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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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Commission file number 001-33261

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AEROVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

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

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

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None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ◻ No ⌧

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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 ◻

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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 ◻

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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.

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Large accelerated filer ⌧ Accelerated filer ◻Smaller reporting company ☐

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Non-accelerated filer ◻ Emerging growth company ☐

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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. ◻

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

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The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price on the NASDAQ Global Select Market on October 28, 2023 was approximately $3,173.5 million.

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As of June 19, 2024, the issuer had 28,133,862 shares of common stock, par value $0.0001 per share, issued and outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the conclusion of the registrant’s fiscal year ended April 30, 2024, are incorporated by reference into Part III of this Form 10-K.

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AEROVIRONMENT, INC.

INDEX TO FORM 10-K

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PART I

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Forward-Looking Statements

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This Annual Report on Form 10-K (“Annual Report”), contains forward-looking statements, which reflect our current views about future events and financial results. We have made these statements in reliance on the safe harbor created by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Forward-looking statements include our views on future financial results, financing sources, product development, capital requirements, market growth and the like, and are generally identified by terms including, but not limited to, “may,” “will,” “should,” “could,” “targets,” “projects,” “predicts,” “contemplates,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “forecasts,” “seeks” and similar words. Forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results to differ materially from the forward-looking statement. These uncertainties and other factors include, among other things:

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Set forth below in Item 1A, “Risk Factors” are additional significant uncertainties and other factors affecting forward-looking statements. The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive list of all the uncertainties and other factors that may affect forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements or the list of uncertainties and other factors that could affect those statements.

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Item 1. Business.

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Overview

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We design, develop, produce, deliver and support a technologically-advanced portfolio of intelligent, multi-domain robotic systems and related services for government agencies and businesses. We supply uncrewed aircraft and ground robot systems, loitering munitions systems and related services primarily to organizations within or supplying the U.S. Department of Defense (“DoD”), other federal agencies and to international allied governments. We derive the majority of our revenue from these business areas, and we believe that the markets for these solutions offer the potential for significant long-term growth. In addition, we believe that some of the innovative potential products, services and technologies in our R&D pipeline will emerge as new growth platforms in the future, creating additional market opportunities.

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The success of our current product and service offerings stems from our investments in R&D to invent and deliver advanced solutions, our utilization of proprietary and commercially available technologies, and our acquisitions of leading businesses that help our customers achieve their desired outcomes. We develop and acquire these highly innovative solutions by working closely with our key customers to solve their most important challenges related to our areas of expertise. Our core technological capabilities, developed through more than 50 years of innovation, include robotics and robotics systems autonomy; modular open systems architecture; sensor design, development, miniaturization and integration; embedded software and firmware; miniature, low power, secure wireless digital communications and networks; lightweight aerostructures; high-altitude systems design, integration and operations; machine vision, machine learning and autonomy; land, maritime and air deployment of munitions and aircraft systems; design and qualification for robotics in extreme terrestrial and space environments; munitions systems warhead integration; low SWaP (Size, Weight and Power) system design and integration; collaborative multi-robotic crewed and uncrewed mission operation; power electronics and electric propulsion systems; efficient electric power conversion,

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storage systems and high density energy packaging; controls and systems integration; vertical takeoff and landing for fixed wing and hybrid aircraft and rotocraft systems; image stabilization and target tracking; advanced flight control systems; fluid dynamics; human-machine interface development; modular dismounted, networked multi-domain robotic control interfaces and analytic processing architecture; and integrated mission solutions for austere environments.

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Our business focuses primarily on the design, development, production, marketing, support and operation of our innovative uncrewed systems (“UxS”) and loitering munitions systems (“LMS”) products and services that provide situational awareness, remote sensing, multi-band communications, force protection and other information and mission effects to increase the safety and effectiveness of our customers’ operations.

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Our Strategy

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As a leader in defense technology, our strategy is to grow our business by delivering innovative, safe and reliable multi-domain solutions and unique capabilities to our customers. Delivering these capabilities enables us to create new markets or market segments, gain share in existing markets, and grow as market adoption increases. We believe that by introducing new solutions, or acquiring differentiated solutions developed by others, we provide customers with compelling value while growing our business profitably, in both new and existing markets. By providing differentiated solutions we believe we can compete effectively against large, incumbent competitors that may possess advantages in scope, scale, resources and relationships.

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We intend to grow our business by preserving a leadership position in our core UxS (inclusive of aircraft and ground vehicles), and LMS markets by creating or acquiring new solutions and capabilities that enable us to establish leadership positions in new markets. Key components of this strategy include the following:

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Expand the market penetration of existing products and services. Our UxS business, comprised of Small Uncrewed Aircraft Systems (“SUAS”), Medium Uncrewed Aircraft Systems (“MUAS”), and Uncrewed ground vehicles (“UGV”); our LMS business; and our MacCready Works business (“MW”), comprised of proprietary programs, advanced research, Ingenuity Mars Helicopter and High Altitude Pseudo-Satellites (“HAPS”) businesses, have gained reputations as performance leaders and technology innovators in their respective markets. We intend to increase the penetration of our products and services within the U.S. military, the military of allied nations, other government agencies and non-government organizations, including commercial entities. We believe that broad adoption of our solutions by the U.S. military will continue to spur demand from allied nations, and that our pursuit of new applications will create opportunities beyond the early adopter military market.

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Deliver innovative new solutions into existing and new markets. Customer-focused innovation is the primary driver of our growth. We plan to continue investing in internally-funded R&D projects while expanding our pursuit of customer-funded R&D projects to generate revenue and develop better, more capable products, services and business models, both in response to and in anticipation of emerging customer needs. In some cases, these innovations result in upgrades to existing offerings while expanding their value among existing customers and markets. In other cases, these innovations become entirely new solutions that position us to address new markets, customers and business opportunities. We believe focused R&D investments will allow us to deliver innovative new products and services that address market needs within and outside of our current target markets by enabling us to create new opportunities for growth. We view strategic partnerships as a means by which to further the reach of our innovative solutions by accessing new markets, customers, and complementary capabilities. We also consider acquisitions as a method to obtain valuable products, capabilities or technologies that can further enable our growth strategy.

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Foster our entrepreneurial culture and continue to attract, develop and retain highly-skilled personnel. Our company culture encourages innovation and entrepreneurship, which helps to attract and retain highly-skilled professionals. This culture encourages the development of innovative, highly technical system solutions and business models that give us our competitive advantage. Our values of “customer commitment,” “trust and teamwork,” “innovate and simplify,” and “ownership and results” serve as the foundation of our culture. We believe that our values help to guide the behavior of our team members and serve to maintain a positive work environment that inspires loyalty among our personnel and customers. We also believe that our values facilitate the integration of new team members who join us as a result of acquisitions.

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Preserve our agility and flexibility. We respond rapidly to evolving markets, solve complicated customer problems, and strive to deliver new products, services and capabilities quickly, efficiently and affordably compared to available alternatives. We believe our agility and flexibility help us to strengthen our relationships with customers and partners. Our agility and flexibility are important differentiators when competing against organizations with more extensive resources.

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Effectively manage our growth portfolio for long-term value creation. Our production and development programs and services present numerous investment opportunities that will deliver long-term growth by providing our customers with valuable new capabilities. We evaluate each opportunity independently and against other investment opportunities, to determine its relative cost, timing and potential for generation of returns. This process helps us to make informed decisions regarding potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long-term value creation, which is the key objective of our growth strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growth opportunities and exit unattractive or non-core product lines.

