SEC Filing | AeroVironment, Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended July 27, 2024

☐

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

For the transition period from to

Commission File Number: 001-33261

AEROVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

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

241 18^th Street South, Suite 650
Arlington, Virginia		22202
(Address of principal executive offices)		(Zip Code)

(805) 520-8350

(Registrant’s telephone number, including area code)

N/A

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

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


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

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

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

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


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

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

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

As of August 28, 2024, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 28,206,032.

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AeroVironment, Inc.

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Item 1.	Financial Statements :
	Condensed Consolidated Balance Sheets as of July 27, 2024 (Unaudited) and April 30, 2024	3
	Condensed Consolidated Statements of Operations for the three months ended July 27, 2024 (Unaudited) and July 29, 2023 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the three ended July 27, 2024 (Unaudited) and July 29, 2023 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended July 27, 2024 (Unaudited) and July 29, 2023 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the three months ended July 27, 2024 (Unaudited) and July 29, 2023 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
Signatures		40

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AeroVironment, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)


	July 27,		April 30,
	2024		2024
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	81,162	$	73,301
Accounts receivable, net of allowance for doubtful accounts of $58 at July 27, 2024 and $159 at April 30, 2024		35,487		70,305
Unbilled receivables and retentions		219,766		199,474
Inventories, net		143,835		150,168
Income taxes receivable		338		—
Prepaid expenses and other current assets		19,758		22,333
Total current assets		500,346		515,581
Long-term investments		21,887		20,960
Property and equipment, net		48,071		46,602
Operating lease right-of-use assets		28,283		30,033
Deferred income taxes		41,303		41,303
Intangibles, net		67,521		72,224
Goodwill		275,932		275,652
Other assets		15,826		13,505
Total assets	$	999,169	$	1,015,860
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	43,596	$	48,298
Wages and related accruals		20,413		44,312
Customer advances		10,993		11,192
Current portion of long-term debt		10,000		10,000
Current operating lease liabilities		9,428		9,841
Income taxes payable		5,597		4,162
Other current liabilities		17,331		17,074
Total current liabilities		117,358		144,879
Long-term debt, net of current portion		6,788		17,092
Non-current operating lease liabilities		21,086		22,745
Other non-current liabilities		2,123		2,132
Liability for uncertain tax positions		5,603		5,603
Deferred income taxes		673		664
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares—10,000,000; none issued or outstanding at July 27, 2024 and April 30, 2024		—		—
Common stock, $0.0001 par value:
Authorized shares—100,000,000
Issued and outstanding shares—28,206,480 shares at July 27, 2024 and 28,134,438 shares at April 30, 2024		4		4
Additional paid-in capital		598,735		597,646
Accumulated other comprehensive loss		(5,054)		(5,592)
Retained earnings		251,853		230,687
Total stockholders’ equity		845,538		822,745
Total liabilities and stockholders’ equity	$	999,169	$	1,015,860

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

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AeroVironment, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)


	Three Months Ended
	July 27,		July 29,
	2024		2023
Revenue:
Product sales	$	159,504	$	119,471
Contract services		29,979		32,876
		189,483		152,347
Cost of sales:
Product sales		85,519		61,608
Contract services		22,497		25,079
		108,016		86,687
Gross margin:
Product sales		73,985		57,863
Contract services		7,482		7,797
		81,467		65,660
Selling, general and administrative		33,795		23,827
Research and development		24,613		15,466
Income from operations		23,059		26,367
Other loss:
Interest expense, net		(239)		(2,008)
Other expense, net		(234)		(1,129)
Income before income taxes		22,586		23,230
Provision for income taxes		1,485		1,314
Equity method investment income (loss), net of tax		65		(21)
Net income		21,166		21,895
Net income per share
Basic	$	0.76	$	0.84
Diluted	$	0.75	$	0.84
Weighted-average shares outstanding:
Basic		27,959,692		26,088,277
Diluted		28,281,827		26,179,042

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

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AeroVironment, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


	Three Months Ended
	July 27,		July 29,
	2024		2023
Net income	$	21,166	$	21,895
Other comprehensive income:
Change in foreign currency translation adjustments		538		(63)
Total comprehensive income	$	21,704		21,832

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

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AeroVironment, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended July 27, 2024 and July 29, 2023 (Unaudited)

(In thousands except share data)


								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Amount		Capital		Earnings		Loss		Total
Balance at April 30, 2024	28,134,438	$	4	$	597,646	$	230,687	$	(5,592)	$	822,745
Net income	—		—		—		21,166		—		21,166
Foreign currency translation	—		—		—		—		538		538
Stock options exercised	16,164		—		506		—		—		506
Restricted stock awards	69,522		—		—		—		—		—
Restricted stock awards forfeited	(2,194)		—		—		—		—		—
Tax withholding payment related to net share settlement of equity awards	(11,450)		—		(3,953)						(3,953)
Stock based compensation	—		—		4,536		—		—		4,536
Balance at July 27, 2024	28,206,480	$	4	$	598,735	$	251,853	$	(5,054)	$	845,538

