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Table of Contents

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 30, 2022

OR

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 18th 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 August 31, 2022, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 24,989,101.

Table of Contents

AeroVironment, Inc.

Table of Contents

Item 1.

Financial Statements :

    

Condensed Consolidated Balance Sheets as of July 30, 2022 (Unaudited) and April 30, 2022

3

Condensed Consolidated Statements of Operations for the three months ended July 30, 2022 (Unaudited) and July 31, 2021 (Unaudited)

4

Condensed Consolidated Statements of Comprehensive Loss for the three months ended July 30, 2022 (Unaudited) and July 31, 2021 (Unaudited)

5

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended July 30, 2022 (Unaudited) and July 31, 2021 (Unaudited)

6

Condensed Consolidated Statements of Cash Flows for the three months ended July 30, 2022 (Unaudited) and July 31, 2021 (Unaudited)

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

38

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Defaults Upon Senior Securities

40

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

41

Signatures

41

2

Table of Contents

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)

 

Assets

Current assets:

Cash and cash equivalents

$

93,183

$

77,231

Short-term investments

12,655

24,716

Accounts receivable, net of allowance for doubtful accounts of $615 at July 30, 2022 and $592 at April 30, 2022

 

52,062

 

60,170

Unbilled receivables and retentions (inclusive of related party unbilled receivables of $2,229 at April 30, 2022)

 

89,397

 

104,194

Inventories

 

98,603

 

90,629

Income taxes receivable

442

Prepaid expenses and other current assets

 

11,368

 

11,527

Total current assets

 

357,268

 

368,909

Long-term investments

17,707

15,433

Property and equipment, net

 

61,862

 

62,296

Operating lease right-of-use assets

25,385

26,769

Deferred income taxes

 

7,671

 

7,290

Intangibles, net

91,009

97,224

Goodwill

333,791

334,347

Other assets

 

1,961

 

1,932

Total assets

$

896,654

$

914,200

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

21,945

$

19,244

Wages and related accruals

 

17,403

 

25,398

Customer advances

 

10,258

 

8,968

Current portion of long-term debt

10,000

10,000

Current operating lease liabilities

7,029

6,819

Income taxes payable

2,962

759

Other current liabilities

 

26,279

 

30,203

Total current liabilities

 

95,876

 

101,391

Long-term debt, net of current portion

175,481

177,840

Non-current operating lease liabilities

20,371

21,915

Other non-current liabilities

759

768

Liability for uncertain tax positions

 

1,450

 

1,450

Deferred income taxes

2,547

2,626

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.0001 par value:

Authorized shares—10,000,000; none issued or outstanding at July 30, 2022 and April 30, 2022

 

 

Common stock, $0.0001 par value:

Authorized shares—100,000,000

Issued and outstanding shares—24,990,590 shares at July 30, 2022 and 24,951,287 shares at April 30, 2022

 

2

 

2

Additional paid-in capital

 

268,641

 

267,248

Accumulated other comprehensive loss

 

(7,558)

 

(6,514)

Retained earnings

 

338,838

 

347,233

Total AeroVironment, Inc. stockholders’ equity

 

599,923

 

607,969

Noncontrolling interest

247

241

Total equity

600,170

608,210

Total liabilities and stockholders’ equity

$

896,654

$

914,200

See accompanying notes to condensed consolidated financial statements (unaudited).

3

Table of Contents

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

$

57,974

$

53,116

Contract services (inclusive of related party revenue of $10,352 for the three months ended July 31, 2021)

 

50,542

 

47,893

 

108,516

 

101,009

Cost of sales:

Product sales

 

32,899

 

32,590

Contract services

 

41,903

 

39,696

 

74,802

 

72,286

Gross margin:

 

Product sales

25,075

20,526

Contract services

8,639

8,197

 

33,714

 

28,723

Selling, general and administrative

 

21,943

 

27,128

Research and development

 

15,045

 

13,708

Loss from operations

 

(3,274)

 

(12,113)

Other loss:

Interest expense, net

 

(1,603)

 

(1,275)

Other expense, net

 

(406)

 

(346)

Loss before income taxes

 

(5,283)

 

(13,734)

Provision for (benefit from) income taxes

 

2,606

 

(957)

Equity method investment loss, net of tax

 

(500)

 

(1,141)

Net loss

(8,389)

(13,918)

Net income attributable to noncontrolling interest

(6)

(63)

Net loss attributable to AeroVironment, Inc.

$

(8,395)

$

(13,981)

Net loss per share attributable to AeroVironment, Inc.

Basic

$

(0.34)

$

(0.57)

Diluted

$

(0.34)

$

(0.57)

Weighted-average shares outstanding:

Basic

 

24,804,232

 

24,620,180

Diluted

 

24,804,232

 

24,620,180

See accompanying notes to condensed consolidated financial statements (unaudited).