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Stay intimate with our key defense customers. We receive support from members within AeroVironment’s Strategic Advisory Group (“SAG”), which provides executive level advice to AeroVironment’s senior leaders on all matters relating to the DoD. SAG members are highly qualified former members of the U.S. DoD, including retired General Officers and Senior Executive Service members, each with many decades of experience. We also have a government relations team comprised of individuals with prior military, government and policy making experience who regularly meet with key decision makers within the Pentagon, Congress and other key organizations within the U.S. government. Our global business development organization, that seeks to understand customer needs, responds to information requests, submits proposals, solicits feedback on the performance of our products, furnishes spares, and provides training and customer support. Finally, our project and program managers work intimately with customers to oversee the design, development, testing, manufacturing and delivery of solutions the customers want and need.

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Customers

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We sell the majority of our UxS products and services to organizations within the U.S. DoD, including the U.S. Army, Marine Corps, Special Operations Command, Air Force and Navy, to public safety agencies and to allied governments, or to companies that serve these customers. We sell our LMS products and services to organizations within the U.S. DoD and allied military forces. We also develop HAPS systems in conjunction with SoftBank Corp (“SoftBank”) for commercial customers and maintain exclusive rights to market and sell HAPS systems for defense applications globally except for Japan, which includes the sale of select products and services to the National Aeronautics and Space Administration (“NASA”) and U.S. DoD.

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During our fiscal year ended April 30, 2024, we generated approximately 11% of our revenue from the U.S. Army pursuant to orders placed under contract by the U.S. Army on behalf of itself as well as for several other organizations within the U.S. DoD. Other U.S. government agencies and government subcontractors accounted for 26% of our sales revenue. Sales revenue to foreign customers, inclusive of foreign military sales made through the U.S. DoD, commercial and consumer customers accounted for the remaining 63% of sales revenue during our fiscal year ended April 30, 2024, of which Ukraine accounted for 38% of our total sales revenue.

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We are subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes. We could also be affected by future laws and regulations relating to climate change, including laws related to greenhouse gas emissions and regulating energy efficiency. These laws and regulations could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment in designs and technologies. We continually assess our compliance status and management of environmental matters to ensure our operations are in compliance with all applicable environmental laws and regulations. Investigation, remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the U.S. government. While environmental protection regulations have not had a significant adverse effect on our overall operations, it is possible that costs incurred to ensure continued environmental compliance in the future could have a material impact on our results of operations, financial condition or cash flows if additional work requirements or more stringent clean-up standards are imposed by regulators, new areas of soil, air and groundwater contamination are discovered and/or expansion of work scope are prompted as a result of investigations.

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Technology, Research and Development

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Technological Competence and Intellectual Property

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Our company was founded by the late Dr. Paul B. MacCready, Jr., formerly chairman of our board of directors and an internationally renowned innovator who was instrumental in establishing our entrepreneurial and creative culture. This culture has consistently enabled us to attract and retain highly-motivated, talented employees and helped to establish our reputation as an innovative leader in the industries in which we compete.

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The innovations developed by our company and our founder include, among others: the world’s first effective human-powered and crewed solar-powered airplanes; the first modern passenger electric car, the EV1 prototype for General Motors; the world’s highest flying airplane in level flight (Helios™), a solar-powered uncrewed aircraft system (“UAS”) that reached over 96,000 feet above sea level in 2001; Global Observer, the world’s first liquid hydrogen-fueled UAS; the Nano Hummingbird™, the world’s first flapping wing UAS capable of precise hover and omni-directional flight; and Blackwing™, the first submarine-launched UAS deployed by the U.S. Navy; and a considerable portion of JPL/NASA’s Mars Ingenuity Helicopter, the first aircraft to perform a powered flight on another planet (Mars). The Smithsonian Institution possesses eight vehicles developed by our company or our founder in its permanent collection. Our history of innovation excellence is the result of our talented, creative and skilled employees whom we encourage to invent and develop unique, new solutions to address the challenges of today and tomorrow.

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A component of our ongoing innovation is a screening process that helps our business managers identify early market needs, which assists us in making timely investments into critical technologies necessary to develop solutions to address these needs. Similarly, we manage new product and business concepts through a commercialization process that balances spending, resources, time and intellectual property considerations against market requirements and potential returns on investment. Strongly linking our technology and business development activities to customer needs in attractive growth markets constitutes an important element of this process. We constantly revisit our customer requirement assumptions to evaluate continued investment and to seek to ensure that our products and services deliver high value and, conversely, high returns.

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As of April 30, 2024, we had issued and retained 316 U.S. patents, as well as 79 pending U.S. patent applications; an active Patent Cooperation Treaty application; and numerous foreign patents and pending applications. In many cases, when appropriate and to preserve confidentiality, we opt to protect our intellectual property through trade secrets as opposed to filing for patent protection.

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The U.S. government has licenses to some of our intellectual property that was specifically developed in performance of government contracts and may use or authorize others to use this intellectual property. In some cases, we fund the development of certain intellectual property to maximize its value and limit its use by potential competitors.

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While we consider the development and protection of our intellectual property to be integral to the future success of our business, at this time we do not believe that a loss or limitation of rights to any particular piece of our intellectual property would have a material adverse effect on our overall business.

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Research, Development and Commercialization of Projects

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A core component of our business strategy is the focused development and commercialization of innovative solutions that we believe can become new products or services that enable us to create large new markets or accelerate growth within our existing markets. We invest in an active pipeline of these commercialization projects that range in maturity from technology validation to early market adoption. We cannot predict when, if ever, we will successfully commercialize these projects, or the exact level of capital expenditures they could require, which could be substantial.

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Sales and Marketing

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Our marketing strategy is based on establishing leadership positions in new markets that we create or by expanding through the introduction or acquisition of innovation solutions that improve customer operational effectiveness and efficiency. Our ability to operate in an agile, flexible manner helps us achieve first mover advantage and work closely with early customers to achieve successful adoption of our solutions. Once we establish a market position, we work to maintain our leadership, while seeking to grow our revenue by expanding sales and through continuous innovation and customer support. Our reputation for innovation is a key component of our brand, acknowledged through a variety of awards and recognized in numerous articles in domestic and international publications. We have many U.S. registered trademarks including those for AeroVironment, AV, Switchblade, Raven, Wasp, Quantix, VAPOR, Arcturus UAV, Crysalis, Jump, Tomahawk Robotics, and Kinesis, and have several pending applications for trademark registration.

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International Sales

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We contract with international sales representatives and team with domestic organizations across a number of foreign markets which we believe represent growth opportunities for our business. Our international sales, inclusive of foreign military sales, accounted for approximately 62%, 53% and 41%, of our revenue for the fiscal years ended April 30, 2024, 2023 and 2022, respectively.

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Competition

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We believe that the principal competitive factors in the markets for our products and services include product performance; safety; innovative features; acquisition cost; lifetime operating cost, including maintenance and support; ease of use; rapid integration with existing equipment and processes; quality; reliability; customer support; and brand and reputation. Several companies across the globe (primarily in the U.S.) attempt to compete in our markets to some degree, although we believe none match the breadth and depth of our product line nor our expertise in core capabilities.

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Manufacturing and Operations

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We pursue a lean and efficient production strategy across our business, focusing on rapid prototyping, supply chain management, final assembly, integration, quality and final acceptance testing. Using concurrent engineering techniques within an integrated product team structure, we rapidly prototype design concepts and products, while working to optimize our designs to meet manufacturing requirements, mission capabilities and customer specifications. Within this framework we develop our products with feedback and input from manufacturing, quality, supply chain management, key suppliers, logistics personnel and customers. We incorporate this input into product designs in an effort to maximize the efficiency and quality of our products while minimizing time to market. As a result, we believe that we significantly reduce the time required to move a product from its design phase to full rate production while not sacrificing high reliability, quality and durability.

