscal year ended April 30 2024 as compared to 7 8 for the fiscal year ended April 30 2023 The decrease in our effective tax rate was primarily due to the prior year s loss before income taxes an increase in the foreign derived intangible income deduction and an increase in R D tax credits partially offset by the prior year non deductible goodwill impairment expense
LMS Revenue LMS revenue for the fiscal year ended April 30 2024 was 192 6 million as compared to 120 6 million for the fiscal year ended April 30 2023 representing an increase of 72 0 million or 60 The increase in revenue was due to an increase in product revenue of 84 2 million partially offset by a decrease in service revenue of 12 2 million The increase in product revenue was primarily due to increased production of our LMS systems due to global demand for our LMS systems associated with the current global conflicts as well as U S DoD resupply The decrease in service revenue was primarily due to a decrease of 11 9 million in customer funded R D activities primarily associated with the shift from development to production of certain Switchblade products
LMS Segment Adjusted Gross Margin LMS segment adjusted gross margin for the fiscal year ended April 30 2024 was 68 2 million as compared to 42 7 million for the fiscal year ended April 30 2023 representing an increase of 25 5 million The increase in LMS segment adjusted gross margin was primarily due to an increase of 72 0 million in revenue partially offset by an increase of 46 5 million in cost of sales excluding amortization of intangibles of which approximately 46 million is associated with the increased sales volume
UxS Revenue UxS revenue for the fiscal year ended April 30 2024 was 448 0 million as compared to 343 9 million for the fiscal year ended April 30 2023 representing an increase of 104 1 million or 30 The increase in revenue was due to an increase in product revenue of 147 1 million partially offset by a decrease in service revenue of 43 0 million The increase in product revenue was primarily due to 136 1 million from increased product shipments of our SUAS and MUAS family of systems driven by increased global demand for our uncrewed systems associated with the current global conflicts as well as U S DoD resupply and 10 6 million associated with the recent Tomahawk acquisition The decrease in service revenue was primarily due to decreases of 49 7 million from the closure of all COCO site locations during fiscal year 2023 partially offset by an increase of 5 3 million associated with the recent Tomahawk acquisition
UxS Segment Adjusted Gross Margin UxS segment adjusted gross margin for the fiscal year ended April 30 2024 was 210 5 million as compared to 124 7 million for the fiscal year ended April 30 2023 representing an increase of 85 8 million The increase in UxS segment adjusted margin was primarily due to an increase of 104 1 million in revenue partially offset by an increase of 18 3 million in cost of sales excluding intangible amortization The increase of 18 3 million in costs of sales excluding intangible amortization is primarily due to an increase of approximately 65 million associated with the increased sales volume and 6 0 million from an increase in inventory reserve charges primarily related to the introduction of our next generation products partially offset by shift in mix of approximately 53 million due to a higher proportion of international products sales and lower levels of COCO service revenue
MW Revenue MW revenue for the fiscal year ended April 30 2024 was 76 1 million as compared to 76 0 million for the fiscal year ended April 30 2023 representing an increase of 0 1 million The increase in revenue was primarily due to an increase of 1 5 million in product sales partially offset by a decrease of 1 4 million in service revenue The increase in product sales is primarily due to the shift from development to early stage production of certain products The decrease in service revenue is primarily due to a decrease in engineering services and customer funded R D due to delays in anticipated contract awards associated with the government budget authorization process
MW Segment Adjusted Gross Margin MW segment adjusted gross margin for the fiscal year ended April 30 2024 was 18 7 million as compared to MW segment adjusted gross margin of 20 1 million for the fiscal year ended April 30 2023 representing a decrease of 1 4 million The decrease in MW segment adjusted gross margin was primarily due to an increase of 1 5 million in cost of sales excluding amortization of intangibles driven by increased sales mix of approximately 1 million due to the shift from development to early stage production of certain products
On February 19 2021 in connection with the consummation of the Arcturus acquisition we entered into a credit agreement subsequently amended February 4 2022 June 6 2023 October 4 2024 and May 1 2025 as amended the Credit Agreement The October 4 2024 amendment increased the Revolving Credit Facility to 200 million and a previously provided Term Loan Facility was fully repaid in full and removed from the Credit Agreement Our ability to borrow under the Revolving Credit Facility includes a sublimit for the issuance of standby and commercial letters of credit of which there were outstanding letters of credit of 39 4 million as of April 30 2025 As of April 30
2025 approximately 160 6 million was available under the Revolving Facility Borrowings under the Revolving Facility may be used for working capital acquisition costs and other general corporate purposes Refer to Note 11 Debt to our financial statements for further details In addition Telerob has a line of credit of 7 0 million approximately 8 0 million available for issuing letters of credit of which 2 3 million approximately 2 6 million was outstanding as of April 30 2025
On May 1 2025 in connection with the closing of the BlueHalo acquisition we amended the Credit Agreement to provide for a new 700 million term A loan the Term A Loan and with the Revolving Credit Facility the Credit Facilities the proceeds of which were used on the Closing Date to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs The Term A Loan matures two years after the closing date of the BlueHalo acquisition and amortizes at a rate of 5 00 per annum with the remaining outstanding principal amount due and payable on the maturity date The applicable margin on the Term A Loan is based upon our Consolidated Leverage Ratio as defined in the Credit Agreement and whether we elect as its benchmark rate i SOFR in which case the applicable margin ranges from 1 50 2 50 per annum depending on our Consolidated Leverage Ratio plus a credit spread adjustment of 0 10 or ii Base Rate in which case the applicable margin ranges from 0 50 1 50 per annum depending on our Consolidated Leverage Ratio Upon the occurrence of an event of default an additional 2 00 per annum default interest rate may apply Mandatory prepayments of the Term A Loan are required in connection with i the disposition of certain assets to the extent not reinvested and ii the incurrence of non permitted debt The May 1 2025 amendment also among other things a increased the revolving commitment amount to an aggregate principal amount of 350 million b increased certain negative covenant baskets thresholds and de minimis amounts c amended the definition of Consolidated EBITDA to include additional add backs thereto and d added materiality qualifiers to certain covenants and events of default On May 1 2025 we borrowed approximately 225 million under the amended Revolving Credit Facility to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs
We anticipate funding our normal recurring trade payables accrued expenses ongoing R D costs and obligations under the Credit Facilities through our existing working capital and funds provided by operating activities including those provided by our acquisitions of Arcturus ISG Telerob Planck Tomahawk and BlueHalo The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers We believe that our existing cash cash equivalents cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital capital expenditure requirements future obligations related to the acquisitions and obligations under the Credit Facilities during the next twelve months There can be no assurance however that our business will continue to generate cash flow at current levels If we are unable to generate sufficient cash flow from operations then we may be required to sell assets reduce capital expenditures or draw on our Credit Facilities We anticipate that existing sources of liquidity Credit Facilities and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future
Our primary liquidity needs are for financing working capital investing in capital expenditures supporting product development efforts support our credit facility introducing new products and enhancing existing products marketing acceptance and adoption of our products and services Our future capital requirements to a certain extent are also subject to general conditions in or affecting the defense industry and are subject to general economic political financial competitive legislative and regulatory factors that are beyond our control Moreover to the extent that existing cash cash equivalents cash from operations and cash from our Credit Facilities are insufficient to fund our future activities we may need to raise additional funds through public or private equity or debt financing subject to the limitations specified in our Credit Agreement In addition we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in or acquisitions of businesses services or technologies Any financing or refinancing with new debt could be at higher interest rates and may require us to comply with more onerous covenants than the Credit Facilities which could further restrict our business operations Any financing or refinancing through our sale of equity or equity linked securities would result in further dilution to our stockholders or may provide for rights preferences or privileges senior to those of holders of our common stock
We have made certain investment commitments outside of the ordinary course of business including capital contribution commitments to certain limited partnership funds Under the terms of the most recent limited partnership agreement we have committed to make capital contributions to such fund totaling 20 0 million inclusive of the expected reinvestment of distributions from our existing investments in an affiliated fund at April 30 2025 5 5 million of our commitment remains to be funded
Due to the new internal revenue service tax capitalization rules Section 174 which requires R D expenditures to be capitalized and amortized over a 5 year period for tax return purposes we experienced an increase in cash paid for U S federal income taxes during the fiscal year ended April 30 2025 and expect higher levels of cash taxes in in future fiscal years relative to historical periods
Cash Used in Provided by Operating Activities Net cash used in operating activities for the fiscal year ended April 30 2025 increased by 16 6 million to 1 3 million as compared to net cash provided by operating activities of 15 3 million for the fiscal year ended April 30 2024 This decrease in net cash provided by operating activities was primarily due to a decrease in net income of 16 0 million and changes in operating assets and liabilities largely resulting from increases in accounts receivable and income tax receivable and a decrease in other liabilities partially offset by a decrease in inventories and an increase in accounts payable due to year over year timing differences The decrease in cash provided by operating activities was partially offset by an increase in non cash expenses of 10 9 million primarily due to a goodwill impairment of 18 4 million in the fiscal year ended April 30 2025 an increase in stock based compensation and depreciation and amortization partially offset by a decrease in stock inventory reserve charges
Net cash provided by operating activities for the fiscal year ended April 30 2024 increased by 3 9 million to 15 3 million as compared to 11 4 million for the fiscal year ended April 30 2023 This increase in net cash provided by operating activities was primarily due an increase in net income of 235 8 million partially offset by a decrease in non cash expenses of 209 3 million primarily due to a goodwill impairment of 156 0 million in the fiscal year ended April 30 2023 and a decrease in depreciation and amortization largely due to 34 1 million of accelerated MUAS intangible amortization expenses in the prior year end partially offset by an increase in stock based compensation and an in increase in inventory reserve charges primarily related to the introduction of our next generation products and an increase in the cash used as a result of changes in operating assets and liabilities largely resulting from increases in unbilled receivables and retentions and prepaid expenses and other assets partially offset by decreases in accounts receivables and inventory due to year over year timing differences
Cash Used in Investing Activities Net cash used in investing activities decreased by 23 2 million to 28 5 million for the fiscal year ended April 30 2025 compared to 51 7 million for the fiscal year ended April 30 2024 The decrease in net cash used in investing activities was primarily due to a decrease in business acquisitions net of cash acquired of 24 2 million related to the Tomahawk acquisition in the fiscal year ended April 30 2024 During the fiscal years ended April 30 2025 and 2024 we used cash to purchase property and equipment totaling 22 8 million and 23 0 million respectively
Net cash used in investing activities increased by 44 7 million to 51 7 million for the fiscal year ended April 30 2024 compared to 7 0 million for the fiscal year ended April 30 2023 The increase in net cash used in investing activities was primarily due to a decrease in net redemptions of available for sale investments of 24 7 million an increase in business acquisitions net of cash acquired of 19 1 million and an increase in the acquisition of property and equipment of 8 1 million partially offset by a decrease in equity security investments of 5 1 million During the fiscal years ended April 30 2024 and 2023 we used cash to purchase property and equipment totaling 23 0 million and 14 9 million respectively
