# AeroVironment Inc: Form 10-Q for the period ended Oct 26, 2024

- Company: [AeroVironment Inc](/companies/avav.md) (CIK 1368622)
- Form: 10-Q
- Filed: 2024-12-05
- Accepted by EDGAR: Dec 4, 2024, 18:08 ET
- Period: 2024-10-26
- Accession: 0001558370-24-016018
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1368622/000155837024016018/avav-20241026x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1368622/000155837024016018/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-10-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2024-07-28 to 2024-10-26 | $114.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-05-01 to 2024-10-26 | $222.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-28 to 2024-10-26 | $73.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-05-01 to 2024-10-26 | $155.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-28 to 2024-10-26 | $28.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-05-01 to 2024-10-26 | $53.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-07-28 to 2024-10-26 | $37.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-05-01 to 2024-10-26 | $71.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-28 to 2024-10-26 | $7.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-05-01 to 2024-10-26 | $30.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-28 to 2024-10-26 | −$221.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-05-01 to 2024-10-26 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-28 to 2024-10-26 | $7.5m | us-gaap:ProfitLoss |
| Net income | 6 months, 2024-05-01 to 2024-10-26 | $28.7m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2024-07-28 to 2024-10-26 | $0.27 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-05-01 to 2024-10-26 | $1.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-28 to 2024-10-26 | $0.27 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-05-01 to 2024-10-26 | $1.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-28 to 2024-10-26 | 28,145,590 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-05-01 to 2024-10-26 | 28,139,942 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-05-01 to 2024-10-26 | $24.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-05-01 to 2024-10-26 | $10.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-10-26 | $69.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-10-26 | $514.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-10-26 | $1.02bn | us-gaap:Assets |
| Current liabilities | at 2024-10-26 | $111.6m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-10-26 | $15.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-10-26 | $858.4m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 58,064 characters.

The following is a discussion and analysis of our financial condition and the results of operations as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions. Such forward-looking statements are based on current expectations, estimates and projections about our industry, our management’s beliefs and assumptions made by our management. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2024, as updated by our subsequent filings under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

Unless required by law, we expressly disclaim any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise.

### Critical Accounting Estimates

The following should be read in conjunction with the critical accounting estimates presented in our Annual Report on Form 10-K for the fiscal year ended April 30, 2024.

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these condensed 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.

#### Revenue Recognition

We recognize revenue in accordance with ASU 2014-09, *Revenue from Contracts with Customers (“*ASC 606”). ASC 606 requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which we expect to be entitled in exchange for those goods or services.

Revenue for LMS product deliveries, customization of UGV transport vehicles and customer-funded research and development contracts is recognized over time as costs are incurred. Contract services revenue is for the provision of services, including repairs and maintenance, training, engineering design, development and prototyping activities, and technical support services. Contract services revenue, which historically included 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 Uncrewed Systems 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 could result in cumulative catch up adjustments to revenue that could be material. During the three and six months ended October 26, 2024 and October 28, 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 three months ended October 26, 2024 and October 28, 2023, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 ​ ​ | ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Gross favorable adjustments | ​ | $8,909 | ​ | $4,138 | ​ |
| Gross unfavorable adjustments | ​ | (1,936) | ​ | (1,321) | ​ |
| Net favorable adjustments | ​ | $6,973 | ​ | $2,817 | ​ |

For the three months ended October 26, 2024, favorable cumulative catch-up adjustments of $8.9 million were primarily due to final cost adjustments on five contracts. During the three months ended October 26, 2024, we definitized certain LMS undefinitized contract actions. The aggregate impact of these cumulative catch-up revenue adjustments for the contract definitization was an increase to revenue of approximately $9.9 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $1.9 million were primarily related to higher than expected costs on 26 contracts, which individually were not material.

For the three months ended October 28, 2023, favorable cumulative catch-up adjustments of $4.1 million were primarily due to final cost adjustments on seven contracts. During the three months ended October 28, 2023, we revised our estimates of the total expected costs to complete an LMS variant contract. 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 $1.7 million. For the same period, unfavorable cumulative catch-up adjustments of $1.3 million were primarily related to higher than expected costs on seven contracts, which individually were not material.

For the six months ended October 26, 2024 and October 28, 2023, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 ​ ​ | ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Gross favorable adjustments | ​ | $10,285 | ​ | $5,562 | ​ |
| Gross unfavorable adjustments | ​ | (1,730) | ​ | (2,018) | ​ |
| Net favorable (unfavorable) adjustments | ​ | $8,555 | ​ | $3,544 | ​ |

For the six months ended October 26, 2024, favorable cumulative catch-up adjustments of $10.3 million were primarily due to final cost adjustments on four contracts. During the six months ended October 26, 2024, we definitized certain LMS undefinitized contract actions. The aggregate impact of these cumulative catch-up revenue adjustments for the contract definitization was an increase to revenue of approximately $9.9 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $1.7 million were primarily related to higher than expected costs on 26 contracts, which individually were not material.

For the six months ended October 28, 2023, favorable cumulative catch-up adjustments of $5.6 million were primarily due to final cost adjustments on 10 contracts. During the six months ended October 28, 2023, we revised our estimates of the total expected costs to complete an LMS variant contract. 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 $1.4 million. For the same period, unfavorable cumulative catch-up adjustments of $2.0 million were primarily related to higher than expected costs on 10 contracts, which individually were not material.

#### Goodwill

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 our 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 our business.

Subsequent to the performance of our annual goodwill impairment test for fiscal year 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. D.o.D. 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 profitability 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 in the MUAS reporting unit during the fiscal year ended April 30, 2023.

As of October 26, 2024, our MUAS reporting unit had a goodwill balance of $135.8 million. The estimated fair value of the MUAS reporting unit does not substantially exceed its carrying value due to the impairment recorded during the fourth quarter ended April 30, 2023. The fair value of the MUAS reporting unit exceeded its carrying value by 10% as of January 28, 2024, the date of the most recent annual goodwill impairment test. 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. D.o.D. and foreign allied nations and negotiate the estimated pricing are considered the most significant, sensitive 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 MUAS may become impaired in the future. Accordingly, the MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests. The intangibles included in the MUAS reporting unit of $11.8 million as of October 26, 2024 will also be evaluated for potential impairment during the fourth quarter impairment test. During the most recent annual impairment test during the fourth quarter of fiscal year 2024, the estimated fair value of all reporting units, other than MUAS, substantially exceeded their carrying value. As of October 26, 2024, we have not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

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.

### Fiscal Periods

Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday. Our 2025 fiscal year ends on April 30, 2025 and our fiscal quarters end on July 27, 2024, October 26, 2024 and January 25, 2025, respectively.