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We outsource certain production activities, such as the fabrication of certain aerostructures, the manufacture and assembly of electronic printed circuit boards, and payload components to qualified suppliers, with many of whom

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we have long-term relationships. This outsourcing enables us to focus on our core expertise of final assembly, system integration and test processes for our products, ensuring high levels of quality and reliability. We forge strong relationships with key suppliers based on their ability to grow along with our production requirements and support our growth. We leverage our suppliers’ expertise to improve our existing products and develop new solutions. We rely on both single and multiple suppliers for certain components and subassemblies (see Part 1A, “Risk Factors—If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business,” for more information). A majority of our production systems operate in accordance with our AS9100D registered Quality Management System, which focuses on continuous improvement in order to increase acceptance rates, reduce lead times and lower cost.

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Customer-Funded R&D

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We actively pursue externally funded projects that help us strengthen our technological capabilities. We submit bids to large research customers, such as the Defense Advanced Research Projects Agency (“DARPA”), the U.S. Air Force, the U.S. Army and the U.S. Special Operations Command, for projects that we believe have the potential for future procurement. In some cases, commercial enterprises may fund our R&D activities, as with our HAPS UAS development program. Providing these services contributes to the development and enhancement of our technical competencies. We carefully manage the volume of customer-funded R&D projects based on projects’ available resources, and we expect to expand our team to support growth in this area of our business.

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Seasonality

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No material portion of our business is considered to be seasonal. Historically, revenue in the second half of our fiscal years has exceeded revenue in the first half. The factors that affect our revenue recognition between accounting periods include the timing of new contract awards, the availability of U.S. government and international government funding, lead time to manufacture our systems to customer specification, customer acceptance and other regulatory requirements.

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Raw Materials and Suppliers

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We are dependent upon the availability of materials and major components and the performance of our suppliers. Historically, we have been successful in obtaining the materials required in our manufacturing processes. We seek to manage materials supply risk through long term non-binding contracts with certain key suppliers that establish pricing, minimize lead times and, to some degree, mitigate risk. In recent years, we have experienced supply chain challenges including shortages of certain electronic and other components, increased lead times, increased costs for components, and increased shipping, warehousing and inventory costs. Although, we believe all such raw materials and components are available to meet our needs from various suppliers, we expect some supply chain constraint trends to continue into our fiscal year 2025, which could cause delays in production and development programs and negatively impact our operating results (see Part 1A, “Risk Factors—If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business,” for more information).

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Product Mix

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The table below shows our revenue for the periods indicated by segment. Prior period segment information has been recast to align with the new segment structure:

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Contract Mix

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The table below shows our revenue for the periods indicated by contract type:

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Human Capital Resources

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We recognize our employees as the most invaluable asset of our company, serving as the cornerstone of our accomplishments. With this in mind, we endeavor to establish ourselves as an employer renowned for fostering a positive and inclusive work environment that encourages personal development, ensures workplace safety, promotes diversity, and embraces inclusion. We firmly believe that such a corporate culture not only enhances employee satisfaction but also nurtures creativity and productivity, thereby driving our continuous innovation efforts. Central to our ethos is prioritizing the employee experience, a commitment underscored by our esteemed certification from the Great Place to Work Institute, Inc., designating us as a “Great Place to Work” each year since 2019.

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Workforce Demographics

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As of April 30, 2024, we had 1,403 full time employees and 25 part time employees, of whom 534 were in R&D and engineering, 74 were in sales and marketing, 490 were in operations and 330 were general and administrative personnel.

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Talent Acquisition, Retention and Development

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Our ability to attract, cultivate, and retain highly skilled individuals, particularly those with technical and engineering expertise, is paramount for the successful execution of our strategic objectives and the expansion of our enterprise. We maintain a vigilant oversight of recruitment, employee retention, and management practices. A pivotal component of our People and Culture strategy involves the recruitment of early-career professionals through collegiate programs and internships, with a specific focus on technical disciplines. Furthermore, we engage in regular confidential surveys to gather insights from our workforce, utilizing the feedback to enhance our organizational environment. Our commitment to our employees is demonstrated through competitive compensation packages, inclusive of performance incentives and recognition schemes that encompass all levels within our company. We prioritize the development of our workforce through educational initiatives, training programs, and support for further education and professional certifications. Moreover, we conduct meticulous succession planning for leadership roles to ensure the sustained cultivation of a talented management cadre essential for the realization of our strategic vision.

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Diversity and Inclusion

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At AeroVironment, the cultivation of a culture rooted in diversity and inclusion is a daily commitment. We firmly uphold the belief that a workforce rich in diversity and inclusivity serves as a pivotal force in fostering innovation. Our diversity and inclusion endeavors are primarily concentrated on multiple facets, encompassing employee recruitment strategies that involve supporting minority-serving institutions and conducting outreach programs. Moreover, we prioritize employee training and development initiatives aimed at broadening the spectrum of diverse talents. Additionally, our dedication to employee engagement is evident through active participation in various employee focus groups addressing pertinent topics related to diversity and inclusion.

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Employee Safety and Health

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Our safety and health program aims to enhance operational efficiency by offering tailored safety, health, and wellness initiatives. These endeavors are crafted to establish secure working conditions, foster a positive work atmosphere, enhance employee resilience, and bolster the company's overall value. We diligently track employee health and safety metrics, setting monthly and annual goals to minimize work-related injuries and illnesses, thereby reducing the number of lost workdays and mitigating productivity setbacks resulting from such incidents. Furthermore, we extend health and wellness benefits to our employees for their well-being.

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Backlog

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Consistent with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we define backlog as remaining unsatisfied performance obligations under firm orders for which work has not been performed. As of April 30, 2024 and 2023, our backlog was approximately $400.2 million and $424.1 million, respectively. We expect that approximately 90% of our backlog will be recognized as revenue during our fiscal year ending April 30, 2025.

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In addition to funded backlog, we also had unfunded backlog of $135.4 million and $220.9 million as of April 30, 2024 and 2023, respectively. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with (i) multiple one-year options and 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.

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

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Other Information

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AeroVironment, Inc. was originally incorporated in California in July 1971 and reincorporated in Delaware in 2006.

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Our principal executive offices are located at 241 18^th Street South, Suite 415, Arlington, Virginia 22202. Our telephone number is (805) 520-8350. Our website home page is http://www.avinc.com. We make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report.

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We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements for our annual stockholders’ meetings, as well as any amendments to those reports, available free of

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charge through our website as soon as reasonably practical after we electronically file that material with, or furnish it to, the Securities and Exchange Commission (“SEC”). You can learn more about us by reviewing our SEC filings. Our SEC reports can be accessed through the investor relations page of our web site at http://investor.avinc.com. The SEC also maintains a web site at www.sec.gov that contains our reports, proxy statements and other information regarding us.

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Our Business

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Our business addresses the increasing value of intelligent, multi-domain robotic systems providing distributed, network-centric intelligence, surveillance and reconnaissance (“ISR”), communications, remote sensing, effects delivery and remote materials handling with innovative UxS and LMS solutions. With respect to the defense applications for these technologies, over 20 years of counterinsurgency operations in regions where U.S. and allied forces benefit from air and technical superiority have driven the demand for a variety of uncrewed systems in the air and on the ground. The recent shift of U.S. and allied defense planning toward countering peer and near-peer adversaries requires a portfolio of capabilities that can operate effectively in areas where the battlespace, including the air, radio frequency (“RF”) spectrum and Global Positioning Satellite (“GPS”) signals, may be contested, driving the need for more intelligent robotic systems capable of autonomous operation.

