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 January 27, 2024

☐

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 South, 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 February 28, 2024, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 28,135,734.

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AeroVironment, Inc.

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Item 1.	Financial Statements :
	Condensed Consolidated Balance Sheets as of January 27, 2024 (Unaudited) and April 30, 2023	3
	Condensed Consolidated Statements of Operations for the three and nine months ended January 27, 2024 (Unaudited) and January 28, 2023 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended January 27, 2024 (Unaudited) and January 28, 2023 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended January 27, 2024 (Unaudited) and January 28, 2023 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended January 27, 2024 (Unaudited) and January 28, 2023 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures		52

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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)


	January 27,		April 30,
	2024		2023
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	107,694	$	132,859
Accounts receivable, net of allowance for doubtful accounts of $88 at January 27, 2024 and $156 at April 30, 2023		53,236		87,633
Unbilled receivables and retentions		148,588		105,653
Inventories, net		161,384		138,814
Income taxes receivable		8,081		—
Prepaid expenses and other current assets		21,708		12,043
Total current assets		500,691		477,002
Long-term investments		21,282		23,613
Property and equipment, net		45,053		39,795
Operating lease right-of-use assets		28,904		27,363
Deferred income taxes		21,378		27,206
Intangibles, net		77,597		43,577
Goodwill		275,189		180,801
Other assets		10,205		5,220
Total assets	$	980,299	$	824,577
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	26,969	$	31,355
Wages and related accruals		28,443		35,637
Customer advances		17,536		16,645
Current portion of long-term debt		7,500		7,500
Current operating lease liabilities		8,934		8,229
Income taxes payable		797		2,342
Other current liabilities		17,352		19,626
Total current liabilities		107,531		121,334
Long-term debt, net of current portion		31,292		125,904
Non-current operating lease liabilities		21,978		21,189
Other non-current liabilities		2,105		746
Liability for uncertain tax positions		2,705		2,705
Deferred income taxes		1,703		1,729
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares—10,000,000; none issued or outstanding at January 27, 2024 and April 30, 2023		—		—
Common stock, $0.0001 par value:
Authorized shares—100,000,000
Issued and outstanding shares—28,136,735 shares at January 27, 2024 and 26,216,897 shares at April 30, 2023		4		4
Additional paid-in capital		593,228		384,397
Accumulated other comprehensive loss		(4,888)		(4,452)
Retained earnings		224,641		171,021
Total stockholders' equity		812,985		550,970
Total liabilities and stockholders’ equity	$	980,299	$	824,577

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

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AeroVironment, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
	2024		2023		2024		2023
Revenue:
Product sales	$	155,923	$	91,216	$	421,173	$	211,533
Contract services		30,655		43,179		98,568		142,962
		186,578		134,395		519,741		354,495
Cost of sales:
Product sales		99,486		54,866		240,126		127,210
Contract services		19,805		34,019		71,318		122,171
		119,291		88,885		311,444		249,381
Gross margin:
Product sales		56,437		36,350		181,047		84,323
Contract services		10,850		9,160		27,250		20,791
		67,287		45,510		208,297		105,114
Selling, general and administrative		27,826		24,746		79,800		70,302
Research and development		25,127		16,157		62,618		47,793
Income (loss) from operations		14,334		4,607		65,879		(12,981)
Other income (loss):
Interest expense, net		(114)		(2,810)		(4,072)		(6,722)
Other income (expense), net		1,004		(2,587)		(2,983)		(2,183)
Income (loss) before income taxes		15,224		(790)		58,824		(21,886)
Provision for (benefit from) income taxes		1,259		(531)		3,710		(8,382)
Equity method investment loss, net of tax		(80)		(417)		(1,494)		(2,190)
Net income (loss)		13,885		(676)		53,620		(15,694)
Net income attributable to noncontrolling interest		—		—		—		(45)
Net income (loss) attributable to AeroVironment, Inc.	$	13,885	$	(676)	$	53,620	$	(15,739)
Net income (loss) per share attributable to AeroVironment, Inc.
Basic	$	0.50	$	(0.03)	$	1.99	$	(0.63)
Diluted	$	0.50	$	(0.03)	$	1.98	$	(0.63)
Weighted-average shares outstanding:
Basic		27,907,568		25,012,412		26,957,061		24,906,977
Diluted		28,044,127		25,012,412		27,061,409		24,906,977

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

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AeroVironment, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
	2024		2023		2024		2023
Net income (loss)	$	13,885	$	(676)	$	53,620	$	(15,694)
Other comprehensive income (loss):
Unrealized gain on available-for-sale investments, net of deferred tax expense of $0 for the three and nine months ended January 28, 2023, respectively		—		—		—		26
Change in foreign currency translation adjustments		1,189		3,425		(436)		1,433
Total comprehensive income (loss)		15,074		2,749		53,184		(14,235)
Net income attributable to noncontrolling interest		—		—		—		(45)
Comprehensive income (loss) attributable to AeroVironment, Inc.	$	15,074	$	2,749	$	53,184	$	(14,280)

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

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AeroVironment, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended January 27, 2024 and January 28, 2023 (Unaudited)

(In thousands except share data)


								Accumulated
				Additional				Other		Total		Non-
	Common Stock			Paid-In		Retained		Comprehensive		AeroVironment, Inc.		Controlling
	Shares	Amount		Capital		Earnings		Loss		Equity		Interest		Total
Balance at October 28, 2023	28,135,539	$	4	$	589,047	$	210,756	$	(6,077)	$	793,730	$	—	$	793,730
Net income	—		—		—		13,885		—		13,885		—		13,885
Foreign currency translation	—		—		—		—		1,189		1,189		—		1,189
Restricted stock awards	4,622		—		—		—		—		—		—		—
Restricted stock awards forfeited	(3,426)		—		—		—		—		—		—		—
Stock based compensation	—		—		4,181		—		—		4,181		—		4,181
Balance at January 27, 2024	28,136,735	$	4	$	593,228	$	224,641	$	(4,888)	$	812,985	$	—	$	812,985

								Accumulated
				Additional				Other		Total		Non-
	Common Stock			Paid-In		Retained		Comprehensive		AeroVironment, Inc.		Controlling
	Shares	Amount		Capital		Earnings		Loss		Equity		Interest		Total
Balance at October 29, 2022	25,157,618	$	4	$	283,789	$	332,170	$	(8,480)	$	607,483	$	—	$	607,483
Net loss	—		—		—		(676)		—		(676)		—		(676)
Foreign currency translation	—		—		—		—		3,425		3,425		—		3,425
Stock options exercised	10,000		—		186		—		—		186		—		186
Restricted stock awards	1,812		—		—		—		—		—		—		—
Restricted stock awards forfeited	(1,935)		—		—		—		—		—		—		—
Shares issued, net of issuance costs	96,530		—		8,389		—		—		8,389		—		8,389
Stock based compensation	—		—		2,706		—		—		2,706		—		2,706
Balance at January 28, 2023	25,264,025	$	4	$	295,070	$	331,494	$	(5,055)	$	621,513	$	—	$	621,513

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AeroVironment, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the nine months ended January 27, 2024 and January 28, 2023 (Unaudited)

(In thousands except share data)


								Accumulated
				Additional				Other		Total		Non-
	Common Stock			Paid-In		Retained		Comprehensive		AeroVironment, Inc.		Controlling
	Shares	Amount		Capital		Earnings		Loss		Equity		Interest		Total
Balance at April 30, 2023	26,216,897	$	4	$	384,397	$	171,021	$	(4,452)	$	550,970	$	—	$	550,970
Net income	—		—		—		53,620		—		53,620		—		53,620
Foreign currency translation	—		—		—		—		(436)		(436)		—		(436)
Restricted stock awards	149,990		—		—		—		—		—		—		—
Restricted stock awards forfeited	(9,602)		—		—		—		—		—		—		—
Tax withholding payment related to net share settlement of equity awards	(13,919)		—		(1,370)		—		—		(1,370)		—		(1,370)
Shares issued, net of issuance costs	807,370		—		87,956		—		—		87,956		—		87,956
Issuance of common stock for business acquisition	985,999		—		109,820		—		—		109,820		—		109,820
Stock based compensation	—		—		12,425		—		—		12,425		—		12,425
Balance at January 27, 2024	28,136,735	$	4	$	593,228	$	224,641	$	(4,888)	$	812,985	$	—	$	812,985

								Accumulated
				Additional				Other		Total		Non-
	Common Stock			Paid-In		Retained		Comprehensive		AeroVironment, Inc.		Controlling
	Shares	Amount		Capital		Earnings		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	—		—		—		(15,739)		—		(15,739)		45		(15,694)
Unrealized gain on investments	—		—		—		—		26		26		—		26
Foreign currency translation	—		—		—		—		1,433		1,433		—		1,433
Stock options exercised	35,000		—		868		—		—		868		—		868
Restricted stock awards	77,169		—		—		—		—		—		—		—
Restricted stock awards forfeited	(10,679)		—		—		—		—		—		—		—
Tax withholding payment related to net share settlement of equity awards	(10,723)		—		(853)		—		—		(853)		—		(853)
Shares issued, net of issuance costs	221,971		2		20,699		—		—		20,701		—		20,701
Deconsolidation of previously controlled subsidiary	—		—		—		—		—		—		(286)		(286)
Stock based compensation	—		—		7,108		—		—		7,108		—		7,108
Balance at January 28, 2023	25,264,025	$	4	$	295,070	$	331,494	$	(5,055)	$	621,513	$	—	$	621,513

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AeroVironment, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended
	January 27,		January 28,
	2024		2023
Operating activities
Net income (loss)	$	53,620	$	(15,694)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		24,969		48,109
Loss from equity method investments		1,494		2,190
Loss on deconsolidation of previously controlled subsidiary		—		189
Amortization of debt issuance costs		638		634
Provision for doubtful accounts		(67)		5
Reserve for inventory excess and obsolescence		11,668		3,787
Other non-cash expense, net		783		935
Non-cash lease expense		6,923		5,866
Loss on foreign currency transactions		54		38
Unrealized loss on available-for-sale equity securities, net		2,712		1,798
Deferred income taxes		(1,604)		(1,250)
Stock-based compensation		12,425		7,108
Loss on disposal of property and equipment		115		1,193
Amortization of debt securities discount		—		125
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		36,387		6,847
Unbilled receivables and retentions		(41,950)		(5,098)
Inventories		(31,901)		(43,111)
Income taxes receivable		(8,081)		(9,388)
Prepaid expenses and other assets		(15,896)		(3,114)
Accounts payable		(10,003)		7,789
Other liabilities		(15,321)		(157)
Net cash provided by operating activities		26,965		8,801
Investing activities
Acquisition of property and equipment		(13,901)		(10,116)
Equity method investments		(1,875)		(2,774)
Equity security investments		—		(5,100)
Acquisition of intangibles		(1,500)		—
Business acquisitions, net of cash acquired		(24,156)		(5,105)
Proceeds from deconsolidation of previously controlled subsidiary, net of cash deconsolidated		—		(635)
Redemptions of available-for-sale investments		—		25,945
Purchases of available-for-sale investments		—		(1,326)
Net cash (used in) provided by investing activities		(41,432)		889
Financing activities
Principal payments of term loan		(95,000)		(22,500)
Holdback and retention payments for business acquisition		(500)		—
Payment of contingent consideration		(2,132)		—
Proceeds from shares issued, net of issuance costs		88,437		20,104
Payment of debt issuance costs		(37)		—
Tax withholding payment related to net settlement of equity awards		(1,370)		(853)
Exercise of stock options		—		868
Other		(19)		(21)
Net cash used in financing activities		(10,621)		(2,402)
Effects of currency translation on cash and cash equivalents		(77)		695
Net (decrease) increase in cash, cash equivalents, and restricted cash		(25,165)		7,983
Cash, cash equivalents and restricted cash at beginning of period		132,859		77,231
Cash, cash equivalents and restricted cash at end of period	$	107,694	$	85,214
Supplemental disclosures of cash flow information
Cash paid, net during the period for:
Income taxes	$	15,195	$	1,192
Interest	$	5,850	$	5,697
Non-cash activities
Issuance of common stock for business acquisition	$	109,820	$	—
Unrealized gain on available-for-sale investments, net of deferred tax expense of $0 for the nine months ended January 27, 2024 and January 28, 2023, respectively	$	—	$	(26)
Change in foreign currency translation adjustments	$	(436)	$	1,433
Issuances of inventory to property and equipment, ISR in-service assets	$	—	$	4,677
Acquisitions of property and equipment included in accounts payable	$	2,519	$	731

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

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 systems (“UMS”), loitering munitions systems (“LMS”) and related services primarily to organizations within the U.S. Government 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 and nine months ended January 27, 2024 are not necessarily indicative of the results for the full year ending April 30, 2024. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2023, 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 September 15, 2021, the Company entered into a Share Sale and Purchase Agreement with Toygun Savunma Sanayi ve Havacilik Anonim Sirketi (“Toygun”) whereby the Company sold 35% of the common shares of the Company’s Turkish joint venture, Altoy Savunma Sanayi ve Havacilik Anonim Sirketi (“Altoy”), to Toygun. On October 14, 2022, the Company sold an additional 35% of the common shares of Altoy to Toygun. As a result of the share sales, the Company decreased its interest in Altoy from 85% to 15% and has determined that it no longer controls Altoy. Therefore, the Company no longer consolidates Altoy in the Company’s unaudited condensed consolidated financial statements. As the Company has the ability to exercise significant influence over the operating and financial policies of Altoy, the Company accounts for the investment as an equity method investment and records its proportion of any gains or losses of Altoy in equity method investments, net of tax. Refer to Note 5—Equity Method Investments for further details.