Cash Used in Provided by Financing Activities Net cash used in financing activities decreased by 20 0 million to 2 9 million for the fiscal year ended April 30 2025 compared to net cash provided by financing activities of 22 9 million for the fiscal year ended April 30 2024 The decrease in net cash used in financing activities was primarily due to a decrease in the principal payments on the credit facility of 69 0 million and an increase in proceeds from the credit facility of 40 0 million partially offset by a decrease in the proceeds from shares issued net of issuance costs of 88 4 million in the fiscal year ended April 30 2024
Net cash used in financing activities increased by 73 7 million to 22 9 million for the fiscal year ended April 30 2024 compared to net cash provided by financing activities of 50 8 million for the fiscal year ended April 30 2023 The increase in net cash used in financing activities was primarily due to an increase in the principal payments on the debt facility of 52 0 million and a decrease in the proceeds from shares issued net of issuance costs of 16 2 million in the fiscal year ended April 30 2023 a decrease in the exercise of stock options of 2 3 million and increase in the payment of contingent consideration of 2 1 million
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures ASU 2023 07 ASU 2023 07 improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses reported to the CODM ASU 2023 07 also requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis Effective April 30 2025 we adopted ASU 2023 07 ASU 2023 07 was adopted retrospectively and did not have a material impact on our consolidated financial statements
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures ASU 2023 09 ASU 2023 09 requires updates to the rate reconciliation income taxes paid and other disclosures The new standard is effective for fiscal years beginning after December 15 2024 and interim periods within fiscal years beginning after December 15 2025 with early adoption permitted ASU 2023 09 is adopted retrospectively We are evaluating the potential impact of this adoption on its consolidated financial statements
In November 2024 the FASB issued ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses ASU 2024 03 ASU 2024 03 requires disclosure in the notes to financial statements of specified information about certain costs and expenses included in each expense caption on the face of the income statement at interim and annual reporting periods The new standard is effective for fiscal years beginning after December 15 2026 and interim periods within fiscal years beginning after December 15 2027 and should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements We are evaluating the potential impact of this adoption on our consolidated financial statements
As of April 30 2025 the outstanding balance of the Credit Facilities was 39 4 million On May 1 2025 in connection with the closing of the BlueHalo acquisition we entered into the Fourth Amendment of the Credit Facilities The Fourth Amendment provided a new 700 0 million Term A Loan The Fourth Amendment also increased the revolving commitment amount to an aggregate principal amount of 350 0 million and on May 1 2025 we borrowed approximately 225 0 million from the Revolving Credit Facility As a result as of May 1 2025 the outstanding balance of the Credit Facilities was 955 0 million and bears a variable interest rate If market interest rates increase significantly interest due on the Credit Facilities would increase An increase or decrease in the variable interest rate of 100 basis points would result in an increase or decrease to our interest expense for the fiscal year ending April 30 2026 of approximately 9 5 million
Since a significant part of our sales and expenses are denominated in U S dollars we have not experienced significant foreign exchange gains or losses to date We currently do not engage in forward contracts or other derivatives in foreign currencies to limit our exposure on non U S dollar transactions As our German subsidiary Telerob conducts sales denominated in Euros we are exposed to future foreign exchange gains or losses and we will consider methods to limit our exposure on non U S dollar transactions in the future
We have audited the accompanying consolidated balance sheets of AeroVironment Inc and subsidiaries the Company as of April 30 2025 and 2024 the related consolidated statements of income loss comprehensive income loss stockholders equity and cash flows for each of the three years in the period ended April 30 2025 and the related notes and the schedule listed in the Index at Item 15 a collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of April 30 2025 and 2024 and the results of its operations and its cash flows for each of the three years in the period ended April 30 2025 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of April 30 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 24 2025 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As further described in Note 1 to the financial statements for performance obligations satisfied over time revenue is generally recognized using costs incurred to date relative to total estimated costs at completion to measure progress Contract estimates are based on various assumptions to project the outcome of future events that may span several years Contract costs include labor materials subcontractors costs other direct costs and indirect costs applicable on government and commercial contracts Additionally the nature of the Company s contracts gives rise to several types of
variable consideration including undefinitized contract actions and unpriced change orders which are within the scope of ASC 606 with final contract values to be negotiated penalty fees and incentive awards generally for late delivery and early delivery respectively The Company regularly reviews and updates its contract related estimates Changes in cumulative revenue estimates due to changes in the estimated transaction price or cost estimates including definitization of contracts are recorded using a cumulative catch up adjustment in the period identified We analyzed the Company s contract portfolio to identify contracts that we believe had elevated financial or performance risk For those contracts identified the evaluation of one or more contract estimate assumptions used to recognize revenue required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgments
AeroVironment Inc a Delaware corporation is engaged in the design development production delivery and support of a technologically advanced portfolio of intelligent multi domain robotic systems and related services for government agencies and businesses AeroVironment Inc supplies uncrewed aircraft and ground robot systems loitering munitions systems and related services primarily to organizations within or supplying the U S Department of Defense DoD other federal agencies and to international allied governments
The accompanying consolidated financial statements include the accounts of AeroVironment Inc and its wholly owned subsidiaries Arcturus UAV Inc Arcturus Telerob Gesellschaft für Fernhantierungstechnik mbH Telerob Tomahawk Robotics Inc Tomahawk and Archangel Merger Sub LLC collectively referred to herein as the Company
On August 17 2022 the Company purchased certain assets of and assumed certain liabilities of Planck Aerosystems Inc Planck pursuant to the purchase agreement and post acquisition Planck has been incorporated into the UxS segment The assets liabilities and operating results of Planck have been included in the Company s consolidated financial statements Refer to Note 21 Business Acquisitions for further details
On September 15 2023 the Company closed its acquisition of Tomahawk pursuant to a merger agreement and post acquisition Tomahawk has been incorporated into the UxS segment The assets liabilities and operating results of Tomahawk have been included in the Company s consolidated financial statements Refer to Note 21 Business Acquisitions for further details
On November 13 2024 the Company formed Archangel Merger Sub LLC a Delaware limited liability company and a direct wholly owned subsidiary of the Company Merger Sub for the purpose of the announced acquisition of BlueHalo Financing Topco LLC BlueHalo On May 1 2025 the Company completed the acquisition of BlueHalo Refer to Note 25 Subsequent Events for further details
Investments in other non consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and or the Company s ability to exercise significant influence over the operating and financial policies of the investee When the equity method is used investments are recorded at original cost and adjusted periodically to recognize the Company s proportionate share of the investees net income or losses after the date of investment When net losses from an investment accounted for under the equity method exceed its carrying amount the investment balance is reduced to zero and additional losses are not provided for as the Company is not obligated to provide additional capital The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company s share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended
When an investment accounted for using the equity method issues its own shares the subsequent reduction in the Company s proportionate interest in the investee is reflected in equity as an adjustment to paid in capital The Company evaluates its investments in companies accounted for by the equity or cost method for impairment when there is evidence or indicators that a decrease in value may be other than temporary
In July 2019 the Company made its initial capital contribution to a limited partnership fund focusing on highly relevant technologies and start up companies serving defense and industrial markets In March 2022 the Company entered into a second related limited partnership fund also focusing on highly relevant technologies and start up companies serving defense and industrial markets The Company accounts for investments in limited partnerships as equity method investments as the Company is deemed to have influence when it holds more than a minor interest Refer to Note 8 Investments in Companies Accounted for Using the Equity Method for further details
On September 15 2021 the Company entered into a Share Sale and Purchase Agreement with Toygun Savunma Sanayi ve Havacilik Anonim Sirketi Toygun whereby the Company sold 35 of the common shares of the Company s Turkish joint venture Altoy Savunma Sanayi ve Havacilik Anonim Sirketi Altoy to Toygun On October 14 2022 the Company sold an additional 35 of the common shares of Altoy to Toygun As a result of the share sales the Company decreased its interest in Altoy from 85 to 15 and has determined that it no longer controls Altoy Therefore the Company no longer consolidates Altoy in the Company s consolidated financial statements As the Company has the ability to exercise significant influence over the operating and financial policies of Altoy the Company accounts for the investment as an equity method investment and records its proportion of any gains or losses of Altoy in equity method investments loss income net of tax Refer to Note 8 Investments in Companies Accounted for Using the Equity Method for further details
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker CODM in deciding how to allocate resources and in assessing performance The Company s CODM who is the Chief Executive Officer makes operating decisions assesses performance and makes resource allocation decisions including the focus of research and development R D and other significant expenses leading to decisions related to resource allocations in relation to profit and loss Accordingly the Company identifies three reportable segments
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period Significant estimates made by management include but are not limited to valuation of inventory acquired intangibles goodwill deferred tax assets and liabilities useful lives of property plant and equipment medical and dental liabilities warranty liabilities long term incentive plan liabilities and estimates of anticipated contract costs and transaction price utilized in the revenue recognition process Actual results could differ from those estimates
Certain prior year amounts have been reclassified to conform to the current year presentation Specifically the Company s segment disclosures for prior periods have been recast to conform to the adoption of Accounting Standard Update ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures ASU 2023 07
The Company s investments are accounted for as available for sale and are reported at fair value Unrealized gains and losses for debt securities are excluded from earnings and reported as a separate component of stockholders equity net of deferred income taxes for available for sale investments Investments in equity securities and warrants are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in other expense income net Gains and losses realized on the disposition of investment securities are determined on the specific identification basis and credited or charged to income Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash cash equivalents municipal bonds U S government securities U S government guaranteed agency securities U S government sponsored agency debt securities highly rated corporate bonds and accounts receivable The Company currently invests in equity securities and limited partnership funds The Company s revenue and accounts receivable are with a limited number of corporations and governmental entities In the aggregate 75 76 and 68 of the Company s revenue came from agencies of the U S government for the years ended April 30 2025 2024 and 2023 respectively These agencies accounted for 75 and 41 of the accounts receivable balances at April 30 2025 and 2024 respectively One such agency the U S Army accounted for 20 11 and 6 of the Company s consolidated revenue for the years ended April 30 2025 2024 and 2023 respectively The Company performs ongoing credit evaluations of its commercial customers and maintains an allowance for potential losses