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Industry Background

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UnCrewed Systems

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The defense market for UxS has grown significantly since the early 2000s, driven largely by the demands associated with the global threat environment and resulting procurement by military customers, the early adopters for this technology. SUAS and MUAS now represent accepted and enduring capabilities for military forces around the world. The U.S. military’s transformation into a smaller, more agile force that operates via a network of observation, communication and precision targeting technologies accelerated following the terrorist attacks of September 11, 2001, as the DoD required improved, distributed observation and targeting of enemy combatants who operate in small groups, often embedded in dense population centers or dispersed in remote locations, to operate effectively in a counterinsurgency threat environment. We believe that UxS, which range from large systems to medium systems such as our Puma LE, T-20 and JUMP 20 to small systems, such as our Raven, Wasp AE, Puma AE, and VAPOR, serve as integral components of today’s military force. These systems provide critical observation and communications capabilities serving the increasing demand for actionable intelligence, while reducing risk to individual warfighters. SUAS and MUAS can provide real-time observation and communication capabilities to commanders and directly to the units who control them. These capabilities are increasingly enabled by next generation open standard communications and common control technologies.

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In situations where improvised explosive devices, caustic chemicals, nuclear, radiological or biological hazards or violent individuals represent significant danger to humans, UGVs can help responders remove, contain or neutralize these hazards without putting people in harm’s way. We believe that as enabling technologies continue to advance, UGVs will become more autonomous, more capable and more effective in dealing with hazardous threats, expanding the market potential for this set of applications to include non-defense applications such as facility security, infrastructure inspection, delivery of goods and many others.

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Loitering Munitions Systems

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The development of weapons capable of rapid deployment and precision strikes that also minimize the risk to surrounding civilians, property and operators has accelerated due to advances in the enabling technologies. Weapons such as laser-guided missiles, “smart” bombs and GPS-guided artillery shells have dramatically improved the accuracy of strikes against hostile targets. When ground forces find themselves engaged in a firefight or near a hostile target, their ability to employ a precision weapon system quickly and easily can mean the difference between mission success and failure. A rapidly deployable solution could address emerging requirements beyond ground engagements for use in other types of missions and from a variety of sea, air and land platforms. We believe that embedding a precision lethal payload into a remotely controlled, portable delivery system provides warfighters with a valuable and more cost-effective alternative to existing munition and missile systems.

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MacCready Works: HAPS UAS

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We believe a market opportunity exists for HAPS UAS that can fly for months at a time to provide continuous remote sensing and telecommunications services in an affordable manner over large coverage areas for both commercial and defense applications. Existing solutions such as terrestrial cellular towers and communications satellites address some of the current and emerging demand for this capability but each have trade-offs. Terrestrial based infrastructure is ideal for dense population centers but expensive and underutilized for large area applications. Geosynchronous satellites provide fixed, continuous communications capabilities to large portions of the globe, but because they operate more than 20,000 miles from the surface of the earth, the bandwidth they can provide is limited, introducing latency in communications signals and requiring relatively larger, higher power ground stations. Smaller low earth orbit satellites are lower cost alternatives to geosynchronous satellites and typically operate at lower altitudes with reduced latencies, but are unable to maintain geosynchronous positions, meaning they are moving with respect to the surface of the earth, resulting in a limited presence over specific areas of interest and significant periods of down time during which they are not present over those areas. All satellites require special ground based receiving hardware that may further limit their telecommunication applications, and changes in communications technologies often require expensive new satellite constellations be deployed. UAS that are capable of maintaining geosynchronous orbits for extended periods of time, operating over large areas of interest, while providing low latency communications directly to available handheld mobile devices provide a critical bridge between terrestrial infrastructure and satellites. Further, these HAPS platforms can carry a wide array of communications and sensing payloads that can be readily installed, upgraded and swapped based on evolving customer and mission needs.

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Advanced Artificial Intelligence and Autonomy

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Robotic systems designed to perform complex missions in complex environments, such as contested battlespaces across multiple domains will require advanced artificial intelligence and autonomy. For defense applications, this contributes to alternative methods of precision navigation, active perception of the operational environment, independence of command and control, and collaborative dynamic mission operations. Such higher levels of autonomy will become increasingly more valuable in enabling the effective use of robotic systems and mission capability.

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Our Solutions

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We supply our uncrewed products and services to multiple customers, primarily with defense related applications both domestically and internationally, as well as supply our loitering munitions and related services to defense related organizations within the U.S. government and allied nations.

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SUAS Products

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Our SUAS products, including Raven, Wasp AE, Puma AE, Puma LE, and VAPOR MX are designed to operate reliably at low altitudes in a wide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information to end users. These reusable systems are easy to transport, assemble and operate and are relatively quiet when flying at operational altitudes, as a result of our efficient electric propulsion systems. Furthermore, their small size makes them difficult to see from the ground in daytime environments without optical enhancing tools. More recently, our SUAS have been upgraded to be more resilient against more sophisticated adversaries by introducing technologies which allow for safe operation and mission continuation of SUAS in contested environments such as loss of GPS or RF contested environments.

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In military applications, our SUAS provide forward aerial observation capabilities that enable tactical commanders to observe, for example, around the next corner, to the next intersection or past a ridgeline in real time. This information facilitates faster, safer movement through urban, rural, riverine and mountainous environments. These systems also provide greater situational awareness on the battlefield and enable troops to proactively identify, track, and prosecute targets of interest rather than being reactive to attack. Moreover, by providing this information, our systems

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reduce the risk to warfighters and to the surrounding population by providing the ability to tailor the military response to the threat.

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Systems within our SUAS portfolio utilize our common and interoperable handheld ground control systems and an array of spare parts and accessories. The ground control system serves as the primary interface between the operator and our SUAS and allows the operator of each system to control the direction, speed and altitude of the aircraft as well as the orientation of the sensors to view the visual information they produce through real time, streaming video and metadata. We have begun integrating our SUAS with the Kinesis common control application, acquired with our acquisition of Tomahawk Robotics, and expect to complete integration in fiscal year 2025. Kinesis provides enhanced interoperability between AV and third-party products in a Modular Open System Architecture (MOSA) environment.

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Our current SUAS portfolio for defense applications consists of the following aircraft:

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Our Digital Data Link (“DDL”) radio module is integrated into Puma LE, Puma AE, Raven and Wasp AE systems, enhancing their capabilities, and ultimately, the utility of our SUAS by enabling more efficient radio spectrum utilization and communications security. SUAS incorporating our DDL are optimized for low-power, low-latency, and streaming bandwidth efficiency required for UAS. In addition, our DDL enables each air vehicle to operate as an Internet Protocol addressable hub capable of routing and relaying video, voice and data to and from multiple other nodes on this ad hoc network. These features provide a benefit to the warfighter by pushing valuable information (video) to other warfighters in the network, thus enhancing battlefield situational awareness.

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MUAS Products

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Providing expanded capabilities compared to our SUAS, our field-deployable MUAS, including T-20 and JUMP 20, deliver extended endurance and increased payload capacity to unlock a broader set of uncrewed missions. The internal combustion engine powered T-20 and JUMP 20 offers significantly greater endurance and payload capacity than our SUAS, with larger airframes that can also accommodate a wider variety of payloads, including small cargo. The JUMP 20 launches and lands vertically because of its vertical take-off and landing (“VTOL”) rotors, minimizing the amount of space required for its operation and eliminating the need for a runway. The T-20 launches from a catapult, lands on a short runway and provides more than 24 hours of endurance. In the past, we operated our MUAS, such as Jump 20, in overseas locations to support U.S. military ISR operations under a contractor-owned, contractor-operated (“COCO”) arrangement. Under these services contracts, we operated our MUAS in specific locations and provided valuable intelligence on an hourly basis to our customers, who then used that information to support their missions.

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T-20 and JUMP 20 operate from their own portable common ground control system.