On August 17, 2022, the Company closed its acquisition of Planck Aerosystems, Inc. (“Planck”) pursuant to the purchase agreement, and post-acquisition, Planck has been incorporated into the UMS segment. The assets, liabilities and operating results of Planck have been included in the Company’s unaudited condensed consolidated financial statements. Refer to Note 16—Business Acquisitions for further details.

On September 15, 2023, the Company closed its acquisition of Tomahawk Robotics, Inc. (“Tomahawk”) pursuant to a merger agreement, and post-acquisition, Tomahawk has been incorporated into the UMS segment. The assets, liabilities and operating results of Tomahawk have been included in the Company’s unaudited condensed consolidated financial statements. Refer to Note 16—Business Acquisitions for further details.

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Recently Adopted Accounting Standards

The Company did not adopt any accounting standards during the nine months ended January 27, 2024.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, the Company’s reserves for inventory excess and obsolescence have been reclassified from changes in inventories to non-cash adjustments within operating activities on the consolidated statements of cash flows for all periods presented. Reportable segment presentation for the three and nine months ended January 28, 2023 has been reclassified to conform to the current year reportable segments: UMS, LMS and MacCready Works (“MW”) resulting from the Company’s reorganization, which was effective May 1, 2023. Refer to Note 18—Segments for further details.

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 its 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 ASU 2014-09, 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 LMS product deliveries, certain Tomahawk 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, which historically included 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

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amount to which the entity has a right to invoice. In the past, the Company operated its medium unmanned aircraft systems (“MUAS”) in overseas locations to support U.S. military operations under ISR services contracts under a contractor-owned, contractor-operated (“COCO”) arrangement. During the year ended April 30, 2023, all COCO sites were closed. Training services are recognized over time using an output method based on days of training completed.

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

For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is recognized at the point in time in which each performance obligation is fully satisfied. The Company’s Small UAS (“SUAS”), MUAS, unmanned ground vehicles (“UGV”) product sales revenue is composed of revenue recognized on contracts for the delivery of SUAS, 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.


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
Revenue percentage by recognition method	2024		2023		2024		2023
Over time		46%		45%		40%		54%
Point in time		54%		55%		60%		46%
Total revenue		100%		100%		100%		100%

On January 27, 2024, the Company had approximately $462,787,000 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 35% of the remaining performance obligations as revenue in fiscal 2024 and the remaining 65% in fiscal 2025.

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 undefinitized contract actions which are within the scope of ASC 606 with final contract values to be negotiated, penalty fees and incentive awards generally for late delivery and early delivery, respectively. The Company generally estimates such variable consideration as the most likely amount. In addition, the Company includes the estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the related uncertainty is resolved. These estimates are based on historical award experience, anticipated

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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. Changes in cumulative revenue estimates due to changes in the estimated transaction price are recorded using a cumulative catch-up adjustment in the period identified for contracts with performance obligations at a point in time, including undefinitized contract actions. In the period undefinitized contract actions become definitized, a cumulative catch-up adjustment is recorded to reflect the final consideration, which could have a material positive or negative impact.

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter it is identified, and it is recorded in other current liabilities. The balance of forward loss reserves as of January 27, 2024 and April 30, 2023 was $1,052,000 and $1,878,000, respectively. The Company recorded the forward loss reserves as the total estimated costs to complete the contracts are in excess of the total remaining consideration of the contracts. No adjustment on the forward loss reserve for any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three and nine months ended January 27, 2024, respectively. During the three months ended January 28, 2023, the Company recognized a decrease in the forward loss reserves on two MUAS ISR contracts of $2,424,000 due to decreases in the estimated costs to complete the contracts and an increase in the forward loss reserve of an MUAS products contract of $1,593,000 due to increases in the estimated costs to complete the contract. No adjustment on the forward loss reserve for any one contract was material to the Company’s unaudited condensed consolidated financial statements for the nine months ended January 28, 2023.

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 $4,398,000 and $5,087,000 for the three and nine month periods ended January 27, 2024, respectively. 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 and nine month periods ended January 28, 2023. During the three months ended January 27, 2024, the Company revised its estimates to reflect a favorable definitization of an LMS contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $3,574,000. During the nine months ended January 27, 2024, the Company revised its estimates of the total expected costs to complete a different LMS contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $1,439,000. No adjustment on any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three month period ended January 28, 2023. During the nine months ended January 28, 2023, the Company revised its estimates of the total expected costs to complete two LMS variant contracts. 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 $2,448,000.

Revenue by Category

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


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
Revenue by segment	2024		2023		2024		2023
UMS	$	113,290	$	92,329	$	344,270	$	221,738
LMS		57,658		24,015		118,824		78,127
MW		15,630		18,051		56,647		54,630
Total revenue	$	186,578	$	134,395	$	519,741	$	354,495

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	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
Revenue by contract type	2024		2023		2024		2023
FFP	$	167,256	$	109,119	$	457,077	$	275,184
CPFF		17,925		24,115		59,445		75,583
T&M		1,397		1,161		3,219		3,728
Total revenue	$	186,578	$	134,395	$	519,741	$	354,495

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				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
Revenue by customer category	2024		2023		2024		2023
U.S. government	$	133,761	$	83,398	$	385,069	$	226,191
Non-U.S. government		52,817		50,997		134,672		128,304
Total revenue	$	186,578	$	134,395	$	519,741	$	354,495

	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
Revenue by geographic location	2024		2023		2024		2023
Domestic	$	62,865	$	55,955	$	186,445	$	174,135
International		123,713		78,440		333,296		180,360
Total revenue	$	186,578	$	134,395	$	519,741	$	354,495

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 and nine month periods ended January 27, 2024 were not materially impacted by any other factors. For the Company’s contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.

Revenue recognized for the three and nine month periods ended January 27, 2024 that was included in customer advances balances as of April 30, 2023 was $610,000 and $3,026,000, and revenue recognized for the three and nine month periods ended January 28, 2023 that was included in customer advances balances as of April 30, 2022 was $369,000 and $3,374,000, respectively.

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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 January 27, 2024, 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 three reportable segments. Refer to Note 18—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 for debt securities are excluded from earnings and reported as a separate component of stockholders’ equity, net of deferred income taxes for available-for-sale investments. Gains and losses realized on the disposition of investment securities are determined on the specific identification basis and credited or charged to income. Investments in equity securities and warrants are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in other expense, net. 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 January 27, 2024 and April 30, 2023, the Company had no reserve for incurred cost claim audits.

Earnings (Loss) Per Share

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

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The reconciliation of basic to diluted shares is as follows (in thousands except share data):


		Three Months Ended				Nine Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Net income (loss) attributable to AeroVironment, Inc.	$	13,885	$	(676)	$	53,620	$	(15,739)
Denominator for basic earnings (loss) per share:
Weighted average common shares		27,907,568		25,012,412		26,957,061		24,906,977
Dilutive effect of employee stock options, restricted stock and restricted stock units		136,559		—		104,348		—
Denominator for diluted earnings (loss) per share		28,044,127		25,012,412		27,061,409		24,906,977

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 72 and 606 for the three and nine months ended January 27, 2024. Due to the net loss for the three and nine months ended January 28, 2023, no shares reserved for issuance upon exercise of stock options or shares of unvested restricted stock were included in the computation of diluted loss per share as their inclusion would have been anti-dilutive. Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 145,793 and 152,047 for the three and nine months ended January 28, 2023, respectively.

Recently Issued Accounting Standards

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses reported to the CODM. ASU 2023-07 also requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 is adopted retrospectively. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires updates to the rate reconciliation, income taxes paid and other disclosures. The new standard is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. ASU 2023-09 is adopted retrospectively. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

2. Investments

Investments consist of the following (in thousands):


	January 27,		April 30,
	2024		2023
Long-term investments:
Available-for-sale securities:
Equity securities and warrants		2,260		4,969
Total long-term available-for-sale securities investments		2,260		4,969
Equity method investments
Investments in limited partnership funds		19,022		18,644
Total equity method investments		19,022		18,644
Total long-term investments	$	21,282	$	23,613

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Equity Securities

Equity securities and warrants are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in other expense, net. Unrealized loss recorded (in thousands):


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Net gains (losses) recognized during the period on equity securities	$	751	$	(2,726)	$	(2,712)	$	(1,798)
Less: Net loss recognized during the period on equity securities sold during the period		—		—		—		—
Unrealized gain (loss) recognized during the period on equity securities still held at the reporting date	$	751	$	(2,726)	$	(2,712)	$	(1,798)

3. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:

●Level 1—Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.

●Level 2—Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.

●Level 3—Inputs to the valuation that are unobservable inputs for the asset or liability.

The Company’s financial assets measured at fair value on a recurring basis at January 27, 2024, were as follows (in thousands):


	Fair Value Measurement Using
			Significant
	Quoted prices in		other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Equity securities	$	2,065	$	—	$	—	$	2,065
Warrants		—		195		—		195
Total	$	2,065	$	195	$	—	$	2,260

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The Company had no financial liabilities measured at fair value on a recurring basis at January 27, 2024.

The Company’s financial assets measured at fair value on a recurring basis at April 30, 2023, were as follows (in thousands):


	Fair Value Measurement Using
			Significant
	Quoted prices in		other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Equity securities	$	4,714	$	—	$	—	$	4,714
Warrants		—		255		—		255
Total	$	4,714	$	255	$	—	$	4,969

The Company’s financial liabilities measured at fair value on a recurring basis at April 30, 2023, were as follows (in thousands):


	Fair Value Measurement Using
			Significant
	Quoted prices in		other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Contingent consideration	$	—	$	—	$	2,109	$	2,109
Total	$	—	$	—	$	2,109	$	2,109

The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):


	Fair Value
	Measurements Using
	Significant
	Unobservable Inputs
		Liabilities
Description	(Level 3)
Balance at May 1, 2023	$	2,109
Business acquisition		—
Transfers to Level 3		—
Total fair value measurement adjustments (realized or unrealized)
Included in selling, general and administrative		23
Settlements		(2,132)
Balance at January 27, 2024	$	—
The amount of total (gains) or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at January 27, 2024	$	—

On May 3, 2021, the Company closed its acquisition of Telerob Gesellschaft für Fernhantierungstechnik mbH (“Telerob GmbH”), including Telerob GmbH’s wholly-owned subsidiary, Telerob USA, Inc. (“Telerob USA,” and collectively with Telerob GmbH, “Telerob”) pursuant to its Share Purchase Agreement (the “Telerob Purchase Agreement”) with Unmanned Systems Investments GmbH (the “Telerob Seller”). Pursuant to the Telerob Purchase Agreement, the Telerob Sellers may receive up to a maximum of €6,000,000 (approximately $6,511,000) in additional cash consideration if specific revenue and contract award targets for Telerob were achieved during the 36 month period after closing. The contingent consideration was valued using a Black-Scholes option-pricing model. The analysis considered, among other items, contractual terms of the Telerob Purchase Agreement, the Company’s discount rate, the timing of expected future cash flows and the probability that the revenue and contract award targets required for payment of the contingent

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consideration will be achieved. The fair value of the contingent consideration was recorded in other current liabilities on the condensed consolidated balance sheet. The first year earnout of €2,000,000 (approximately $2,170,000) was not achieved. During the fiscal year ended April 30, 2023, the second year earnout of €2,000,000 (approximately $2,132,000) was achieved and was paid in November 2023. The third earnout of €2,000,000 (approximately $2,170,000) is not expected to be achieved.

On September 12, 2022, the Company invested $5,000,000 and acquired 500,000 shares and 500,000 privately placed, redeemable warrants of Amprius Technologies, Inc. The privately placed, redeemable warrants have an exercise price of $12.50 and redemption price of $20.00. The Company measures the fair value of the privately placed, redeemable warrants using the quoted market price of the public warrants which have an exercise price of $11.50 and a redemption price of $18.00 and classifies the warrants as a level 2 fair value measurement. On September 9, 2022, the Company acquired 10,000 shares of Nauticus Robotics, Inc. for $100,000.