Accounts receivable represents primarily U S government and allied foreign governments and to a lesser extent commercial receivables net of allowances for doubtful accounts Unbilled receivables represent costs in excess of billings on incomplete contracts and where applicable accrued profit related to government long term contracts on which revenue has been recognized but for which the customer has not yet been billed Unbilled receivables are considered contract assets
Retentions represent amounts withheld by customers until contract completion At April 30 2025 and 2024 the retention balances were 746 000 and 744 000 respectively The Company determines the allowance for doubtful accounts based on historical customer experience age of receivable and other currently available evidence When a specific account is deemed uncollectible the account is written off against the allowance The allowance for doubtful accounts reflects the Company s best estimate of expected credit losses over the life of the receivable such losses have historically been within management s expectations An account is deemed past due based on contractual terms rather than on how recently payments have been received
Inventories are stated at the lower of cost using the weighted average costing method or net realizable value Inventory write offs and write down provisions are provided to cover risks arising from slow moving items or technological obsolescence and for market prices lower than cost The Company periodically evaluates the quantities on hand relative to current and historical selling prices and historical and projected sales volume Based on this evaluation provisions are made to write inventory down to its net realizable value
Maintenance repairs and minor renewals are charged directly to expense as incurred Additions and betterments to property and equipment are capitalized at cost When the Company disposes of assets the applicable costs and accumulated depreciation and amortization thereon are removed from the accounts and any resulting gain or loss is included in selling general and administrative SG A in the period incurred with the exception of in service intelligence surveillance and reconnaissance ISR assets which is included in cost of sales in the period incurred Following the closure of all of the Company s contractor owned contractor operated COCO site locations in service ISR assets determined to have an alternate business use were reclassified to machinery and equipment as of April 30 2023
The Company reviews the recoverability of its long lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable The estimated future cash flows are based upon among other things assumptions about expected future operating performance and may differ from actual cash flows If the sum of the projected undiscounted cash flows excluding interest is less than the carrying value of the assets the assets will be written down to the estimated fair value in the period in which the determination is made
Implementation costs incurred in a cloud computing arrangement that is a service contract are capitalized and recorded on the consolidated balance sheets in prepaid expenses and other current assets and other assets The amounts capitalized are amortized on a straight line basis over the estimated useful life of the service arrangement which generally range from three to seven years As of April 30 2025 and 2024 capitalized costs related to cloud computing arrangements was 33 656 000 and 15 424 000 respectively net of accumulated amortization of 4 887 000 and 2 346 000 respectively Amortization expense related to cloud computing arrangements for the fiscal years ended April 30 2025 2024 and 2023 was 2 541 000 1 444 000 and 560 000
Costs incurred for internally developed and produced or purchased software to be sold leased or marketed once the software has established technological feasibility are capitalized and recorded on the consolidated balance sheets in other assets The amounts capitalized are amortized according to the greater of a straight line basis over the estimated useful life of the service arrangement which generally range from two to five years or the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product As of April 30 2025 and 2024 capitalized costs of software to be sold leased or marketed was 3 269 000 and 0 respectively net of accumulated amortization of 460 000 and 0 respectively
The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price of the acquired business to the respective net tangible and intangible assets Acquired intangible assets include technology backlog licenses in process research and development
customer relationships trademarks and tradenames and non compete agreements The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses Intangible assets are amortized over their estimated useful lives using the straight line method which approximates the pattern in which the economic benefits are consumed The estimated useful life for the Company s intangible assets are as follows
The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period The Company tests its intangible assets with finite lives for potential impairment whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable The original estimate of an asset s useful life and the impact of an event or circumstance on either an asset s useful life or carrying value involve significant judgment As part of the Company s annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30 2025 a decrease in forecasted results of the Uncrewed Ground vehicles UGV reporting unit resulted in accelerated intangible amortization expenses of 4 258 000 which was recorded during the three months ended April 30 2025 Due to the closure of all the Company s MUAS COCO sites the Company revised the estimated useful life for the MUAS customer relationships which resulted in accelerated intangible amortization expenses of 34 149 000 during the fiscal year ended April 30 2023 Additionally in conjunction with the goodwill impairment test performed during the year ended April 30 2023 the remaining intangibles in the MUAS reporting unit were tested for recoverability The asset recoverability test did not result in an impairment for the remaining intangibles in the MUAS reporting unit Refer to Note 6 Goodwill for further details
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets The Company tests goodwill for impairment annually during the fourth quarter of the fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired Events or circumstances that could trigger an impairment review include but are not limited to a significant adverse change in legal factors or in the business or political climate an adverse action or assessment by a regulator unanticipated competition a loss of key personnel significant changes in the manner of our use of the acquired assets or the strategy for the Company s overall business significant negative industry or economic trends or significant underperformance relative to projected future results of operations
The Company s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value For the impairment test we first assess qualitative factors macroeconomic conditions industry and market considerations triggering events cost factors and overall financial performance to determine whether it is necessary to perform a quantitative goodwill impairment test Alternatively we may bypass the qualitative assessment for some or all of its reporting units and apply the quantitative impairment test If determined to be necessary the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized if any For the quantitative impairment test we estimate the fair value by weighting the results from the income approach and the market approach These valuation approaches consider a number of factors that include but are not limited to prospective financial information growth rates terminal value discount rates and comparable multiples from publicly traded companies in the Company s industry and require the Company to make certain assumptions and estimates regarding industry economic factors and future profitability of its business
the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 These changes in estimates resulted in the recognition of a goodwill impairment charge of 18 359 000 in the UGV reporting unit
Subsequent to the performance of our annual goodwill impairment test for the fiscal year ended April 30 2023 in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value Specifically we received notification that we were not down selected for a U S DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit As a result we updated our estimates of long term future cash flows to reflect lower revenue and EBITDA growth rate expectations used in the valuation of the MUAS reporting unit These changes in estimates resulted in the recognition of a goodwill impairment charge of 156 017 000 in the MUAS reporting unit recorded during the fiscal year ended April 30 2023
The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature Actual results can be materially different from the estimates and assumptions If actual market conditions are less favorable than those projected by the industry or by us or if events occur or circumstances change that would reduce the estimated fair value of our indefinite lived intangible assets below the carrying amounts we could recognize future impairment charges the amount of which could be material
The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred Product warranty reserves are recorded in other current liabilities Warranties are provided on certain contracts but do not typically provide for services beyond standard assurances As such warranties are in general not considered to be separate performance obligations
The Company is self insured for employee medical claims subject to individual and aggregate stop loss policies The Company estimates a liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by the Company As of April 30 2025 and 2024 the Company estimated and recorded a self insurance liability in wages and related accruals of approximately 1 559 000 and 1 244 000 respectively
Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future The provision for income taxes reflects the taxes to be paid for the period and the change during the period in the deferred income tax assets and liabilities The Company records a valuation allowance to reduce the deferred tax assets to the amount of future tax benefit that is more likely than not to be realized For uncertain tax positions the Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements For those tax positions where it is not more likely than not that a tax benefit will be sustained no tax benefit is recognized Where applicable associated interest and penalties are also recorded The Company records a deferred tax asset for acquisition related costs incurred
The Company receives advances performance based payments and progress payments from customers that may exceed costs incurred on certain contracts including contracts with agencies of the U S government resulting in contract liabilities These advances are classified as customer advances and will be offset against billings
The Company s revenue is generated pursuant to written contractual arrangements to design develop manufacture and or modify complex products and to provide related engineering technical and other services according to the specifications of the customers These contracts may be firm fixed price FFP cost plus fixed fee CPFF or time and materials T M The Company considers all such contracts to be within the scope of ASC Topic 606 Revenue from Contracts with Customers ASC 606
A performance obligation is a promise in a contract to transfer distinct goods or services to a customer and it is the unit of account in ASC 606 A contract s transaction price is allocated to each distinct performance obligation and revenue is recognized when each performance obligation under the terms of a contract is satisfied Revenue is measured at the amount of consideration the Company expects to receive in exchange for transferring goods or providing services For contracts with multiple performance obligations the Company allocates the contract s transaction price to each performance obligation using its observable standalone selling price for products and services When the standalone selling price is not directly observable the Company uses its best estimate of the standalone selling price of each distinct good or service in the contract using the cost plus reasonable margin approach This approach estimates the Company s expected costs of satisfying the performance obligation and then adds an appropriate margin for that distinct good or service
Performance obligations are satisfied over time if the customer receives the benefits as the Company performs if the customer controls the asset as it is being developed or produced or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment for the Company s costs incurred to date plus a reasonable margin The contractual right to payment is generally supported by termination for convenience clauses that allow the customer to unilaterally terminate the contract for convenience pay the Company for costs incurred plus a reasonable profit and take control of any work in process Revenue for Loitering Munitions Systems LMS product deliveries customization of UGV transport vehicles and customer funded R D contracts is recognized over time as costs are incurred Contract services revenue is composed of revenue recognized on contracts for the provision of services including repairs and maintenance training engineering design development and prototyping activities and technical support services Contract services revenue is recognized over time as services are rendered Typically revenue is recognized over time using an input measure e g costs incurred to date relative to total estimated costs at completion to measure progress Contract services revenue including ISR services is recognized over time as services are rendered The Company elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity s performance completed to date such as flight hours for ISR services the entity may recognize revenue in the amount to which the entity has a right to invoice Training services are recognized over time using an output method based on days of training completed
