SEC Filing | AeroVironment, Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended July 31, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33261

AEROVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

Delaware		95-2705790
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

241 18^th Street, Suite 415
Arlington, Virginia		22202
(Address of principal executive offices)		(Zip Code)

(805) 520-8350

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	AVAV	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 1, 2021, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 24,811,444.

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AeroVironment, Inc.

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Item 1.	Financial Statements :
	Consolidated Balance Sheets as of July 31, 2021 (Unaudited) and April 30, 2021	3
	Consolidated Statements of Operations for the three months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited)	4
	Consolidated Statements of Comprehensive (Loss) Income for the three months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the three months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
Signatures		46

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AeroVironment, Inc.

Consolidated Balance Sheets

(In thousands except share and per share data)


	July 31,		April 30,
	2021		2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	93,924	$	148,741
Short-term investments		17,953		31,971
Accounts receivable, net of allowance for doubtful accounts of $579 at July 31, 2021 and $595 at April 30, 2021		45,764		62,647
Unbilled receivables and retentions (inclusive of related party unbilled receivables of $5,568 at July 31, 2021 and $544 at April 30, 2021)		87,131		71,632
Inventories		84,852		71,646
Income taxes receivable		322		—
Prepaid expenses and other current assets		14,972		15,001
Total current assets		344,918		401,638
Long-term investments		10,165		12,156
Property and equipment, net		66,563		58,896
Operating lease right-of-use assets		27,649		22,902
Deferred income taxes		2,534		2,061
Intangibles, net		117,855		106,268
Goodwill		335,029		314,205
Other assets		3,840		10,440
Total assets	$	908,553	$	928,566
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	18,046	$	24,841
Wages and related accruals		20,067		28,068
Customer advances		9,117		7,183
Current portion of long-term debt		10,000		10,000
Current operating lease liabilities		6,747		6,154
Income taxes payable		549		861
Other current liabilities		18,134		19,078
Total current liabilities		82,660		96,185
Long-term debt, net of current portion		185,141		187,512
Non-current operating lease liabilities		23,048		19,103
Other non-current liabilities		10,336		10,141
Liability for uncertain tax positions		3,518		3,518
Deferred income taxes		5,533		—
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares—10,000,000; none issued or outstanding at July 31, 2021 and April 30, 2021		—		—
Common stock, $0.0001 par value:
Authorized shares—100,000,000
Issued and outstanding shares—24,811,802 shares at July 31, 2021 and 24,777,295 shares at April 30, 2021		2		2
Additional paid-in capital		261,192		260,327
Accumulated other comprehensive (loss) income		(394)		343
Retained earnings		337,440		351,421
Total AeroVironment, Inc. stockholders’ equity		598,240		612,093
Noncontrolling interest		77		14
Total equity		598,317		612,107
Total liabilities and stockholders’ equity	$	908,553	$	928,566

See accompanying notes to consolidated financial statements (unaudited).

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AeroVironment, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)


	Three Months Ended
	July 31,		August 1,
	2021		2020
Revenue:
Product sales	$	53,116	$	58,357
Contract services (inclusive of related party revenue of $10,352 and $16,386 for the three months ended July 31, 2021 and August 1, 2020, respectively)		47,893		29,093
		101,009		87,450
Cost of sales:
Product sales		32,590		32,084
Contract services		39,696		19,955
		72,286		52,039
Gross margin:
Product sales		20,526		26,273
Contract services		8,197		9,138
		28,723		35,411
Selling, general and administrative		27,128		12,011
Research and development		13,708		11,103
(Loss) income from operations		(12,113)		12,297
Other (loss) income:
Interest (expense) income, net		(1,275)		208
Other (expense) income, net		(346)		33
(Loss) income before income taxes		(13,734)		12,538
(Benefit from) provision for income taxes		(957)		1,207
Equity method investment loss, net of tax		(1,141)		(1,288)
Net (loss) income		(13,918)		10,043
Net (income) loss attributable to noncontrolling interest		(63)		37
Net (loss) income attributable to AeroVironment, Inc.	$	(13,981)	$	10,080
Net (loss) income per share attributable to AeroVironment, Inc.
Basic	$	(0.57)	$	0.42
Diluted	$	(0.57)	$	0.42
Weighted-average shares outstanding:
Basic		24,620,180		23,893,001
Diluted		24,620,180		24,186,228

See accompanying notes to consolidated financial statements (unaudited).