### Results of Operations

The following tables set forth our results of operations for the periods indicated (in thousands):

### Three Months Ended October 26, 2024 Compared to Three Months Ended October 28, 2023

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 ​ ​ | ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Revenue | ​ | $188,458 | ​ | $180,816 | ​ |
| Cost of sales | ​ | 114,820 | ​ | 105,466 | ​ |
| Gross margin | ​ | 73,638 | ​ | 75,350 | ​ |
| Selling, general and administrative | ​ | 37,916 | ​ | 28,147 | ​ |
| Research and development | ​ | 28,716 | ​ | 22,025 | ​ |
| Income from operations | ​ | 7,006 | ​ | 25,178 | ​ |
| Other loss: | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Interest expense, net | ​ | (690) | ​ | (1,950) | ​ |
| Other income (expense), net | ​ | 16 | ​ | (2,858) | ​ |
| Income before income taxes | ​ | ​ 6,332 | ​ | ​ 20,370 | ​ |
| (Benefit from) provision for income taxes | ​ | ​ (221) | ​ | ​ 1,137 | ​ |
| Equity method investment income (loss), net of tax | ​ | ​ 990 | ​ | ​ (1,393) | ​ |
| Net income | ​ | $7,543 | ​ | $17,840 | ​ |

We have identified three reportable segments, Uncrewed Systems (“UxS”), Loitering Munitions Systems (“LMS”) and MacCready Works (“MW”). The UxS segment consists of our SUAS, including our Tomahawk acquisition, MUAS and UGV product lines. The LMS segment consists of our renamed existing tactical missile systems product lines. The MW segment consists of our MacCready Works products and services and the development of High Altitude Pseudo-Satellite systems (“HAPS”). The following tables (in thousands) set forth our segment revenue and segment adjusted gross margin for the periods indicated. Prior period segment information has been revised to align with the new segment measure of profitability. Segment adjusted gross margin is defined as gross margin before intangible amortization expense including amortization of purchase accounting adjustments. All corporate and headquarter expenses are allocated to the reportable segments.

| ​ ​ ​ Revenue: | ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 UxS ​ ​ | ​ ​ | ​ ​ LMS ​ ​ | ​ ​ | ​ ​ MW ​ ​ | ​ ​ ​ | ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Product sales | ​ | $79,147 | ​ | $71,930 | ​ | $154 | ​ | $151,231 |
| Contract services | ​ | ​ 6,269 | ​ | ​ 5,785 | ​ | ​ 25,173 | ​ | ​ 37,227 |
| ​ | ​ | $85,416 | ​ | $77,715 | ​ | $25,327 | ​ | $188,458 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $41,363 | ​ | $30,157 | ​ | $5,838 | ​ | ​ ​ |

| ​ ​ ​ Revenue: | ​ ​ ​ | ​ ​ Three Months Ended October 28, 2023 UxS ​ ​ | ​ ​ | ​ ​ LMS ​ ​ | ​ ​ | ​ ​ MW ​ ​ | ​ ​ ​ | ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Product sales | ​ | $120,955 | ​ | $23,982 | ​ | $842 | ​ | $145,779 |
| Contract services | ​ | ​ 11,818 | ​ | ​ 6,267 | ​ | ​ 16,952 | ​ | ​ 35,037 |
| ​ | ​ | $132,773 | ​ | $30,249 | ​ | $17,794 | ​ | $180,816 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $65,613 | ​ | $9,345 | ​ | $3,604 | ​ | ​ ​ |

We recorded intangible amortization expense and other purchase accounting adjustments in the following categories on the accompanying unaudited condensed consolidated statements of operations:

| ​ ​ ​ ​ Cost of sales: | ​ ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Product sales | ​ | $2,623 | ​ | $1,856 | ​ | $5,240 | ​ | $2,896 | ​ |
| Contract services | ​ | 1,097 | ​ | 1,356 | ​ | 2,193 | ​ | 2,712 | ​ |
| Selling, general and administrative | ​ | ​ 1,075 | ​ | ​ 1,201 | ​ | ​ 2,150 | ​ | ​ 1,970 | ​ |
| Total | ​ | $4,795 | ​ | $4,413 | ​ | $9,583 | ​ | $7,578 | ​ |

***Revenue.*** Revenue for the three months ended October 26, 2024 was $188.5 million, as compared to $180.8 million for the three months ended October 28, 2023, representing an increase of $7.6 million, or 4%. The increase in revenue was due to an increase in product revenue of $5.4 million and an increase in service revenue of $2.2 million. The increase in product revenue was primarily due to an increase of $47.9 million from the production of our Switchblade products primarily driven by increased global demand for our Switchblade products associated with the current global conflicts as well as U.S. D.o.D. resupply and a cumulative catch-up revenue adjustment for the definitization of LMS contracts of $9.9 million. The increase was partially offset by a decrease in product deliveries of our UxS products of $41.8 million primarily due to a decrease in international sales. The increase in service revenue was primarily due to an increase of $5.1 million in customer funded R&D and engineering services driven by an increase in HAPS return to flight services, partially offset by a decrease of $2.9 million of training and repairs service revenue driven by the decrease in UxS product sales. The increase in the LMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2025.

***Cost of Sales.*** Cost of sales for the three months ended October 26, 2024 was $114.8 million, as compared to $105.5 million for the three months ended October 28, 2023, representing an increase of $9.3 million, or 9%. The increase in cost of sales was a result of an increase in product cost of sales of $8.0 million and service costs of sales of $1.3 million. The increase in product costs of sales was primarily due to an increase of approximately $5 million associated with the increase in product revenue and approximately $3 million due to a mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production. The increase in service cost of sales was primarily due to an increase of approximately $1 million associated with the increase in service revenue. Cost of sales for the three months ended October 26, 2024 included $3.7 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $3.2 million for the three months ended October 28, 2023. As a percentage of revenue, cost of sales increased from 58% to 61% primarily due to an increase in the proportion of LMS product revenue, partially offset by the cumulative catch up adjustment for the definitization of LMS contracts, resulting in gross margin decreasing from 42% to 39%.

***Gross Margin.*** Gross margin is equal to revenue minus cost of sales.

***Selling, General and Administrative.*** SG&A expense for the three months ended October 26, 2024 was $37.9 million, or 20% of revenue, as compared to SG&A expense of $28.1 million, or 16% of revenue, for the three months ended October 28, 2023. The increase in SG&A expense was primarily due to an increase of $4.3 million in employee related expenses primarily driven by an increase in average headcount to support our growth and expansion of our global business development team, an increase of $3.0 million of sales and marketing expense primarily driven by an increase in bid and proposal efforts, and an increase of $2.5 million in acquisition related expenses. Sales and marketing expense includes commissions on certain direct commercial sales to international customers, and an increase in revenue results in an increase in commission expense.

***Research and Development.*** R&D expense for the three months ended October 26, 2024 was $28.7 million, or 15% of revenue, as compared to R&D expense of $22.0 million, or 12% of revenue, for the three months ended October 28, 2023. The increase was primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

***Interest Expense, net.*** Interest expense, net for the three months ended October 26, 2024 was $0.7 million compared to interest expense, net of $2.0 million for the three months ended October 28, 2023. The decrease in interest expense, net was primarily due to lower average outstanding balances on our debt facility.

***Other Income, net.*** Other income, net, for the three months ended October 26, 2024 was $16 thousand compared to other expense, net of $(2.9) million for the three months ended October 28, 2023. The decrease was primarily due to lower net unrealized losses associated with the fair market value of our equity security investments.

***Benefit from Income Taxes.*** Our effective income tax rate was (3.5)% for the three months ended October 26, 2024, as compared to 5.6% for the three months ended October 28, 2023. The decrease in our effective income tax rate was primarily due to an increase in FDII deductions and excess tax benefits from equity awards. The effective income tax rate for the three months ended October 26, 2024 was primarily impacted by expected federal R&D tax credits and FDII deductions and excess tax benefits from equity awards.

***Equity Method Investment Income (Loss), net of Tax.*** Equity method investment income, net of tax for the three months ended October 26, 2024 was $1.0 million as compared to equity method investment loss, net of tax of $(1.4) million for the three months ended October 28, 2023.

### Uncrewed Systems

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Product sales | ​ | $79,147 | ​ | $120,955 |
| Contract services | ​ | ​ 6,269 | ​ | ​ 11,818 |
| ​ | ​ | $85,416 | ​ | $132,773 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $41,363 | ​ | $65,613 |

***Revenue.*** UxS revenue for the three months ended October 26, 2024 was $85.4 million, as compared to $132.8 million for the three months ended October 28, 2023, representing a decrease of $47.4 million, or 36%. The decrease in revenue was due to a decrease in product revenue of $41.8 million and an increase in service revenue of $5.5 million. The decrease in product revenue was primarily due to $40.4 million from decreased product shipments of our SUAS family of systems and UGV product systems driven by to a decrease in international sales due to lower sales to Ukraine. The decrease in service revenue was primarily due to a decrease of $3.1 million of training and repairs service revenue driven by the decreased product sales and a decrease of $2.5 million of customer-funded R&D and engineering services.