For performance obligations satisfied over time revenue is generally recognized using costs incurred to date relative to total estimated costs at completion to measure progress Incurred costs represent work performed which correspond with and thereby best depict transfer of control to the customer Contract costs include labor materials subcontractors costs other direct costs and indirect costs applicable on government and commercial contracts
For performance obligations which are not satisfied over time per the aforementioned criteria above revenue is recognized at the point in time in which each performance obligation is fully satisfied The Company s UxS product sales revenue is primarily composed of revenue recognized on contracts for the delivery of UxS systems and spare parts Revenue is recognized at the point in time when control transfers to the customer which generally occurs when title and risk of loss have passed to the customer
On April 30 2025 the Company had approximately 726 627 000 of remaining performance obligations under contracts with its customers which the Company also refers to as backlog The Company currently expects to recognize approximately 90 of the remaining performance obligations as revenue in fiscal 2026 an additional 9 in fiscal 2027 and the remaining thereafter
Accounting for contracts and programs primarily with a duration of less than six months involves the use of various techniques to estimate total contract revenue and costs For long term contracts the Company estimates the total expected costs to complete the contract and recognizes revenue based on the percentage of costs incurred at period end
Contract estimates are based on various assumptions to project the outcome of future events that may span several years These assumptions include labor productivity and availability the complexity of the work to be performed the cost and availability of materials the performance of subcontractors and the availability and timing of funding from the customer
The nature of the Company s contracts gives rise to several types of variable consideration including undefinitized contract actions and unpriced change orders which are within the scope of ASC 606 with final contract values to be negotiated penalty fees and incentive awards generally for late delivery and early delivery respectively The Company generally estimates such variable consideration as the most likely amount In addition the Company includes the estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the related uncertainty is resolved These estimates are based on historical award experience anticipated performance and the Company s best judgment at the time Based on experience in estimating these amounts they are included in the transaction price of the Company s contracts and the associated remaining performance obligations
As a significant change in one or more of these estimates could affect the profitability of the Company s contracts the Company regularly reviews and updates its contract related estimates Changes in cumulative revenue estimates due to changes in the estimated transaction price or cost estimates including definitization of contracts are recorded using a cumulative catch up adjustment in the period identified In the period undefinitized contract actions or unpriced change orders become definitized a cumulative catch up adjustment is recorded to reflect the final consideration which could have a material positive or negative impact
If at any time the estimate of contract profitability indicates an anticipated loss on the contract and the contract falls under the scope of onerous contract guidance contracts for which specifications are provided by the customer for the construction of facilities or the production of goods or the provision of related services the Company recognizes the total loss in the quarter it is identified and it is recorded in other current liabilities The balance of forward loss reserves as of April 30 2025 and April 30 2024 was 104 000 and 374 000 respectively The Company records forward loss reserves when the total estimated costs to complete the contracts are in excess of the total remaining consideration of the contracts No adjustment on the forward loss reserve for any one contract was material to the Company s consolidated financial statements for the fiscal years ended April 30 2025 2024 or 2023
performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of 6 002 000 and 5 408 000 for the years ended April 30 2025 and 2024 respectively and not significant for the year ended April 30 2023 During the year ended April 30 2025 the Company definitized four LMS undefinitized contract actions which resulted in a cumulative catch up revenue adjustment of 9 870 000 increase to revenue and eight LMS unpriced change orders which resulted in a cumulative catch up revenue adjustment of 2 177 000 increase to revenue The Company also revised estimates of the total expected costs to complete contracts including one LMS contract which decreased revenue by approximately 2 874 000 During the year ended April 30 2024 the Company revised estimates of the total expected costs to complete contracts including two LMS contracts which increased revenue by approximately 2 672 000 During the year ended April 30 2023 the Company revised its estimates of the total expected costs to complete contracts including one LMS contract which decreased revenue by approximately 1 898 000
Each of these contract types presents advantages and disadvantages Typically the Company assumes more risk with FFP contracts However these types of contracts generally offer additional profits when the Company completes the work for less than originally estimated CPFF contracts generally subject the Company to lower risk Accordingly the associated base fees are usually lower than fees on FFP contracts Under T M contracts the Company s profit may vary if actual labor hour rates vary significantly from the negotiated rates
The timing of revenue recognition billings and cash collections results in billed accounts receivable unbilled receivables and customer advances and deposits on the consolidated balance sheets In the Company s services contracts amounts are billed as work progresses in accordance with agreed upon contractual terms either at periodic intervals which is generally monthly or upon the achievement of contractual milestones Generally billing occurs subsequent to revenue recognition resulting in contract assets recorded in unbilled receivables and retentions on the consolidated balance sheets However the Company sometimes receives advances or deposits from its customers before revenue is recognized resulting in contract liabilities recorded in customer advances on the consolidated balance sheets Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one year period or are used to ensure the customer meets contractual requirements These assets and liabilities are reported on the consolidated balance sheets on a contract by contract basis at the end of each reporting period For the Company s product revenue the Company generally receives cash payments subsequent to satisfying the performance obligation via delivery of the product resulting in billed accounts receivable Changes in the contract asset and liability balances during the years ended April 30 2025 or 2024 were not materially impacted by any other factors For the Company s contracts there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration
The Company recognizes assets for the costs to fulfill a contract with a customer if the costs are specifically identifiable generate or enhance resources used to satisfy future performance obligations and are expected to be recovered in accordance with ASC 340 40 Other Assets and Deferred Costs Contracts with Customers The assets related to costs to fulfill contracts with customers are capitalized and amortized over the period the related performance obligations are satisfied As of April 30 2025 the Company s costs to fulfill were 1 948 000 As of April 30 2024 the Company had no costs to fulfill future performance obligations on contracts considered to be probable of occurrence
Stock based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period which is generally the vesting period of the respective award No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited
For long term incentive awards outstanding as of April 30 2025 the awards include time based awards which vest equally over three years and performance based awards which vest based on the achievement of a target payout established at the beginning of each performance period The actual payout at the end of the performance period is calculated based upon the Company s achievement of such targets Payouts are made in shares of restricted stock which become immediately vested upon issuance
At each reporting period the Company reassesses the probability of achieving the performance targets The estimation of whether the performance targets will be achieved requires judgment and to the extent actual results or updated estimates differ from the Company s current estimates the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised
Internally funded R D costs sponsored by the Company relate to both U S government products and services and those for commercial and foreign customers Internally funded R D costs for the Company are recoverable and allocable under government contracts in accordance with U S government procurement regulations
Customer funded R D costs are incurred pursuant to contracts revenue arrangements to perform research and development activities according to customer specifications These costs are direct contract costs and are expensed to cost of sales when the corresponding revenue is recognized which is generally as the research and development services are performed Revenue from customer funded R D was 78 491 000 82 104 000 and 97 880 000 for the years ended April 30 2025 2024 and 2023 respectively The related cost of sales for customer funded R D totaled 58 028 000 62 181 000 and 70 711 000 for the years ended April 30 2025 2024 and 2023 respectively
The Company leases certain buildings land and equipment At contract inception the Company determines whether the contract is or contains a lease and whether the lease should be classified as an operating or a financing lease Operating leases are recorded in operating lease right of use assets current operating lease liabilities and non current operating lease liabilities
The Company recognizes operating lease right of use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date The Company uses its incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification The Company defines the initial lease term to include renewal options determined to be reasonably certain The Company s leases have remaining lease terms of less than one year to six years some of which may include options to extend the lease for up to ten years and some of which may include options to terminate the lease after one to twelve months If the Company determines the option to extend or terminate is reasonably certain it is included in the determination of lease assets and liabilities For operating leases the Company recognizes lease expense for these leases on a straight line basis over the lease term
Many of the Company s real estate lease agreements contain incentives for tenant improvements rent holidays or rent escalation clauses For tenant improvement incentives if the incentive is determined to be a leasehold improvement owned by the lessee the Company generally records incentive as a reduction to fixed lease payments thereby reducing rent expense For rent holidays and rent escalation clauses during the lease term the Company records rental expense on a straight line basis over the term of the lease For these lease incentives the Company uses the date of initial possession as the commencement date which is generally when the Company is given the right of access to the space and begins to make improvements in preparation for intended use
In determining the inputs to the incremental borrowing rate calculation the Company makes judgments about the value of the leased asset its credit rating and the lease term including the probability of its exercising options to extend or terminate the underlying lease Additionally the Company makes judgments around contractual asset substitution rights in determining whether a contract contains a lease
Foreign currency transaction gains and losses are charged or credited to earnings as incurred For the fiscal years ended April 30 2025 2024 and 2023 foreign currency transaction losses that are included in other expense net in the accompanying consolidated statements of income loss were 491 000 22 000 and 119 000 respectively
Basic earnings loss per share are computed using the weighted average number of common shares outstanding and excludes any anti dilutive effects of options restricted stock and restricted stock units The dilutive effect of potential common shares outstanding is included in diluted earnings loss per share
During the years ended April 30 2025 2024 and 2023 certain options shares of restricted stock and restricted stock units were not included in the computation of diluted earnings per share because their inclusion would have been anti dilutive Due to the net loss for the fiscal year ended April 30 2023 no shares reserved for issuance upon exercise of stock options or shares of unvested restricted stock were included in the computation of diluted loss per share as their inclusion would have been anti dilutive The number of options restricted stock and restricted stock units which met this anti dilutive criterion was approximately 393 1 000 and 146 000 for the years ended April 30 2025 2024 and 2023 respectively