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AeroVironment, Inc.

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

(In thousands)


	Three Months Ended
	July 31,		August 1,
	2021		2020
Net (loss) income	$	(13,918)	$	10,043
Other comprehensive (loss) income:
Unrealized loss on available-for-sale investments, net of deferred tax benefit of $0 and $4 for the three months ended July 31, 2021 and August 1, 2020, respectively		(4)		(52)
Change in foreign currency translation adjustments		(733)		75
Total comprehensive (loss) income		(14,655)		10,066
Net (income) loss attributable to noncontrolling interest		(63)		37
Comprehensive (loss) income attributable to AeroVironment, Inc.	$	(14,718)	$	10,103

See accompanying notes to consolidated financial statements (unaudited).

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AeroVironment, Inc.

Consolidated Statements of Stockholders’ Equity

For the three months ended July 31, 2021 and August 1, 2020 (Unaudited)

(In thousands except share data)


								Accumulated
				Additional				Other		Total		Non-
	Common Stock			Paid-In		Retained		Comprehensive		AeroVironment, Inc.		Controlling
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity		Interest		Total
Balance at April 30, 2021	24,777,295	$	2	$	260,327	$	351,421	$	343	$	612,093	$	14	$	612,107
Net loss	—		—		—		(13,981)		—		(13,981)		63		(13,918)
Unrealized loss on investments	—		—		—		—		(4)		(4)		—		(4)
Foreign currency translation	—		—		—		—		(733)		(733)		—		(733)
Stock options exercised	4,000		—		119		—		—		119		—		119
Restricted stock awards	48,588		—		—		—		—		—		—		—
Restricted stock awards forfeited	(6,140)		—		—		—		—		—		—		—
Tax withholding payment related to net share settlement of equity awards	(11,941)		—		(1,176)		—		—		(1,176)		—		(1,176)
Stock based compensation	—		—		1,922		—		—		1,922		—		1,922
Balance at July 31, 2021	24,811,802	$	2	$	261,192	$	337,440	$	(394)	$	598,240	$	77	$	598,317

								Accumulated
				Additional				Other		Total		Non-
	Common Stock			Paid-In		Retained		Comprehensive		AeroVironment, Inc.		Controlling
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity		Interest		Total
Balance at April 30, 2020	24,063,639		2		181,481		328,090		328		509,901		—		509,901
Net income (loss)	—		—		—		10,080		—		10,080		(37)		10,043
Unrealized loss on investments	—		—		—		—		(52)		(52)		—		(52)
Foreign currency translation	—		—		—		—		75		75		—		75
Stock options exercised	3,500		—		86		—		—		86		—		86
Restricted stock awards	60,592		—		—		—		—		—		—		—
Restricted stock awards forfeited	(270)		—		—		—		—		—		—		—
Tax withholding payment related to net share settlement of equity awards	(22,897)		—		(1,756)		—		—		(1,756)		—		(1,756)
Stock based compensation	—		—		1,595		—		—		1,595		—		1,595
Balance at August 1, 2020	24,104,564	$	2	$	181,406	$	338,170	$	351	$	519,929	$	(37)	$	519,892

See accompanying notes to consolidated financial statements (unaudited).