***UxS Segment adjusted gross margin.*** UxS segment adjusted gross margin for the three months October 26, 2024 was $41.4 million, as compared to $65.6 million for the three months ended October 28, 2023, representing a decrease of $24.2 million, or 37%. The decrease in UxS segment adjusted gross margin was primarily due to a decrease in revenue of $47.4 million, partially offset by a decrease of $23.1 million in adjusted cost of sales. The decrease in adjusted cost of sales was primarily due to a decrease in sales volume of approximately $23 million. Adjusted cost of sales is defined as cost of sales before intangible amortization expense including amortization of purchase accounting adjustments.

### Loitering Munitions Systems

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Product sales | ​ | $71,930 | ​ | $23,982 |
| Contract services | ​ | ​ 5,785 | ​ | ​ 6,267 |
| ​ | ​ | $77,715 | ​ | $30,249 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $30,157 | ​ | $9,345 |

***Revenue.*** LMS revenue for the three months ended October 26, 2024 was $77.7 million, as compared to $30.2 million for the three months ended October 28, 2023, representing an increase of $47.5 million, or 157%. The increase in revenue was due to an increase in product revenue of $47.9 million, partially offset by a decrease in service revenue of $0.5 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our loitering munitions systems associated with the current global conflicts as well as U.S. D.o.D. resupply and a cumulative catch-up revenue adjustment for the definitization of LMS contracts of $9.9 million. The decrease in service revenue was primarily due to decreases 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 three months October 26, 2024 was $30.2 million, as compared to $9.3 million for the three months ended October 28, 2023, representing an increase of $20.8 million, or 223%. The increase in LMS segment adjusted gross margin was primarily due to an increase in revenue of $47.5 million, inclusive of the cumulative catch-up revenue adjustment of $9.9 million, partially offset by an increase in adjusted cost of sales of $26.7 million. The increase in adjusted cost of sales was primarily due to an increase in sales volume of approximately $26 million. LMS is operating under multiple unpriced change orders, or UCO's, for which we recognize revenue based upon estimates of the final price negotiations. In the period these contracts are definitized a cumulative catch-up revenue adjustment will be recorded. For the full fiscal year, we anticipate LMS adjusted gross margin as a percentage of revenues to trend toward the prior year levels.

### MacCready Works

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Three Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Product sales | ​ | $154 | ​ | $842 |
| Contract services | ​ | ​ 25,173 | ​ | ​ 16,952 |
| ​ | ​ | $25,327 | ​ | $17,794 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $5,838 | ​ | $3,604 |

***Revenue.*** MW revenue for the three months ended October 26, 2024 was $25.3 million, as compared to $17.8 million for the three months ended October 28, 2023, representing an increase of $7.5 million, or 42%. The increase in revenue was due to an increase in service revenue of $8.2 million, partially offset by a decrease in product revenue of $0.7 million. The increase in service revenue was primarily due to an increase of $8.2 million in customer funded R&D and engineering services efforts primarily due to HAPS return to flight services.

***MW Segment adjusted gross margin.*** MW segment adjusted gross margin for the three months October 26, 2024 was $5.8 million, as compared to $3.6 million for the three months ended October 28, 2023, representing an increase of $2.2 million or 62%. The increase in MW adjusted gross margin was primarily due to an increase in revenue of $7.5 million, partially offset by an increase in adjusted cost of sales of $5.3 million. The increase in adjusted cost of sales was primarily due to an increase in sales volume of approximately $6 million.

### Six Months Ended October 26, 2024 Compared to Six Months Ended October 28, 2023

The following tables (in thousands) sets forth our revenue, gross margin and adjusted operating income (loss) from operations generated by each reporting segment for the periods indicated. Adjusted operating income is defined as operating income before intangible amortization, amortization of purchase accounting adjustments, and acquisition related expenses. All corporate and headquarter expenses are allocated to the reportable segments.

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 ​ ​ | ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Revenue | ​ | $377,941 | ​ | $333,163 | ​ |
| Cost of sales | ​ | 222,836 | ​ | 192,153 | ​ |
| Gross margin | ​ | 155,105 | ​ | 141,010 | ​ |
| Selling, general and administrative | ​ | ​ 71,711 | ​ | ​ 51,974 | ​ |
| Research and development | ​ | 53,329 | ​ | 37,491 | ​ |
| Income from operations | ​ | 30,065 | ​ | 51,545 | ​ |
| Other loss: | ​ | ​ | ​ | ​ | ​ |
| Interest expense, net | ​ | ​ (929) | ​ | ​ (3,958) | ​ |
| Other expense, net | ​ | (218) | ​ | (3,987) | ​ |
| Income before income taxes | ​ | 28,918 | ​ | 43,600 | ​ |
| Provision for income taxes | ​ | 1,264 | ​ | 2,451 | ​ |
| Equity method investment income (loss), net of tax | ​ | 1,055 | ​ | (1,414) | ​ |
| Net income | ​ | $28,709 | ​ | $39,735 | ​ |

| ​ ​ ​ Revenue: | ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 UxS ​ ​ | ​ ​ | ​ ​ LMS ​ ​ | ​ ​ | ​ ​ MW ​ ​ | ​ ​ ​ | ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Product sales | ​ | $191,448 | ​ | $119,110 | ​ | $177 | ​ | $310,735 |
| Contract services | ​ | ​ 13,944 | ​ | ​ 10,578 | ​ | ​ 42,684 | ​ | ​ 67,206 |
| ​ | ​ | $205,392 | ​ | $129,688 | ​ | $42,861 | ​ | $377,941 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $108,596 | ​ | $43,429 | ​ | $10,513 | ​ | ​ ​ |

| ​ ​ ​ Revenue: | ​ ​ ​ | ​ ​ Six Months Ended October 28, 2023 UxS ​ ​ | ​ ​ | ​ ​ LMS ​ ​ | ​ ​ | ​ ​ MW ​ ​ | ​ ​ ​ | ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Product sales | ​ | $214,186 | ​ | $49,307 | ​ | $1,757 | ​ | $265,250 |
| Contract services | ​ | ​ 16,794 | ​ | ​ 11,859 | ​ | ​ 39,260 | ​ | ​ 67,913 |
| ​ | ​ | $230,980 | ​ | $61,166 | ​ | $41,017 | ​ | $333,163 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $116,039 | ​ | $21,668 | ​ | $8,912 | ​ | ​ ​ |

***Revenue.*** Revenue for the six months ended October 26, 2024 was $377.9 million, as compared to $333.2 million for the six months ended October 28, 2023, representing an increase of $44.8 million, or 13%. The increase in revenue was due to an increase in product revenue of $45.5 million, partially offset by a decrease in service revenue of $0.7 million. The increase in product revenue was primarily due to an increase of $69.8 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. D.o.D. resupply and a cumulative catch-up revenue adjustment for the definitization of LMS contracts of $9.9 million. The increase was partially offset by a decrease of $24.3 million of product deliveries of our UxS and MW products, primarily due to a decrease in international sales. The decrease in service revenue was primarily due to a decrease of $0.7 million in customer funded R&D and engineering services due to a decrease in development programs in part due to delays in the establishment of the government fiscal year 2024 budget. The increase in the LMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2025.