4. Inventories, net

Inventories consist of the following (in thousands):


	January 27,		April 30,
	2024		2023


Raw materials	$	65,296	$	67,775
Work in process		56,819		43,276
Finished goods		63,690		42,968
Inventories, gross		185,805		154,019
Reserve for inventory excess and obsolescence		(24,421)		(15,205)
Inventories, net	$	161,384	$	138,814

5. Equity Method Investments

Investments in Limited Partnership Funds

In July 2019, the Company made its initial capital contribution to a limited partnership fund focusing on highly relevant technologies and start-up companies serving defense and industrial markets. Under the terms of the limited partnership agreement, the Company contributed a total of $10,000,000 during the fiscal years ended April 30, 2021 and 2022, and there were no further contribution commitments to this fund as of April 30, 2022. In March 2022, the Company entered into a limited partnership agreement with a second limited partnership fund also focusing on highly relevant technologies and start-up companies serving defense and industrial markets. Under the terms of the second limited partnership agreement, the Company is committed to contributions totaling $20,000,000 over an expected five year period. During the fiscal year ended April 30, 2023, the Company made total contributions of $5,778,000. The Company made a capital contribution of $1,875,000 during the three months ended October 28, 2023. Under the terms of the second limited partnership agreement, the Company has committed to make additional capital contributions of $12,347,000 to the fund. The Company accounts for investments in limited partnerships as equity method investments as the Company is deemed to have influence when it holds more than a minor interest. For the three and nine months ended January 27, 2024, the Company recorded its ownership percentage of the net losses of the limited partnerships, or $(80,000) and $(1,494,000), respectively, in equity method investment loss, net of $0 tax in the unaudited condensed consolidated statements of operations, respectively. For the three and nine months ended January 28, 2023, the Company recorded its ownership percentage of the net loss of the limited partnership, or $(417,000) and $(2,190,000), respectively, in equity method investment loss, net of $0 tax in the unaudited condensed consolidated statements of operations, respectively. At January 27, 2024 and April 30, 2023, the carrying value of the investments in the limited partnership funds of $19,022,000 and $18,644,000, respectively, which is recorded in long-term investments on the unaudited condensed consolidated balance sheet.

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Investment in Altoy

On September 15, 2021, the Company entered into a Share Sale and Purchase Agreement with Toygun whereby the Company sold 35% of the common shares of Altoy to Toygun. On October 14, 2022, the company sold an additional 35% of the common shares of Altoy to Toygun. As a result of the sales, the Company decreased its interest in Altoy from 85% to 15%. The Company no longer controls Altoy, and therefore, has deconsolidated Altoy in the Company’s unaudited condensed consolidated financial statements. The Company maintains significant influence, accounts for its investment in Altoy as an equity method investment and records its proportion of any gains or losses of Altoy in equity method investment loss, net of tax. For the three and nine months ended January 27, 2024 and January 28, 2023, the Company recorded $0 for its ownership percentage of the net loss of Altoy in equity method investment loss, net of tax in the unaudited condensed consolidated statements of operations. At January 27, 2024 and April 30, 2023, the carrying value of the investment in Altoy of $71,000 and $114,000, respectively, was recorded in other assets on the unaudited condensed consolidated balance sheet.

6. Warranty Reserves

The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. The warranty reserve is included in other current liabilities on the unaudited condensed consolidated balance sheet. The related expense is included in cost of sales. Warranty reserve activity is summarized as follows for the three and nine months ended January 27, 2024 and January 28, 2023, respectively (in thousands):


	Three Months Ended				Nine Months Ended
	January 27,			January 28,	January 27,		January 28,
	2024		2023		2024		2023
Beginning balance	$	5,242	$	3,017	$	3,642	$	2,190
Balance acquired from acquisition		—		—		40		—
Warranty expense		507		(333)		3,294		1,110
Warranty costs settled		(383)		(387)		(1,610)		(1,003)
Ending balance	$	5,366	$	2,297	$	5,366	$	2,297

7. Intangibles, net

The components of intangibles are as follows (in thousands):


	January 27,		April 30,
	2024		2023
Technology	$	101,160	$	60,817
Licenses		1,008		1,008
Customer relationships		77,378		72,645
Backlog		2,862		2,895
In-process research and development		550		550
Non-compete agreements		320		320
Trademarks and tradenames		1,668		68
Other		148		150
Intangibles, gross		185,094		138,453
Less accumulated amortization		(107,497)		(94,876)
Intangibles, net	$	77,597	$	43,577

Additions to technology, customer relationships, and trademark and tradenames primarily relate to the Tomahawk acquisition. Refer to Note 16—Business Acquisitions for further details. In addition, during the three months ended October 28, 2023, AeroVironment acquired technology intellectual property of $1,500,000 through an asset purchase agreement with Windward Performance, Ltd. Under the asset purchase agreement, AeroVironment acquired intellectual property related to unmanned aircraft for $3,000,000 consisting of $1,500,000 paid at closing plus two payments of $750,000 on the first and second anniversaries of the purchase agreement. The additional payments will be expensed to R&D on a straight-line basis over the two year term.

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The weighted average amortization period at each of January 27, 2024 and April 30, 2023 was four years. Amortization expense for the three and nine months ended January 27, 2024 was $5,445,000 and $12,721,000, respectively. Amortization expense for the three and nine months ended January 28, 2023 was $6,073,000 and $17,925,000, respectively.

Estimated amortization expense for the next five years is as follows (in thousands):


	Year ending
	April 30,
2024	$	5,247
2025		19,159
2026		15,022
2027		12,654
2028		11,940
	$	64,022

8. Goodwill

The following table presents the changes in the Company’s goodwill balance by segment (in thousands):


	UMS		LMS		MW		Total
Balance at April 30, 2023	$	161,547	$	—	$	19,254	$	180,801
Additions to goodwill		94,676		—		—		94,676
Change to goodwill		(288)		—		—		(288)
Balance at January 27, 2024	$	255,935	$	—	$	19,254	$	275,189

Effective May 1, 2023, the reporting segments for goodwill are UMS, LMS and MW. The UMS segment includes goodwill from the acquisitions of Pulse Aerospace, LLC (“Pulse”), Arcturus UAV, Inc. (“Arcturus”), Telerob, Planck and Tomahawk acquisitions. The Tomahawk acquisition is included in the additions to goodwill. Refer to Note 16—Business Acquisitions for further details. The goodwill change to UMS is attributable to the Telerob acquisition recorded in Euros and translated to dollars at each reporting date. The MW segment includes goodwill from the purchase of certain assets of Intelligent Systems Group business segment (“ISG”) of Progeny Systems Corporation. The MUAS reporting unit, the renamed Arcturus acquisition included in the UMS reportable segment, has a goodwill balance of $134,140,000 as of January 27, 2024.

The estimated fair value of the MUAS reporting unit does not substantially exceed its carrying value due to the impairment recorded during the most recent annual goodwill impairment test performed during the fourth quarter ended April 30, 2023, resulting in carrying value being equal to estimated fair value. Fair value determinations utilized in the quantitative goodwill impairment test require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires the Company to make assumptions and estimates regarding future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. Estimated future annual net cash flows based in part upon the Company’s ability to obtain contracts from the U.S. Department of Defense and foreign allied nations and negotiate the estimated pricing are considered the most significant, sensitive assumptions. If current expectations of future growth rates and margins are not met, if market factors outside of the Company’s control, such as discount rates, income tax rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to long-term operating plans, then MUAS may become impaired in the future. Accordingly, the MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests. During the most recent annual impairment test during the fourth quarter of fiscal year 2023 the estimated fair value of all reporting units, other than MUAS, substantially exceeded their carrying value.

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As of January 27, 2024, the company has not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test. The annual impairment test for the fiscal year ending April 30, 2024 will be performed during the fourth quarter. The intangibles included in the MUAS reporting unit of $14,636,000 as of January 27, 2024 will also be evaluated for potential impairment during the fourth quarter.

9. Debt

In connection with the consummation of the acquisition of Arcturus, a California corporation, pursuant to a Stock Purchase Agreement with Arcturus and each of the shareholders and other equity interest holders of Arcturus, to purchase 100% of the issued and outstanding equity of Arcturus (the “Arcturus Acquisition”) on February 19, 2021, the Company, as borrower, and Arcturus, as guarantor, entered into a Credit Agreement with certain lenders, letter of credit issuers, Bank of America, N.A., as the administrative agent and the swingline lender, and BofA Securities, Inc., JPMorgan Chase Bank, N.A., and U.S. Bank National Association, as joint lead arrangers and joint bookrunners (the “Credit Agreement”).

The Credit Agreement and its associated Security and Pledge Agreement set forth the terms and conditions for (i) a five-year $100,000,000 revolving credit facility, which includes a $25,000,000 sublimit for the issuance of standby and commercial letters of credit (the “Revolving Facility”), and (ii) a five-year amortized $200,000,000 term A loan (the “Term Loan Facility”, and together with the Revolving Facility, the “Credit Facilities”). Certain existing letters of credit issued by JPMorgan Chase Bank were reserved for under the Revolving Facility at closing and remain outstanding under the terms thereof. Upon execution of the Credit Agreement, the Company drew the full principal of the Term Loan Facility for use in the acquisition of Arcturus. The Term Loan Facility requires payment of 5% of the outstanding obligations in each of the first four loan years, with the remaining 80% payable in loan year five, consisting of three quarterly payments of 1.25% each, with the remaining outstanding principal amount of the Term Loan Facility due and payable on the final maturity date. Proceeds from the Term Loan Facility were used in part to finance a portion of the cash consideration for the Arcturus Acquisition. Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes.

Any borrowing under the Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid under the Revolving Facility may be reborrowed. Mandatory prepayments are required under the revolving loans when borrowings and letter of credit usage exceed the aggregate revolving commitments of all lenders. Mandatory prepayments are also required in connection with the disposition of assets to the extent not reinvested and unpermitted debt transactions.

In support of its obligations pursuant to the Credit Facilities, the Company has granted security interests in substantially all of the personal property of the Company and its domestic subsidiaries, including a pledge of the equity interests in its subsidiaries (limited to 65% of outstanding equity interests in the case of foreign subsidiaries), and the proceeds thereof, with customary exclusions and exceptions. The Company’s existing and future domestic subsidiaries, including Arcturus, are guarantors for the Credit Facilities.

The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including certain restrictions on the ability of the Company and its subsidiaries (as defined in the Credit Agreement) to incur any additional indebtedness or guarantee indebtedness of others, to create liens on properties or assets, or to enter into certain asset and stock-based transactions. In addition, the Credit Agreement includes certain financial maintenance covenants, requiring that (x) the Consolidated Leverage Ratio (as defined in the Credit Agreement) shall not be more than 3.00 to 1.00 as of the end of any fiscal quarter and (y) the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) shall not be less than 1.25 to 1.00 as of the end of any fiscal quarter.

On February 4, 2022, the Company entered into a First Amendment to Credit Agreement and Waiver relating to its existing Credit Agreement (the “First Amendment to Credit Agreement”). The First Amendment to Credit Agreement waives any event of default that may have occurred as a result of the potential failure by the Company to comply with the consolidated leverage ratio covenant set forth in the Credit Agreement for the fiscal quarter ended January 29, 2022. In addition, the parties amended the maximum permitted Consolidated Leverage Ratio, such that such ratio may not exceed 4.00 to 1.00 for the Company’s fiscal quarters ended January 29, 2022 and April 30, 2022; 3.50 to 1.00 for any of

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the Company’s fiscal quarters ending during the period from May 1, 2022 to October 31, 2022; and 3.00 to 1.00 for any fiscal quarter ending thereafter. On June 6, 2023, the Company entered into a Second Amendment to Credit Agreement relating to its existing credit Agreement which increased the sublimit from $10,000,000 to $25,000,000.

The Credit Agreement, as amended by the First Amendment to Credit Agreement and Second Amendment to the Credit Agreement, contains certain customary events of default, which include failure to make payments when due thereunder, the material inaccuracy of representations or warranties, failure to observe or perform certain covenants, cross-defaults, bankruptcy and insolvency-related events, certain judgments, certain ERISA-related events, invalidity of loan documents, or a Change of Control (as defined in the Credit Agreement). Upon the occurrence and continuation of an event of default, the Lenders may cease making future loans under the Credit Agreement and may declare all amounts owing under the Credit Agreement to be immediately due and payable.

The First Amendment to Credit Agreement also implemented certain secured overnight financing rate (“SOFR”) interest rate mechanics and interest rate reference benchmark replacement provisions in order to effectuate the transition from LIBOR as a reference interest rate. Following the First Amendment to Credit Agreement, the Company has a choice of interest rates between (a) Term SOFR (with a 0% floor) plus the Applicable Margin; or (b) Base Rate (defined as the highest of (a) the Federal Funds Rate plus one-half percent (0.50%), (b) the Bank of America prime rate, and (c) the one (1) month SOFR plus one percent (1.00%)) plus the Applicable Margin. The Applicable Margin is based upon the Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects SOFR (ranging from 1.50 - 2.50%) or Base Rate (ranging from 0.50 - 1.50%). The Company may choose interest periods of one, three or six months with respect to Term SOFR and all such rates will include a 0.10% SOFR adjustment. The Company also remains responsible for certain commitment fees from 0.20-0.35% depending on the Consolidated Leverage Ratio, and administrative agent expenses incurred in relation to the Credit Facilities. In the event of a default, an additional 2% default interest rate in addition to the applicable rate if specified or the Base Rate plus Applicable Margin if an applicable rate is not specified. As of January 27, 2024, the Company is in compliance with all amended covenants.