								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Amount		Capital		Earnings		Loss		Total
Balance at April 30, 2023	26,216,897	$	4	$	384,397	$	171,021	$	(4,452)	$	550,970
Net income	—		—		—		21,895		—		21,895
Foreign currency translation	—		—		—		—		(63)		(63)
Restricted stock awards	91,913		—		—		—		—		—
Restricted stock awards forfeited	(3,438)		—		—		—		—		—
Tax withholding payment related to net share settlement of equity awards	(13,242)		—		(1,298)		—		—		(1,298)
Issuance cost for shares issued	—		—		(163)		—		—		(163)
Stock based compensation	—		—		3,204		—		—		3,204
Balance at July 29, 2023	26,292,130	$	4	$	386,140	$	192,916	$	(4,515)	$	574,545

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AeroVironment, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended
	July 27,		July 29,
	2024		2023
Operating activities
Net income	$	21,166	$	21,895
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		8,852		6,951
(Gain) loss from equity method investments		(65)		21
Amortization of debt issuance costs		266		214
Provision for doubtful accounts		(101)		(15)
Reserve for inventory excess and obsolescence		2,667		3,330
Other non-cash expense, net		616		173
Non-cash lease expense		2,430		2,184
Loss on foreign currency transactions		142		132
Unrealized loss on available-for-sale equity securities, net		321		1,013
Deferred income taxes		(1)		(427)
Stock-based compensation		4,536		3,204
Loss on disposal of property and equipment		143		116
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		34,993		8,207
Unbilled receivables and retentions		(20,274)		(1,603)
Inventories		3,867		(40,004)
Income taxes receivable		(336)		—
Prepaid expenses and other assets		(814)		(4,401)
Accounts payable		(4,976)		(2,780)
Other liabilities		(25,081)		(15,272)
Net cash provided by (used in) operating activities		28,351		(17,062)
Investing activities
Acquisition of property and equipment		(5,430)		(3,632)
Contributions in equity method investments		(1,183)		—
Net cash used in investing activities		(6,613)		(3,632)
Financing activities
Principal payments of term loan		(10,500)		(5,000)
Payment of debt issuance costs		—		(9)
Tax withholding payment related to net settlement of equity awards		(3,953)		(1,298)
Exercise of stock options		506		—
Other		(7)		(8)
Net cash used in financing activities		(13,954)		(6,315)
Effects of currency translation on cash and cash equivalents		77		21
Net increase (decrease) in cash and cash equivalents		7,861		(26,988)
Cash and cash equivalents at beginning of period		73,301		132,859
Cash and cash equivalents at end of period	$	81,162	$	105,871
Supplemental disclosures of cash flow information
Cash paid (refunded), net during the period for:
Income taxes	$	(101)	$	35
Interest	$	370	$	1,782
Non-cash activities
Change in foreign currency translation adjustments	$	538	$	(63)
Acquisitions of property and equipment included in accounts payable	$	1,208	$	969

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

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AeroVironment, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization and Significant Accounting Policies

Organization

AeroVironment, Inc., a Delaware corporation (the “Company”), is engaged in the design, development, production, delivery and support of a technologically advanced portfolio of intelligent, multi-domain robotic systems and related services for government agencies and businesses. AeroVironment, Inc. supplies uncrewed aircraft and ground robot systems, loitering munitions systems and related services primarily to organizations within or supplying the U.S. Department of Defense (“D.o.D”), other federal agencies and to international allied governments.

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

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

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

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three months ended July 27, 2024 are not necessarily indicative of the results for the full year ending April 30, 2025. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2024, included in the Company’s Annual Report on Form 10-K.

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

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

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

Recently Adopted Accounting Standards

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

Revenue Recognition

The Company’s revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products and to provide related engineering, technical and other services according to the specifications of its customers. These contracts may be firm fixed price (“FFP”), cost plus fixed fee (“CPFF”), or time and materials (“T&M”). The Company considers all such contracts to be within the scope of ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”).