4

Table of Contents

AeroVironment, Inc.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(In thousands)

Three Months Ended

July 30,

July 31,

    

2022

    

2021

 

Net loss

$

(8,389)

$

(13,918)

Other comprehensive income (loss):

Unrealized gain (loss) on available-for-sale investments, net of deferred tax expense of $6 and $0 for the three months ended July 30, 2022 and July 31, 2021, respectively

 

20

 

(4)

Change in foreign currency translation adjustments

(1,064)

(733)

Total comprehensive loss

(9,433)

(14,655)

Net income attributable to noncontrolling interest

(6)

(63)

Comprehensive loss attributable to AeroVironment, Inc.

$

(9,439)

$

(14,718)

See accompanying notes to condensed consolidated financial statements (unaudited).

5

Table of Contents

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

 

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, 2022

 

24,951,287

$

2

$

267,248

$

347,233

$

(6,514)

$

607,969

$

241

$

608,210

Net (loss) income

 

 

 

 

(8,395)

 

(8,395)

6

 

(8,389)

Unrealized gain on investments

 

 

 

 

20

20

 

20

Foreign currency translation

 

 

 

 

(1,064)

(1,064)

 

(1,064)

Restricted stock awards

 

55,817

 

 

 

 

Restricted stock awards forfeited

 

(6,138)

 

 

 

 

Tax withholding payment related to net share settlement of equity awards

 

(10,376)

 

 

(824)

 

(824)

 

(824)

Stock based compensation

 

 

 

2,217

 

2,217

 

2,217

Balance at July 30, 2022

 

24,990,590

$

2

$

268,641

$

338,838

$

(7,558)

$

599,923

$

247

$

600,170

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) income

 

 

 

 

(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

6

Table of Contents

AeroVironment, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Three Months Ended

    

July 30,

    

July 31,

 

2022

2021

Operating activities

Net loss

$

(8,389)

$

(13,918)

Adjustments to reconcile net loss from operations to cash provided by (used in) operating activities:

Depreciation and amortization

 

14,000

 

13,654

Loss from equity method investments

500

1,141

Amortization of debt issuance costs

211

129

Provision for doubtful accounts

 

23

 

(20)

Other non-cash expense, net

153

48

Non-cash lease expense

1,590

1,677

(Gain) loss on foreign currency transactions

 

(44)

 

19

Deferred income taxes

 

(381)

 

(472)

Stock-based compensation

 

2,217

 

1,922

Loss on disposal of property and equipment

485

379

Amortization of debt securities

130

90

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

 

8,053

 

17,914

Unbilled receivables and retentions

 

14,754

 

(14,684)

Inventories

 

(11,707)

 

(6,058)

Income taxes receivable

442

(326)

Prepaid expenses and other assets

 

46

 

481

Accounts payable

 

3,323

 

(7,997)

Other liabilities

(9,519)

(9,283)

Net cash provided by (used in) operating activities

 

15,887

 

(15,304)

Investing activities

Acquisition of property and equipment

 

(5,393)

 

(5,428)

Equity method investments

(2,774)

(2,692)

Business acquisitions, net of cash acquired

(46,150)

Redemptions of available-for-sale investments

 

13,280

 

17,925

Purchases of available-for-sale investments

(1,326)

Net cash provided by (used in) investing activities

 

3,787

 

(36,345)

Financing activities

Principal payments of term loan

(2,500)

(2,500)

Tax withholding payment related to net settlement of equity awards

(824)

(1,176)

Holdback and retention payments for business acquisition

(5,991)

Exercise of stock options

 

 

119

Other

(7)

(8)

Net cash used in financing activities

 

(3,331)

 

(9,556)

Effects of currency translation on cash and cash equivalents

(391)

(111)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

15,952

 

(61,316)

Cash, cash equivalents and restricted cash at beginning of period

 

77,231

 

157,063

Cash, cash equivalents and restricted cash at end of period

$

93,183

$

95,747

Supplemental disclosures of cash flow information

Cash paid, net during the period for:

Income taxes

$

$

Interest

$

2,169

$

Non-cash activities

Unrealized (gain) loss on available-for-sale investments, net of deferred tax expense of $6 and $0 for the three months ended July 30, 2022 and July 31, 2021, respectively

$

(20)

$

4

Change in foreign currency translation adjustments

$

(1,064)

$

(733)

Issuances of inventory to property and equipment, ISR in-service assets

$

3,364

$

6,881

Acquisitions of property and equipment included in accounts payable

$

543

$

821

See accompanying notes to condensed consolidated financial statements (unaudited).

7

Table of Contents

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 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 condensed consolidated financial statements. Refer to Note 18—Business Acquisitions for further details.