Long-term debt and the current period interest rates were as follows:


	January 27,		April 30,
	2024		2023
	(In thousands)		(In thousands)
Term loan	$	40,000	$	135,000
Revolving credit facility		—		—
Total debt		40,000		135,000
Less current portion		7,500		7,500
Total long-term debt, less current portion		32,500		127,500
Less unamortized debt issuance costs - term loans		1,208		1,596
Total long-term debt, net of unamortized debt issuance costs - term loans	$	31,292	$	125,904
Unamortized debt issuance costs - revolving credit facility	$	582	$	795
Current period interest rate		7.0%		7.1%

Future contractual long-term debt principal payments at January 27, 2024 were as follows:


	(In thousands)
2024	$	—
2025		10,000
2026		30,000
	$	40,000

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10. Leases

The Company leases certain buildings, land and equipment. At contract inception the Company determines whether the contract is, or contains, a lease and whether the lease should be classified as an operating or a financing lease. Operating leases are recorded in operating lease right-of-use assets, current operating lease liabilities and non-current operating lease liabilities on the unaudited condensed consolidated balance sheet.

The Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. The Company defines the initial lease term to include renewal options determined to be reasonably certain. The Company’s leases have remaining lease terms of less than one year to seven years, some of which may include options to extend the lease for up to nine years, and some of which may include options to terminate the lease after three years. If the Company determines the option to extend or terminate is reasonably certain, it is included in the determination of lease assets and liabilities. For operating leases, the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Many of the Company’s real estate lease agreements contain incentives for tenant improvements, rent holidays, or rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement owned by the lessee, the Company generally records incentive as a reduction to fixed lease payments thereby reducing rent expense. For rent holidays and rent escalation clauses during the lease term, the Company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the Company uses the date of initial possession as the commencement date, which is generally when the Company is given the right of access to the space and begins to make improvements in preparation for intended use.

The Company does not have any material restrictions or covenants in its lease agreements, sale-leaseback transactions, land easements or residual value guarantees.

In determining the inputs to the incremental borrowing rate calculation, the Company makes judgments about the value of the leased asset, its credit rating and the lease term including the probability of its exercising options to extend or terminate the underlying lease. Additionally, the Company makes judgments around contractual asset substitution rights in determining whether a contract contains a lease.

The components of lease costs recorded in cost of sales and selling, general and administrative (“SG&A”) expense were as follows (in thousands):


	Nine Months Ended		Nine Months Ended
	January 27,		January 28,
	2024		2023
Operating lease cost	$	6,923	$	5,866
Short term lease cost		984		662
Variable lease cost		1,192		1,485
Sublease income		—		—
Total lease costs, net	$	9,099	$	8,013

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Supplemental lease information was as follows:


	Nine Months Ended		Nine Months Ended
	January 27,		January 28,
	2024		2023
	(In thousands)		(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,895	$	5,777
Right-of-use assets obtained in exchange for new lease liabilities	$	7,399	$	6,607

Weighted average remaining lease term		52 months		56 months
Weighted average discount rate		5.2%		4.2%

Maturities of operating lease liabilities as of January 27, 2024 were as follows (in thousands):


2024	$	2,442
2025		9,552
2026		7,339
2027		6,562
2028		4,520
Thereafter		5,106
Total lease payments		35,521
Less: imputed interest		(4,609)
Total present value of operating lease liabilities	$	30,912

11. Accumulated Other Comprehensive Loss and Reclassifications Adjustments

The components of accumulated other comprehensive loss and adjustments are as follows (in thousands):


	Nine Months Ended		Nine Months Ended
	January 27,		January 28,
	2024		2023
Balance, net of $0 and $8 deferred taxes, as of April 30, 2023 and April 30, 2022, respectively	$	(4,452)	$	(6,514)
Unrealized gain on available-for-sale investments, net of deferred tax expense of $0 for the nine months ended January 27, 2024 and January 28, 2023, respectively		—		26
Change in foreign currency translation adjustments		(436)		1,433
Balance, net of $0 deferred taxes, as of January 27, 2024 and January 28, 2023, respectively	$	(4,888)	$	(5,055)

12. Customer-Funded Research & Development

Customer-funded R&D costs are incurred pursuant to contracts (revenue arrangements) to perform R&D activities according to customer specifications. These costs are direct contract costs and are expensed to cost of sales as costs are incurred. Revenue from customer-funded R&D contracts is recognized in accordance with ASC 606 over time as costs are incurred. Revenue from customer-funded R&D was approximately $17,617,000 and $61,078,000 for the three and nine months ended January 27, 2024. Revenue from customer-funded R&D was approximately $23,193,000 and $71,129,000 for the three and nine months ended January 28, 2023, respectively.

13. Long-Term Incentive Awards

During the three months ended July 29, 2023, the Company granted awards under its 2021 Equity Incentive Plan (the “2021 Plan”) to key employees (“Fiscal 2024 LTIP”). Awards under the Fiscal 2024 LTIP consist of: (i) time-based

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restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2024, July 2025 and July 2026, and (ii) performance-based restricted stock units (“PRSUs”), which vest based on the Company’s achievement of revenue and non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) targets for the three-year period ending April 30, 2026. At the award date, target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the PRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50% for each such metric and maximum achievement levels for which such awards would vest at 250% for each such metric were also established. The actual payout for the PRSUs at the end of the performance period will be calculated based upon the Company’s achievement of the established revenue and non-GAAP adjusted EBITDA targets for the performance period. Settlement of the PRSUs will be made in fully-vested shares of the Company’s common stock. For the three and nine months ended January 27, 2024, the Company recorded $965,000 and $2,798,000 of compensation expense related to the Fiscal 2024 LTIP, respectively. The Company recorded no compensation expense related to the Fiscal 2024 LTIP for the three and nine months ended January 28, 2023. At January 27, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2024 LTIP is $15,836,000.

During the three months ended July 30, 2022, the Company granted awards under the 2021 Plan to key employees (“Fiscal 2023 LTIP”). Awards under the Fiscal 2023 LTIP consist of: (i) time-based restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2023, July 2024 and July 2025, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and non-GAAP adjusted EBITDA targets for the three-year period ending April 30, 2025. At the award date, target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the PRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50% for each such metric and maximum achievement levels for which such awards would vest at 250% for each such metric were also established. The actual payout for the PRSUs at the end of the performance period will be calculated based upon the Company’s achievement of the established revenue and non-GAAP adjusted EBITDA targets for the performance period. Settlement of the PRSUs will be made in fully-vested shares of the Company’s common stock. For the three and nine months ended January 27, 2024, the Company recorded $702,000 and $2,554,000 of compensation expense related to the Fiscal 2023 LTIP, respectively. For the three and nine months ended January 28, 2023, the Company recorded $642,000 and $1,703,000 of compensation expense related to the Fiscal 2023 LTIP. At January 27, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2023 LTIP is $11,611,000.

During the three months ended July 31, 2021, the Company granted awards under its amended and restated 2006 Equity Incentive Plan (the “Restated 2006 Plan”) to key employees (“Fiscal 2022 LTIP”). Awards under the Fiscal 2022 LTIP consist of: (i) time-based restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2022, July 2023 and July 2024, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and non-GAAP operating income targets for the three-year period ending April 30, 2024. At the award date, target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the PRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50% for each such metric and maximum achievement levels for which such awards would vest at 250% for each such metric were also established. The actual payout for the PRSUs at the end of the performance period will be calculated based upon the Company’s achievement of the established revenue and non-GAAP operating income targets for the performance period. Settlement of the PRSUs will be made in fully-vested shares of the Company’s common stock. For the three and nine months ended January 27, 2024, the Company recorded $125,000 and $613,000 of compensation expense related to the Fiscal 2022 LTIP, respectively. For the three months ended January 28, 2023, the Company recorded $84,000 of compensation expense. For the nine months ended January 28, 2023, the Company recorded a reversal of $(31,000) of compensation expense related to the Fiscal 2022 LTIP. At January 27, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2022 LTIP is $9,214,000.

During the three months ended August 1, 2020, the Company also granted awards under the Restated 2006 Plan to key employees (“Fiscal 2021 LTIP”). Awards under the Fiscal 2021 LTIP consist of: (i) time-based restricted stock awards, which vest in equal tranches in July 2021, July 2022 and July 2023, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and operating income targets for the three-year period ending April 30, 2023. During the three months ended July 29, 2023, the Company issued a total of 5,772 fully-vested shares of the Company’s common stock to

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settle the PRSUs in the Fiscal 2021 LTIP. For the three and nine months ended January 28, 2023, the Company recorded $36,000 and $228,000 of compensation expense related to the Fiscal 2021 LTIP, respectively.

At each reporting period, the Company reassesses the probability of achieving the performance targets for the PRSUs. The estimation of whether the performance targets will be achieved requires judgment, and, to the extent actual results or updated estimates differ from the Company’s current estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised. No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited.

14. Income Taxes

For the three and nine months ended January 27, 2024, the Company recorded a provision for income taxes of $1,259,000 and $3,710,000, yielding an effective tax rate of 8.3% and 6.3%, respectively. For the three and nine months ended January 28, 2023, the Company recorded a benefit from income taxes of $(531,000) and $(8,382,000) yielding an effective tax rate of 67.2% and 38.3%, respectively. The variance from statutory rates for the three and nine months ended January 27, 2024 was primarily due to foreign-derived intangible income (“FDII”) deductions and to federal R&D credits. Historically, the Company calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate (“AETR”) for the full fiscal year to the pretax income or loss for the interim reporting period. For the three and nine months ended January 28, 2023, the Company calculated the provision for income taxes using a discrete effective tax rate (“ETR”) method. The Company determined that due to the fact that small changes in the Company’s estimated pretax income or loss would result in significant changes in the estimated AETR, the historical method would not provide a reliable estimate for the three and nine months ended January 28, 2023. The variance from statutory rates for the three and nine months ended January 28, 2023 was primarily due to a combination of federal R&D credits, the FDII deduction and discrete excess tax benefits resulting from the vesting of restricted stock awards and exercises of stock options.

15. Share Repurchase Plan and Issuances

The Company’s share repurchase program announced September 2015 was terminated by the Company’s Board of Directors in September 2022. There were no repurchases of the Company’s common stock during the nine months ended January 28, 2023.

On September 8, 2022, the Company filed an S-3 shelf registration statement to offer and sell shares of the Company’s common stock, including a prospectus supplement in relation to an Open Market Sale Agreement^SM, also dated September 8, 2022, with Jefferies LLC relating to the proposed offer and sale of shares of our common stock having an aggregate offering price of up to $200,000,000 from time to time through Jefferies LLC as the sales agent. During the six months ended October 28, 2023, the Company completed the Open Market Sale Agreement^SM. During the six months ended October 28, 2023 the Company sold 807,370 shares, for total gross proceeds of $91,313,000, total proceeds received of $88,574,000, net of commission expense, and $88,437,000 net of equity issuance costs. During the three and nine months ended January 28, 2023, the Company sold 96,530 and 221,971 of its shares, respectively, for total gross proceeds of $8,710,000 and $21,439,000, respectively, total proceeds received of $8,449,000 and $20,796,000, net of commission expense, respectively, and $8,325,000 and $20,104,000 net of equity issuance costs, respectively. As of January 27, 2024, the Company has completed the Open Market Sale Agreement^SM and sold 1,917,100 of its shares for total gross proceeds of $200,000,000, total proceeds received of $193,999,000, net of commission expense and $193,086,000 net of equity issuance costs.

16. Business Acquisitions

Tomahawk Acquisition

On September 15, 2023, the Company closed its acquisition of Tomahawk Robotics, Inc., a leader in AI-enabled robotic control systems. Pursuant to the merger agreement, the Company acquired 100% of Tomahawk equity for an aggregate purchase price of $134,467,000 consisting of 985,999 shares of restricted common stock of the Company valued at $109,820,000 and $27,205,000 cash-on-hand, net of $3,048,000 cash acquired, plus a $490,000 holdback. During the three months ended January 27, 2024, the holdback was decreased $100,000 as part of the working capital adjustment,

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and the total purchase price and goodwill, therefore, decreased by $100,000 as well. The fair value of the shares issued was the closing price on September 15, 2023, the close of the Tomahawk purchase agreement. Tomahawk is incorporated into AeroVironment’s UMS segment. The acquisition will enable deeper integration of both companies’ technology, leading to enhanced interoperability and interconnectivity of unmanned systems through a singular platform with similar control features. The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

The following table summarizes the provisional allocation of the purchase price over the estimated fair value of the assets and liabilities assumed in the acquisition of Tomahawk. The purchase price allocation is expected to be finalized as soon as practicable within the measurement period, but not later than one year following the acquisition date (in thousands):


	September 15,
	2023
Fair value of assets acquired:
Accounts receivable	$	2,314
Unbilled receivable		993
Inventories, net		2,882
Prepaid and other current assets		148
Property and equipment, net		1,789
Operating lease assets		1,337
Other assets		71
Technology		39,000
Customer relationship		4,800
Trademarks		1,600
Deferred tax asset		3,603
Goodwill		94,676
Total identifiable net assets	$	153,213

Fair value of liabilities assumed:
Accounts payable		3,788
Wages and related accruals		620
Customer advances		1,648
Current operating lease liabilities		482
Other current liabilities		411
Non-current operating lease liabilities		855
Other non-current liabilities		7
Deferred income taxes		11,035
Total liabilities assumed		18,846
Total identifiable net assets	$	134,367

Fair value of consideration transferred:
Equity consideration	$	109,820
Cash consideration, net of cash acquired		24,157
Holdback		390
Total consideration	$	134,367

Determining the fair value of the intangible assets acquired requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The fair value of the intangible assets was determined using a discounted cash flow analysis, which were based on the Company’s preliminary estimates of future sales, earnings and cash flows after considering such factors as general market conditions, anticipated customer demand, changes in working capital, long term business plans and recent operating performance. Use of different estimates and judgments could yield materially different results.