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AeroVironment, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended
	July 31,		August 1,
	2021		2020
Operating activities
Net (loss) income	$	(13,918)	$	10,043
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization		13,654		2,779
Losses from equity method investments, net		1,141		1,288
Amortization of debt issuance costs		129		—
Realized gain from sale of available-for-sale investments		—		(11)
Provision for doubtful accounts		(20)		(136)
Other non-cash expense		48		—
Non-cash lease expense		1,677		1,190
(Gain) loss on foreign currency transactions		19		1
Deferred income taxes		(472)		(339)
Stock-based compensation		1,922		1,595
Loss on sale of property and equipment		379		2
Amortization of debt securities		90		(43)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		17,914		30,439
Unbilled receivables and retentions		(14,684)		2,046
Inventories		(6,058)		5
Income taxes receivable		(326)		—
Prepaid expenses and other assets		481		324
Accounts payable		(7,997)		(7,338)
Other liabilities		(9,283)		(15,004)
Net cash (used in) provided by operating activities		(15,304)		26,841
Investing activities
Acquisition of property and equipment		(5,428)		(4,067)
Equity method investments		(2,692)		(1,173)
Business acquisitions, net of cash acquired		(46,150)		—
Redemptions of available-for-sale investments		17,925		41,727
Purchases of available-for-sale investments		—		(69,961)
Net cash used in investing activities		(36,345)		(33,474)
Financing activities
Principal payment of loan		(2,500)		—
Holdback and retention payments for business acquisition		(5,991)		—
Tax withholding payment related to net settlement of equity awards		(1,176)		(1,756)
Exercise of stock options		119		86
Other		(8)		—
Net cash used in financing activities		(9,556)		(1,670)
Effects of currency translation on cash and cash equivalents		(111)		—
Net decrease in cash, cash equivalents, and restricted cash		(61,316)		(8,303)
Cash, cash equivalents and restricted cash at beginning of period		157,063		255,142
Cash, cash equivalents and restricted cash at end of period	$	95,747	$	246,839
Supplemental disclosures of cash flow information
Cash paid, net during the period for:
Income taxes	$	—	$	10
Non-cash activities
Unrealized loss on available-for-sale investments, net of deferred tax benefit of $0 and $4 for the three months ended July 31, 2021 and August 1, 2020, respectively	$	4	$	52
Change in foreign currency translation adjustments	$	(733)	$	75
Issuances of inventory to property and equipment, ISR in-service assets	$	6,881	$	—
Acquisitions of property and equipment included in accounts payable	$	821	$	643

See accompanying notes to consolidated financial statements (unaudited).

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AeroVironment, Inc.

Notes to Consolidated Financial Statements (Unaudited)

1. Organization and Significant Accounting Policies

Organization

AeroVironment, Inc., a Delaware corporation (the “Company”), is engaged in the design, development, production, delivery and support of a technologically advanced portfolio of intelligent, multi-domain robotic systems and related services for government agencies and businesses. AeroVironment, Inc. supplies unmanned aircraft systems (“UAS”), tactical missile systems (“TMS”), unmanned ground vehicles (“UGV”) and related services primarily to organizations within the U.S. Department of Defense (“DoD”) and to international allied governments.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three months ended July 31, 2021 are not necessarily indicative of the results for the full year ending April 30, 2022. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2021, included in the Company’s Annual Report on Form 10-K.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including estimates of anticipated contract costs and revenue utilized in the revenue recognition process, that affect the reported amounts in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

The Company’s unaudited consolidated financial statements include the assets, liabilities and operating results of wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

On February 19, 2021, the Company closed its acquisition of Arcturus UAV, Inc. (“Arcturus”), a California corporation, pursuant to a Stock Purchase Agreement (the “Arcturus Purchase Agreement”) with Arcturus and each of the shareholders and other equity interest holders of Arcturus (collectively, the “Arcturus Sellers”), to purchase 100% of the issued and outstanding equity interests of Arcturus (the “Arcturus Acquisition”). The assets, liabilities and operating results of Arcturus have been included in the Company’s unaudited consolidated financial statements. Refer to Note 18—Business Acquisitions for further details.

On February 23, 2021, the Company purchased certain assets of, and assumed certain liabilities of, the Intelligent Systems Group business segment (“ISG”) of Progeny Systems Corporation, a Virginia corporation (the “ISG Seller”), pursuant to the terms of an Asset Purchase Agreement (the “ISG Purchase Agreement”) of the same date, by and among the Company, ISG Seller and the sole shareholder of ISG Seller (the “Beneficial Owner,” and such acquisition of ISG, the “ISG Acquisition”). The assets, liabilities and operating results of ISG have been included in the Company’s unaudited consolidated financial statements. Refer to Note 18—Business Acquisitions for further details.