***Cost of Sales.*** Cost of sales for the six months ended October 26, 2024 was $222.8 million, as compared to $192.2 million for the six months ended October 28, 2023, representing an increase of $30.7 million, or 16%. The increase in cost of sales was a result of an increase in product cost of sales of $31.9 million, partially offset by a decrease in service costs of sales of $1.2 million. The increase in product costs of sales was primarily due to an increase of approximately $24 million associated with the increase in product revenue and approximately $8 million due to a mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production. The decrease in service cost of sales was primarily due to a decrease of approximately $1 million associated with the decrease in service revenue. Cost of sales for the six months ended October 26, 2024 included $7.4 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $5.6 million for the six months ended October 28, 2023. As a percentage of revenue, cost of sales increased from 58% to 59%, primarily due to an increase in the proportion of LMS product revenue, partially offset by the cumulative catch up adjustment for the definitization of LMS contracts, resulting in gross margin of decreasing from 42% to 41%.

***Gross Margin.*** Gross margin is equal to revenue minus cost of sales.

***Selling, General and Administrative.*** SG&A expense for the six months ended October 26, 2024 was $71.7 million, or 19% of revenue, as compared to SG&A expense of $52.0 million, or 16% of revenue, for the six months ended October 28, 2023. The increase in SG&A expense was primarily due to an increase of $8.8 million of sales and marketing expense primarily driven by an increase in bid and proposal efforts, an increase of $8.3 million in employee related expenses primarily driven by an increase in average headcount to support our growth and expansion of our global business development team, and an increase of $1.8 million in acquisition related expenses. Sales and marketing expense includes commissions on certain direct commercial sales to international customers, and an increase in revenue results in an increase in commission expense.

***Research and Development.*** R&D expense for the six months ended October 26, 2024 was $53.3 million, or 14% of revenue, as compared to R&D expense of $37.5 million, or 11% of revenue, for the six months ended October 28, 2023. The increase was primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

***Interest Expense, net.*** Interest expense, net for the six months ended October 26, 2024 was $0.9 million compared to $4.0 million for the six months ended October 28, 2023. The decrease in interest expense, net was primarily due to lower average outstanding balances on our debt facility.

***Other Expense, net.*** Other expense, net, for the six months ended October 26, 2024 was $0.2 million compared to $4.0 million for the six months ended October 28, 2023. The decrease was primarily due to lower net unrealized losses associated with the fair market value of our equity security investments.

***Provision for Income Taxes.*** Our effective income tax rate was 4.4% for the six months ended October 26, 2024, as compared to 5.6% for the six months ended October 28, 2023. The decrease in our effective income tax rate was primarily due to an increase in FDII deductions and excess tax benefits from the vesting of equity awards, partially offset by an increase in excess tax benefits from equity awards. The effective income tax rate for the six months ended October 26, 2024 was primarily impacted by expected federal R&D tax credits and FDII deductions and excess tax benefits from equity awards.

***Equity Method Investment Income (Loss), net of Tax.*** Equity method investment income, net of tax for the six months ended October 26, 2024 was $1.1 million as compared to equity method investment loss, net of tax of $(1.4) million for the six months ended October 28, 2023.

### Uncrewed Systems

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Product sales | ​ | $191,448 | ​ | $214,186 |
| Contract services | ​ | ​ 13,944 | ​ | ​ 16,794 |
| ​ | ​ | $205,392 | ​ | $230,980 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $108,596 | ​ | $116,039 |

***Revenue.*** UxS revenue for the six months ended October 26, 2024 was $205.4 million, as compared to $231.0 million for the six months ended October 28, 2023, representing a decrease of $25.6 million, or 11%. The decrease in revenue was due to a decrease in product revenue of $22.7 million and a decrease in service revenue of $2.9 million. The decrease in product revenue was primarily due to $21.9 million of decreased product shipments of our SUAS family of systems driven by to a decrease in international sales. The decrease in service revenue was primarily due to a decrease of $2.9 million of customer funded R&D and engineering services primarily due to the completion of certain MUAS contracts during the six months ended October 28, 2023.

***UxS Segment adjusted gross margin.*** UxS segment adjusted gross margin for the six months October 26, 2024 was $108.6 million, as compared to $116.0 million for the six months ended October 28, 2023, representing a decrease of $7.4 million, or 6%. The decrease in UxS segment adjusted gross margin was primarily due to a decrease in revenue of $25.6 million, partially offset by a decrease of $18.1 million in adjusted cost of sales. The decrease in adjusted cost of sales was due to a decrease in sales volume of approximately $12 million, partially offset by a mix shift of approximately $6 million primarily due to a lower proportion of international products sales. Adjusted cost of sales is defined as cost of sales before intangible amortization expense including amortization of purchase accounting adjustments.

### Loitering Munitions Systems

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Product sales | ​ | $119,110 | ​ | $49,307 |
| Contract services | ​ | ​ 10,578 | ​ | ​ 11,859 |
| ​ | ​ | $129,688 | ​ | $61,166 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $43,429 | ​ | $21,668 |

***Revenue.*** LMS revenue for the six months ended October 26, 2024 was $129.7 million, as compared to $61.2 million for the six months ended October 28, 2023, representing an increase of $68.5 million, or 112%. The increase in revenue was due to an increase in product revenue of $69.8 million, partially offset by a decrease in service revenue of $1.3 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our loitering munitions systems associated with the current global conflicts as well as U.S. D.o.D. resupply and a cumulative catch-up revenue adjustment for the definitization of LMS contracts of $9.9 million. The decrease in service revenue was primarily due to decreases 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 six months October 26, 2024 was $43.4 million, as compared to $21.7 million for the six months ended October 28, 2023, representing an increase of $21.8 million, or 100%. The increase in LMS segment adjusted gross margin was primarily due to an increase in revenue of $68.5 million, inclusive of the cumulative catch-up revenue adjustment of $9.9 million, partially offset by an increase in adjusted cost of sales of $46.8 million. The increase in adjusted cost of sales was primarily due to an increase in sales volume of approximately $38 million and mix shift of approximately $9 million primarily due to an increase in the proportion of LMS product revenue. LMS is operating under multiple unpriced change orders, or UCO's, which we recognize revenue based upon estimates of the final price negotiations. In the period these contracts are definitized a cumulative catch-up revenue adjustment will be recorded. For the full fiscal year, we anticipate LMS adjusted gross margin as a percentage of revenues to trend toward the prior year levels.

### MacCready Works

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ October 28, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Product sales | ​ | $177 | ​ | $1,757 |
| Contract services | ​ | ​ 42,684 | ​ | ​ 39,260 |
| ​ | ​ | $42,861 | ​ | $41,017 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Segment adjusted gross margin | ​ | $10,513 | ​ | $8,912 |

***Revenue.*** MW revenue for the six months ended October 26, 2024 was $42.9 million, as compared to $41.0 million for the six months ended October 28, 2023, representing an increase of $1.8 million, or 4%. The increase in revenue was due to an increase in service revenue of $3.4 million, partially offset by a decrease in product revenue of $1.6 million. The increase in service revenue was primarily due to an increase of $3.4 million in customer funded R&D efforts and engineering services in part due to HAPS return to flight services. The decrease in product revenue was primarily due to timing of contracts.

***MW Segment adjusted gross margin.*** MW segment adjusted gross margin for the six months October 26, 2024 was $10.5 million, as compared to $8.9 million for the six months ended October 28, 2023, representing an increase of $1.6 million, or 18%. The increase in MW adjusted gross margin was primarily due to an increase in revenue of $1.8 million, partially offset by an increase in adjusted cost of sales of $0.3 million, primarily due to an increase in sales volume.

### Backlog

Consistent with ASC 606, we define funded backlog as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract. As of October 26, 2024, our funded backlog was approximately $467.1 million, as compared to $400.2 million as of April 30, 2024.