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The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing customers, the workforce of Tomahawk and expected future customers in the UMS market. For income tax purposes the acquisition is treated as a stock acquisition, and none of the goodwill is expected to be deductible.

Tomahawk Supplemental Pro Forma Information (unaudited)

Tomahawk revenue and loss from operations since acquisition on September 15, 2023 was $13,319,000 and $(1,169,000) as of January 27, 2024, respectively. The following unaudited pro forma summary presents condensed consolidated information of the Company as if the business acquisition had occurred on May 1, 2022 (in thousands):


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
	2024		2023		2024		2023
Revenue	$	186,578	$	137,222	$	530,262	$	362,977
Net income (loss) attributable to AeroVironment, Inc.	$	13,831	$	(3,765)	$	50,849	$	(26,664)

The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business acquisition included in the reported pro forma revenue and earnings.

These pro forma amounts have been calculated by applying the Company’s accounting policies, assuming transaction costs had been incurred during the three months ended July 30, 2022, reflecting the additional amortization that would have been charged and including the results of Tomahawk prior to acquisition.

The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable and are not necessarily indicative of the results that have been realized had the acquisition been consolidated in the tables above as of May 1, 2022, nor are they indicative of results of operations that may occur in the future.

Planck Acquisition

On August 17, 2022, the Company closed its acquisition of Planck, a leading provider of advanced unmanned aircraft navigation solutions based in San Diego, California. Pursuant to the purchase agreement, the Company paid a total purchase price of $5,105,000 from cash-on-hand plus a $500,000 holdback for certain assets of Planck, which was paid during the three months ended October 28, 2023. Planck is a small technology company incorporated into AeroVironment’s UMS segment for the MUAS product line to focus on integrating its flight autonomy solutions, such as ACE™, or Autonomous Control Engine, into the Company’s offerings to enable safe, autonomous takeoff and landing from moving platforms on land or at sea in GPS-denied environments. Other solutions include AVEM™, a fully integrated mobile tethered sensor platform designed for persistent autonomous operation from moving vehicles and vessels in any environment, and a suite of machine-learning object detection and tracking systems that are customized for specific end-user needs. The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

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The following table summarizes the final allocation of the purchase price over the estimated fair value of the assets and liabilities assumed in the acquisition of Planck. During the three months ended July 29, 2023, the Company finalized its determination of the fair value of the assets and liabilities assumed in the acquisition of Planck and no significant changes were recorded from the original estimation (in thousands):


	August 17,
	2022
Fair value of assets acquired:
Technology	$	3,200
Backlog		700
Inventories		109
Other assets		19
Property and equipment, net		13
Goodwill		1,633
Total identifiable net assets	$	5,674

Fair value of liabilities assumed:
Customer advances		69
Total liabilities assumed		69
Total identifiable net assets	$	5,605

Fair value of consideration transferred:
Cash	$	5,105
Holdback		500
Total consideration	$	5,605

The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing customers, the workforce of Planck and expected future customers in the MUAS market. For tax purposes the acquisition was treated as an asset acquisition and the goodwill is deductible.

Planck Supplemental Pro Forma Information (unaudited)

The following unaudited pro forma summary presents condensed consolidated information of the Company as if the business acquisition had occurred on May 1, 2021 (in thousands):


	Three Months Ended		Nine Months Ended
	January 28,		January 28,
	2023		2023
Revenue	$	134,395	$	357,411
Net loss attributable to AeroVironment, Inc.	$	(390)	$	(13,840)

Planck revenue since acquisition on August 17, 2022 was $76,000. The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business acquisition included in the reported pro forma revenue and earnings.

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These pro forma amounts have been calculated by applying the Company’s accounting policies, assuming transaction costs had been incurred during the three months ended July 31, 2021, reflecting the additional amortization that would have been charged and including the results of Planck prior to acquisition.

The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable and are not necessarily indicative of the results that have been realized had the acquisition been consolidated in the tables above as of May 1, 2021, nor are they indicative of results of operations that may occur in the future.

17. Pension

As part of the Telerob acquisition, the Company acquired a small foreign-based defined benefit pension plan. The Rheinmetall-Zusatzversorgung service plan covers three former employees based on individual contracts issued to the employees. No other employees are eligible to participate. The Company has reinsurance policies that were taken out for participating former employees, which were pledged to the employees. The measurement date for the Company’s pension plan was April 30, 2023.

The table below includes the projected benefit obligation and fair value of plan assets as of April 30, 2023. The net fair value of plan assets (in thousands) is recorded in other assets on the unaudited condensed consolidated balance sheet.


	April 30,
	2023
	(In thousands)
Projected benefit obligation	$	(3,192)
Fair value of plan assets		3,870
Funded status of the plan	$	678

The projected benefit obligation includes assumptions of a discount rate of 2.4% and pension increase for in-payment benefits of 1.5% for January 27, 2024 and April 30, 2023. The accumulated benefit obligation is approximately equal to the Company’s projected benefit obligation. The plan assets consist of reinsurance policies for each of the three pension commitments. The reinsurance policies are fixed-income investments considered a level 2 fair value hierarchy based on observable inputs of the policy. The Company does not expect to make any contributions to the plan in the fiscal year ending April 30, 2024. The Company assumed expected return on plan assets of 2.9% for January 27, 2024 and April 30, 2023.

Expected benefit payments as of April 30, 2023 (in thousands):


2024	$	177
2025		190
2026		192
2027		195
2028		197
2029-2033		1,008
Total expected benefit payments	$	1,959

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Net periodic benefit cost (in thousands) is recorded in interest expense, net.


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
	2024		2023		2024		2023
	(In thousands)		(In thousands)		(In thousands)		(In thousands)
Expected return on plan assets	$	—	$	—	$	—	$	—
Interest cost		30		(35)		89		(52)
Actuarial gain		—		—		—		241
Net periodic benefit cost	$	30	$	(35)	$	89	$	189

18. Segments

Effective May 1, 2023, the Company reorganized its segments. Due to the Company’s growth as an organization, the reorganization was implemented to drive additional operational improvements, foster synergies and provide leaders with greater autonomy over their product lines. The Company’s reportable segments are as follows:

Unmanned Systems—The UMS segment, which consists of the former SUAS, MUAS and UGV segments and the recently acquired Tomahawk, focuses primarily on small UAS products designed to operate reliably at lower altitudes in a wide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information as well as related support including training, spare and accessory parts, product repair, product replacement, maintenance and upgrades; medium UAS products designed to operate reliably at medium altitudes with longer range while carrying larger payloads including airborne platforms, payloads and payload integration, and ground support equipment and other items and services related generally to unmanned aircraft systems historically including ISR services; UGV products designed to help responders remove, contain or neutralize these hazards in situations where improvised explosive devices, caustic chemicals, nuclear, radiological or biological hazards or violent individuals represent significant danger to humans; and AI-enabled common control and communication solutions that allow any unmanned system to be controlled from a common user interface while aggregating data from multiple platforms to provide real time intelligence.

Loitering Munitions Systems—The LMS segment, which consists of the former Tactical Missile Systems segment, focuses primarily on tube-launched aircraft that deploy with the push of a button, fly at higher speeds than small UAS products, and perform either effects delivery or reconnaissance missions, and related support services including training, spare parts, product repair, and product replacement. The LMS segment also includes customer-funded research and development programs.

MacCready Works—The MW segment, which consists of the former MacCready Works and High Altitude Pseudo-Satellite systems (“HAPS”) segments, focuses on customer-funded research and development in the areas of HAPS, robotics, sensors, software analytics, data intelligence and connectivity. This segment contains the Company’s center of excellence for the development of machine learning, object identification and autonomy solutions and also seeks to identify new products, services and businesses for the Company.

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The accounting policies of the segments are the same as those described in Note 1, “Organization and Significant Accounting Policies.” The operating segments do not make sales to each other. Segment adjusted income (loss) from operations is the measure of profitability used by the CODM for purposes of making decisions about allocating resources to the segments and assessing performance.


	Three Months Ended January 27, 2024
	UMS		LMS		MW		Total
Revenue:
Product sales	$	104,522	$	51,338	$	63	$	155,923
Contract services		8,768		6,320		15,567		30,655
	$	113,290	$	57,658	$	15,630	$	186,578

Segment adjusted income (loss) from operations	$	20,417	$	7,562	$	(8,103)	$	19,876

Depreciation and amortization	$	7,523	$	672	$	1,387	$	9,582


	Three Months Ended January 28, 2023
	UMS		LMS		MW		Total
Revenue:
Product sales	$	74,966	$	16,203	$	47	$	91,216
Contract services		17,363		7,812		18,004		43,179
	$	92,329	$	24,015	$	18,051	$	134,395

Segment adjusted income (loss) from operations	$	11,792	$	(129)	$	376	$	12,039

Depreciation and amortization	$	14,763	$	455	$	616	$	15,834


	Nine Months Ended January 27, 2024
	UMS		LMS		MW		Total
Revenue:
Product sales	$	318,708	$	100,645	$	1,820	$	421,173
Contract services		25,562		18,179		54,827		98,568
	$	344,270	$	118,824	$	56,647	$	519,741

Segment adjusted income (loss) from operations	$	84,048	$	11,345	$	(14,627)	$	80,766

Depreciation and amortization	$	19,104	$	1,848	$	4,017	$	24,969


	Nine Months Ended January 28, 2023
	UMS		LMS		MW		Total
Revenue:
Product sales	$	160,450	$	50,775	$	308	$	211,533
Contract services		61,288		27,352		54,322		142,962
	$	221,738	$	78,127	$	54,630	$	354,495

Segment adjusted income from operations	$	5,214	$	845	$	4,099	$	10,158

Depreciation and amortization	$	44,835	$	1,314	$	1,960	$	48,109

The following table (in thousands) provides a reconciliation from segment adjusted income from operations to income (loss) before taxes:

Three Months Ended

Nine Months Ended

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	January 27,		January 28,		January 27,		January 28,
	2024		2023		2024		2023
Segment adjusted income from operations	$	19,876	$	12,039	$	80,766	$	10,158
Amortization of acquired intangible assets and other purchase accounting adjustments		(5,596)		(7,146)		(13,175)		(21,949)
Acquisition-related expenses		54		(286)		(1,712)		(1,190)
Other income (expense), net		1,004		(2,587)		(2,983)		(2,183)
Interest expense, net		(114)		(2,810)		(4,072)		(6,722)
Income (loss) before income taxes	$	15,224	$	(790)	$	58,824	$	(21,886)

Segment assets are summarized in the table below. Corporate assets primarily consist of cash and cash equivalents, prepaid expenses and other current assets, long-term investments, property and equipment, net, operating lease right-of-use assets, deferred income taxes and other assets managed centrally on behalf of the business segments.


	January 27, 2024
	UMS		LMS		MW		Corporate		Total
Identifiable assets	$	525,817	$	148,598	$	45,201	$	260,683	$	980,299


	April 30, 2023
	UMS		LMS		MW		Corporate		Total
Identifiable assets	$	474,417	$	103,375	$	39,650	$	207,135	$	824,577

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and the results of operations as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions. Such forward-looking statements are based on current expectations, estimates and projections about our industry, our management’s beliefs and assumptions made by our management. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023, as updated by our subsequent filings under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

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

Critical Accounting Estimates

The following should be read in conjunction with the critical accounting estimates presented in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023.

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical estimates include those related to revenue recognition, inventory reserves for excess and obsolescence, intangible assets acquired in a business combination, goodwill, and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

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

Revenue for LMS product deliveries, certain Tomahawk 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, which historically included ISR services, is recognized over time as services are rendered. We elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, such as flight hours for ISR services, the entity may recognize revenue in the amount to which the entity has a right to invoice. During the year ended April 30, 2023, all of our MUAS COCO sites were closed. 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

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performed, which correspond with, and thereby best depict, transfer of control to the customer. Contract costs include labor, materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts.

For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is recognized at the point in time in which each performance obligation is fully satisfied. Our Unmanned Systems product sales revenue is composed of revenue recognized on contracts for the delivery of SUAS, 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.