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Uncrewed Ground Vehicle Products

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Our UGV support a variety of missions and applications, ranging from explosive ordnance disposal to hazardous materials handling and law enforcement operations. All our UGVs feature secure communications, multi-axis manipulators and automatic tool exchange, which eliminates the need for the UGV to return to its operator to switch the tool attached to its manipulator arm. We also offer fully equipped service vehicles for the transport, service and operation of our UGV solutions. Our UGVs feature the intuitive and operationally simplified Robo Command Ground control stations with multi-touch screen, pre-programmed motion sequences and ergonomically designed hand controllers for precision control of the robot, manipulator and accessories.

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Loitering Munitions Systems Products

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Our LMS consist of tube-launched aircraft that deploy with the push of a button, fly at higher speeds than our SUAS, and perform either effects delivery or reconnaissance missions. Switchblade 300, the first of our LMS products, can be transported in its launch tube, within a backpack, and deployed within minutes to defend against lethal threats such as snipers and mortar launchers. With a high level of precision, including a customized warhead and patented wave-off, loiter and re-engagement capabilities, Switchblade 300 can neutralize a target rapidly and accurately without causing collateral damage. Furthermore, because it streams live electro-optical and thermal video to its operator, Switchblade 300 can be called off in the final moments prior to a strike should the situation require, potentially eliminating damage to non-combatants. Switchblade 600 is a larger version of Switchblade 300 that can fly for a longer period of time and over a longer distance while carrying a larger, more powerful, anti-armor warhead. Blackwing, a

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variant of Switchblade 300, launches from a submerged submarine and carries extra batteries instead of a warhead, providing longer flight time for extended maritime reconnaissance operations.

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MacCready Works

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MacCready Works, named for our founder, Dr. Paul B. MacCready, Jr., ensures that creativity and long-term thinking remain at the core of our culture. With a focus on the future, this group of select, visionary scientists and engineers partners with our diverse customer base to explore innovative breakthrough solutions to difficult challenges. Primarily focused on customer-funded R&D in the areas of robotics, sensors, software analytics and connectivity, this segment seeks to identify new products, services and businesses for the company. While this segment’s revenue is currently largely driven by these customer-funded projects, it is likely that new businesses incubated here could significantly contribute to the growth of the company.

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Support Services

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In support of our products, we offer a suite of services that help to ensure the successful operation of our products by our customers. These services generate incremental revenue for us and provide us with continuous feedback to understand the performance of our systems, anticipate our customers’ needs and develop additional customer insights. We believe that this ongoing feedback loop enables us to continue to provide our customers with innovative solutions that help them succeed. We provide spare parts as well as repair, refurbishment and replacement services in a manner that seeks to minimize supply chain delays and support our customers whenever and wherever needed. Our facilities in Simi Valley, CA also serve as primary depots for SUAS and Puma LE repairs and spare parts, while we support our MUAS from our Petaluma, CA facilities and our UGV solutions from our Erie, PA and Stuttgart, Germany facilities.

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We provide comprehensive training services to support all our SUAS and LMS for defense applications. Our highly-skilled instructors typically have extensive military experience. We deploy training teams throughout the continental United States and overseas to support our customers’ training needs on both production and development-stage systems.

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Customer-Funded R&D

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We provide specialized services in support of customer-funded R&D projects, delivering new value-added technology solutions to our customers. These types of projects typically involve developing new system solutions and technology or new capabilities for existing solutions that we introduce as retrofits or upgrades. We recognize the majority of customer-funded R&D projects as revenue.

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Technology, Research and Development

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Our primary areas of technological competence represent the sum of numerous technical skills and capabilities that help to differentiate our approach and product offerings. The following list highlights a number of our key technological capabilities:

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One of our UAS development initiatives is described below:

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HAPS Uncrewed Aircraft Systems. We continue to develop HAPS UAS, building on our decades of groundbreaking development and demonstration of high altitude solar-powered UAS.

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Softbank, who has been our partner since 2018, is directly funding the development and demonstration of solar-powered HAPS UAS under a Master Design and Development Agreement (“MDDA”) signed in May 2021. During the term of the MDDA, we possess exclusive rights from SoftBank for future design and manufacturing work for the Solar HAPS UAS and future variants thereof, subject to meeting contractual performance criteria and maintain exclusive rights to market and sell Solar HAPS for defense applications globally except for Japan. We have separately received increasing interest and some funding to pursue a HAPS UAS development for the U.S. DoD. Both the defense and commercial development efforts are proceeding in parallel.

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Sales and Marketing

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Our product line management personnel translate customer and market requirements into multi-year product roadmaps that guide our development, engineering and manufacturing plans. We organize our business development team members by geographic area, target market and customer and product line, and we locate team members in close proximity to the customers they support when possible. We organize our program managers by product and focus on designing optimal solutions and improving contract fulfillment, incorporating feedback from customers and users. By maintaining assigned points of contact with our customers, we believe that we are able to maintain and strengthen our relationships, service existing contracts effectively and gain vital feedback to improve our responsiveness and product offerings.

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Manufacturing and Operations

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Continued investment in infrastructure has enabled us to meet demand and efficiently scale capacity as needed. We have executed an operating plan that has enabled us to manufacture products at higher rates than our historical volumes while supporting initial low-rate production for new development programs. By drawing upon experienced personnel across various manufacturing industries including aerospace, automotive and volume commodities, we have instituted lean production systems and leverage our International Organization for Standardization (“ISO”) certification for Quality Management, integrated supply chain strategy, document control systems and process control methodologies for production. Presently, we perform SUAS manufacturing at the 85,000 square foot manufacturing facility we established in 2005. Our ISO 9001:2015 + AS9100D certified manufacturing facilities are designed to accommodate demand of up to 1,000 aircraft per month. ISO 9001:2015 + AS9100D refers to a set of voluntary standards for quality management systems. The 9001:2015 standards are established by the ISO to govern quality management systems used worldwide. We are regularly audited and certified to be compliant by a third party, accredited registrar. Accreditation of Systems Certification Board, our third-party registrar, is by the ANSI National Accreditation Board. These audits performed as part of certification evaluate the effectiveness of companies’ quality management systems and their compliance with ISO standards. Some companies and government agencies view ISO certification as a positive factor in supplier assessments.

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Competition

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The defense market for SUAS continues to evolve in response to changing technologies, shifting customer needs and expectations and the potential introduction of new products. We believe that a number of domestic and international defense contractors have developed or are developing SUAS that compete, or will compete, directly with our products. Some of these contractors have significantly greater financial and other resources than we possess. Our current principal SUAS competitors include Elbit Systems Ltd., Quantum-Systems, Inc., Edge Autonomy, Teledyne Technologies, Inc., Sierra Nevada Corporation and Lockheed Martin Corporation.

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The U.S. defense market for MUAS has been addressed primarily by The Boeing Company and Textron, Inc. However, our MUAS competitors also include Shield AI, Inc. and Northrop Grumman Corporation, Sierra Nevada Corporation, Griffon Aerospace, Inc. and L3Harris Technologies, Inc. International MUAS competitors include Elbit Systems Ltd. and Israeli Aircraft Industries.

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We do not view large UAS producers such as Northrop Grumman Corporation or General Atomics, Inc. as direct competitors to our SUAS or MUAS because they perform different missions, require a larger logistical footprint

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and cost considerably more to procure and operate. However, we cannot be certain that these platforms will not become direct competitors in the future as we expand the capabilities of our MUAS products to, potentially, impinge upon the lower end of the large UAS market segment.

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The market for LMS is now rapidly evolving and poised for continued growth. Competitors in this market include Textron Inc., RTX Corporation, Lockheed Martin Corporation, Anduril Industries, Inc., Aevex Holdings, LLC and UVision Air Ltd. There is also a class of less expensive and less capable commercial products being retrofitted with munitions and we expect additional entrants and substitutes to emerge over the next few years as this market matures.