In November 2023 the Financial Accounting Standards Board FASB issued ASU 2023 07 ASU 2023 07 improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses reported to the CODM ASU 2023 07 also requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis Effective April 30 2025 the Company adopted the ASU 2023 07 ASU 2023 07 was adopted retrospectively and the required disclosures are made for all periods presented The Company adoption of ASU 2023 07 did not have a material impact on the Company s consolidated financial statements
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures ASU 2023 09 ASU 2023 09 requires updates to the rate reconciliation income taxes paid and other disclosures The new standard is effective for fiscal years beginning after December 15 2024 and interim periods within fiscal years beginning after December 15 2025 with early adoption permitted ASU 2023 09 is adopted retrospectively The Company is evaluating the potential impact of this adoption on its consolidated financial statements
In November 2024 the FASB issued ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses ASU 2024 03 ASU 2024 03 requires disclosure in the notes to financial statements of specified information about certain costs and expenses included in each expense caption on the face of the income statement at interim and annual reporting periods The new standard is effective for fiscal years beginning after December 15 2026 and interim periods within fiscal years beginning after December 15 2027 and should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements The Company is evaluating the potential impact of this adoption on our consolidated financial statements
Fair value is the price that would be received to sell an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date The fair value hierarchy contains three levels as follows
On September 12 2022 the Company invested 5 000 000 and acquired 500 000 shares and 500 000 privately placed redeemable warrants of Amprius Technologies Inc The privately placed redeemable warrants have an exercise price of 12 50 and redemption price of 20 00 The Company measures the fair value of the privately placed redeemable warrants using the quoted market price of the public warrants which have an exercise price of 11 50 and a redemption price of 18 00 and classifies the warrants as a level 2 fair value measurement
The Company tests identifiable intangible assets and goodwill for impairment in the fourth quarter of each fiscal year unless there are interim indicators that suggest that it is more likely than not that either the identifiable intangible assets or goodwill may be impaired The weighted average amortization period at April 30 2025 and 2024 was three years Amortization expense for the years ended April 30 2025 2024 and 2023 was 23 391 000 17 954 000 and 58 121 000 respectively
As part of the Company s annual goodwill impairment and identifiable assets test during the fiscal quarter ended April 30 2025 a decrease in forecasted results of the UGV reporting unit resulted in accelerated intangible amortization expenses of 4 258 000 which was during the three months ended April 30 2025
Due to the closure of all of the Company s MUAS COCO sites during the three months ended April 30 2023 we revised the estimated useful life for MUAS customer relationships which resulted in accelerated intangible amortization expenses of 34 149 000 during the fiscal year ended April 30 2023 Additionally in conjunction with the goodwill impairment test performed during the year ended April 30 2023 the remaining intangibles in the MUAS reporting unit were tested for recoverability The asset recoverability test did not result in an impairment recorded for the remaining intangibles in the MUAS reporting unit Refer to Note 6 Goodwill for further details
Technology customer relationship and tradename intangibles were recognized in conjunction with the Company s acquisition of Tomahawk on September 15 2023 Technology and backlog intangible assets were recognized in conjunction with the Company s acquisition of Planck on August 17 2022 Refer to Note 21 Business Acquisitions for further details
During the Company s annual impairment test during the fiscal quarter ended April 30 2025 the Company determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30 2025 The changes in estimates resulted in the recognition of a goodwill impairment charge of 18 359 000 in the UGV reporting unit
The addition during the fiscal year ended April 30 2024 to the UxS segment relates to the Tomahawk Acquisition The change to goodwill during the fiscal years ended April 30 2025 and 2024 in UxS is attributable to the translation of the goodwill related to the Telerob Acquisition which was recorded in Euros and translated to dollars at each reporting date Refer to Note 21 Business Acquisitions for further details
Subsequent to the performance of the Company s annual goodwill impairment and identifiable asset test for the fiscal year ended April 30 2023 in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value Specifically the Company received notification that it was not down selected for a U S DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit As a result the Company updated its estimates of long term future cash flows to reflect lower revenue and EBITDA growth rate expectations used in the valuation of the MUAS reporting unit These changes in estimates resulted in the recognition of a goodwill impairment charge of 156 017 000 in the MUAS reporting unit
Depreciation expense for the years ended April 30 2025 2024 and 2023 was 17 063 000 17 098 000 and 41 803 000 respectively During the fiscal year ended April 30 2023 the Company recorded accelerated the depreciation of 16 597 000 related to in service ISR assets associated with the closure of all of the Company s MUAS COCO sites The Company reclassified certain in service ISR assets determined to have an alternate business use to machinery and equipment At April 30 2025 and 2024 the reclassified assets had a carrying value of 1 486 000 and 1 979 000 respectively
In July 2019 the Company made its initial capital contribution to a limited partnership fund focusing on highly relevant technologies and start up companies serving defense and industrial markets Under the terms of the limited partnership agreement the Company contributed a total of 10 000 000 during the fiscal years ended April 30 2021 and 2022 and there were no further contribution commitments to this fund as of April 30 2022 In March 2022 the Company entered into a limited partnership agreement with a second limited partnership fund also focusing on highly relevant technologies and start up companies serving defense and industrial markets Under the terms of the limited partnership agreement the Company is committed to contributions totaling 20 000 000 over an expected five year period During the fiscal years ended April 30 2025 2024 and 2023 the Company made total contributions of 5 674 000 3 074 000 and 5 778 000 respectively Under the terms of the limited partnership agreement the Company has committed to make additional capital contributions of 5 474 000 to the fund expected to be paid over the next two fiscal years The Company accounts for investments in limited partnerships as equity method investments as the Company is deemed to have influence when it holds more than a minor interest For the fiscal years ended April 30 2025 2024 and 2023 the Company recorded its ownership percentage of the net gain loss of the limited partnership or 4 816 000 1 782 000 and 2 453 000 respectively in equity method investment income loss net of deferred taxes 0 respectively in the consolidated statements of income loss At April 30 2025 and 2024 the carrying value of the investment in the limited partnership of 30 423 000 and 19 933 000 respectively was recorded in available for sale long term investments
On September 15 2021 the Company entered into a Share Sale and Purchase Agreement with Toygun whereby the Company sold 35 of the common shares of Altoy to Toygun On October 14 2022 the company sold an additional 35 of the common shares of Altoy to Toygun As a result of the sales the Company decreased its interest in Altoy from 85 to 15 The Company no longer controls Altoy and therefore has deconsolidated Altoy in the Company s consolidated financial statements which resulted in a loss of 189 000 during the fiscal year ended April 30 2023 The Company maintains significant influence accounts for its investment in Altoy as an equity method investment and records its proportion of any gains or losses of Altoy in equity method investment loss income net of tax For the fiscal
year ended April 30 2025 and 2024 the Company s proportion of the net income of Altoy for the Company s ownership was 21 000 and 108 000 respectively For the fiscal year ended April 30 2023 the Company s proportion of the net income of Altoy for the Company s ownership was not significant At April 30 2025 and 2024 the carrying values of the investment in Altoy of 173 000 and 152 000 respectively was recorded in other assets on the consolidated balance sheets
In connection with the consummation of the Arcturus Acquisition on February 19 2021 the Company as borrower and Arcturus as guarantor entered into a Credit Agreement with certain lenders letter of credit issuers Bank of America N A as the administrative agent and the swingline lender and BofA Securities Inc JPMorgan Chase Bank N A and U S Bank National Association as joint lead arrangers and joint bookrunners the Credit Agreement
The Credit Agreement and its associated Security and Pledge Agreement set forth the terms and conditions for i a five year 100 000 000 revolving credit facility which included a 25 000 000 sublimit for the issuance of standby and commercial letters of credit the Revolving Facility and ii a five year amortized 200 000 000 term A loan drawn in full upon execution the Term Loan Facility and together with the Revolving Facility the Credit Facilities The Term Loan Facility required payment of 5 of the outstanding obligations in each of the first four loan years consisting of three quarterly payments of 1 25 each with the remaining 80 outstanding principal amount of the Term Loan Facility due and payable on the final maturity date Proceeds from the Term Loan Facility were used in part to finance a portion of the cash consideration for the Arcturus Acquisition Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes
The Credit Agreement includes certain financial maintenance covenants requiring that x the Consolidated Leverage Ratio as defined in the Credit Agreement shall not be more than 3 00 to 1 00 as of the end of any fiscal quarter and y the Consolidated Fixed Charge Coverage Ratio as defined in the Credit Agreement shall not be less than 1 25 to 1 00 as of the end of any fiscal quarter
On February 4 2022 the Company entered into a First Amendment to Credit Agreement and Waiver relating to its existing Credit Agreement the First Amendment to Credit Agreement The First Amendment to Credit Agreement waives any event of default that may have occurred as a result of the potential failure by the Company to comply with the consolidated leverage ratio covenant set forth in the Credit Agreement for the fiscal quarter ended January 29 2022 In addition the parties amended the maximum permitted Consolidated Leverage Ratio such that such ratio may not exceed 4 00 to 1 00 for the Company s fiscal quarters ended January 29 2022 and April 30 2022 3 50 to 1 00 for any of the Company s fiscal quarters ending during the period from May 1 2022 to October 31 2022 and 3 00 to 1 00 for any fiscal quarter ending thereafter
The First Amendment to Credit Agreement also implemented certain secured overnight financing rate SOFR interest rate mechanics and interest rate reference benchmark replacement provisions in order to effectuate the transition from LIBOR as a reference interest rate Following the First Amendment to Credit Agreement the Company has a choice of interest rates between a Term SOFR with a 0 floor plus the Applicable Margin or b Base Rate defined as the highest of a the Federal Funds Rate plus one half percent 0 50 b the Bank of America prime rate and c the one 1 month SOFR plus one percent 1 00 plus the Applicable Margin The Applicable Margin is based upon the Consolidated Leverage Ratio as defined in the Credit Agreement and whether the Company elects SOFR ranging from 1 50 2 50 or Base Rate ranging from 0 50 1 50 The Company may choose interest periods of one three or six months with respect to Term SOFR and all such rates will include a 0 10 SOFR adjustment The Company also remains responsible for certain commitment fees from 0 20 0 35 depending on the Consolidated Leverage Ratio and administrative agent expenses incurred in relation to the Credit Facilities In the event of a default an additional 2 default interest rate in addition to the applicable rate if specified or the Base Rate plus Applicable Margin if an applicable rate is not specified On June 6 2023 the Company entered into a Second Amendment to Credit Agreement relating to its existing credit Agreement which increased the sublimit from 10 000 000 to 25 000 000
The Third Amendment to Credit Agreement provided for an aggregate 200 000 000 revolving credit facility including a 25 000 000 sublimit for the issuance of standby and commercial letters of credit and a 10 000 000 sublimit for swingline loans secured by all assets of the Company and the Guarantors and extends the maturity date for obligations pursuant to the Credit Agreement to October 4 2029 Upon effectiveness of the Third Amendment to Credit Agreement the Company drew 15 000 000 from the amended Revolving Facility and repaid in full all outstanding amounts owed pursuant to the prior Term Loan Facility The Third Amendment to Credit Agreement reflects the removal of the Term Loan Facility The unamortized debt issuance costs allocated to the Term Loan Facility of 590 000 were expensed upon repayment of the Term Loan Facility and recorded in interest expense
