UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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AeroVironment, Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AeroVironment, Inc.
Condensed Consolidated Balance Sheets
(In thousands except share and per share data)
July 30, |
| April 30, | |||||
2022 | 2022 | ||||||
| (Unaudited) |
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Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Short-term investments | | | |||||
Accounts receivable, net of allowance for doubtful accounts of $ |
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Unbilled receivables and retentions (inclusive of related party unbilled receivables of $ |
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Inventories |
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Income taxes receivable | — | | |||||
Prepaid expenses and other current assets |
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Total current assets |
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Long-term investments | | | |||||
Property and equipment, net |
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Operating lease right-of-use assets | | | |||||
Deferred income taxes |
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Intangibles, net | | | |||||
Goodwill | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Wages and related accruals |
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Customer advances |
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Current portion of long-term debt | | | |||||
Current operating lease liabilities | | | |||||
Income taxes payable | | | |||||
Other current liabilities |
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Total current liabilities |
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Long-term debt, net of current portion | | | |||||
Non-current operating lease liabilities | | | |||||
Other non-current liabilities | | | |||||
Liability for uncertain tax positions |
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Deferred income taxes | | | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $ | |||||||
Authorized shares— |
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Common stock, $ | |||||||
Authorized shares— | |||||||
and shares— |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
| ( |
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Retained earnings |
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Total AeroVironment, Inc. stockholders’ equity |
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Noncontrolling interest | | | |||||
Total equity | | | |||||
Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements (unaudited).
3
AeroVironment, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)
Three Months Ended | |||||||
July 30, | July 31, | ||||||
| 2022 |
| 2021 |
| |||
Revenue: | |||||||
Product sales | $ | | $ | | |||
Contract services (inclusive of related party revenue of $ |
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Cost of sales: | |||||||
Product sales |
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Contract services |
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Gross margin: |
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Product sales | | | |||||
Contract services | | | |||||
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Selling, general and administrative |
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Research and development |
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Loss from operations |
| ( |
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Other loss: | |||||||
Interest expense, net |
| ( |
| ( | |||
Other expense, net |
| ( |
| ( | |||
Loss before income taxes |
| ( |
| ( | |||
Provision for (benefit from) income taxes |
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| ( | |||
Equity method investment loss, net of tax |
| ( |
| ( | |||
Net loss | ( | ( | |||||
Net income attributable to noncontrolling interest | ( | ( | |||||
Net loss attributable to AeroVironment, Inc. | $ | ( | $ | ( | |||
Net loss per share attributable to AeroVironment, Inc. | |||||||
Basic | $ | ( | $ | ( | |||
Diluted | $ | ( | $ | ( | |||
Weighted-average shares outstanding: | |||||||
Basic |
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Diluted |
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| |
See accompanying notes to condensed consolidated financial statements (unaudited).
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AeroVironment, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
Three Months Ended | |||||||
July 30, | July 31, | ||||||
| 2022 |
| 2021 |
| |||
Net loss | $ | ( | $ | ( | |||
Other comprehensive income (loss): | |||||||
Unrealized gain (loss) on available-for-sale investments, net of deferred tax expense of $ |
| |
| ( | |||
Change in foreign currency translation adjustments | ( | ( | |||||
Total comprehensive loss | ( | ( | |||||
Net income attributable to noncontrolling interest | ( | ( | |||||
Comprehensive loss attributable to AeroVironment, Inc. | $ | ( | $ | ( |
See accompanying notes to condensed consolidated financial statements (unaudited).