On May 3, 2021, the Company closed its acquisition of Telerob Gesellschaft für Fernhantierungstechnik mbH, a German company based in Ostfildern (near Stuttgart), Germany (“Telerob GmbH”), including Telerob GmbH’s wholly-owned subsidiary, Telerob USA, Inc. (“Telerob USA,” and collectively with Telerob GmbH, “Telerob”) pursuant to its previously announced Share Purchase Agreement (the “Telerob Purchase Agreement”) with Unmanned Systems

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Investments GmbH, a German limited liability company incorporated under the laws of Germany (the “Telerob Seller”), and each of the unit holders of the Seller (collectively, the “Telerob Shareholders”), to purchase 100% of the issued and outstanding shares of Telerob Seller’s wholly-owned subsidiary Telerob GmbH (the “Telerob Acquisition”). The assets, liabilities and operating results of Telerob GmbH have been included in the Company’s unaudited consolidated financial statements. Refer to Note 18—Business Acquisitions for further details.

Recently Adopted Accounting Standards

The Company did not adopt any accounting standards during the three months ended July 31, 2021.

Revenue Recognition

The Company’s revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products and to provide related engineering, technical and other services according to the specifications of the customers. These contracts may be firm fixed price (“FFP”), cost plus fixed fee (“CPFF”), or time and materials (“T&M”). The Company considers all such contracts to be within the scope of ASC Topic 606.

Performance Obligations

A performance obligation is a promise in a contract to transfer distinct goods or services to a customer, and it is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when each performance obligation under the terms of a contract is satisfied. Revenue is measured at the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its observable standalone selling price for products and services. When the standalone selling price is not directly observable, the Company uses its best estimate of the standalone selling price of each distinct good or service in the contract using the cost plus margin approach. This approach estimates the Company’s expected costs of satisfying the performance obligation and then adds an appropriate margin for that distinct good or service.

Contract modifications are routine in the performance of the Company’s contracts. In most instances, contract modifications are for additional goods and/or services that are distinct and, therefore, accounted for as new contracts.

The Company’s performance obligations are satisfied over time or at a point in time. Performance obligations are satisfied over time if the customer receives the benefits as the Company performs, if the customer controls the asset as it is being developed or produced, or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment for the Company’s costs incurred to date plus a reasonable margin. The contractual right to payment is generally supported by termination for convenience clauses that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process. Revenue for TMS product deliveries and Customer-Funded Research and Development contracts is recognized over time as costs are incurred. Contract services revenue is composed of revenue recognized on contracts for the provision of services, including repairs and maintenance, training, engineering design, development and prototyping activities, and technical support services. Contract services revenue is recognized over time as services are rendered. Typically, revenue is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract services revenue, including revenue from intelligence, surveillance, and reconnaissance (“ISR”) services, is recognized over time as services are rendered. In accordance with ASC Topic 606, the Company elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, such as flight hours for ISR services, the entity may recognize revenue in the amount to which the entity has a right to invoice. Training services are recognized over time using an output method based on days of training completed.

For performance obligations satisfied over time, revenue is generally recognized using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with, and thereby best depict, transfer of control to the customer. Contract costs include labor, materials, subcontractors’

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costs, other direct costs, and indirect costs applicable on government and commercial contracts.

For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is recognized at the point in time in which each performance obligation is fully satisfied. The Company’s small UAS, medium UAS (“MUAS) and UGV product sales revenue is composed of revenue recognized on contracts for the delivery of small UAS, MUAS and UGV systems and spare parts. Revenue is recognized at the point in time when control transfers to the customer, which generally occurs when title and risk of loss have passed to the customer.

Performance obligations satisfied over time accounted for 61% and 38% of revenue during the three months ended July 31, 2021 and August 1, 2020, respectively. Performance obligations satisfied at a point in time accounted for 39% and 62% of revenue during the three months ended July 31, 2021 and August 1, 2020, respectively.

On July 31, 2021, the Company had approximately $257,685,000 of remaining performance obligations under fully funded contracts with its customers, which the Company also refers to as funded backlog. The Company currently expects to recognize approximately 84% of the remaining performance obligations as revenue in fiscal 2022 and an additional 16% in fiscal 2023.