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The market for UGV spans the global defense, first responder, security and logistics market segments. The UGV opportunity in the U.S. DoD has grown with recent U.S. Army procurement awards. Competitors in the U.S. UGV market include L3Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton Remotec, ICOR Technology, Inc., Ghost Robotics, Inc., and Boston Dynamics, Inc. Initial adoption of UGVs for law enforcement and other government agencies is also progressing in the U.S. and globally, as well as applications in hazardous materials handling.

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The market for HAPS UAS is in an early stage of development. As a result, this category is not well defined and is characterized by multiple potential solutions. An existing contractor that claims to provide high altitude long endurance UAS is Northrop Grumman Corporation with its Global Hawk. Several aerospace and defense contractors have pursued this market opportunity with proposed very long duration UAS, including The Boeing Company, Airbus SE, Lockheed Martin Corporation and Northrop Grumman Corporation. Companies pursuing airships (high altitude aircraft that are kept buoyant by a body of gas that is lighter than air) as a solution for this market include Lockheed Martin Corporation and Northrop Grumman Corporation. A number of telecommunications, aerospace and technology companies, including us and our former joint venture partner HAPSMobile launched the HAPS Alliance to promote the benefits of HAPS to the global population. Companies pursuing conventional satellites as a solution for this market include The Boeing Company, Lockheed Martin Corporation, General Dynamics Corporation, EADS N.V., BAE Systems and Northrop Grumman Corporation. Companies pursuing Low Earth Orbit (“LEO”), micro or cubesat satellite constellations for global communication and remote sensing include Amazon, Planet Labs PBC, OneWeb, Space Exploration Technologies Corporation (known as SpaceX) and The Boeing Company. Companies owning and operating terrestrial cellular tower networks include American Tower Corporation, Crown Castle International Corp. and SBA Communications Corporation.

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Potential competition from consumer and commercially focused drone manufacturers is emerging as their capabilities increase and their prices remain low relative to existing defense solutions, which is resulting in some level of military consideration even if such drones do not meet traditional military performance or security specifications.

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We believe that the principal competitive factors in the markets for our UxS and LMS products and services include product performance; safety; features; acquisition cost; lifetime operating cost, including maintenance and support; ease of use; integration with existing equipment and processes; quality; reliability; customer support; brand awareness and reputation.

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Regulation

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Due to the fact that we contract with the DoD and other agencies of the U.S. government, we are subject to extensive federal regulations, including the Federal Acquisition Regulations, Defense Federal Acquisitions Regulations, Truth in Negotiations Act, Foreign Corrupt Practices Act, False Claims Act and the regulations promulgated under the DoD Industrial Security Manual, which establishes the security guidelines for classified programs and facilities as well as individual security clearances. The federal government audits and reviews our performance on contracts, pricing practices, cost structure, and compliance with applicable laws, regulations and standards. Like most government contractors, our contracts are audited and reviewed on a continual basis by federal agencies, including the Defense Contract Management Agency (“DCMA”) and the Defense Contract Audit Agency (“DCAA”).

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Certain of these regulations impose substantial penalties for violations, including suspension or debarment from government contracting or subcontracting for a period of time. We monitor all our contracts and contractual efforts to minimize the possibility of any violation of these regulations.

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In addition, we are subject to industry-specific regulations due to the nature of the products and services we provide. For example, certain aspects of our business are subject to further regulation by additional U.S. government authorities, including (i) the Federal Aviation Administration (“FAA”), which regulates airspace for all air vehicles in the U.S. National Airspace System, (ii) the National Telecommunications and Information Administration and the Federal Communications Commission, which regulate the wireless communications upon which our UAS depend in the United States and (iii) the Defense Trade Controls of the U.S. Department of State that administers the International Traffic in Arms Regulations, which regulate the export of controlled technical data, defense articles and defense services.

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On June 21, 2016, the FAA released its final rules that allow routine use of certain SUAS in the U.S. National Airspace System. The FAA rules, which went into effect in August 2016, provide safety rules for SUAS (under 55 pounds) conducting non-recreational operations. The rules limit flights to visual-line-of-sight daylight operation, unless the UAS has anti-collision lights in which case twilight operation is permitted. The final rule also addresses altitude and speed restrictions, operator certification, optional use of a visual observer, aircraft registration and marking and operational limits, including prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operating licenses for their drones per Part 107 specifications. These regulations continue to evolve to accommodate the integration of UAS into the national airspace system for commercial applications, including HAPS UAS.

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In December 2019, the FAA proposed rules requiring the remote identification of UAS. Remote identification, which provides for a UAS in flight to provide identification that can be received by other parties, is designed to enhance safety and security by allowing the FAA and other agencies to identify a UAS that appears to be flying unsafely or in an area in which flight is not permitted. The final rule for remote identification of UAS was published in the Federal Register on January 15, 2021 with the effective date for compliance of September 16, 2023. On April 21, 2021, the final rule for operation of SUAS over people went into effect. This rule permits routine operations of small, uncrewed aircraft over people, moving vehicles, and at night under certain conditions. The final rule also made changes to the recurrent testing framework and expanded the list of persons who may request the presentation of a remote pilot certificate. Additionally, in February 2020, the FAA issued a public request for comment on its proposed policy for the creation of a new type certification of certain UAS as a special class of aircraft under FAA regulations. Currently the Part 107 Rules (as defined below) allow for the operation of SUAS without the need for FAA airworthiness certification as long as the UAS meets certain specified criteria and certain flight rules are followed; larger UAS and operations of SUAS outside the scope of the Part 107 Rules (as defined below) require a waiver from the FAA. The FAA’s proposed policy proposes a new special class of UAS for which airworthiness certification can be obtained, however, the proposed policy only applies to the procedures for the type certification of the new class of UAS. Further rulemaking by the FAA is anticipated regarding the particular criteria for the airworthiness certification standards under the new special class proposed by the new policy. The comment period for the FAA’s proposed policy expired on March 4, 2020 without further update.

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While it is currently anticipated that the enactment of remote identification, increasing operation of SUAS, and a new airworthiness certification process for a newly created special class of UAS will help formalize the process for manufacturing and obtaining airworthiness certification for UAS within the newly created class and accelerate the development of commercial UAS in the U.S., it is uncertain whether the FAA’s actions, if any, will have such effects. It is also unclear when, if at all, the FAA will create a new class of UAS and what the final rules regarding the certification of such UAS will look like. We cannot be certain as to how our business will be affected by the FAA’s proposals until the final rules for such matters are issued by the FAA.

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Furthermore, our non-U.S. operations are subject to the laws and regulations of foreign jurisdictions, which may include regulations that are more stringent than those imposed by the U.S. government on our U.S. operations.

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U.S. Government Contracting Process

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We sell the significant majority of our SUAS, MUAS and LMS products and services as well as MacCready Works products and services under contracts with the U.S. government. Certain important aspects of our U.S. government contracts are described below.

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Bidding Process

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Most of our current U.S. government contracts were awarded through a competitive bidding process. The U.S. government awards competitive-bid contracts based on proposal evaluation criteria established by the procuring agency. Competitive-bid contracts are awarded after a formal bid and proposal competition among providers. Interested contractors prepare a bid and proposal in response to the agency’s request for proposal or request for information. A bid and proposal are usually prepared in a short time period in response to a deadline and require the extensive involvement of numerous technical and administrative personnel. Following award, competitive-bid contracts may be challenged by unsuccessful bidders.

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Funding

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The funding of U.S. government programs is subject to congressional appropriations. Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis, even though a program may continue for many years. Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations.

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The U.S. military funds its contracts for our full-rate production UAS either through operational need statements or as programs of record. Operational need statements require allocations of discretionary spending or reallocations of funding from other government programs. Funding for our production of initial Raven system deliveries, for example, was provided through operational need statements. We define a “program of record” as a program which, after undergoing extensive DoD review and product testing, is included in the five-year government budget cycle, meaning that funding is allocated for purchases under these contracts during the five-year cycle, absent affirmative action by the customer or Congress to change the budgeted amount. Despite being included in the five-year budget cycle, funding for these programs is subject to annual approval.