5
AeroVironment, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the three months ended July 30, 2022 and July 31, 2021 (Unaudited)
(In thousands except share data)
Accumulated |
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Additional | Other | Total | Non- |
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Common Stock | Paid-In | Retained | Comprehensive | AeroVironment, Inc. | Controlling |
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| Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) | Equity | Interest |
| Total |
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Balance at April 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | | ||||||||
Net (loss) income |
| — |
| — |
| — |
| ( |
| — | ( | |
| ( | ||||||||||
Unrealized gain on investments | — |
| — |
| — |
| — |
| | | — |
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Foreign currency translation | — |
| — |
| — |
| — |
| ( | ( | — |
| ( | |||||||||||
Restricted stock awards |
| |
| — |
| — |
| — | — | — | — |
| — | |||||||||||
Restricted stock awards forfeited |
| ( |
| — |
| — |
| — | — | — | — |
| — | |||||||||||
Tax withholding payment related to net share settlement of equity awards |
| ( |
| — |
| ( |
| — | — | ( | — |
| ( | |||||||||||
Stock based compensation |
| — |
| — |
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| — | — | | — |
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Balance at July 30, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | | ||||||||
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 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Net (loss) income |
| — |
| — |
| — |
| ( |
| — | ( | |
| ( | ||||||||||
Unrealized loss on investments | — |
| — |
| — |
| — |
| ( | ( | — |
| ( | |||||||||||
Foreign currency translation | — |
| — |
| — |
| — |
| ( | ( | — |
| ( | |||||||||||
Stock options exercised |
| |
| — |
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| — | — | | — |
| | |||||||||||
Restricted stock awards |
| |
| — |
| — |
| — | — | — | — |
| — | |||||||||||
Restricted stock awards forfeited |
| ( |
| — |
| — |
| — | — | — | — |
| — | |||||||||||
Tax withholding payment related to net share settlement of equity awards |
| ( |
| — |
| ( |
| — | — | ( | — |
| ( | |||||||||||
Stock based compensation | — |
| — |
| |
| — | — | | — |
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Balance at July 31, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | |
6
AeroVironment, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended | |||||||
| July 30, |
| July 31, |
| |||
2022 | 2021 | ||||||
Operating activities | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss from operations to cash provided by (used in) operating activities: | |||||||
Depreciation and amortization |
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Loss from equity method investments | | | |||||
Amortization of debt issuance costs | | | |||||
Provision for doubtful accounts |
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| ( | |||
Other non-cash expense, net | | | |||||
Non-cash lease expense | | | |||||
(Gain) loss on foreign currency transactions |
| ( |
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Deferred income taxes |
| ( |
| ( | |||
Stock-based compensation |
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Loss on disposal of property and equipment | | | |||||
Amortization of debt securities | | | |||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||
Accounts receivable |
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Unbilled receivables and retentions |
| |
| ( | |||
Inventories |
| ( |
| ( | |||
Income taxes receivable | | ( | |||||
Prepaid expenses and other assets |
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Accounts payable |
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| ( | |||
Other liabilities | ( | ( | |||||
Net cash provided by (used in) operating activities |
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| ( | |||
Investing activities | |||||||
Acquisition of property and equipment |
| ( |
| ( | |||
Equity method investments | ( | ( | |||||
Business acquisitions, net of cash acquired | — | ( | |||||
Redemptions of available-for-sale investments |
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Purchases of available-for-sale investments | ( | — | |||||
Net cash provided by (used in) investing activities |
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| ( | |||
Financing activities | |||||||
Principal payments of term loan | ( | ( | |||||
Tax withholding payment related to net settlement of equity awards | ( | ( | |||||
Holdback and retention payments for business acquisition | — | ( | |||||
Exercise of stock options |
| — |
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Other | ( | ( | |||||
Net cash used in financing activities |
| ( |
| ( | |||
Effects of currency translation on cash and cash equivalents | ( | ( | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash |
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| ( | |||
Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | |||
Supplemental disclosures of cash flow information | |||||||
Cash paid, net during the period for: | |||||||
Income taxes | $ | — | $ | — | |||
Interest | $ | | $ | — | |||
Non-cash activities | |||||||
Unrealized (gain) loss on available-for-sale investments, net of deferred tax expense of $ | $ | ( | $ | | |||
Change in foreign currency translation adjustments | $ | ( | $ | ( | |||
Issuances of inventory to property and equipment, ISR in-service assets | $ | | $ | | |||
Acquisitions of property and equipment included in accounts payable | $ | | $ | |
See accompanying notes to condensed consolidated financial statements (unaudited).
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AeroVironment, Inc.
Notes to Condensed 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 condensed 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 30, 2022 are not necessarily indicative of the results for the full year ending April 30, 2023. For further information, refer to the condensed consolidated financial statements and footnotes thereto for the year ended April 30, 2022, 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 condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The Company’s unaudited condensed consolidated financial statements include the assets, liabilities and operating results of wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
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 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, to purchase
On September 15, 2021, the Company entered into a Share Sale and Purchase Agreement with Toygun Savunma Sanayi ve Havacilik Anonim Sirketi (“Toygun”) whereby the Company sold
8
statements. At that time, the Company is expected to account for its investment in Altoy as an equity method investment and record its proportion of any gains or losses of Altoy in equity method investments, net of tax.
Recently Adopted Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires an acquirer to apply the guidance in ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities in a business combination, rather than using fair value. On May 1, 2022, the Company early adopted ASU 2021-08. ASU 2021-08 is adopted prospectively and could impact future acquisitions.