The Company collects sales, value added, and other taxes concurrent with revenue producing activities, which are excluded from revenue when they are both imposed on a specific transaction and collected from a customer.

Contract Estimates

Accounting for contracts and programs primarily with a duration of less than six months involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the total expected costs to complete the contract and recognizes revenue based on the percentage of costs incurred at period end. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the 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.

Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer.

The nature of the Company’s contracts gives rise to several types of variable consideration, including penalty fees and incentive awards generally for late delivery and early delivery, respectively. The Company generally estimates such variable consideration as the most likely amount. In addition, the Company includes the estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the related uncertainty is resolved. These estimates are based on historical award experience, anticipated performance and the Company’s best judgment at the time. Based on experience in estimating these amounts, they are included in the transaction price of the Company’s contracts and the associated remaining performance obligations.

As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company regularly reviews and updates its contract-related estimates. Changes in cumulative revenue estimates, due to changes in the estimated transaction price or cost estimates, are recorded using a cumulative catch-up adjustment in the period identified for contracts with performance obligations recognized over time. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter it is identified, and it is recorded in other current liabilities.

The impact of adjustments in contract estimates on the Company’s operating earnings can be reflected in either operating costs and expenses, or revenue. The aggregate impact of adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was not significant for the three month period

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ended July 31, 2021 or the three month period ended August 1, 2020. No adjustment on any one contract was material to the Company’s unaudited consolidated financial statements for the three month period ended July 31, 2021 or the three month period ended August 1, 2020.

Revenue by Category

The following tables present the Company’s revenue disaggregated by major product line, contract type, customer category and geographic location (in thousands):


	Three Months Ended
	July 31,		August 1,
Revenue by major product line/program	2021		2020
Small UAS	$	39,924	$	56,202
TMS		19,176		9,534
MUAS		22,379		—
Other		19,530		21,714
Total revenue	$	101,009	$	87,450


	Three Months Ended
	July 31,		August 1,
Revenue by contract type	2021		2020
FFP	$	80,766	$	60,875
CPFF		19,117		26,569
T&M		1,126		6
Total revenue	$	101,009	$	87,450

Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more risk with FFP contracts. However, these types of contracts generally offer additional profits when the Company completes the work for less than originally estimated. CPFF contracts generally subject the Company to lower risk. Accordingly, the associated base fees are usually lower than fees on FFP contracts. Under T&M contracts, the Company’s profit may vary if actual labor hour rates vary significantly from the negotiated rates.


	Three Months Ended
	July 31,		August 1,
Revenue by customer category	2021		2020
U.S. government	$	71,075	$	53,796
Non-U.S. government		29,934		33,654
Total revenue	$	101,009	$	87,450

	Three Months Ended
	July 31,		August 1,
Revenue by geographic location	2021		2020
Domestic	$	68,388	$	53,430
International		32,621		34,020
Total revenue	$	101,009	$	87,450

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables, and customer advances and deposits on the consolidated balance sheet. In the Company’s services contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which is generally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets recorded in unbilled receivables and retentions on the consolidated balance sheet. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities recorded in customer advances on the consolidated balance sheet. Contract

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liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. For the Company’s product revenue, the Company generally receives cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting in billed accounts receivable. Changes in the contract asset and liability balances during the three month period ended July 31, 2021 were not materially impacted by any other factors. For the Company’s contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.

Revenue recognized for the three month periods ended July 31, 2021 that was included in contract liability balances at the beginning of April 30, 2021 was $309,000; and revenue recognized for the three month periods ended August 1, 2020 that was included in contract liability balances at the beginning of April 30, 2020 was $1,973,000.

Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s CODM, collectively the Chief Executive Officer and Chief Operations Officer, makes operating decisions, assesses performance and makes resource allocation decisions, including the allocation of research and development (“R&D”). Accordingly, the Company identifies three reportable segments. Refer to Note 20—Segments for further details.