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Material U.S. Government Contract Provisions

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All contracts with the U.S. government contain provisions, and are subject to laws and regulations, that give the government rights and remedies not typically found in commercial contracts, including rights that allow the U.S. government to:

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Generally, government contracts are subject to oversight audits by government representatives. Compensation, if any, in the event of a termination for default is limited to payment for work completed at the time of termination. In the event of a termination for convenience, the contractor may receive the contract price for completed work, as well as its costs of performance of terminated work including an allowance for profit and reasonable termination settlement costs.

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U.S. Government Contract Categories

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There are three primary types of government contracts in our industry, each of which involves a different payment methodology and level of risk related to the cost of performance. These basic types of contracts are typically referred to as fixed-price contracts; cost reimbursable contracts, including cost-plus-fixed fee, cost-plus-award fee, and cost-plus-incentive fee; and time-and-materials contracts.

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In some cases, depending on the urgency of the project and the complexity of the contract negotiation, we will enter into a “Letter Contract” prior to finalizing the terms of a definitive fixed-price, cost reimbursable or time-and-materials definitive contract. A Letter Contract is a written preliminary contractual instrument that provides limited initial funding and authorizes us to begin immediately manufacturing supplies or performing services while negotiating the definitive terms of the procurement.

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Fixed-Price. These contracts are not subject to adjustment by reason of costs incurred in the performance of the contract. With this type of contract, we assume the risk that we will not be able to perform at a cost below the fixed-price, except for costs incurred because of contract changes ordered by the customer. Upon the U.S. government’s termination of a fixed-price contract, generally we would be entitled to payment for items delivered to and accepted by the U.S. government and, if the termination is at the U.S. government’s convenience, for payment of fair compensation for work performed plus the costs of settling and paying claims by any terminated subcontractors, other settlement expenses and a reasonable allowance for profit on the costs incurred.

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Cost Reimbursable. Cost reimbursable contracts include cost-plus-fixed fee contracts, cost-plus-award fee contracts and cost-plus-incentive fee contracts, each of which are described below. Under each type of contract, we assume the risk that we may not be able to recover costs if they are not allowable under the contract terms or applicable regulations, or if the costs exceed the contract funding.

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We typically experience lower profit margins and lower risk under cost reimbursable contracts than under fixed-price contracts. Upon the termination of a cost reimbursable contract, generally we would be entitled to reimbursement of our allowable costs and, if the termination is at the U.S. government’s convenience, a total fee proportionate to the percentage of work completed under the contract.

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Time-and-Materials. Under a time-and-materials contract, our compensation is based on a fixed hourly rate established for specified labor or skill categories. We are paid at the established hourly rates for the hours we expend performing the work specified in the contract. Labor costs, overhead, general and administrative costs and profit are included in the fixed hourly rate. Materials, subcontractors, travel and other direct costs are reimbursed at actual costs plus an amount for material handling. We make critical pricing assumptions and decisions when developing and proposing time-and-materials labor rates. We risk reduced profitability if our actual costs exceed the costs incorporated into the fixed hourly labor rate. One variation of a standard time-and-materials contract is a time-and-materials, award fee contract. Under this type of contract, a positive or negative incentive can be earned based on achievement against specific performance metrics.

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Indefinite Delivery Indefinite Quantity (“IDIQ”) Contract Form. The U.S. government frequently uses IDIQ contracts and IDIQ-type contract forms, such as cost reimbursable and fixed price contracts with multiple one-year options, to obtain fixed-price, cost reimbursable and time-and-materials contractual commitments to provide products or services over a period of time pursuant to established general terms and conditions. At the time of the award of an IDIQ contract or IDIQ-type contract, the U.S. government generally commits to purchase only a minimal amount of products or services from the contractor to whom such contract is awarded.

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After award of an IDIQ contract the U.S. government may issue task or delivery orders for specific services or products it needs. The competitive process to obtain task orders under an award contract is limited to the pre-selected contractors. If an IDIQ contract has a single prime contractor, then the award of task orders is limited to that contractor. If the contract has multiple prime contractors, then the award of the task order is competitively determined among only those prime contractors.

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IDIQ and IDIQ-type contracts typically have multi-year terms and unfunded ceiling amounts that enable, but do not commit, the U.S. government to purchase substantial amounts of products and services from one or more contractors.

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Undefinitized Contractual Actions (“UCA”). UCAs are generally considered “Letter Contracts”, Basic Ordering Agreements, and Provisional Item Orders, all of which allow for the contractor to immediately begin performing services and/or manufacturing products. Under a UCA, the contract terms, specifications, or prices have not been agreed to between the government and contractor prior to performance on the contract. During the undefinitized period the government will reimburse the contractor for costs incurred. Definitization of the UCA typically occurs 180 days after the issuance of the award or when costs incurred is equal to more than 50% of the not-to-exceed price, whichever occurs first. In accordance with Defense Federal Acquisition Regulation Supplement 215.404-71, the Contracting Officer will use “weighted guidelines” for determination of profit/fee.

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Unpriced Change Order (“UCO”). UCOs are categorized as unpriced contract actions that are unilateral changes within the scope of a contract where the government and contractor have not reached an agreement on terms, specifications, and prices. This type of change order allows the project to continue without delay while the contractor and government negotiate final terms, specifications, and prices. Interim funding or a not-to-exceed amount are established to cover the contractor’s costs incurred. The existing contract is formally modified to include an agreed-upon price and other adjustments related to the change order.

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Other Transaction Authority (“OTA”). OTAs are legally binding instruments that are used to engage with non-traditional defense contractors and to facilitate the rapid development and deployment of innovative technologies. Unlike traditional government contracts, OTAs are not subject to the Federal Acquisition Regulation (FAR), providing greater flexibility in terms and conditions.

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International Contracting Process

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We supply our UxS, LMS and MW products and services to international allied governments. Certain important aspects of our international contracts are described below. Each international customer has its own laws, regulations, bureaucracy and forms of procurement agreements that present challenges in our international contracting process.
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Bidding Process

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Our international contracts generally result from a competitive bidding process and, to a lesser extent, sole source awards for urgent requirements or sustainment, and they typically begin with the receipt of a request for proposal, information or quotation from an international government procurement agency. Numerous of our technical and administrative personnel are involved in responding to such request.

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Competitive bid contracts are awarded after a formal bid and proposal competition among providers. Interested contractors prepare a bid and proposal in response to a procurement agency’s request for proposal or request for information, which proposals are then reviewed by the applicable procurement agency based on the established evaluation criteria for the proposal. Following award, competitive bid contracts may be challenged by unsuccessful bidders. International competitive bidding processes are highly competitive and sometimes we face disadvantages in the bidding and evaluation process in comparison to local, domestic bidders that may receive priority or more favorable evaluations than non-domestic suppliers due to stated requirements in the local regulations that promote domestic procurements.

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Sole source awards are direct engagements with the procuring agency. Contractors receive requests for proposal or quotation and respond to such a request. If accepted by the customer, the resulting contract is for a defined quantity of goods or services for a specific time period. Generally sole source awards are utilized by our existing customers to sustain or augment their use of our products, commonly through multi-year support agreements. These agreements allow for customer logistics organizations to tailor procurement and support efforts to the needs of the end users.

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Funding

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International customers have individualized funding processes that are generally allocated during the applicable country’s fiscal year. Funding may be broadly allocated to a governmental agency or military branch responsible for procurement, targeted for a specific purpose like uncrewed systems, or earmarked to a specific requirement for our products. Funding allocations are typically confidential, making it challenging for us to forecast demand for our products or when/whether funding is available. In addition, funding may be reallocated when higher needs arise, such as what occurred during the COVID-19 pandemic when many countries shifted defense funding to measures addressing the pandemic. Forecasted requirements are then delayed until the next fiscal year or are cancelled entirely.