In addition to our funded backlog, we also had unfunded backlog of $1,829.1 million as of October 26, 2024. 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 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. A protest has been filed with the U.S. Government Accountability Office (“GAO”) challenging the U.S Department of the Army’s decision on August 27, 2024 to award an indefinite delivery, indefinite quantity contract with a ceiling value of $990.0 million on a sole source basis to AeroVironment, Inc. (the “Company”) related to the Company’s Switchblade systems, of which $860.0 million is included in unfunded backlog.

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 or are renewed or new contracts are awarded. A majority of our contracts, specifically our IDIQ contracts, 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.

### Liquidity and Capital Resources

On September 8, 2022, we filed an S-3 shelf registration statement to offer and sell shares of our 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 our common stock having an aggregate offering price of up to $200.0 million from time to time through Jefferies LLC as our sales agent. During the three and six months ended October 28, 2023, we sold 807,370 shares for total gross proceeds of $91.3 million, total proceeds received of $88.6 million, net of commission expense and $88.4 million net of equity issuance costs. As of October 28, 2023, we completed the Open Market Sale AgreementSM and sold 1,917,100 of our shares for total gross proceeds of $200.0 million and $194.0 million proceeds received, net of commission expense and $193.1 million net of equity issuance costs.

On February 19, 2021, in connection with the consummation of the Arcturus Acquisition, we entered into the Credit Agreement for (i) the Revolving Facility, and (ii) the Term Loan Facility, and together with the Revolving Credit 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 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. On October 4, 2024, we amended the Credit Facility agreement to increase the Revolving Facility to $200 million, and the Term Loan Facility was fully repaid in full and removed from the Amended Credit Facility. Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $9.8 million as of October 26, 2024. As of October 26, 2024, approximately $175.2 million 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. Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. In addition, Telerob has a line of credit of €7.0 million ($7.6 million) available for issuing letters of credit of which €0.3 million ($0.3 million) was outstanding as of October 26, 2024.

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. 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, introducing new products and enhancing existing products, marketing acceptance and adoption of our products and services, and possible acquisition of entities or strategic assets. 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 Agreement 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 Facility 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.

In connection with the BlueHalo acquisition, we entered into the Debt Commitment Letter with BofA and JPM on November 18, 2024 to provide a new term loan, the Acquisition Financing Facility, . The initial principal amount of the

Acquisition Financing Facility will be $700,000,000, and the Acquisition Financing Facility will have a maturity date of two years from effective date of the Credit Agreement Amendment. The proceeds of the Acquisition Financing Facility will be used to refinance a portion of BlueHalo’s debt and pay fees, costs and expenses incurred in connection with the Transactions. The debt will be serviced from the combined cash flows of the Company and BlueHalo.

Our working capital requirements vary by contract type. On cost-plus-fee programs, we typically bill our incurred costs and fees monthly as work progresses, and therefore working capital investment is minimal. On fixed-price contracts, we typically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin.

During the fiscal year ended April 30, 2022, we made certain commitments outside of the ordinary course of business, including capital contribution commitments to a second limited partnership fund. Under the terms of a new 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 limited partnership fund, of which $10.0 million was remaining at October 26, 2024. The contributions are anticipated to be paid over the next three fiscal years. The UGV second year earnout of €2.0 million (approximately $2.1 million) was paid in November 2023. The Tomahawk acquisition closed on September 15, 2023, and we paid a total purchase price of $134.4 million consisting of $109.8 million in stock and $24.2 million from cash on hand, net of cash acquired. Due to the 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 the elevated levels of cash paid for U.S. federal income taxes to continue during the fiscal year ending April 30, 2025 and future fiscal years.

### Cash Flows

The following table provides our cash flow data for the six months ended October 26, 2024 and October 28, 2023 (in thousands):

*(Unaudited)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Six Months Ended October 26, 2024 | ​ ​ | ​ ​ October 28, 2023 | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Net cash provided by (used in) operating activities | ​ | $24,709 | ​ | $(25,590) | ​ |
| Net cash used in investing activities | ​ | $(11,630) | ​ | $(37,635) | ​ |
| Net cash (used in) provided by financing activities | ​ | $(17,471) | ​ | $31,544 | ​ |

***Cash Provided by (Used in) Operating Activities.*** Net cash provided by operating activities for the six months ended October 26, 2024 increased by $50.3 million to $24.7 million, as compared to net cash used in operating activities of $(25.6) million for the six months ended October 28, 2023. The increase in net cash provided by operating activities was primarily due to an increase in cash as a result of changes in operating assets and liabilities of $65.7 million, largely related to inventories and unbilled receivables and retentions, partially offset by accounts receivable and other liabilities, due to year over year timing differences as well as an increase in non-cash expenses of $4.4 million primarily due to a decrease in reserve for inventory excess and obsolescence, partially offset by an increase in depreciation and amortization.

***Cash Used in Investing Activities.*** Net cash used in investing activities decreased by $26.0 million to $(11.6) million for the six months ended October 26, 2024, as compared to $(37.6) million for the six months ended October 28, 2023. The decrease in net cash used in investing activities was primarily due to a decrease in business acquisitions due to Tomahawk acquisition during the six months ended October 26, 2024.

***Cash Used in Financing Activities.*** Net cash used in financing activities increased by $49.0 million to $(17.5) million for the six months ended October 26, 2024, as compared to net cash provided by financing activities of $31.5 million for the six months ended October 28, 2023. The increase in net cash used in financing activities was primarily due to a decrease in proceeds from shares issued of $88.4 million, partially offset by net principal payments of the credit facilities of $42 million.

### New Accounting Standards

Please refer to Note 1—Organization and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the conclusion that we did not adopt any accounting standards during the six months ended October 26, 2024.

## Market risk

As filed, 1,202 characters.

In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, and foreign currency exchange rates.

### Interest Rate Risk

It is our policy not to enter into interest rate derivative financial instruments. On February 19, 2021, in connection with the consummation of the Arcturus Acquisition, we entered into the Credit Facilities. The current outstanding balance of the revolving credit facility is $15.0 million and bears a variable interest rate. The market interest rate has increased significantly, and if market interest rates continue to increase, interest due on the revolving credit facility would increase.

### Foreign Currency Exchange Rate Risk

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 occasionally engage in forward contracts in foreign currencies to limit our exposure on non-U.S. dollar transactions. With the acquisition of Telerob, a portion of our cash balance is denominated in Euros which is Telerob’s functional currency.

## Controls and procedures

As filed, 2,128 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) 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 provide only 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 Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of October 26, 2024, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 26, 2024, the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

### Changes in Internal Control over Financial Reporting

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 Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended October 26, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 42,764 characters.

Except as set for below, there have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. Please refer to that section for disclosures regarding the risks and uncertainties related to our business.

### Risks Relating to the Company’s Pending Acquisition of BlueHalo

***The Transactions (as defined below) are subject to closing conditions and may not be completed, the Merger Agreement (as defined below) may be terminated in accordance with its terms, and we may be required to pay a termination fee upon termination.***

On November 18, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Archangel Merger Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of the Company (“Merger Sub”), BlueHalo Financing Topco, LLC, a Delaware limited liability company (“BlueHalo”), and BlueHalo Holdings Parent, LLC, a Delaware limited liability company and sole member of BlueHalo Financing Topco, LLC (“Seller”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into BlueHalo, with BlueHalo continuing as a wholly owned subsidiary of the Company and the surviving company of the merger (the “Transactions”).