Investments

The Company’s investments are accounted for as available-for-sale and are reported at fair value. Unrealized gains and losses are excluded from earnings and reported as a separate component of stockholders’ equity, net of deferred income taxes for available-for-sale investments. Gains and losses realized on the disposition of investment securities are determined on the specific identification basis and credited or charged to income. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Fair Values of Financial Instruments

Fair values of cash and cash equivalents, accounts receivable, unbilled receivables and retentions, and accounts payable approximate cost due to the short period of time to maturity.

Government Contracts

Payments to the Company on government CPFF or T&M contracts are based on provisional, or estimated indirect rates, which are subject to an annual audit by the Defense Contract Audit Agency (“DCAA”). The cost audits result in the negotiation and determination of the final indirect cost rates that the Company may use for the period(s) audited. The final rates, if different from the provisional rates, may create an additional receivable or liability for the Company for CPFF and T&M contracts.

For example, during the course of its audits, the DCAA may question the Company’s incurred costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallow such costs. Historically, the Company has not experienced material disallowed costs as a result of government audits. However, the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future. The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable government contracts to be recorded at actual rates unless collectability is not reasonably assured. At July 31, 2021 and April 30, 2021, the Company had no reserve for incurred cost claim audits.

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(Loss) Earnings Per Share

Basic (loss) earnings per share is computed using the weighted-average number of common shares outstanding, excluding shares of unvested restricted stock.

The reconciliation of basic to diluted shares is as follows:


		Three Months Ended
	July 31, 2021		August 1, 2020
Net income attributable to AeroVironment, Inc.	$	(13,981)	$	10,080
Denominator for basic earnings (loss) per share:
Weighted average common shares		24,620,180		23,893,001
Dilutive effect of employee stock options, restricted stock and restricted stock units		—		293,227
Denominator for diluted earnings (loss) per share		24,620,180		24,186,228

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 3,871 and 844 for the three months ended July 31, 2021 and August 1, 2020,

respectively. Due to the net loss for the three months ended July 31, 2021, no shares reserved for issuance upon exercise of stock options or shares of unvested restricted stock were included in the computation of diluted loss per share as their inclusion would have been anti-dilutive. Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 276,107 for the three months ended July 31, 2021.

Recently Issued Accounting Standards

Accounting pronouncements issued but not effective until after July 31, 2021 are not expected to be applicable to the Company.

2. Discontinued Operations

On June 29, 2018, the Company completed the sale of substantially all of the assets and related liabilities of its efficient energy systems business segment (the “EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) between Webasto and the Company. In accordance with the terms of the Purchase Agreement, as amended by a side letter agreement executed at the closing, the Company received cash consideration of $31,994,000 upon closing, which resulted in a gain of $11,420,000 and has been recorded in gain on sale of business, net of tax in the consolidated statements of operations. During the year ended April 30, 2019, the Company recorded a reduction to the gain resulting from a working capital adjustment of $486,000. During the year ended April 30, 2020, the Company and Webasto engaged an independent accounting firm to resolve a working capital dispute with a maximum exposure of $922,000 pursuant to the terms of the Purchase Agreement. In June 2020, the independent accounting firm determined the final adjustment to the working capital dispute to be $341,000 which has been recorded net of tax as a loss of discontinued operations in the consolidated statements of operations for the year ended April 30, 2020.

The Company is entitled to receive additional cash consideration of $6,500,000 (the “Holdback”) upon tendering consents to assignment of two remaining customer contracts to Webasto. The Holdback was not recorded in the Company’s unaudited consolidated financial statements as the amount was not realized or realizable as of July 31, 2021. The Company’s satisfaction of the requirements for the payment of the Holdback is currently in dispute.

On February 22, 2019, Webasto filed a lawsuit, which was amended in April 2019, alleging several claims against the Company for breach of contract, indemnity, and bad faith, including allegations regarding inaccuracy of certain diligence disclosures and failure to provide certain consents to contract assignments, and related to a previously announced product recall. Webasto seeks to recover the costs of the recall and other damages totaling a minimum of $6,500,000 in

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addition to attorneys’ fees, costs, and punitive damages. On August 16, 2019, the Company filed a counterclaim against Webasto seeking payment of the Holdback and declaratory relief regarding Webasto’s cancellation of an assigned contract. Webasto again amended the complaint in May 2021 to include additional claims. On June 2, 2021, the Company filed an answer to Webasto’s second amended complaint filed in May 2021. The Company’s evaluation remains that many of the allegations in the Webasto lawsuit are meritless, but as the discovery phase of litigation continues the Company lacks sufficient information to fully analyze other allegations at this time. The Company continues to mount a vigorous defense.