On September 15, 2021, the Company entered into a Share Sale and Purchase Agreement with Toygun Savunma Sanayi ve Havacilik Anonim Sirketi (“Toygun”) whereby the Company sold 35% of the common shares of Altoy to Toygun. As a result of the sale, the Company decreased its interest in Altoy from 85% to 50%. The Company is considered to still have control of Altoy and therefore consolidates Altoy into the condensed consolidated financial statements of the Company as of July 30, 2022. Under the terms of the Purchase Agreement, the Company is expected to sell additional shares to Toygun during the fiscal year ending April 30, 2023 at which point the Company is expected to no longer control, and therefore, expected to no longer consolidate Altoy in the Company’s condensed consolidated financial

8

Table of Contents

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 60% and 61% of revenue during the three months ended July 30, 2022 and July 31, 2021, respectively. Performance obligations satisfied at a point in time accounted for 40% and 39% of revenue during the three months ended July 30, 2022 and July 31, 2021, respectively.

On July 30, 2022, the Company had approximately $203,877,000 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 88% of the remaining performance obligations as revenue in fiscal 2023 and the remaining 12% in fiscal 2024.

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 $1,146,000. No adjustment on any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three month ended July 31, 2021.

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

$

43,256

$

39,924

TMS

23,011

19,176

MUAS

19,262

22,379

HAPS

10,215

10,352

All Other

 

12,772

 

9,178

Total revenue

$

108,516

$

101,009

Three Months Ended

    

July 30,

July 31,

Revenue by contract type

2022

    

2021

FFP

$

80,829

$

80,766

CPFF

26,456

19,117

T&M

 

 

1,231

 

1,126

Total revenue

$

108,516

$

101,009

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

$

67,299

$

71,075

Non-U.S. government

41,217

29,934

Total revenue

$

108,516

$

101,009

Three Months Ended

July 30,

July 31,

Revenue by geographic location

2022

    

2021

Domestic

$

50,103

$

68,388

International

58,413

32,621

Total revenue

$

108,516

$

101,009

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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 $1,925,000, and revenue recognized for the three month periods ended July 31, 2021 that was included in contract liability balances as of April 30, 2021 was $309,000.

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. 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 four 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

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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.

$

(8,395)

$

(13,981)

Denominator for basic loss per share:

Weighted average common shares

 

24,804,232

 

24,620,180

Dilutive effect of employee stock options, restricted stock and restricted stock units

 

 

Denominator for diluted loss per share

24,804,232

24,620,180

Due to the net loss for the three months ended July 30, 2022 and 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 164,312 and 279,978 for the three months ended July 30, 2022 and July 31, 2021, respectively.

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 $6,500,000 in addition to attorneys’ fees, costs, and punitive damages. On August 16, 2019, the Company filed a counterclaim against Webasto seeking payment of $6,500,000 in additional cash consideration due under the Purchase Agreement (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.

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 $9,300,000 during the year ended April 30, 2021 recorded in other expense on the condensed consolidated statements of operations and in other current liabilities on the condensed consolidated balance sheet. On December 2, 2021, the Company agreed in principle, subject to formal documentation with Webasto, to settle all existing claims related to the sale of its former EES business for $20,000,000 and Webasto keeping the Holdback. As a result of the agreement in principle to settle the litigation, the Company recorded additional litigation reserve expenses in the amount of $10,000,000 during the three months ended October 30, 2021 in other expense on the condensed consolidated statements of operations and in other current liabilities on the condensed consolidated balance sheet. The Company executed a written settlement agreement with Webasto effective December 16, 2021 to officially and fully settle all claims in the lawsuit. Under the terms of the written settlement agreement, the Company’s payment of the settlement amount of $20,000,000 will occur over a 24 month period from the effective date of the settlement agreement and Webasto will retain the Holdback. As of July 30, 2022, $10,000,000 of the settlement has been paid.

3. Investments

Investments consist of the following (in thousands):

July 30,

April 30,

    

2022

    

2022

 

Short-term investments:

Available-for-sale securities:

Municipal securities

7,664

19,725

U.S. government securities

4,991

4,991

Total short-term investments

$

12,655

$

24,716

Equity method investments

Investments in limited partnership funds

 

17,707

 

15,433

Total equity method investments

 

17,707

 

15,433

Total long-term investments

$

17,707

$

15,433

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

$

7,668

$

1

$

(5)

$

7,664

U.S. government securities

4,995

(4)

4,991

Total available-for-sale investments

$

12,663

$

1

$

(9)

$

12,655

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April 30, 2022

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

 

Cost

    

Gains

Losses

    

Value

 

Municipal securities

 

$

19,756

$

$

(31)

$

19,725

U.S. government securities

 

4,995