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Competitive bidding opportunities for our products and services typically have budgets and timelines which require significant investment from the customer. Initial procurement or replacement programs for our products and services may not be considered necessities for some international customers, which makes such procurements susceptible to a reduction in available funding or a complete reallocation of funds to other government programs or initiatives. When funds are reduced, it is common for the reduced funds to be utilized to support the sustainment of the customer’s existing UAS, rather than for new procurements.

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Many of our international customers have established fleets of our UAS, which generally allows them to seek and obtain budget for yearly incremental allocations of funding. These allocations are contracted through existing multi-

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year support agreements which provide the customer flexibility to procure products and services when funding is available.

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Contract Types and Provisions

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Our typical international customer contracts take the form of fixed price contracts and time and materials contracts. Most of our international contracts are fixed-price contracts as their finite nature is desired by customers. Time-and-materials contracts are more common for our service work with a defined limit on funding and period of performance.

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With a wide range of international customers, it is common for our customer contracts to contain customer advantageous provisions which are governed by applicable local laws and regulations that may differ from industry standard provisions and contracting norms in the United States. The contractual provisions may, among other things, result in more difficulties enforcing such agreements and collecting receivables and provide us with fewer remedies in a contractual dispute and lesser protections for our intellectual property. We assess the unique risks for each contract on a contract-by-contract basis. We use and require banking guarantees and/or advance payments to minimize risk.

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Item 1A. Risk Factors.

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A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report and in our other public filings before investing in our common stock. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

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Risk Factor Summary

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The following is a summary of the risks and uncertainties that could cause our business, financial condition or operating results to be harmed. We encourage you to carefully review the full risk factors contained in this report in their entirety for additional information regarding these risks and uncertainties.

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Risks Related to Our Business and Industry

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Risks Related to Our U.S. Government Contracts

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Risks Related to Legal and Regulatory Requirements

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Risks Related to Our Intellectual Property

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Risks Related to Securities Markets and Investment in Our Stock

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Risks Related to Our Business and Industry

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We rely heavily on sales to certain customers, including the U.S. government, particularly to agencies of the DoD.

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Historically, we have derived a significant portion of our total sales and our SUAS and LMS sales from the U.S. government and its agencies. Sales to the U.S. government, either as a prime contractor or subcontractor and inclusive of foreign military sales, represented approximately 76% of our revenue for the fiscal year ended April 30, 2024. The DoD, our principal U.S. government customer, accounted for approximately 28% of our revenue for the fiscal year ended April 30, 2024. We believe that the success and growth of our business for the foreseeable future will continue to depend to a significant degree on our ability to win government contracts, in particular from the DoD. Many of our government customers are subject to budgetary constraints and our continued performance under these contracts, or award of additional contracts from these agencies, could be jeopardized by spending reductions or budget cutbacks at these agencies. The funding of U.S. government programs is uncertain and dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process. We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline.

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The U.S. military funds a portion of our contracts through operational needs statements, and to a lesser extent, through programs of record, which provides us with less visibility and certainty on future funding allocations for our contracts. Furthermore, all of our contracts with the U.S. government are terminable by the U.S. government at will. A significant decline in government expenditures generally, or with respect to programs for which we provide products and/or services, could adversely affect our business and prospects. Our operating results may also be negatively impacted by other developments that affect these government programs generally, including the following:

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These developments and other factors could cause governmental agencies to reduce their purchases under existing contracts, to exercise their rights to terminate contracts at-will or to abstain from renewing contracts or entering into new contracts, any of which would cause our revenue to decline and could otherwise harm our business, financial condition and results of operations.

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A decline in the U.S. and other government budgets, changes in spending or budgetary priorities, or delays in contract awards may significantly and adversely affect our future revenue.

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Because we generate a significant portion of our total sales, including sales of our UxS and LMS products and services, from the U.S. government and its agencies and foreign governments, our results of operations could be adversely affected by government spending caps or changes in government budgetary priorities, as well as by delays in the government budget process, program starts, or the award of contracts or orders under existing contracts. Delays in the definitization of a contract could result in delayed funding, billing and payment. Our business may be impacted due to shifts in the political environment and changes in the government and agency leadership positions. We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline. If annual budget appropriations or continuing resolutions are not enacted timely, we could face U.S. government shutdowns, which could adversely impact our programs and contracts with the U.S. government, our ability to receive timely payment from U.S. government entities and our ability to timely obtain export licenses for our products and services to fulfill contracts with our international customers.

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Additionally, there is a possibility that political decisions made by the U.S. government, such as changes in prior military commitments, including the withdrawal from Afghanistan or in response to the conflicts between Russia and Ukraine or Israel and Hamas, or an impasse on policy issues, could impact future spending and program authorizations, which may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs due to, among other factors, competing demands for federal funds and the number and intensity of military conflicts.

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Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UxS and LMS.

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With the inception of the global war on terror, operational activity in the US-CENTCOM combatant command area of operations led to broad deployment and increased demand for UxS and LMS products, training and spares. Since such time, there have been periods during which the tempo of DoD counterinsurgency operations receded, reducing demand for certain of our UxS and LMS products, training and spares from prior levels. We cannot predict whether and when a reduction in overseas operational levels will occur, how future procurement priorities related to defense transformation will be impacted, including by future events such as the conflicts between Russia and Ukraine or Israel and Hamas, or how changes in the threat environment will impact opportunities and competition for our UxS and LMS products, in terms of existing, additional or replacement programs. An example was the closure of all of our Mid-Endurance Unmanned Aircraft System (“MEUAS”) COCO sites during the three months ended April 30, 2023. If defense transformation or overseas operations slow down or cease in key operational areas, then our business, financial condition and results of operations could be impacted negatively.

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We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.

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Our solutions are sold in new and rapidly evolving markets. The market for HAPS UAS is also in an early stage of development. Accordingly, our business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our products and services will increase, if at all. The challenges, risks and

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uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:

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If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.

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We face competition from other firms, many of which have substantially greater resources.

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The defense industry is highly competitive and generally characterized by intense competition to win contracts. Our current principal SUAS competitors include Elbit Systems Ltd., Quantum-Systems, Inc., Edge Autonomy, Teledyne Technologies, Inc., Sierra Nevada Corporation and Lockheed Martin Corporation. Our principal MUAS competitors are The Boeing Company, Shield AI, Inc., Northrop Grumman Corporation, Textron, Inc., Sierra Nevada Corporation, Griffon Aerospace, Inc. and L3Harris Technologies, Inc. and international competitors Elbit Systems Ltd. and Israeli Aircraft Industries. We do not view large UAS producers such as Northrop Grumman Corporation or General Atomics, Inc. as direct competitors to our SUAS because they perform different missions, do not typically deliver their information directly to front-line ground forces, and are not hand launched and controlled. We do not view large UAS producers as direct competitors to our MUAS because they perform different missions, require a larger logistical footprint and cost considerably more to procure and operate. However, we cannot be certain that these platforms will not become direct competitors to our SUAS and MUAS in the future. Our LMS business faces competition from Textron Inc., RTX Corporation, Lockheed Martin Corporation, Anduril Industries, Inc., Aevex Holdings, LLC and UVision Air Ltd. Our competitors in the U.S. defense market for UGVs include L3Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton Remotec, ICOR Technology, Inc., Ghost Robotics, Inc. and Boston Dynamics, Inc.

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We also face emerging competition from consumer and commercially focused drone manufacturers as their product capabilities increase and their product prices remain low relative to existing defense solutions, which has resulted in some level of military consideration and procurement even though their UAS products do not meet traditional military performance or security specifications.