In addition to adding the New Lender and adjusting certain fee schedules the Third Amendment to Credit Agreement also allowed the Company to incur additional forms of secured and unsecured permitted indebtedness without separate consent of the Administrative Agent and make certain payments related thereto including certain bilateral letters of credit supply chain financing transactions securitization transactions pertaining to its accounts receivable and issuance of unsecured convertible debt pertaining to its Common Stock and certain call spread transactions related thereto subject in each instance to further specified parameters including aggregate dollar limits on certain activities and satisfaction of ongoing and pro forma financial covenants
The Third Amendment to Credit Agreement substituted a Consolidated Senior Secured Leverage Ratio for the Consolidated Leverage Ratio required to be maintained under the existing Credit Agreement The Consolidated Leverage Ratio became an incurrence test used to determine whether or not the Company may take certain actions such as borrowing under the Credit Agreement making acquisitions incurring certain unsecured debt or making payments on junior debt In order to take such actions the Consolidated Leverage Ratio may not exceed 4 00 to 1 0 However the ratio increases to 4 50 to 1 0 during a Leverage Increase Period covering each of the four fiscal quarters of the Company immediately following the consummation of any qualified acquisition The newly added Consolidated Senior Secured Leverage Ratio measuring the Consolidated Senior Secured Funded Indebtedness as of a date of determination to Consolidated EBITDA for the applicable measurement period shall not exceed 3 00 to 1 0 at the end of any fiscal quarter of the Company increasing to 3 50 to 1 0 in a Leverage Increase Period In each case no more than one Leverage Increase Period shall be in effect at any time and the basic ratio levels must be achieved and maintained for at least two fiscal quarters immediately following each Leverage Increase Period prior to giving effect to another Leverage Increase Period The requirement for the Consolidated Fixed Charge Coverage Ratio to be no less than 1 25 to 1 0 at the end of any fiscal quarter of the Company remained unchanged in the Third Amendment to Credit Agreement The Third Amendment to Credit Agreement removed the requirement that the Company prepay the loans with the proceeds of dispositions of assets or newly incurred debt The Company s ability to borrow under the Revolving Facility is reduced by outstanding letters of credit which as of April 30 2025 and 2024 was 9 376 000 and 15 668 000 respectively As
of April 30 2025 approximately 160 624 000 was available under the Revolving Facility Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes including acquisitions that meet certain parameters As of April 30 2025 the Company was in compliance with all amended covenants
On May 1 2025 in connection with the consummation of the BlueHalo Acquisition the Company entered into a Fourth Amendment to Credit Agreement with the existing lenders BofA NA the administrative agent and the swingline lender JPM and U S Bank and Citibank the Fourth Amendment to Credit Agreement and the existing Credit Agreement as amended thereby the Amended Credit Agreement The Amended Credit Agreement now provides for an aggregate 700 000 000 term loan and an aggregate 350 000 000 revolving credit facility including a 25 000 000 sublimit for the issuance of standby and commercial letters of credit and a 10 000 000 sublimit for swingline loans secured by all assets of the Company and the Guarantors and extends the maturity date for obligations pursuant to the Amended Credit Agreement to October 4 2029 Upon effectiveness of the Amended Credit Agreement the Company drew 225 000 000 from the amended Revolving Facility and the full 700 000 000 of the Term Loan Facility
The Term A Loan matures two years after the Closing Date and amortizes at a rate of 5 00 per annum with the remaining outstanding principal amount due and payable on the maturity date The applicable margin on the Term A Loan is based upon the Company s Consolidated Leverage Ratio as defined in the Credit Agreement and whether the Company elects as its benchmark rate i SOFR in which case the applicable margin ranges from 1 50 2 50 per annum depending on the Company s Consolidated Leverage Ratio plus a credit spread adjustment of 0 10 or ii Base Rate in which case the applicable margin ranges from 0 50 1 50 per annum depending on the Company s Consolidated Leverage Ratio Upon the occurrence of an event of default an additional 2 00 per annum default interest rate may apply Pursuant to the Fourth Amendment to Credit Agreement the Company is subject to two financial maintenance covenants which require that i the Consolidated Senior Secured Leverage Ratio as defined in the Credit Agreement not exceed 3 50 to 1 00 as of the end of any fiscal quarter for the four fiscal quarter following consummation of the BlueHalo Acquisition and thereafter 3 00 to 1 00 as of the end of any fiscal quarter and ii the Consolidated Fixed Charge Coverage Ratio as defined in the Credit Agreement not be less than 1 25 to 1 00 as of the end of any fiscal quarter Notwithstanding the foregoing for the first two fiscal quarters of fiscal year 2026 the Company shall not be required to comply with the Consolidated Senior Secured Leverage Ratio as defined in the Credit Agreement covenant so long as at the end of each such fiscal quarter the Company s Consolidated Senior Secured Leverage Ratio does not exceed i 3 50 to 1 00 calculated including certain projected synergies that would not otherwise be included in the definition of Consolidated EBITDA as defined in the Credit Agreement and ii 3 75 to 1 00
On September 24 2021 the stockholders of the Company approved the 2021 Equity Incentive Plan 2021 Plan effective September 24 2021 for officers directors key employees and consultants Under the 2021 Plan incentive stock options nonqualified stock options restricted stock awards stock appreciation right awards performance
share awards performance stock unit awards dividend equivalents awards stock payment awards deferred stock awards restricted stock unit awards other stock based awards performance bonus awards or performance based awards may be granted at the discretion of the compensation committee which consists of outside directors The sum of any cash compensation or other compensation and the value of awards granted to a non employee director as compensation for services as a non employee director during any fiscal year may not exceed 500 000 which amount is increased to 700 000 in the fiscal year of a non employee director s initial year of service as a non employee director The exercise price for any incentive stock option shall not be less than 100 of the fair market value on the date of grant Vesting of awards is established at the time of grant
On January 14 2007 the stockholders of the Company approved the 2006 Equity Incentive Plan 2006 Plan effective January 21 2007 for officers directors key employees and consultants On September 29 2011 the stockholders of the Company approved an amendment and restatement of the 2006 Plan Restated 2006 Plan Under the Restated 2006 Plan incentive stock options nonqualified stock options restricted stock awards stock appreciation right awards performance share awards performance stock unit awards dividend equivalents awards stock payment awards deferred stock awards restricted stock unit awards other stock based awards performance bonus awards or performance based awards may be granted at the discretion of the compensation committee which consists of outside directors A maximum of 4 884 157 shares of stock may be issued pursuant to awards under the Restated 2006 Plan The maximum number of shares of common stock with respect to one or more awards that may be granted to any one participant during any twelve month period is 2 000 000 A maximum of 5 000 000 may be paid in cash to any one participant as a performance based award during any twelve month period The exercise price for any incentive stock option shall not be less than 100 of the fair market value on the date of grant Vesting of awards is established at the time of grant The Restated 2006 Plan expired in July 2021
On September 19 2023 the stockholders of the Company approved the Company s 2023 Employee Stock Purchase Plan the 2023 ESPP The 2023 ESPP allows for eligible employees to purchase common stock through payroll deductions of up to 25 000 worth of common stock determined at the fair market value of the shares at the time such rights are granted for each calendar year in which the purchase rights are outstanding at any time Shares of common stock are purchased under the 2023 ESPP at a discount to the market price of the shares of no less than 85 of the fair market value of the Company s common stock on each purchase date Subject to adjustments for changes in the Company s capitalization and certain corporate transactions the total number of shares available for issuance under the 2023 ESPP is 1 000 000 shares of common stock As of April 30 2025 14 598 shares have been issued under the 2023 ESPP
The fair value of the grants under the 2023 ESPP was estimated at the grant date using an option pricing model Assumptions included in the option pricing model included the expected term of grants the expected volatility the risk free interest rate and the expected dividend yield The expected term of stock options represents the weighted average period the Company expects the grants to remain outstanding based on the offering period of the grant The expected volatility is based on historical volatility for the Company s stock The risk free interest rate is based on the implied yield on a U S Treasury zero coupon bond with a remaining term that approximates the expected term of the option The expected dividend yield of zero reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future
The fair value of stock options granted previously was estimated at the grant date using the Black Scholes option pricing model Assumptions included in the Black Scholes option pricing model included the expected term of stock options the expected volatility the risk free interest rate and the expected dividend yield The expected term of stock options represents the weighted average period the Company expects the stock options to remain outstanding based on the Company s historical exercise and post vesting cancellation experience and the remaining contractual life of its outstanding options The expected volatility is based on historical volatility for the Company s stock The risk free interest rate is based on the implied yield on a U S Treasury zero coupon bond with a remaining term that approximates the expected term of the option The expected dividend yield of zero reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future
The total intrinsic value of all options exercised during the years ended April 30 2025 2024 and 2023 was approximately 7 312 000 0 and 7 369 000 respectively The intrinsic value of all options outstanding and exercisable at April 30 2025 and 2024 was 0 and 8 732 000 respectively The Company had zero non vested stock options as of April 30 2025 and 2024 and the years then ended respectively
As of April 30 2025 there was approximately 12 695 000 of total unrecognized compensation cost related to non vested share based compensation awards granted under the equity plans That cost is expected to be recognized over an approximately two year period or a weighted average period of approximately 1 8 years
Proceeds from all option exercises under all stock option plans for the years ended April 30 2025 2024 and 2023 were approximately 1 841 000 0 and 2 278 000 respectively The tax benefit realized from stock based compensation was 6 984 000 0 and 3 387 000 for the fiscal years ended April 30 2025 2024 and 2023 respectively
During the three months ended July 27 2024 the Company granted awards under the 2021 Plan to key employees Fiscal 2025 LTIP Awards under the Fiscal 2025 LTIP consist of i time based restricted stock awards and time based restricted stock units which vest in equal tranches in July 2025 July 2026 and July 2027 and ii performance based restricted stock units PRSUs which vest based on the Company s achievement of revenue and non GAAP adjusted earnings before interest taxes depreciation and amortization adjusted EBITDA targets for the three year period ending April 30 2027 At the award date target achievement levels for each of the financial performance metrics were established for the PRSUs at which levels the PRSUs would vest at 100 for each such metric Threshold achievement levels for which the PRSUs would vest at 50 for each such metric and maximum achievement levels for which such awards would vest at 250 for each such metric were also established The actual payout for the PRSUs at the end of the performance period will be calculated based upon the Company s achievement of the established revenue and non GAAP adjusted EBITDA targets for the performance period Settlement of the PRSUs will be made in fully vested shares of the Company s common stock During the fiscal year ended April 30 2025 the Company recorded 3 134 000 of compensation expense related to the Fiscal 2025 LTIP At April 30 2025 the maximum compensation expense that may be recorded for the performance based portion of the Fiscal 2025 LTIP is 18 735 000