We review cost performance, estimates-to-complete and variable consideration at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications, including the finalization of undefinitized contract actions, occur. The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Changes in variable consideration associated with the finalization of undefinitized contract actions could result in cumulative catch up adjustments to revenue that could be material. During the three and nine months ended January 27, 2024 and January 28, 2023, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended January 27, 2024 and January 28, 2023, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):


	Three Months Ended
	January 27,		January 28,
	2024		2023

Gross favorable adjustments	$	4,450	$	1,695
Gross unfavorable adjustments		(52)		(907)
Net favorable adjustments	$	4,398	$	788

For the three months ended January 27, 2024, favorable cumulative catch-up adjustments of $4.5 million were primarily due to final cost adjustments on three contracts. During the three months ended January 27, 2024, we revised our estimates to reflect a favorable definitization of an LMS contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $3.6 million. For the same period, unfavorable cumulative catch-up adjustments of $0.1 million were primarily related to higher than expected costs on three contracts, which individually were not material.

For the three months ended January 28, 2023, favorable cumulative catch-up adjustments of $1.7 million were primarily due to final cost adjustments on 11 contracts. For the same period, unfavorable cumulative catch-up adjustments of $0.9 million were primarily related to higher than expected costs on seven contracts, which individually were not material.

Also during the three months ended January 28, 2023, we recognized a decrease in the forward loss reserves on two MUAS ISR contracts of $2.4 million and an increase in the forward loss reserve of an MUAS products contract of $1.6 million.

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For the nine months ended January 27, 2024 and January 28, 2023, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):


	Nine Months Ended
	January 27,		January 28,
	2024		2023

Gross favorable adjustments	$	6,539	$	2,317
Gross unfavorable adjustments		(1,452)		(3,667)
Net favorable (unfavorable) adjustments	$	5,087	$	(1,350)

For the nine months ended January 27, 2024, favorable cumulative catch-up adjustments of $6.5 million were primarily due to final cost adjustments on 17 contracts. During the nine months ended January 27, 2024, we revised our estimates of the total expected costs to complete an LMS contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $1.4 million. For the same period, unfavorable cumulative catch-up adjustments of $1.5 million were primarily related to higher than expected costs on eight contracts, which individually were not material.

For the nine months ended January 28, 2023, favorable cumulative catch-up adjustments of $2.3 million were primarily due to final cost adjustments on 22 contracts, which individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $3.7 million were primarily related to higher than expected costs on six contracts. During the nine months ended January 28, 2023, we revised our estimates of the total expected costs to complete two LMS variant contracts. 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 $2.4 million.

Goodwill

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. We test goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.

Our evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. For the impairment test, we first assess qualitative factors, macroeconomic conditions, industry and market considerations, triggering events, cost factors, and overall financial performance, to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, we may bypass the qualitative assessment for some or all of our reporting units and apply the quantitative impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). For the quantitative impairment test we estimate the fair value by weighting the results from the income approach and the market approach. These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business.

Subsequent to the performance of our annual goodwill impairment test for fiscal year 2023, in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value. Specifically, we received notification that we were not down selected for a U.S. Department of Defense (“D.o.D.”)program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit. As a result, we updated our estimates of long-term future cash flows to reflect lower revenue and profitability growth rate expectations used in the valuation of the MUAS reporting unit. These changes in estimates, resulted in the recognition of a goodwill impairment charge of $156.0 million in the MUAS reporting unit during the fiscal year ended April 30, 2023.

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As of January 27, 2024 our MUAS reporting unit has a goodwill balance of $134.1 million. The estimated fair value of the MUAS reporting unit does not substantially exceed its carrying value due to the impairment recorded during the most recent annual goodwill impairment test performed during the fourth quarter ended April 30, 2023, resulting in carrying value being equal to estimated fair value. Fair value determinations utilized in the quantitative goodwill impairment test require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. Estimated future annual net cash flows based in part upon our ability to obtain contracts from the U.S. D.o.D. and foreign allied nations and negotiate the estimated pricing are considered the most significant, sensitive assumptions. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to long-term operating plans, then MUAS may become impaired in the future. Accordingly, the MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests. The intangibles included in the MUAS reporting unit of $14.6 million as of January 27, 2024 will also be evaluated for potential impairment during the fourth quarter goodwill impairment test. During the most recent annual impairment test during the fourth quarter of fiscal year 2023, the estimated fair value of all reporting units, other than MUAS, substantially exceeded their carrying value. As of January 27, 2024, we have not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature. Actual results can be materially different from the estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the carrying amounts, we could recognize future impairment charges, the amount of which could be material.

Fiscal Periods

Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday. Our 2024 fiscal year ends on April 30, 2024 and our fiscal quarters end on July 29, 2023, October 28, 2023 and January 27, 2024, respectively.

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Results of Operations

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

Three Months Ended January 27, 2024 Compared to Three Months Ended January 28, 2023


	Three Months Ended
	January 27,		January 28,
	2024		2023

Revenue	$	186,578	$	134,395
Cost of sales		119,291		88,885
Gross margin		67,287		45,510
Selling, general and administrative		27,826		24,746
Research and development		25,127		16,157
Income from operations		14,334		4,607
Other income (loss):
Interest expense, net		(114)		(2,810)
Other income (expense), net		1,004		(2,587)
Income (loss) before income taxes		15,224		(790)
Provision for (benefit from) income taxes		1,259		(531)
Equity method investment loss, net of tax		(80)		(417)
Net income (loss)	$	13,885	$	(676)

We have identified three reportable segments, Unmanned Systems (“UMS”), Loitering Munitions Systems (“LMS”) and MacCready Works (“MW”). The UMS segment consists of our small UAS, including our recent Tomahawk acquisition, medium UAS and UGV product lines. The LMS segment consists of our renamed existing tactical missile systems product lines. The MW segment consists of our MacCready Works products and services and the development of High Altitude Pseudo-Satellite systems (“HAPS”). The following tables (in thousands) set forth our segment revenue and segment adjusted income (loss) from operations for the periods indicated. Segment adjusted income (loss) from operations is defined as income (loss) before income taxes, interest expense, net, other income (expense), net, intangible amortization, amortization of purchase accounting adjustment related to increasing the carrying value of certain assets to fair value, and acquisition related expenses. All corporate and headquarter expenses are allocated to the reportable segments.


	Three Months Ended January 27, 2024
	UMS		LMS		MW		Total
Revenue:
Product sales	$	104,522	$	51,338	$	63	$	155,923
Contract services		8,768		6,320		15,567		30,655
	$	113,290	$	57,658	$	15,630	$	186,578

Segment adjusted income (loss) from operations	$	20,417	$	7,562	$	(8,103)


	Three Months Ended January 28, 2023
	UMS		LMS		MW		Total
Revenue:
Product sales	$	74,966	$	16,203	$	47	$	91,216
Contract services		17,363		7,812		18,004		43,179
	$	92,329	$	24,015	$	18,051	$	134,395

Segment adjusted income (loss) from operations	$	11,792	$	(129)	$	376

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


	Three Months Ended				Nine Months Ended
	January 27,		January 28,		January 27,		January 28,
	2024		2023		2024		2023
Cost of sales:
Product sales	$	2,681	$	1,026	$	5,577	$	3,060
Contract services		1,356		2,284		4,068		7,332
Selling, general and administrative		1,559		3,836		3,530		11,557
Total	$	5,596	$	7,146	$	13,175	$	21,949

Revenue. Revenue for the three months ended January 27, 2024 was $186.6 million, as compared to $134.4 million for the three months ended January 28, 2023, representing an increase of $52.2 million, or 39%. The increase in revenue was due to an increase in product revenue of $64.7 million, partially offset by a decrease in service revenue of $12.5 million. The increase in product revenue was primarily due to an increase of $35.1 million from the production of our Switchblade products and an increase of $29.6 million of product deliveries of our UMS products, including $5.7 million associated with the recent Tomahawk acquisition. These increases were primarily driven by increased global demand for our unmanned systems associated with the current global conflicts as well as U.S. D.o.D. resupply. The decrease in service revenue was primarily due to a decrease of $11.5 million largely resulting from the closure of all COCO site locations during fiscal year 2023, a decrease of $4.3 million in customer funded R&D and engineering services due to a decrease in development programs in part due to delays in the establishment of the government fiscal year 2024 budget, partially offset by an increase of $4.3 million associated with the recent Tomahawk acquisition. We expect the lower levels of UMS service revenues to continue through fiscal 2024 due to the closure of all COCO site locations during fiscal year 2023. With the higher backlog, the increase in the UMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2024.

Cost of Sales. Cost of sales for the three months ended January 27, 2024 was $119.3 million, as compared to $88.9 million for the three months ended January 28, 2023, representing an increase of $30.4 million, or 34%. The increase in cost of sales was a result of an increase in product cost of sales of $44.6 million, partially offset by a decrease in service costs of sales of $14.2 million. The increase in product costs of sales was primarily due to an increase of approximately $39 million associated with the increase in product revenue and approximately $4 million due to a mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production and an increase of $2.4 million in inventory reserve charges primarily due to the introduction of our next generation products. The decrease in service cost of sales was primarily due to a decrease in service revenue driven by a decrease of $13.1 million due to the closure of all COCO sites in the prior year. Cost of sales for the three months ended January 27, 2024 included $4.0 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $3.3 million for the three months ended January 28, 2023. As a percentage of revenue, cost of sales decreased from 66% to 64%, primarily due to an increase in the proportion of product revenue to total revenue and the prior year COCO operations costs, partially offset by a mix shift to lower margin products, resulting in an increase in gross margin from 34% to 36%.

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

Selling, General and Administrative. SG&A expense for the three months ended January 27, 2024 was $27.8 million, or 15% of revenue, as compared to SG&A expense of $24.7 million, or 18% of revenue, for the three months ended January 28, 2023. The increase in SG&A expense was primarily due to an increase of $3.1 million in employee related expenses primarily driven by an increase in average headcount to support our growth and expansion of our global business development team and an increase of $1.9 million of sales and marketing expense primarily driven by an increase in bid and proposal efforts, partially offset by a decrease in intangible amortization and other non-cash purchase accounting expenses of $2.3 million. The decrease in intangible amortization expense was primarily driven by the decrease in COCO customer relationship amortization of $3.1 million due to the accelerated amortization recorded during the three months ended April 30, 2023, partially offset by an increase of $0.7 million resulting from the Tomahawk acquisition.

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Research and Development. R&D expense for the three months ended January 27, 2024 was $25.1 million, or 13% of revenue, as compared to R&D expense of $16.2 million, or 12% of revenue, for the three months ended January 28, 2023, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

Interest Expense, net. Interest expense, net for the three months ended January 27, 2024 was $0.1 million compared to interest expense, net of $2.8 million for the three months ended January 28, 2023. The decrease in interest expense, net was primarily due to lower average outstanding balances on our debt facility and an increase of $1.3 million in interest income.

Other Income (Expense), net. Other income, net, for the three months ended January 27, 2024 was $1.0 million compared to other expense, net of $2.6 million for the three months ended January 28, 2023 primarily due to net unrealized gains associated with increases in the fair market value for equity security investments.

Provision for (Benefit from) Income Taxes. Our effective income tax rate was 8.3% for the three months ended January 27, 2024, as compared to 67.2% for the three months ended January 28, 2023. The decrease in our effective income tax rate was primarily due to an increase in income before income taxes combined with an increase in projected full year income before income taxes and increases in expected foreign-derived intangible income (“FDII”) deductions and federal R&D tax credits. The effective income tax rate for the three months ended January 27, 2024 was primarily impacted by expected federal R&D tax credits and FDII deductions.

Equity Method Investment Loss, net of Tax. Equity method investment loss, net of tax for the three months ended January 27, 2024 was $0.1 million as compared to equity method investment loss, net of tax of $0.4 million for the three months ended January 28, 2023.

Unmanned Systems


	Three Months Ended
	January 27,		January 28,
	2024		2023
Revenue:
Product sales	$	104,522	$	74,966
Contract services		8,768		17,363
	$	113,290	$	92,329

Segment adjusted income from operations	$	20,417	$	11,792

Revenue. UMS revenue for the three months ended January 27, 2024 was $113.3 million, as compared to $92.3 million for the three months ended January 28, 2023, representing an increase of $21.0 million, or 23%. The increase in revenue was due to an increase in product revenue of $29.6 million, partially offset by a decrease in service revenue of $8.6 million. The increase in product revenue was primarily due to an increase of $23.9 million largely resulting from increased product shipments of our Jump 20 and UGV product systems driven by increased global demand for our unmanned systems associated with the current global conflicts as well as U.S. D.o.D. resupply and $5.7 million associated with the recent Tomahawk acquisition. The decrease in service revenue was primarily due to decreases of $11.5 million from the closure of all COCO site locations during fiscal year 2023, partially offset by an increase of $4.3 million associated with the recent Tomahawk acquisition.