The Transactions are subject to customary closing conditions that must be satisfied or waived prior to the consummation of the Transactions (the “Closing”), including, among other things, (i) the expiration or termination of the waiting period (or any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), as amended, and the rules promulgated thereunder, any agreement (including any timing agreement) with the Federal Trade Commission (“FTC”) or Department of Justice (“DOJ”) to delay the consummation of, or not to consummate before a certain date, the Transactions, and the receipt of other specified regulatory approvals and the expiration or termination of applicable waiting periods, (ii) the required approval by the Company’s stockholders, holders of incentive units and restricted common units of Seller (the “Seller Members”) and Seller, as the sole member of BlueHalo (iii) the accuracy of the respective representations and warranties of each party, subject to certain materiality qualifications, (iv) compliance by the parties with their respective covenants, (v) the absence of any order that is in effect and restrains, enjoins or otherwise prohibits the consummation of the Transactions, (vi) the shares of common stock to be issued in the Transactions being approved for listing (subject to official notice of issuance) on Nasdaq as of the Closing, (vii) the registration statement on Form S-4 (the “Registration Statement”) to be filed in connection with the Transactions having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order or proceeding (or threatened proceeding by the Securities and Exchange Commission (the “SEC”)) seeking a stop order with respect to the Registration Statement that has not been withdrawn, (viii) delivery of certain closing certificates and executed ancillary agreements, (ix) the absence of any material adverse effect with respect to BlueHalo or the Company, (x) receipt of certain waivers or approvals related to Section 280G of the United States Internal Revenue Code of 1986, as amended, (xi) receipt by the Company of executed joinder and lock-up agreements from Seller Members entitled to receive 85% of the Aggregate Closing Consideration (as defined in the Merger Agreement), as adjusted, (xii) the absence of any Cognizant Security Agency (as defined in 32 C.F.R. § 117.3(b)) objection that intends to invalidate, terminate, revoke or suspend any facility security clearances of BlueHalo and its subsidiaries if the Transactions occur, and (xiii) receipt of all required consents of governmental authorities pursuant to antitrust laws and foreign direct investments laws, as applicable. No assurance can be given that the required shareholder consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the consents and approvals. Any delay in completing the Transactions could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Transactions are successfully completed within the expected time frame.

Additionally, either party may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Transactions are not completed by August 18, 2025 (subject to certain conditions and one automatic extension period to February 18, 2026 as set forth in the Merger Agreement). The Company may be required to pay a termination fee of $200 million to Seller upon termination of the Merger Agreement under specified circumstances, including (i) termination by the Company if the Board of Directors of the Company (the “Board”) determines that an intervening event has occurred or the Board has received a proposal to acquire the Company that the Board has determined in good faith constitutes a superior offer pursuant to the terms of the Merger Agreement (an “Alternative Sale Transaction”), (ii) termination by Seller if the Board exercises its right, subject to certain limitations, to change its recommendation to the Company’s stockholders with respect to the Merger Agreement and the Transactions (a “Company Board Adverse Recommendation Change”) or (iii) if the Company consummates an Alternative Sale Transaction within nine months of termination of the Merger Agreement, subject to certain conditions as set forth in the Merger Agreement.

Moreover, if the Transactions are not completed for any reason, including as a result of failure to obtain all requisite regulatory approvals or if the Company stockholders fail to approve the applicable proposals, our ongoing business may be adversely affected and, without realizing any of the expected benefits of having completed the Transactions, we would be subject to a number of risks, including the following:

- we may experience negative reactions from the financial markets, including negative impacts on our stock price;
- we may experience negative reactions from our customers, suppliers, distributors, other business partners and employees;
- we will be required to pay our costs relating to the Transactions, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the Transactions are completed;
- the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the Transactions will not be completed;
- the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the Transactions and such restrictions, the waiver of which are subject to the consent of BlueHalo or Seller, may prevent us from taking actions during the pendency of the Transactions that would be beneficial; and
- matters relating to the Transactions (including integration planning) will require substantial commitments of time and resources by management and other key employees, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to us as an independent company.

***The consideration payable under the Merger Agreement is fixed and will not be adjusted based on our performance.***

Under the Merger Agreement, the total aggregate merger consideration payable by us consists of 18,548,698 shares of our common stock, subject to downward adjustments as set forth in the Merger Agreement. The purchase price will not be adjusted for changes in the market price of our common stock or the economic performance of the Company or BlueHalo. If the market price of our common stock increases or the economic performance of BlueHalo relative to us declines (or the economic performance of BlueHalo relative to us improves), the consideration will not be adjusted to account for any such changes or any effective increase or decrease in the value of the consideration issued or paid to the equityholders of BlueHalo under the Merger Agreement.

***We will be subject to business uncertainties and contractual restrictions, including the risk of litigation, while the Transactions are pending that may cause disruption and may make it more difficult to maintain relationships with employees, suppliers or customers.***

Uncertainty about the effect of the Transactions on employees, suppliers and customers may have an adverse effect on us or BlueHalo, which uncertainties may impair our or BlueHalo’s ability to attract, retain and motivate key personnel until the Transactions are completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with us or BlueHalo to seek to change existing business relationships with any of us.

Employee retention and recruitment may be challenging before the completion of the Transactions, as employees and prospective employees may experience uncertainty about their future roles following the Transactions. Key employees may depart or prospective key employees may fail to accept employment with us or BlueHalo because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the Transactions, any of which could have a material adverse effect on our business, financial condition and results of operations.

The pursuit of the Transactions and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on our business, financial condition and results of operations.

***Until the completion of the Transactions or the termination of the Merger Agreement in accordance with its terms, we are prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to us and our stockholders, and may find other transactions or actions impractical to undertake during such period.***

During the period between the date of the Merger Agreement and the Closing, which, under the Merger Agreement, could take until August 18, 2025 (subject to certain conditions and one automatic extension period to February 18, 2026 as set forth in the Merger Agreement), the Merger Agreement restricts us from taking specified actions or from pursuing what might otherwise be attractive business opportunities or making other changes to our business, in each case without the consent of BlueHalo or Seller. These restrictions may prevent us from taking actions during the pendency of the Transactions that would have been beneficial. Adverse effects arising from these restrictions during the pendency of the Transactions could be exacerbated by any delays in consummation of the Transactions or termination of the Merger Agreement.

Additionally, even if the Merger Agreement does not expressly restrict us from taking a certain action prior to the completion of the Transactions or the termination of the Merger Agreement, the pendency of the Transactions may make it impractical for us to do so. For example, while we may wish to raise capital for strategic or other reasons and would not be prohibited from doing so under the Merger Agreement, our ability to do so may be limited, or may adversely affect the terms on which we are able to raise such capital.

***The Company and BlueHalo must obtain certain regulatory approvals and clearances to consummate the Transactions, which, if delayed, not granted or granted with unacceptable conditions, could prevent, substantially delay or impair consummation of the Transactions, result in additional expenditures of money and resources or reduce the anticipated benefits of the Transactions.***

Completion of the Transactions is conditioned upon the expiration or early termination of the waiting period relating to the Transactions under the HSR Act and other similar antitrust laws in certain other countries as well as certain other applicable laws or regulations and the governmental authorizations required to complete the Transactions having been obtained and being in full force and effect. Although the Company and BlueHalo have agreed in the Merger Agreement to use their reasonable best efforts, subject to certain limitations, to make certain governmental filings or obtain the required governmental authorizations, as the case may be, there can be no assurance that the relevant waiting periods will expire or authorizations will be obtained, and if such authorizations are not obtained, the Transactions will not be completed.

At any time before or after consummation of the Transactions, the DOJ or the FTC, any state attorney general, or a governmental authority in another country could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including but not limited to seeking to enjoin the completion of the Transactions, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the Transactions or of imposing additional costs or limitations on the Company or BlueHalo following completion of the Transactions, any of which might have an adverse effect on the Company or BlueHalo following completion of the Transactions and may diminish the anticipated benefits of the Transactions.