During the three months ended July 29 2023 the Company granted awards under its 2021 Plan to key employees Fiscal 2024 LTIP Awards under the Fiscal 2024 LTIP consist of i time based restricted stock awards and time based restricted stock units which vest in equal tranches in July 2024 July 2025 and July 2026 and ii PRSUs which vest based on the Company s achievement of revenue and non GAAP adjusted EBITDA targets for the three year period ending April 30 2026 At the award date target achievement levels for each of the financial performance metrics were established for the PRSUs at which levels the PRSUs would vest at 100 for each such metric Threshold achievement levels for which the PRSUs would vest at 50 for each such metric and maximum achievement levels for which such awards would vest at 250 for each such metric were also established The actual payout for the PRSUs at the end of the performance period will be calculated based upon the Company s achievement of the established revenue and non GAAP adjusted EBITDA targets for the performance period Settlement of the PRSUs will be made in fully vested shares of the Company s common stock During the fiscal years ended April 30 2025 and 2024 the Company recorded 4 177 000 and 3 916 000 of compensation expense related to the Fiscal 2024 LTIP PRSUs respectively At April 30 2025 the maximum compensation expense that may be recorded for the performance based portion of the Fiscal 2024 LTIP PRSUs is 15 511 000
During the three months ended July 30 2022 the Company granted awards under the 2021 Plan to key employees Fiscal 2023 LTIP Awards under the Fiscal 2023 LTIP consist of i time based restricted stock awards and time based restricted stock units which vest in equal tranches in July 2023 July 2024 and July 2025 and ii PRSUs which vest based on the Company s achievement of revenue and non GAAP adjusted EBITDA targets for the three year period ending April 30 2025 At the award date target achievement levels for each of the financial performance metrics were established for the PRSUs at which levels the PRSUs would vest at 100 for each such metric Threshold achievement levels for which the PRSUs would vest at 50 for each such metric and maximum achievement levels for which such awards would vest at 250 for each such metric were also established The actual
payout for the PRSUs at the end of the performance period will be calculated based upon the Company s achievement of the established revenue and non GAAP adjusted EBITDA targets for the performance period Settlement of the PRSUs will be made in fully vested shares of the Company s common stock During the fiscal year ended April 30 2025 2024 and 2023 the Company recorded 3 139 000 3 349 000 and 2 690 000 of compensation expense related to the Fiscal 2023 LTIP PRSUs respectively At April 30 2025 the maximum compensation expense that may be recorded for the performance based portion of the Fiscal 2023 LTIP PRSUs is 11 448 000
During the three months ended July 31 2021 the Company granted awards under its amended and restated 2006 Equity Incentive Plan the Restated 2006 Plan to key employees Fiscal 2022 LTIP Awards under the Fiscal 2022 LTIP consist of i time based restricted stock awards and time based restricted stock units which vest in equal tranches in July 2022 July 2023 and July 2024 and ii PRSUs which vest based on the Company s achievement of revenue and non GAAP operating income targets for the three year period ending April 30 2024 During the three months ended July 27 2024 the company issued a total of 15 427 fully vested shares of the Company s common stock to settle the PRSUs in the Fiscal 2022 LTIP During the fiscal years ended April 30 2024 and 2023 the company recorded 902 000 and 846 000 related to the fiscal year 2022 LTIP PRSUs
At April 30 2025 and 2024 the Company recorded cumulative stock based compensation expense from these long term incentive award PRSUs of 27 141 000 and 16 662 000 respectively At each reporting period the Company reassesses the probability of achieving the performance targets The estimation of whether the performance targets will be achieved requires judgment and to the extent actual results or updated estimates differ from the Company s current estimates the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised
For tax years beginning in 2022 the Tax Cuts and Jobs Act of 2017 TCJA eliminated the option to currently deduct research and experimental R E expenditures in the period incurred and requires taxpayers to capitalize and amortize such expenditures over a period of five years for U S based research or fifteen years for non U S based research as applicable pursuant to Section 174 of the Internal Revenue Code As of April 30 2025 and 2024 the Company recorded a tax adjustment to capitalize and amortize its R D costs which resulted in an increase to income taxes payable of approximately 57 266 000 and 42 788 000 respectively
At April 30 2025 and 2024 the Company recorded a valuation allowance of 26 770 000 and 23 835 000 respectively primarily against state R D credits as the Company is currently generating more tax credits than it will utilize in future years and against its capital loss carryforward The valuation allowance increased by 2 935 000 and 1 332 000 for April 30 2025 and April 30 2024 respectively primarily due to a full valuation allowance against foreign deferred tax assets
At April 30 2025 the Company had federal state and foreign net operating loss carryforwards of approximately 1 757 000 97 314 000 and 5 012 000 respectively The federal net operating losses carry forward indefinitely The state net operating losses will begin expiring in fiscal year 2035 and foreign net operating losses carry forward indefinitely Utilization of federal and state net operating loss carryforwards may be subject to substantial annual limitation due to the ownership changes as provided by Section 382 of the Internal Revenue Code and similar state provisions
At April 30 2025 and 2024 the Company had approximately 13 429 000 and 13 601 000 respectively of unrecognized tax benefits respective to the 2025 balance 5 004 000 would impact the Company s tax expense and 6 377 000 would result in an increase in California R D credit valuation allowance The Company estimates that
The Company records interest and penalties on uncertain tax positions to income tax expense As of April 30 2025 and 2024 the Company had accrued approximately 454 000 and 283 000 respectively of interest and penalties related to uncertain tax positions The 2021 to 2024 tax years remain open to examination by the IRS for federal income taxes The tax years 2019 to 2024 remain open for major state taxing jurisdictions
On September 8 2022 the Company filed an S 3 shelf registration statement to offer and sell shares of the Company s common stock including a prospectus supplement in relation to an Open Market Sale AgreementSM also dated September 8 2022 with Jefferies LLC relating to the proposed offer and sale of shares of the Company s common stock having an aggregate offering price of up to 200 000 000 from time to time through Jefferies LLC as the sales agent During the fiscal year ended April 30 2024 the Company completed the Open Market Sale AgreementSM and the Company sold 807 370 shares for total gross proceeds of 91 313 000 total proceeds received of 88 574 000 net of commission expense and 88 437 000 net of equity issuance costs During the fiscal year ended April 30 2023 the Company sold 1 109 730 of its shares for total gross proceeds of 108 686 000 total proceeds received of 105 425 000 net of commission expense and 104 649 000 net of equity issuance costs
As part of the Company s annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30 2025 a decrease in forecasted results of the UGV reporting unit resulted in accelerated intangible amortization expenses of 4 258 000 or loss per diluted share of 0 12 which was recorded during the three months ended April 30 2025 During the fiscal year ended April 30 2023 due to the closure of all of the Company s MUAS COCO sites the Company revised the estimated useful life of the MUAS customer relationship intangible asset which resulted in accelerated intangible amortization expenses of 34 149 000 increasing net loss by 26 158 000 or loss per diluted share of 1 04
The Company is subject to legal proceedings and claims which arise out of the ordinary course of its business Although adverse decisions or settlements may occur the Company in consultation with legal counsel believes that the final disposition of such matters will not have a material adverse effect on the consolidated financial position results of operations or cash flows of the Company
Payments to the Company on government cost reimbursable contracts are based on provisional or estimated indirect rates which are subject to an annual audit by the Defense Contract Audit Agency DCAA The cost audits result in the negotiation and determination of the final indirect cost rates that the Company may use for the period s audited The final rates if different from the provisional rates may create an additional receivable or liability for the Company
For example during the course of its audits the DCAA may question the Company s incurred costs and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations the DCAA auditor may recommend to the Company s administrative contracting officer to disallow such costs Historically the Company has not experienced material disallowed costs as a result of government audits However the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future
On September 15 2023 the Company closed its acquisition of Tomahawk Robotics Inc a leader in AI enabled robotic control systems Pursuant to the merger agreement the Company acquired 100 of Tomahawk equity for an aggregate purchase price of 134 467 000 consisting of 985 999 shares of restricted common stock of the Company valued at 109 820 000 and 27 205 000 cash on hand net of 3 048 000 cash acquired plus a 490 000 holdback During the three months ended January 27 2024 the holdback was decreased 100 000 as part of the working capital adjustment and the total purchase price and goodwill therefore decreased by 100 000 as well The remaining 390 000 holdback was paid during the three months ended October 26 2024 The fair value of the shares issued was the closing price on September 15 2023 the close of the Tomahawk purchase agreement Tomahawk is incorporated into AeroVironment s UxS segment The acquisition will enable deeper integration of both companies technology leading to enhanced interoperability and interconnectivity of uncrewed systems through a singular platform with similar control
Determining the fair value of the intangible assets acquired requires significant judgment including the amount and timing of expected future cash flows long term growth rates and discount rates The fair value of the intangible assets was determined using a discounted cash flow analysis which were based on the Company s preliminary estimates of future sales earnings and cash flows after considering such factors as general market conditions anticipated customer demand changes in working capital long term business plans and recent operating performance Use of different estimates and judgments could yield materially different results
The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing customers the workforce of Tomahawk and expected future customers in the UxS market For income tax purposes the acquisition is treated as a stock acquisition as such the goodwill associated with this purchase is not deductible
Tomahawk revenue since acquisition on September 15 2023 was 15 883 000 as of April 30 2024 Other than the aforementioned revenue and intangible asset amortization expense of 5 730 000 for the year ended April 30 2024 since the acquisition on September 15 2023 the Tomahawk financial results were not significant The following unaudited pro forma summary presents condensed consolidated information of the Company as if the business acquisition had occurred on May 1 2022 in thousands
These pro forma amounts have been calculated by applying the Company s accounting policies assuming transaction costs had been incurred during the three months ended July 30 2022 reflecting the additional amortization that would have been charged and including the results of Tomahawk prior to acquisition
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and are not necessarily indicative of the results that have been realized had the acquisition been consolidated in the tables above as of May 1 2022 nor are they indicative of results of operations that may occur in the future
On August 17 2022 the Company closed its acquisition of Planck a leading provider of advanced uncrewed aircraft navigation solutions based in San Diego California Pursuant to the purchase agreement the Company paid a total purchase price of 5 105 000 from cash on hand plus a 500 000 holdback for certain assets of Planck which was paid during the three months ended October 28 2023 Planck is a small technology company incorporated into AeroVironment s UxS segment for the MUAS product line to focus on integrating its flight autonomy solutions such as ACE or Autonomous Control Engine into the Company s offerings to enable safe autonomous takeoff and landing from moving platforms on land or at sea in GPS denied environments Other solutions include AVEM a fully integrated mobile tethered sensor platform designed for persistent autonomous operation from moving vehicles and vessels in any environment and a suite of machine learning object detection and tracking systems that are customized for specific end user needs The Company accounted for the acquisition under the acquisition method of accounting for business combinations
The following table summarizes the final allocation of the purchase price over the estimated fair value of the assets and liabilities assumed in the acquisition of Planck During the three months ended July 29 2023 the Company finalized its determination of the fair value of the assets and liabilities assumed in the acquisition of Planck and no significant changes were recorded from the original estimation in thousands
Determining the fair value of the intangible assets acquired requires significant judgment including the amount and timing of expected future cash flows long term growth rates and discount rates The fair value of the intangibles assets was determined using a discounted cash flow analysis which were based on the Company s preliminary estimates of future sales earnings and cash flows after considering such factors as general market conditions anticipated customer demand changes in working capital long term business plans and recent operating performance Use of different estimates and judgments could yield materially different results