UMS Segment adjusted income from operations. UMS segment adjusted income from operations for the three months January 27, 2024 was $20.4 million, as compared to $11.8 million for the three months ended January 28, 2023, representing an increase of $8.6 million. The increase in UMS segment adjusted income from operations was primarily due to an increase of revenue of $21.0 million, partially offset by an increase of $7.9 million in cost of sales driven by increased sales volume of approximately $10 million, partially offset by a favorable sales mix of approximately $2 million primarily due to lower levels of COCO service revenue, partially offset by an increase in SG&A of $3.8 million driven by increased employee related expenses, partially offset by a decrease in intangible amortization of $2.4 million,

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and an in increase in R&D of $1.2 million due to development activities regarding enhanced capabilities for our products.

Loitering Munitions Systems


	Three Months Ended
	January 27,		January 28,
	2024		2023
Revenue:
Product sales	$	51,338	$	16,203
Contract services		6,320		7,812
	$	57,658	$	24,015

Segment adjusted income (loss) from operations	$	7,562	$	(129)

Revenue. LMS revenue for the three months ended January 27, 2024 was $57.7 million, as compared to $24.0 million for the three months ended January 28, 2023, representing an increase of $33.6 million, or 140%. The increase in revenue was due to an increase in product revenue of $35.1 million, partially offset by a decrease in service revenue of $1.5 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our loitering munitions systems associated with the current global conflicts as well as U.S. D.o.D. resupply. The decrease in service revenue was primarily due to decreases in customer-funded R&D activities primarily associated with the shift from development to production of certain Switchblade products.

LMS Segment adjusted income (loss) from operations. LMS segment adjusted income from operations for the three months January 27, 2024 was $7.6 million, as compared to LMS adjusted loss from operations of $(0.1) million for the three months ended January 28, 2023, representing an increase of $7.7 million. The increase in LMS segment adjusted income from operations was primarily due to an increase of $33.6 million of revenue, partially offset by an increase in cost of sales of $23.5 million primarily driven by increased sales volume, partially offset by an increase in SG&A of $1.5 million driven by increased sales and marketing activity related to higher demand and an in increase in R&D of $1.0 million due to development activities regarding enhanced capabilities for our products.

MacCready Works


	Three Months Ended
	January 27,		January 28,
	2024		2023
Revenue:
Product sales	$	63	$	47
Contract services		15,567		18,004
	$	15,630	$	18,051

Segment adjusted (loss) income from operations	$	(8,103)	$	376

Revenue. MW revenue for the three months ended January 27, 2024 was $15.6 million, as compared to $18.1 million for the three months ended January 28, 2023, representing a decrease of $2.4 million, or 13%. The decrease in revenue was due to a decrease in service revenue of $2.4 million. The decrease in service revenue was primarily due to a decrease of $3.3 million in customer funded R&D efforts in part due to delays in the establishment of the government fiscal year 2024 budget, partially offset by an increase in other engineering services revenue.

MW Segment adjusted (loss) income from operations. MW segment adjusted loss from operations for the three months January 27, 2024 was $(8.1) million, as compared to MW segment adjusted income from operations of $0.4 million for the three months ended January 28, 2023, representing an increased loss of $8.5 million. The increase in MW adjusted loss from operations was primarily due to an increase in R&D of $6.8 million due to increased investments largely related to HAPS development efforts to support the decrease in customer funded R&D programs in part due to delays in the establishment of the government fiscal year 2024 budget and a decrease in revenue of $2.4 million, partially offset by

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a decrease in cost of sales of $1.1 million driven by approximately $2 million related to unfavorable sales volume, partially offset by approximately $1 million related to favorable sales mix.

Nine Months Ended January 27, 2024 Compared to Nine Months Ended January 28, 2023

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


	Nine Months Ended
	January 27,		January 28,
	2024		2023

Revenue	$	519,741	$	354,495
Cost of sales		311,444		249,381
Gross margin		208,297		105,114
Selling, general and administrative		79,800		70,302
Research and development		62,618		47,793
Income (loss) from operations		65,879		(12,981)
Other loss:
Interest expense, net		(4,072)		(6,722)
Other expense, net		(2,983)		(2,183)
Income (loss) before income taxes		58,824		(21,886)
Provision for (benefit from) income taxes		3,710		(8,382)
Equity method investment loss, net of tax		(1,494)		(2,190)
Net income (loss)	$	53,620	$	(15,694)

The following tables (in thousands) sets forth our segment revenue and segment adjusted income (loss) from operations generated by each reporting segment for the periods indicated. Segment adjusted income (loss) from operations is defined as income (loss) before income taxes, interest expense, net, other income (expense), net, intangible amortization, amortization of purchase accounting adjustment related to increasing the carrying value of certain assets to fair value, and acquisition related expenses. All corporate and headquarter expenses are allocated to the reportable segments.


	Nine Months Ended January 27, 2024
	UMS		LMS		MW		Total
Revenue:
Product sales	$	318,708	$	100,645	$	1,820	$	421,173
Contract services		25,562		18,179		54,827		98,568
	$	344,270	$	118,824	$	56,647	$	519,741

Segment adjusted income (loss) from operations	$	84,048	$	11,345	$	(14,627)


	Nine Months Ended January 28, 2023
	UMS		LMS		MW		Total
Revenue:
Product sales	$	160,450	$	50,775	$	308	$	211,533
Contract services		61,288		27,352		54,322		142,962
	$	221,738	$	78,127	$	54,630	$	354,495

Segment adjusted income from operations	$	5,214	$	845	$	4,099

Revenue. Revenue for the nine months ended January 27, 2024 was $519.7 million, as compared to $354.5 million for the nine months ended January 28, 2023, representing an increase of $165.2 million, or 47%. The increase in revenue was due to an increase in product revenue of $209.6 million, partially offset by a decrease in service revenue of $44.4 million. The increase in product revenue was primarily due to an increase of $158.3 million of product deliveries of our UMS products, including $8.3 million associated with the recent Tomahawk acquisition, and an increase of $49.9 million from the production of our Switchblade products. These increases were primarily driven by increased global

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demand for our unmanned systems and loitering munitions associated with the current global conflicts as well as U.S. D.o.D. resupply. The decrease in service revenue was primarily due to a decrease of $45.9 million due to the closure of all COCO site locations during fiscal year 2023 and a decrease of $8.0 million in customer funded R&D and engineering services due to a decrease in development programs in part due to delays in the establishment of the government fiscal year 2024 budget, partially offset by an increase of $5.2 million in training services associated with the increased sales volume and an increase of $4.9 million associated with the recent Tomahawk acquisition. We expect the lower levels of UMS service revenues to continue through fiscal 2024 due to the closure of all COCO site locations during fiscal year 2023. With the higher backlog, the increase in the UMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2024.

Cost of Sales. Cost of sales for the nine months ended January 27, 2024 was $311.4 million, as compared to $249.4 million for the nine months ended January 28, 2023, representing an increase of $62.1 million, or 25%. The increase in cost of sales was a result of an increase in product cost of sales of $112.9 million, partially offset by a decrease in service costs of sales of $50.9 million. The increase in product cost of sales was primarily due to an increase of approximately $126 million associated with the increase in product revenue, partially offset by an increase of $7.9 million in inventory reserve charges primarily related to the introduction of our next generation products and an increase of $2.5 million in intangible amortization expense primarily resulting from the Tomahawk acquisition. The decrease in service cost of sales was primarily related to a decrease in service revenue driven by a decrease of $52.4 million due to the closure of all COCO site locations in the prior year as well as a decrease of $3.3 million in intangible amortization expense due to intangible assets being fully amortized, partially offset by increases in costs of services for training services and the recent Tomahawk acquisition. Cost of sales for the nine months ended January 27, 2024 included $9.6 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $10.4 million for the nine months ended January 28, 2023. As a percentage of revenue, cost of sales decreased from 70% to 60%, primarily due to an increase in the proportion of product revenue to total revenue and the prior year COCO operation costs resulting in an increase in gross margin from 30% to 40%.

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

Selling, General and Administrative. SG&A expense for the nine months ended January 27, 2024 was $79.8 million, or 15% of revenue, as compared to SG&A expense of $70.3 million, or 20% of revenue, for the nine months ended January 28, 2023. The increase in SG&A expense was primarily due to an increase in employee related expenses of $11.0 million driven by an increase in average headcount to support our growth and expansion of our global business development team, an increase in sales and marketing expense of $2.9 million primarily driven by an increase in bid and proposal efforts and an increase in depreciation expense of $1.7 million driven by increased capital to support our growth, partially offset by a decrease of $8.0 million in intangible amortization and other non-cash purchase accounting expenses. The decrease in intangible amortization expense was primarily driven by a decrease in COCO customer relationship amortization of $9.3 million due to the accelerated amortization of COCO customer relationships recorded during the three months ended April 30, 2023, partially offset by an increase of $1.0 million resulting from the Tomahawk acquisition.

Research and Development. R&D expense for the nine months ended January 27, 2024 was $62.6 million, or 12% of revenue, as compared to R&D expense of $47.8 million, or 13% of revenue, for the nine months ended January 28, 2023, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and to support our acquired businesses.

Interest Expense, net. Interest expense, net for the nine months ended January 27, 2024 was $4.1 million compared to interest expense, net of $6.7 million for the nine months ended January 28, 2023. The decrease in interest expense, net was primarily due to an increase of $2.1 million in interest income and lower average outstanding balances on debt, partially offset by higher interest rates on our debt facility.

Other Expense, net. Other expense, net, for the nine months ended January 27, 2024 was $3.0 million compared to other expense, net of $2.2 million for the nine months ended January 28, 2023. The increase in other expense, net is primarily due to unrealized losses associated with decreases in fair market value for equity security investments.

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Provision for (Benefit from) Income Taxes. Our effective income tax rate was 6.3% for the nine months ended January 27, 2024, as compared to 38.3% for the nine months ended January 28, 2023. The decrease in our effective income tax rate was in part due to an increase in year to date actual and projected full year income before income taxes combined with increases in expected FDII deductions and federal R&D tax credits. The effective income tax rate for the nine months ended January 27, 2024 was primarily impacted by expected federal R&D tax credits and FDII deductions.

Equity Method Investment Loss, net of Tax. Equity method investment loss, net of tax for the nine months ended January 27, 2024 was $1.5 million as compared to $2.2 million for the nine months ended January 28, 2023.

Business Segment Results of Operations

Unmanned Systems


	Nine Months Ended
	January 27,		January 28,
	2024		2023
Revenue:
Product sales	$	318,708	$	160,450
Contract services		25,562		61,288
	$	344,270	$	221,738

Segment adjusted income from operations	$	84,048	$	5,214

Revenue. UMS revenue for the nine months ended January 27, 2024 was $344.3 million, as compared to $221.7 million for the nine months ended January 28, 2023, representing an increase of $122.5 million, or 55%. The increase in revenue was due to an increase in product revenue of $158.3 million, partially offset by a decrease in service revenue of $35.7 million. The increase in product revenue was primarily due to an increase of $149.9 million largely resulting from increased product shipments of our SUAS family of systems, Jump 20 and UGV products systems driven by increased global demand for our unmanned systems associated with the current global conflicts as well as U.S. D.o.D. resupply and $8.3 million associated with the recent Tomahawk acquisition. The decrease in service revenue was primarily due to decreases of $45.9 million from the closure of all COCO site locations during fiscal year 2023, partially offset by an increase of $4.4 million associated with the recent Tomahawk acquisition and an increase of $3.9 million in training services associated with the increased sales volume.

UMS Segment adjusted income from operations. UMS segment adjusted income from operations for the nine months January 27, 2024 was $84.0 million, as compared to $5.2 million for the nine months ended January 28, 2023, representing an increase of $78.8 million. The increase in UMS segment adjusted income from operations was primarily due to an increase of $122.5 million in revenue, partially offset by an increase of $27.9 million in cost of sales driven by increased sales volume of approximately $55 million, partially offset by a favorable sales mix of approximately $27 million due to a mix shift to a higher proportion of international products sales and lower levels of COCO service revenue, partially offset by an increase in SG&A of $10.0 million driven by increased employee related expenses and an in increase in R&D of $4.7 million due to development activities regarding enhanced capabilities for our products, partially offset by a decrease in intangible amortization of $8.1 million.

Loitering Munitions Systems


	Nine Months Ended
	January 27,		January 28,
	2024		2023
Revenue:
Product sales	$	100,645	$	50,775
Contract services		18,179		27,352
	$	118,824	$	78,127

Segment adjusted income from operations	$	11,345	$	845

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Revenue. LMS revenue for the nine months ended January 27, 2024 was $118.8 million, as compared to $78.1 million for the nine months ended January 28, 2023, representing an increase of $40.7 million, or 52%. The increase in revenue was due to an increase in product revenue of $49.9 million, partially offset by a decrease in service revenue of $9.2 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our unmanned systems associated with the current global conflicts as well as U.S. D.o.D. resupply. The decrease in service revenue was primarily due to a decrease of $9.6 million in customer-funded R&D activities primarily associated with the shift from development to production of certain Switchblade products.