In order to avoid the future cost, expense, and distraction of continued litigation, the Company engaged in settlement negotiations with Webasto; however, the negotiations did not result in a settlement of any of the Company’s or Webasto’s claims. As a result of the settlement negotiations, the Company established a litigation reserve, which reserve reflects the scope of a rejected offer intended to communicate the Company’s serious and good faith intention to attempt to reach a settlement for the stated purposes. The offer did not reflect the Company’s view of the merits of the claims made, and the Company continues to vigorously defend all claims. However, as a result of the preparation of the good faith offer and the Company’s willingness to pursue settlement for that amount, the Company recorded litigation reserve expenses in the amount of $9,300,000 during the year ended April 30, 2021 recorded in other expense on the consolidated statements of operations and in other non-current liabilities on the consolidated balance sheet.

During the three months ended October 27, 2018, Webasto filed a recall report with the National Highway Traffic Safety Administration that named certain of the Company’s EES products as subject to the recall. The Company is continuing to assess the facts giving rise to the recall. Under the terms of the Purchase Agreement, the Company may be responsible for certain costs of such recall of named products the Company manufactured, sold or serviced prior to the closing of the sale of the EES Business. On August 14, 2019, Benchmark Electronics, Inc. (“Benchmark”), the company that assembled the products subject to the recall, served a demand for arbitration to the Company and Webasto, and a third-party part supplier pursuant to its contracts with the Company and Webasto, respectively. The Company filed a responsive pleading in the Benchmark arbitration on October 29, 2019, consisting of a general denial, affirmative defenses, and a reservation of the right to file counter-claims at a later date. Webasto challenged the validity of the Benchmark arbitration by filing an action in New York Superior Court. In December 2019, Webasto and Benchmark reached a settlement of their disputed claims. Benchmark withdrew its Notice of Arbitration against Webasto and the Company, but reserved its right to pursue indemnity claims against suppliers. The recall remains a significant part of the Webasto lawsuit.

Concurrent with the execution of the Purchase Agreement, the Company entered into a transition services agreement (the “TSA”) to provide certain general and administrative services to Webasto for a defined period. Income from performing services under the TSA was $0 and $38,000 and has been recorded in other (expense) income, net in the unaudited consolidated statements of operations for the three months ended July 31, 2021 and August 1, 2020, respectively.

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3. Investments

Investments consist of the following (in thousands):


	July 31,		April 30,
	2021		2021
Short-term investments:
Available-for-sale securities:
Municipal securities		12,264		22,245
U.S. government securities		—		4,009
Corporate bonds		5,689		5,717
Total short-term investments	$	17,953	$	31,971
Long-term investments:
Available-for-sale securities:
Municipal securities		987		988
U.S. government securities		—		4,000
Total long-term available-for-sale investments		987		4,988
Equity method investments
Investment in limited partnership fund		9,178		7,168
Total equity method investments		9,178		7,168
Total long-term investments	$	10,165	$	12,156

Available-For-Sale Securities

As of July 31, 2021 and April 30, 2021, the balance of available-for-sale securities consisted of state and local government municipal securities, U.S. government securities, U.S. government agency securities, and investment grade corporate bonds. Interest earned from these investments is recorded in interest income. Realized gains on sales of these investments on the basis of specific identification are recorded in (expense) interest income.

The following table is a summary of the activity related to the available-for-sale investments recorded in short-term and long-term investments as of July 31, 2021 and April 30, 2021, respectively (in thousands):


	July 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Municipal securities	$	13,249	$	3	$	(1)	$	13,251
Corporate bonds		5,689		—		—		5,689
Total available-for-sale investments	$	18,938	$	3