The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing customers the workforce of Planck and expected future customers in the MUAS market For tax purposes the acquisition was treated as an asset acquisition and the goodwill is deductible
Planck revenue since acquisition on August 17 2022 through April 30 2023 was 368 000 Other than the aforementioned revenue and intangible asset amortization expense of 542 000 for the year ended April 30 2023 since the acquisition on August 17 2022 the Planck financial results were not significant The following unaudited pro forma summary presents consolidated information of the Company as if the business acquisition had occurred on May 1 2021 in thousands
These pro forma amounts have been calculated by applying the Company s accounting policies assuming transaction costs had been incurred during the three months ended July 31 2021 reflecting the additional amortization that would have been charged and including the results of Planck prior to acquisition
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and are not necessarily indicative of the results that have been realized had the acquisition been consolidated in the tables above as of May 1 2021 nor are they indicative of results of operations that may occur in the future
Pursuant to the Telerob Purchase Agreement the Telerob Sellers were eligible to receive up to a maximum of 6 000 000 approximately 6 418 000 in additional cash consideration if specific revenue and contract award targets for Telerob were achieved during the 36 month period after closing on May 3 2021 The contingent consideration was valued using a Black Scholes option pricing model The analysis considered among other items contractual terms of the Telerob Purchase Agreement the Company s discount rate the timing of expected future cash flows and the probability that the revenue and contract award targets required for payment of the contingent consideration will be achieved The first year earnout of 2 000 000 approximately 2 139 000 was not achieved During the fiscal year ended April 30 2023 the second year earnout of 2 000 000 approximately 2 132 000 was achieved and was paid in November 2023 The third earnout of 2 000 000 approximately 2 139 000 was not achieved
As part of the Telerob acquisition the Company acquired a small foreign based defined benefit pension plan The Rheinmetall Zusatzversorgung RZV service plan covers three former employees based on individual contracts issued to the employees No other employees are eligible to participate The Company has reinsurance policies taken out for participating former employees which were pledged to the employees The measurement date for the Company s pension plan was April 30 2025
The accumulated benefit obligation is approximately equal to the projected benefit obligation The plan assets consist of reinsurance policies for each of the three pension commitments The reinsurance policies are fixed income investments considered a level 2 fair value hierarchy based on observable inputs of the policy The Company does not expect to make any contributions to the Plan in the fiscal year ending April 30 2026 The projected benefit obligation and projected fair value of plan assets include the assumptions in the table below
Uncrewed Systems UxS The UxS segment focuses primarily on small UAS products designed to operate reliably at lower altitudes in a wide range of environmental conditions providing a vantage point from which to collect and deliver valuable information as well as related support including training spare and accessory parts product repair product replacement maintenance and upgrades medium UAS products designed to operate reliably at medium altitudes with longer range while carrying larger payloads including airborne platforms payloads and payload integration and ground support equipment and other items and services related generally to uncrewed aircraft systems including ISR services UGV products designed to help responders remove contain or neutralize these hazards in situations where improvised explosive devices caustic chemicals nuclear radiological or biological hazards or violent individuals represent significant danger to humans and AI enabled common control and communication solutions that allow any uncrewed system to be controlled from a common user interface while aggregating data from multiple platforms to provide real time intelligence
Loitering Munitions Systems LMS The LMS segment focuses primarily on tube launched aircraft that deploy with the push of a button fly at higher speeds than small UAS products and perform either effects delivery or reconnaissance missions and related support services including training spare parts product repair and product replacement The LMS segment also includes customer funded research and development programs
MacCready Works MW The MW segment focuses on customer funded research and development in the areas of HAPS robotics sensors software analytics data intelligence and connectivity This segment contains the Company s center of excellence for the development of machine learning object identification and autonomy solutions and also seeks to identify new products services and businesses for the Company
The accounting policies of the segments are the same as those described in Note 1 Organization and Significant Accounting Policies The operating segments do not make sales to each other The following table in thousands sets forth segment revenue and segment adjusted gross margin for the periods indicated Segment adjusted gross margin is defined as gross margin before intangible amortization and amortization of other purchase accounting adjustments related to increasing the carrying value of certain assets to fair value Segment adjusted gross margin is the measure of profitability used by the CODM for purposes of making decisions about allocating resources to the segments and assessing performance
Segment assets are summarized in the table below Corporate assets primarily consist of cash and cash equivalents prepaid expenses and other current assets long term investments property and equipment net operating lease right of use assets deferred income taxes and other assets managed centrally on behalf of the business segments
Sales to non U S customers including U S government foreign military sales in which an end user is a foreign government accounted for 52 62 and 53 of revenue for each of the fiscal years ended April 30 2025 2024 and 2023 respectively For the fiscal year ended April 30 2025 2024 and 2023 Ukraine represented 149 600 000 or 18 274 136 000 or 38 and 100 095 000 or 19 respectively of the Company s consolidated revenues The Company s internationally deployed fixed assets for UGV was 5 033 000 and 2 912 000 as of April 30 2025 and 2024 respectively The Company s internationally deployed in service assets for MUAS was 1 486 000 and 0 as of April 30 2025 and 2024 respectively
On May 1 2025 the Company closed its acquisition of BlueHalo pursuant to the Agreement and Plan of Merger dated as of November 18 2024 the Merger Agreement by and among the Company Merger Sub BlueHalo and BlueHalo Holdings Parent LLC a Delaware limited liability company and sole member of BlueHalo Seller Under the terms of the Merger Agreement all of the equity interests of BlueHalo issued and outstanding immediately prior to the effective time of the acquisition were converted into the right to receive an aggregate of 17 425 849 shares of the Company s common stock fair value of 2 640 365 000
Due to the size complexity and timing of the close of the acquisition the purchase accounting for the business combination is incomplete at the time of this filing As a result the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed pre acquisition contingencies and goodwill In addition the Company is unable to provide pro forma revenues and earnings of the combined entity All required disclosures will be included in the Company s Quarterly Report on Form 10 Q for the fiscal first quarter ending August 2 2025
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and that such information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow for timely decisions regarding required disclosure In designing and evaluating the disclosure controls and procedures management recognizes that any controls and procedures no matter how well designed and operated can only provide reasonable assurance of achieving the desired control objectives and management is required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures As required by Rules 13a 15 e and 15d 15 e under the Exchange Act we have carried out an evaluation under the supervision and with the participation of our management including our Chief Executive Officer and our Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures Based on the foregoing our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective and were operating at a reasonable level
Our management is responsible for establishing and maintaining adequate internal control over financial reporting Internal control over financial reporting is defined in Rules 13a 15 f and 15d 15 f promulgated under the Exchange Act as a process designed by or under the supervision of our principal executive and principal financial officers and effected by our board of directors management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements In addition projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Under the supervision and with the participation of management including our principal executive and financial officers we have assessed our internal control over financial reporting as of April 30 2025 based on criteria for effective internal control over financial reporting established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework COSO Based on this assessment management concluded that the Company maintained effective internal control over financial reporting as of April 30 2025 based on the specified criteria
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph d of Exchange Act Rules 13a 15 f or 15d 15 f that occurred during the fiscal year ended April 30 2025 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
We have audited the internal control over financial reporting of AeroVironment Inc and subsidiaries the Company as of April 30 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of April 30 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by COSO
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended April 30 2025 of the Company and our report dated June 24 2025 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Certain information required by Item 401 Item 405 Item 407 c 3 and Items 407 d 4 and d 5 of Regulation S K will be included in the definitive proxy statement for our 2024 Annual Meeting of Stockholders which will be filed no later than 120 days after April 30 2025 and that information is incorporated by reference herein
We have adopted a Code of Business Conduct and Ethics Code of Conduct The Code of Conduct is posted on our website http investor avinc com corporate governance We intend to disclose on our website any amendments to or waivers of the Code of Conduct covering our Chief Executive Officer Chief Financial Officer and or Controller promptly following the date of such amendments or waivers A copy of the Code of Conduct may be obtained upon request without charge by contacting our Secretary at 805 520 8350 or by writing to us at AeroVironment Inc Attn Secretary 900 Innovators Way Simi Valley California 93065 The information contained on or connected to our website is not incorporated by reference into this Annual Report and should not be considered part of this or any reported filed with the SEC
We have adopted an Insider Trading Policy addressing our policies and procedures governing securities trading by our directors officers employees and certain other service providers intended to promote compliance with insider trading laws rules and regulations including Nasdaq listing standards applicable to the company and such personnel A copy of the current Insider Trading Policy is filed with this Annual Report on Form 10 K as Exhibit 19
Our independent public accounting firm is Deloitte Touche LLP Los Angeles California PCAOB Auditor ID 34 The information required by this Item 14 of Form 10 K will be included in the definitive proxy statement for our 2025 Annual Meeting of Stockholders and that information is incorporated by reference herein
Credit Agreement dated February 19 2021 by and among AeroVironment Inc certain lenders letter of credit issuers Bank of America N A as the administrative agent and the swingline lender and BofA Securities Inc JPMorgan Chase Bank N A and U S Bank National Association as joint lead arrangers and joint bookrunners
Fourth Amendment to Credit Agreement Amendment to Security and Pledge Agreement and Joinder Agreement dated May 1 2025 by and among AeroVironment Inc certain lenders letter of credit issuers Bank of America N A as the administrative agent and the swingline lender and Bank of America N A JPMorgan Chase Bank N A U S Bank National Association and Citibank N A as co syndication agents for the Term A facility
KNOW ALL PERSONS BY THESE PRESENTS that each of the persons whose signature appears below hereby constitutes and appoints Wahid Nawabi and Kevin P McDonnell each of them acting individually as his attorney in fact each with full power of substitution for him in any and all capacities to sign any and all amendments to this Annual Report on Form 10 K and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person hereby ratifying and confirming our signatures as they may be signed by our said attorney in fact and any and all amendments to this Annual Report on Form 10 K

Company Name	AeroVironment Inc Vist SEC web-site
Category	AIRCRAFT
Trading Symbol	AVAV