***The Merger Agreement limits our ability to pursue alternatives to the Transactions and may discourage a potential competing acquirer of the Company, including the payment by the Company of a termination fee.***

The Merger Agreement contains provisions that, subject to limited exceptions, restrict our ability to directly or indirectly (i) solicit, initiate or knowingly encourage, or take any action to facilitate any inquiries, announcements or communications relating to, or the making of any submission, proposal or offer that constitutes or that could reasonably be expected to lead to, a Parent Acquisition Proposal (as defined the Merger Agreement), (ii) enter into, participate in, cooperate with any person with respect to, maintain or continue any discussions or negotiations relating to, any Parent Acquisition Proposal with any person other than Seller, BlueHalo or their affiliates, (iii) furnish to any person other than Seller, BlueHalo or their affiliates any non-public information in connection with or in response to a Parent Acquisition Proposal, (iv) accept any Parent Acquisition Proposal or enter into any agreement, arrangement, term sheet, letter of intent, or understanding (whether written or oral) providing for the consummation of any transaction contemplated by any Parent Acquisition Proposal or otherwise relating to any Parent Acquisition Proposal, (v) adopt, approve or recommend or make any public statement approving or recommending any inquiry, proposal or offer that constitutes, or could reasonably be expected to lead to, a Parent Acquisition Proposal, (vi) take any action or exempt any person (other than the Company and its subsidiaries) from the restriction on “business combinations” or any similar provision contained in applicable takeover laws or the Company’s organizational or other governing documents, or (vii) resolve, propose or agree to do any of the foregoing. The Company shall, and shall cause each of its representatives and each of its subsidiaries (and each of their respective representatives) to, immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any persons conducted prior to or on the date of the Merger Agreement with respect to any Parent Acquisition Proposal. The Company may be required to pay a termination fee of $200 million to Seller upon termination of the Merger Agreement under specified circumstances, including (i) termination by the Company to accept an Alternative Sale Transaction, (ii) termination by Seller due to the occurrence of a Company Board Adverse Recommendation Change or (iii) if the Company consummates an Alternative Sale Transaction within nine months of termination of the Merger Agreement, subject to certain conditions as set forth in the Merger Agreement.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of us from considering or proposing that acquisition, even if it were prepared to pay above market value, or might otherwise result in a potential third-party acquirer proposing to pay a lower price to our stockholders than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

If the Merger Agreement is terminated and we decide to seek another merger transaction, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

### The Transactions will involve substantial costs.

We have incurred and expect to incur substantial non-recurring costs associated with the Transactions and combining the operations of the two companies, as well as transaction fees and other costs related to the Transactions. These costs and expenses include fees paid to legal, financial and accounting advisors, regulatory and public relations advisors, filing fees, printing costs and other costs and expenses. Portions of these transaction costs are contingent upon the Closing occurring, although some have been and will be incurred regardless of whether the Transactions are consummated.

In addition, the combined company will also incur significant restructuring and integration costs in connection with the integration of the Company and BlueHalo and the execution of our business plan, including costs relating to formulating and implementing integration plans and eliminating duplicative costs, as well as potential employment-related costs. The costs related to restructuring will be expensed as a cost of the ongoing results of operations of either us or the combined company. There are processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Transactions and the integration of BlueHalo’s business. While we have assumed a certain level of expenses would be incurred to integrate the Company and BlueHalo and achieve synergies and efficiencies and we continue to assess the magnitude of these costs, many of these expenses are, by their nature, difficult to estimate accurately and there are many factors beyond our control that could affect the total amount or timing of these costs. Although we expect that the elimination of duplicative costs, as well as the realization of strategic benefits, additional income, synergies and other efficiencies should allow the combined company to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

***Securities class action and derivative lawsuits may be filed against us, or against our directors, challenging the Transactions, and an adverse ruling in any such lawsuit may prevent the Closing from occurring at all or from occurring within the expected time frame.***

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Transactions like the Transactions are frequently subject to litigation or other legal proceedings, including actions alleging that our Board breached their fiduciary duties to our stockholders by entering into the Merger Agreement. We cannot provide assurance that such litigation or other legal proceedings will not be brought. If litigation or other legal proceedings are in fact brought against us, or against our Board, we will defend against it, but we may not be successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on the business, results of operations or financial position of us or the combined company, including through the possible diversion of company resources or distraction of key personnel.

Lawsuits that may be brought against us, BlueHalo or our or its directors could also seek, among other things, injunctive relief or other equitable relief, including a request to enjoin us from consummating the Transactions. One of the conditions to the Closing is that no order, award or judgment by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case, that prohibits or makes illegal the Closing. Consequently, if a plaintiff is successful in obtaining an order, award or judgment prohibiting completion of the Transactions, that order, award or judgment may delay or prevent the Closing from being completed within the expected time frame or at all, which may adversely affect our business, financial position and results of operations.

***Combining the businesses of the Company and BlueHalo may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated synergies and other benefits of the Transactions, which may adversely affect the combined company’s business results and negatively affect the value of our common stock following the Closing.***

The Company and BlueHalo have operated and, until the completion of the Transactions will continue to operate, independently. The success of the Transactions will depend on, among other things, the ability of the Company and BlueHalo to combine their respective businesses in a manner that facilitates growth opportunities and realizes expected cost savings. We have entered into the Merger Agreement because we believe that the Transactions are fair to and in the best interests of our stockholders and that combining the businesses of the Company and BlueHalo will produce benefits as well as cost savings and other cost and capital expenditure synergies.

Following the Closing, the Company and BlueHalo must successfully combine their respective businesses in a manner that permits these benefits to be realized. For example, the following issues, among others, must be addressed in integrating the operations of the two companies in order to realize the anticipated benefits of the Transactions:

- combining the companies’ operations and corporate functions;
- combining the businesses of the Company and BlueHalo and meeting the capital requirements of the combined company in a manner that permits the combined company to achieve any cost savings or other synergies anticipated to result from the Transactions, the failure of which would result in the anticipated benefits of the Transactions not being realized in the time frame currently anticipated or at all;
- integrating personnel from the two companies;
- harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;
- maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the combined company;
- addressing possible differences in business backgrounds, corporate cultures and management philosophies;
- consolidating the companies’ administrative and information technology infrastructure;
- coordinating distribution and marketing efforts; and
- effecting actions that may be required in connection with obtaining regulatory or other governmental approvals.

It is possible that the integration process could result in the loss of key AeroVironment or BlueHalo employees, the loss of customers, the disruption of either company’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, 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 the combined company is not able to adequately address integration challenges, we may be unable to successfully integrate operations and the anticipated benefits of the integration plan may not be realized.

In addition, the combined company must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth. If the combined company is not able to successfully achieve these objectives, the anticipated synergies and other benefits of the Transactions may not be realized fully, or at all, or may take longer to realize than expected. Additionally, we may inherit from BlueHalo legal, regulatory, and other risks that occurred prior to the Transactions, whether known or unknown to us, which may be material to the combined company.

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 combined company’s management and resources may be focused on the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt the combined company’s ongoing business.

An inability to realize the full extent of the anticipated benefits of the Transactions, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of our common stock following the consummation of the Transactions. Moreover, if the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Transactions, AeroVironment stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Transactions.

***The Transactions may be completed even though a material adverse effect may result from the announcement of the Transactions, industry-wide changes or other causes.***

In general, neither we nor BlueHalo is obligated to complete the Transactions if there is a material adverse effect impacting the other party between the date of the Merger Agreement and the Closing. However, certain types of changes are excluded from the concept of a “material adverse effect” as it is defined in the Merger Agreement. Such exclusions include but are not limited to changes in general economic or political conditions, industry wide changes, changes resulting from the announcement of the Transactions, natural disasters, pandemics, other public health events and changes in GAAP. Therefore, if any of these events were to occur affecting us or BlueHalo, the other party would still be obliged to effect the Closing. If any such adverse changes occur and we and BlueHalo execute the Closing, the stock price of the combined company may suffer. This in turn may reduce the value of the Transactions to the stockholders of the Company, BlueHalo or both.