LMS Segment adjusted income from operations. LMS segment adjusted income from operations for the nine months January 27, 2024 was $11.3 million, as compared to $0.8 million for the nine months ended January 28, 2023, representing an increase of $10.5 million. The increase in LMS segment adjusted income from operations was primarily due to an increase in revenue of $40.7 million and a decrease in R&D of $3.0 million associated with the shift from development to production of certain Switchblade products, partially offset by an increase in cost of sales of $29.3 million driven by increased sales volume of approximately $27 million and an unfavorable sales mix of approximately $2 million due to due to new contract awards with lower estimated margins and an increase in SG&A of $4.0 million driven by increased sales and marketing activity related to higher demand.

MacCready Works


	Nine Months Ended
	January 27,		January 28,
	2024		2023
Revenue:
Product sales	$	1,820	$	308
Contract services		54,827		54,322
	$	56,647	$	54,630

Segment adjusted (loss) income from operations	$	(14,627)	$	4,099

Revenue. MW revenue for the nine months ended January 27, 2024 was $56.6 million, as compared to $54.6 million for the nine months ended January 28, 2023, representing an increase of $2.0 million, or 4%. The increase in revenue was primarily due to an increase of $1.5 million in product sales. The increase in product sales is due to an increase in product deliveries as certain development programs begin to shift from development to early production.

MW Segment adjusted (loss) income from operations. MW segment adjusted loss from operations for the nine months January 27, 2024 was $(14.6) million, as compared to MW segment adjusted income from operations of $4.1 million for the nine months ended January 28, 2023, representing an increased loss of $18.7 million. The increase in MW adjusted loss from operations was primarily due to an increase in R&D of $13.2 million due to increased investments largely related to HAPS development efforts to support the decrease in customer funded R&D programs in part due to delays in the establishment of the government fiscal year 2024 budget, an increase in costs of sales of $4.9 million driven by approximately $4 million related to unfavorable sales mix and approximately $1 million related to sales volume and an increase in SG&A of $2.9 million driven by increased employee related expenses and sales and marketing activity, partially offset by an increase in revenue of $2.0 million.

Backlog

Consistent with ASC 606, we define funded backlog as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract. As of January 27, 2024, our funded backlog was approximately $462.8 million, as compared to $424.1 million as of April 30, 2023.

In addition to our funded backlog, we also had unfunded backlog of $132.7 million as of January 27, 2024. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with (i) multiple one-year

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options and indefinite delivery, indefinite quantity (“IDIQ”) contracts, or (ii) incremental funding. Unfunded backlog does not obligate the customer to purchase goods or services. There can be no assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts. Unfunded backlog does not include the remaining potential value associated with a U.S. Army IDIQ-type contract for SUAS because values for each of the other domains within the contract have not been disclosed by the customer, and we cannot be certain that we will secure all task orders issued against the contract.

Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire or are renewed or new contracts are awarded. A majority of our contracts, specifically our IDIQ contracts, do not currently obligate the U.S. government to purchase any goods or services. Additionally, all U.S. government contracts included in backlog, whether or not they are funded, may be terminated at the convenience of the U.S. government.

Liquidity and Capital Resources

On September 8, 2022, we filed an S-3 shelf registration statement to offer and sell shares of our common stock, including a prospectus supplement in relation to an Open Market Sale Agreement^SM, also dated September 8, 2022, with Jefferies LLC relating to the proposed offer and sale of shares of our common stock having an aggregate offering price of up to $200.0 million from time to time through Jefferies LLC as our sales agent. As of October 28, 2023, we completed the Open Market Sale Agreement^SM and sold 1,917,100 of our shares for total gross proceeds of $200.0 million and $194.0 million proceeds received, net of commission expense and $193.1 million net of equity issuance costs. During the nine months ended January 27, 2024, we sold 807,370 shares for total gross proceeds of $91.3 million, total proceeds received of $88.6 million, net of commission expense and $88.4 million net of equity issuance costs.

On February 19, 2021 in connection with the consummation of the Arcturus acquisition, we entered into the Credit Agreement for (i) the Revolving Facility, and (ii) the Term Loan Facility, and together with the Revolving Credit Facility, the “Credit Facilities”. The Term Loan Facility requires payment of 5% of the outstanding obligations in each of the first four loan years, with the remaining 80.0% payable in loan year five, consisting of three quarterly payments of 1.25% each, with the remaining outstanding principal amount of the Term Loan Facility due and payable on the final maturity date. Proceeds from the Term Loan Facility were used in part to finance a portion of the cash consideration for the Arcturus acquisition. Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $13.3 million as of January 27, 2024. As of January 27, 2024, approximately $86.7 million was available under the Revolving Facility. Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes. Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. In addition, Telerob has a line of credit of €7.0 million ($7.6 million) available for issuing letters of credit of which €0.7 million ($0.8 million) was outstanding as of January 27, 2024.

We anticipate funding our normal recurring trade payables, accrued expenses, ongoing R&D costs and obligations under the Credit Facilities through our existing working capital and funds provided by operating activities including those provided by our recent acquisitions. The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers. We believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure requirements, future obligations related to the recent acquisitions and obligations under the Credit Facilities during the next twelve months. There can be no assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or draw on our Credit Facilities. We anticipate that existing sources of liquidity, Credit Facilities, and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.

Our primary liquidity needs are for financing working capital, investing in capital expenditures, supporting product development efforts, introducing new products and enhancing existing products, marketing acceptance and adoption of

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our products and services, and possible acquisition of entities. Our future capital requirements, to a certain extent, are also subject to general conditions in or affecting the defense industry and are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from our Credit Agreement are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in our Credit Facility agreement. In addition, we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services or technologies.

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

During the fiscal year ended April 30, 2022, we made certain commitments outside of the ordinary course of business, including capital contribution commitments to a second limited partnership fund. Under the terms of a new limited partnership agreement, we have committed to make capital contributions to such fund totaling $20.0 million, inclusive of the expected reinvestment of distributions from our existing limited partnership fund, of which $12.3 million was remaining at January 27, 2024. The contributions are anticipated to be paid over the next four fiscal years. The UGV second year earnout of €2.0 million (approximately $2.1 million) was paid in November 2023. The Tomahawk acquisition closed on September 15, 2023, and we paid a total purchase price of $134.4 million consisting of $109.8 million in stock and $24.2 million from cash on hand, net of cash acquired. Due to the new internal revenue service tax capitalization rules, Section 174, which requires R&D expenditures to be capitalized and amortized over a 5 year period for tax purposes, we expect an increase in cash paid for U.S. federal income taxes during the fiscal year ending April 30, 2024 and future fiscal years relative to prior periods.

Cash Flows

The following table provides our cash flow data for the nine months ended January 27, 2024 and January 28, 2023 (in thousands):


	Nine Months Ended
	January 27,		January 28,
	2024		2023

	(Unaudited)
Net cash provided by operating activities	$	26,965	$	8,801
Net cash (used in) provided by investing activities	$	(41,432)	$	889
Net cash used in financing activities	$	(10,621)	$	(2,402)

Cash Provided by Operating Activities. Net cash provided by operating activities for the nine months ended January 27, 2024 increased by $18.2 million to $27.0 million, as compared to net cash provided by operating activities of $8.8 million for the nine months ended January 28, 2023. The increase in net cash provided by operating activities was primarily due to an increase in net income of $69.3 million, partially offset by a decrease in cash as a result of changes in operating assets and liabilities of $40.5 million, largely related to unbilled receivables and retentions, other liabilities, accounts payable, and prepaid expenses and other assets due to year over year timing differences as well as a decrease in non-cash expenses of $10.6 million primarily due to a decrease in depreciation and amortization, partially offset by an increase in inventory reserve.

Cash (Used in) Provided by Investing Activities. Net cash used in investing activities increased by $42.3 million to $41.4 million for the nine months ended January 27, 2024, as compared to net cash provided by investing activities of $0.9 million for the nine months ended January 28, 2023. The increase in net cash used in investing activities was primarily due to a decrease in net redemptions of available-for-sale investments of $24.6 million and an increase in business acquisitions, net of cash acquired of $19.1 million, partially offset by a decrease in equity securities investments of $5.1 million.

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Cash Used in Financing Activities. Net cash used in financing activities increased by $8.2 million to $10.6 million for the nine months ended January 27, 2024, as compared to net cash used in financing activities of $2.4 million for the nine months ended January 28, 2023. The increase in net cash used in financing activities was primarily due to an increase in the principal payment of the term loan of $72.5 million, partially offset by an increase in proceeds from shares issued of $68.3 million.

New Accounting Standards

Please refer to Note 1—Organization and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the conclusion that we did not adopt any accounting standards during the nine months ended January 27, 2024.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

It is our policy not to enter into interest rate derivative financial instruments. On February 19, 2021 in connection with the consummation of the Arcturus Acquisition, we entered into the Credit Facilities. The current outstanding balance of the Credit Facilities is $40.0 million and bears a variable interest rate. The market interest rate has increased significantly, and if market interest rates continue to increase, interest due on the Credit Facilities would increase.

Foreign Currency Exchange Rate Risk

Since a significant part of our sales and expenses are denominated in U.S. dollars, we have not experienced significant foreign exchange gains or losses to date. We occasionally engage in forward contracts in foreign currencies to limit our exposure on non-U.S. dollar transactions. With the acquisition of Telerob, a portion of our cash balance is denominated in Euros which is Telerob’s functional currency.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of January 27, 2024, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 27, 2024, the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

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Changes in Internal Control over Financial Reporting

On September 15, 2023, we acquired Tomahawk, and, as a result, we have begun integrating certain processes, systems and controls relating to Tomahawk into our existing system of internal control over financial reporting in accordance with our integration plans. We do not believe these represent a material change. There were changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended January 27, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 9, 2021, a former employee filed a class action complaint against AeroVironment in California Superior Court in Los Angeles, California alleging various claims pursuant to the California Labor Code related to wages, meal breaks, overtime, unreimbursed business expenses and other recordkeeping matters. The complaint seeks a jury trial and payment of various alleged unpaid wages, penalties, interest and attorneys’ fees in unspecified amounts. We filed our answer on December 16, 2021. Written and oral discovery are ongoing.

On January 22, 2024, a former employee filed a class action complaint against AeroVironment in the Ventura County Superior Court in California alleging that AeroVironment did not indemnify and reimburse employees for certain tools and equipment purchased by such employees needed to discharge their job duties. The Company is currently evaluating the claims contained in the complaint and intends to mount a vigorous defense.

On January 29, 2024, AeroVironment was served with a California Labor Code Private Attorney General Act of 2004 ("PAGA") notice which was filed with the California Labor and Workforce Development Agency indicating a former employee’s intention to file a class action lawsuit against AeroVironment alleging violations of California wage and hour laws and seeking penalties recoverable under California Labor Code section 2698, et. seq., the PAGA and all other remedies available under PAGA. No complaint has yet been filed against the Company regarding allegations made in the PAGA notice.

We are subject to lawsuits, government investigations, audits and other legal proceedings from time to time in the ordinary course of our business. It is not possible to predict the outcome of any legal proceeding with any certainty. The outcome or costs we incur in connection with a legal proceeding could adversely impact our operating results and financial position.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2023. Please refer to that section for disclosures regarding the risks and uncertainties related to our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended January 27, 2024, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 6. EXHIBITS

Exhibit Number		Description
2.1(1)		Agreement and Plan of Merger, dated as of August 18, 2023, by and among AeroVironment, Inc., Tropic Merger Sub, Inc., Tomahawk Robotics, Inc., and Shareholder Representative Services LLC, solely in its capacity as the Stockholder Representative.
3.1(2)		Amended and Restated Certificate of Incorporation of AeroVironment, Inc.
3.2(3)		Fourth Amended and Restated Bylaws of AeroVironment, Inc., amended as of December 1, 2022.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32#		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document – The instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101

(1)	Incorporated by reference herein to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed August 22, 2023 (File No. 001‑33261)

(2)	Incorporated by reference herein to Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q filed March 9, 2007 (File No. 001‑33261).

(3)	Incorporated by reference herein to Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q filed December 7, 2022 (File No. 001‑33261).

# The information in Exhibit 32 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including this report), unless the Company specifically incorporates the foregoing information into those documents by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: March 4, 2024		AEROVIRONMENT, INC.

	By:	/s/ Wahid Nawabi
		Wahid Nawabi
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Kevin P. McDonnell
		Kevin P. McDonnell
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

		/s/ Brian C. Shackley
		Brian C. Shackley
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

I, Wahid Nawabi, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of AeroVironment, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 4, 2024

	/s/ Wahid Nawabi
	Wahid Nawabi
	Chairman, President and Chief Executive Officer

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

I, Kevin P. McDonnell, certify that:

I have reviewed this quarterly report on Form 10-Q of AeroVironment, Inc.;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 4, 2024

	/s/ Kevin P. McDonnell
	Kevin P. McDonnell
	Senior Vice President and Chief Financial Officer

Exhibit 32

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the “Act”), each of the undersigned officers of AeroVironment, Inc., a Delaware corporation (the “Company”), does hereby certify, to each such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended January 27, 2024 (the “Periodic Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	/s/ Wahid Nawabi
	Wahid Nawabi
	Chairman, President and Chief Executive Officer

	/s/ Kevin P. McDonnell
	Kevin P. McDonnell
	Senior Vice President and Chief Financial Officer

Dated: March 4, 2024

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.