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, Revenue from Contracts with Customers (“ASC 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 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 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
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total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with, and thereby best depict, transfer of control to the customer. Contract costs include labor, materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts.
For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is recognized at the point in time in which each performance obligation is fully satisfied. The Company’s 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, 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.
Performance obligations satisfied over time accounted for
On July 30, 2022, the Company had approximately $
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.
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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 periods ended July 30, 2022 or the three month period ended July 31, 2021. During the three months ended July 30, 2022, the Company revised its estimates of the total expected costs to complete a TMS 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 a decrease to revenue of approximately $
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 30, | July 31, | |||||
Revenue by segment |
| 2022 |
| 2021 | |||
Small UAS | $ | | $ | | |||
TMS | | | |||||
MUAS | | | |||||
HAPS | | | |||||
All Other |
| |
| | |||
Total revenue | $ | | $ | |
Three Months Ended | |||||||
| July 30, | July 31, | |||||
Revenue by contract type | 2022 |
| 2021 | ||||
FFP | $ | | $ | | |||
CPFF | | | |||||
T&M |
|
| |
| | ||
Total revenue | $ | | $ | |
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 30, | July 31, | |||||
Revenue by customer category | 2022 |
| 2021 | ||||
U.S. government | $ | | $ | | |||
Non-U.S. government | | | |||||
Total revenue | $ | | $ | | |||
Three Months Ended | |||||||
July 30, | July 31, | ||||||
Revenue by geographic location | 2022 |
| 2021 | ||||
Domestic | $ | | $ | | |||
International | | | |||||
Total revenue | $ | | $ | |
11
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 condensed 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 condensed 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 condensed consolidated balance sheet. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on the condensed 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 30, 2022 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 30, 2022 that was included in contract liability balances as of April 30, 2022 was $
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. As of July 30, 2022, the Company’s CODM, the Chief Executive Officer, makes operating decisions, assesses performance and makes resource allocation decisions, including the allocation for research and development (“R&D”). Accordingly, the Company identifies
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
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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 30, 2022 and April 30, 2022, the Company had no reserve for incurred cost claim audits.
Loss Per Share
Basic loss 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 (in thousands except share data):
Three Months Ended |
| ||||||
| July 30, 2022 |
| July 31, 2021 |
| |||
Net loss attributable to AeroVironment, Inc. | $ | ( | $ | ( | |||
Denominator for basic loss per share: | |||||||
Weighted average common shares |
| |
| | |||
Dilutive effect of employee stock options, restricted stock and restricted stock units |
| — |
| — | |||
Denominator for diluted loss per share | |
Due to the net loss for the three months ended July 30, 2022 and July 31, 2021,
Recently Issued Accounting Standards
No recently issued accounting standards expected to impact 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.
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 sought to recover the costs of the recall and other damages totaling a minimum of $
In order to avoid the future cost, expense, and distraction of continued litigation, the Company engaged in settlement negotiations with Webasto in May 2021. While the negotiations did not result in a settlement of any of the Company’s or Webasto’s claims at such time, as a result of the settlement negotiations, the Company established a litigation reserve, which reflected 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
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claims made; 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 $
3. Investments
Investments consist of the following (in thousands):
July 30, | April 30, | ||||||
| 2022 |
| 2022 |
| |||
Short-term investments: | |||||||
Available-for-sale securities: | |||||||
Municipal securities | | | |||||
U.S. government securities | | | |||||
Total short-term investments | $ | | $ | | |||
Equity method investments | |||||||
Investments in limited partnership funds |
| |
| | |||
Total equity method investments |
| |
| | |||
Total long-term investments | $ | | $ | |
Available-For-Sale Securities
As of July 30, 2022 and April 30, 2022, the balance of available-for-sale securities consisted of state and local government municipal securities, U.S. government securities and U.S. government agency securities. Interest earned from these investments is recorded in interest expense, net. Realized gains on sales of these investments on the basis of specific identification are recorded in interest expense, net.
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 30, 2022 and April 30, 2022, respectively (in thousands):
July 30, 2022 | ||||||||||||||
|
| Gross |
| Gross |
|
|
| |||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||
Cost | Gains | Losses | Value | |||||||||||
Municipal securities | $ | | $ | | $ | ( | $ | | ||||||
U.S. government securities | | — | ( | | ||||||||||
Total available-for-sale investments | $ | | $ | | $ | ( | $ | |
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