***The combined company may not be able to retain customers, suppliers or distributors, or customers, suppliers or distributors may seek to modify contractual relationships with the combined company, which could have an adverse effect on the combined company’s business and operations. Third parties may terminate or alter existing contracts or relationships with the combined company.***

As a result of the Transactions, the combined company may experience impacts on relationships with customers, suppliers and distributors that may harm the combined company’s business and results of operations. Certain customers, suppliers or distributors may seek to terminate or modify contractual obligations following the Closing whether or not contractual rights are triggered as a result. There can be no guarantee that customers, suppliers and distributors will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms following the Closing. If any customers, suppliers or distributors seek to terminate or modify contractual obligations or discontinue the relationship with the combined company, then the combined company’s business and results of operations may be harmed. If the combined company’s suppliers were to seek to terminate or modify an arrangement with the combined company, then the combined company may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

We and BlueHalo also have contracts with third parties, which may require consent from these parties in connection with the Transactions, or which may otherwise contain limitations applicable to such contracts following the Closing. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs and lose rights that may be material to the combined company’s business. In addition, third parties with whom we or BlueHalo currently have relationships may terminate or otherwise reduce the scope of their relationship in anticipation of the Closing. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the Transactions. The adverse effect of any such disruptions could also be exacerbated by a delay in the Closing or by a termination of the Merger Agreement.

***Some of our and BlueHalo’s directors and executive officers have interests in the Transactions that are different from yours and that may influence them to support or approve the Transactions without regard to your interests.***

Directors and executive officers of the Company and BlueHalo may have interests in the Transactions that are different from, or in addition to, the interests of other AeroVironment stockholders generally. These interests with respect to our directors and executive officers may include, among others, acceleration of stock option or restricted stock unit vesting, retention bonus payments, severance payments if employment is terminated in a qualifying termination in connection with the Transactions and rights to continued indemnification, expense advancement and insurance coverage. The current members of our Board are expected to continue as directors of the combined company after the effective time of the Transactions, and, following the closing of the Transactions, will be eligible to be compensated similarly to other non-employee directors of the combined company.

Our Board and the Board of Directors of BlueHalo were aware of and considered those interests, among other matters, in reaching their decisions to approve and adopt the Merger Agreement, approve the Transactions, and recommend the approval of the Merger Agreement to the Company stockholders and BlueHalo holders, respectively. These interests, among other factors, may have influenced the directors and executive officers of the Company and BlueHalo to support or approve the Transactions.

***Following the Closing, funds affiliated with Arlington Capital Partners are expected to beneficially own approximately 26.2% of our common stock, which will allow them the ability to exert significant influence over us, and their interests may conflict with ours or yours in the future.***

Following the Closing, funds affiliated with Arlington Capital Partners are expected to beneficially own approximately 26.2% of our common stock. Accordingly, after the Closing these stockholders may exercise significant influence over matters requiring stockholder approval, including the election of our directors and the determination of significant corporate actions. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to our other stockholders or that could be disadvantageous to our stockholders with interests different from yours. As a result, the market price of our common stock could be adversely affected.

Concurrently with the execution and delivery of the Merger Agreement, funds affiliated with Arlington Capital Partners (the “Sponsor Members”) entered into a shareholder’s agreement (the “Shareholder’s Agreement”) with the Company pursuant to which the Sponsor Members have, among other things, agreed to abide by customary standstill covenants, obligations to vote consistent with the recommendation of the Board, and customary employee non-solicit restrictions with respect to the employees of the Company and its subsidiaries (including BlueHalo and its subsidiaries after the Closing). Under the Shareholder’s Agreement, the Company has, among other things and subject to the Closing, agreed to provide the Sponsor Members 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 Sponsor Members will have such designation rights to designate two directors until it and its affiliates cease to collectively hold and own, directly or indirectly, at least 20% of the issued and outstanding Company common stock and the Sponsor Members 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 the issued and outstanding Company common stock. The Board of Directors of the combined company (the “New Company Board”) is expected to consist of ten members, up to two of whom may be designated by the Sponsor Members for approval by the stockholders of the Company for appointment to the New Company Board, subject to certain conditions and qualifications as set forth in the Shareholder’s Agreement (the “Shareholder Nominees”).

Moreover, the Shareholder’s Agreement provides that we renounce any interests or expectancy in being offered any business opportunities which the Shareholder Nominees, the Sponsor Members, 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 the Company. This renunciation does not extend to business opportunities invested in on the basis of confidential information received from the Company or its representatives.

***Our stockholders may not realize a benefit from the Transactions commensurate with the ownership dilution they will experience in connection with the Transactions.***

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Transactions, our stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Transactions.

***BlueHalo is currently not a U.S. public reporting company and the obligations associated with integrating into a public company may require significant resources and management attention.***

BlueHalo is, and prior to the Closing will remain, a private company that is not subject to public company reporting requirements and does not have accounting personnel specifically employed to review internal controls over financial reporting. Additionally, from the time it was formed until the time it entered 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 the 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 the annual report to be filed with the SEC for the fiscal year following the fiscal year in which the Closing occurs and thereafter, which requires us to make and document significant changes to our internal controls over financial reporting. Bringing BlueHalo into compliance with these rules and regulations and integrating BlueHalo into our current compliance and accounting system and disclosure controls and procedures may increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. 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. However, the measures we take may not be sufficient to satisfy our obligations as a public company. If we do not continue to develop and implement the right processes and tools to manage our changing enterprise upon the consummation of the Transactions and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations. In addition, we cannot predict or estimate the amount of additional costs we may incur to bring BlueHalo into compliance with these requirements. We anticipate that these costs will materially increase our selling, general and administration expenses. In addition, bringing BlueHalo into compliance with these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.

***Our stockholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the Closing as compared to their current ownership and voting interests in the respective companies.***

After the Closing, the current stockholders of AeroVironment will own a smaller percentage of the combined company than their ownership of AeroVironment prior to the Transactions. Immediately after the Closing, our securityholders as of immediately prior to the Closing are expected to own approximately 60.5% of the outstanding shares of the combined company on a fully-diluted basis and former BlueHalo securityholders, are expected to own approximately 39.5% of the outstanding shares of the combined company on a fully-diluted basis, subject to certain adjustments set forth in the Merger Agreement. As a result of this reduced ownership, the current stockholders of AeroVironment will be able to exercise less influence over the combined company following the Closing as compared to their current ownership.

***We anticipate our indebtedness will increase upon completion of the Transactions and may have the effect of heightening other risks we now face.***

Upon completion of the Transactions, we intend to refinance certain indebtedness of BlueHalo and, assuming that occurs, our consolidated indebtedness will increase substantially and we will be subject to increased risks associated with debt financing. As of October 26, 2024, we had indebtedness of approximately $15 million under our existing credit agreement. In connection with the execution of the Merger Agreement, we entered into a commitment letter (the “Debt Commitment Letter”) with BofA NA and BofA Securities, Inc. (collectively, “BofA”) and JPM (JPM and BofA, collectively, the “Joint Lead Arrangers”), pursuant to which the Joint Lead Arrangers have committed to amend our existing credit agreement (such amendment, the “Credit Agreement Amendment”) to provide a new Term Loan A facility (the “Acquisition Financing Facility”). The initial principal amount of the Acquisition Financing Facility will be $700 million, and the Acquisition Financing Facility will have a maturity date of two years from effective date of the Credit Agreement Amendment.

Our increased indebtedness could have important consequences to holders of our common stock, including:

- increasing our vulnerability to general adverse economic and industry conditions;
- limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;
- requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;
- limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
- putting us at a disadvantage compared to its competitors with less indebtedness.

Filed Dec 5, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-016018. Last ingested by Listed: Nov 4, 2026, 09:12 ET. No prices; not investment advice.