Performance Obligations

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

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

The Company’s performance obligations are satisfied over time or at a point in time. Performance obligations are satisfied over time if the customer receives the benefits as the Company performs, if the customer controls the asset as it is being developed or produced, or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment for the Company’s costs incurred to date plus a reasonable margin. The contractual right to payment is generally supported by termination for convenience clauses that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process. Revenue for LMS product deliveries, certain Tomahawk product deliveries and Customer-Funded Research and Development contracts is recognized over time as costs are incurred. Contract services revenue is composed of revenue recognized on contracts for the provision of services, including repairs and maintenance, training, engineering design, development and prototyping activities, and technical support services. Contract services revenue is recognized over time as services are rendered. Typically, revenue is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract services revenue, which historically included revenue from intelligence, surveillance, and reconnaissance (“ISR”) services, is recognized over time as services are

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rendered. In accordance with ASC 606, the Company elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, such as flight hours for ISR services, the entity may recognize revenue in the amount to which the entity has a right to invoice. In the past, the Company operated its MUAS in overseas locations to support U.S. military operations under ISR services contracts under a contractor-owned, contractor-operated (“COCO”) arrangement.

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

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

On July 27, 2024, the Company had approximately $372,904,000 of remaining performance obligations under fully funded contracts with its customers, which the Company also refers to as funded backlog. The Company currently expects to recognize approximately 85% of the remaining performance obligations as revenue in fiscal 2025 and the remaining 15% in fiscal 2026.

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

Contract Estimates

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

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

The nature of the Company’s contracts gives rise to several types of variable consideration, including undefinitized contract actions which are within the scope of ASC 606 with final contract values to be negotiated, penalty fees and incentive awards generally for late delivery and early delivery, respectively. The Company generally estimates such variable consideration as the most likely amount. In addition, the Company includes the estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the related uncertainty is resolved. These estimates are based on historical award experience, anticipated performance and the Company’s best judgment at the time. Based on experience in estimating these amounts, they are included in the transaction price of the Company’s contracts and the associated remaining performance obligations.

As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company regularly reviews and updates its contract-related estimates. Changes in cumulative revenue estimates, due to changes in the estimated transaction price or cost estimates, are recorded using a cumulative catch-up adjustment in the

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

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter it is identified, and it is recorded in other current liabilities. The balance of forward loss reserves as of July 27, 2024 and April 30, 2024 was $496,000 and $374,000, respectively. The Company recorded the forward loss reserves as the total estimated costs to complete the contracts are in excess of the total remaining consideration of the contracts. No adjustment on the forward loss reserve for any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three months ended July 27, 2024 or July 29, 2023, respectively.

The impact of adjustments in contract estimates on the Company’s operating earnings can be reflected in either operating costs and expenses, or revenue. The aggregate impact of adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was not material for the three month period ended July 27, 2024 or July 29, 2023, respectively. No adjustment on any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three month periods ended July 27, 2024 or July 29, 2023.

Revenue by Category

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


	Three Months Ended
	July 27,		July 29,
Revenue by segment	2024		2023
UxS	$	119,976	$	98,207
LMS		51,973		30,917
MW		17,534		23,223
Total revenue	$	189,483	$	152,347


	Three Months Ended
	July 27,		July 29,
Revenue by contract type	2024		2023
FFP	$	171,869	$	129,942
CPFF		16,231		21,293
T&M		1,383		1,112
Total revenue	$	189,483	$	152,347

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


	Three Months Ended
	July 27,		July 29,
Revenue by customer category	2024		2023
U.S. government	$	148,600	$	101,348
Non-U.S. government		40,883		50,999
Total revenue	$	189,483	$	152,347

	Three Months Ended
	July 27,		July 29,
Revenue by geographic location	2024		2023
Domestic	$	66,998	$	58,126
International		122,485		94,221
Total revenue	$	189,483	$	152,347


	Three Months Ended
	July 27,		July 29,
Revenue percentage by recognition method	2024		2023
Over time		41%		39%
Point in time		59%		61%
Total revenue		100%		100%

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables, and customer advances and deposits on the condensed consolidated balance sheet. In the Company’s services contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which is generally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets recorded in unbilled receivables and retentions on the condensed consolidated balance sheet. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities recorded in customer advances on the condensed consolidated balance sheet. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. For the Company’s product revenue, the Company generally receives cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting in billed accounts receivable. Changes in the contract asset and liability balances during the three month period ended July 27, 2024 were not materially impacted by any other factors. For the Company’s contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.

Revenue recognized for the three month period ended July 27, 2024 that was included in customer advances balances as of April 30, 2024 was $5,486,000 and revenue recognized for the three month period ended July 29, 2023 that was included in customer advances balances as of April 30, 2023 was $2,538,000.

Cost to Fulfill a Contract with a Customer

The Company recognizes assets for the costs to fulfill a contract with a customer if the costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered in accordance with ASC 340-40 Other Assets and Deferred Costs: Contracts with Customers. The assets related to costs to

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fulfill contracts with customers are capitalized and amortized over the period the related performance obligations are satisfied. As of July 27, 2024 the Company’s costs to fulfill were $4,396,000, and as of April 30, 2024, the Company’s costs to fulfill were not material.

Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assess performance. As of July 27, 2024, the Company’s CODM, the Chief Executive Officer, makes operating decisions, assesses performance and makes resource allocation decisions, including the allocation for research and development (“R&D”). Accordingly, the Company identifies three reportable segments. Refer to Note 18—Segments for further details.

Investments

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

Fair Values of Financial Instruments

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

Government Contracts

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

For example, during the course of its audits, the DCAA may question the Company’s incurred costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallow such costs. Historically, the Company has not experienced material disallowed costs as a result of government audits. However, the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future. The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable government contracts to be recorded at actual rates unless collectability is not reasonably assured. At July 27, 2024 and April 30, 2024, the Company had no reserve for incurred cost claim audits.

Earnings Per Share

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

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


		Three Months Ended
	July 27, 2024		July 29, 2023
Net income	$	21,166	$	21,895
Denominator for basic earnings per share:
Weighted average common shares		27,959,692		26,088,277
Dilutive effect of employee stock options, restricted stock and restricted stock units		322,135		90,765
Denominator for diluted earnings per share		28,281,827		26,179,042

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 72 for the three months ended July 27, 2024. Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 738 for the three months ended July 29, 2023.

Recently Issued Accounting Standards

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses reported to the CODM. ASU 2023-07 also requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 is adopted retrospectively. The Company will include the required enhanced disclosures in its Annual Report on Form 10-K for the fiscal year ending April 30, 2025.

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

2. Investments

Investments consist of the following (in thousands):


	July 27,		April 30,
	2024		2024
Long-term investments:
Available-for-sale securities:
Equity securities and warrants		706		1,027
Total long-term available-for-sale securities investments		706		1,027
Equity method investments
Investments in limited partnership funds		21,181		19,933
Total equity method investments		21,181		19,933
Total long-term investments	$	21,887	$	20,960

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Equity Securities

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


	Three Months Ended		Three Months Ended
	July 27, 2024		July 29, 2023
Net losses recognized during the period on equity securities	$	(321)	$	(1,013)
Less: Net loss recognized during the period on equity securities sold during the period		—		—
Unrealized loss recognized during the period on equity securities still held at the reporting date	$	(321)	$	(1,013)

3. Fair Value Measurements

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

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

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

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

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


	Fair Value Measurement Using
			Significant
	Quoted prices in		other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Equity securities	$	596	$	—	$	—	$	596
Warrants		—		110		—		110
Total	$	596	$	110	$	—	$	706

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

The Company’s financial assets measured at fair value on a recurring basis at April 30, 2024, were as follows (in thousands):


	Fair Value Measurement Using
			Significant
	Quoted prices in		other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Equity securities	$	937	$	—	$	—	$	937
Warrants		—		90		—		90
Total	$	937	$	90	$	—	$	1,027

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The Company had no financial liabilities measured at fair value on a recurring basis at April 30, 2024.

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

4. Inventories, net

Inventories consist of the following (in thousands):


	July 27,		April 30,
	2024		2024


Raw materials	$	59,829	$	57,218
Work in process		51,333		53,232
Finished goods		61,169		65,618
Inventories, gross		172,331		176,068
Reserve for inventory excess and obsolescence		(28,496)		(25,900)
Inventories, net	$	143,835	$	150,168

5. Equity Method Investments

Investments in Limited Partnership Funds

In July 2019, the Company made its initial capital contribution to a limited partnership fund focusing on highly relevant technologies and start-up companies serving defense and industrial markets. Under the terms of the limited partnership agreement, the Company contributed a total of $10,000,000 during the fiscal years ended April 30, 2021 and 2022, and there were no further contribution commitments to this fund as of April 30, 2022. In March 2022, the Company entered into a limited partnership agreement with a second limited partnership fund also focusing on highly relevant technologies and start-up companies serving defense and industrial markets. Under the terms of the limited partnership agreement, the Company is committed to contributions totaling $20,000,000 over an expected five year period. During the fiscal year ended April 30, 2024 and 2023, the Company made total contributions of $3,074,000 and $5,778,000, respectively. During the three months ended July 27, 2024, the Company made a contribution of $1,183,000. Under the terms of the limited partnership agreement, the Company has committed to make additional capital contributions of $9,965,000 to the fund expected to be paid over the next three fiscal years. The Company accounts for investments in limited partnerships as equity method investments as the Company is deemed to have significant influence when it holds more than a minor interest. For the three months ended July 27, 2024 and July 29, 2023, the Company recorded its ownership percentage of the net gains (losses) of the limited partnerships, or $65,000 and $(21,000), respectively, in equity method investment income (loss), net of $0 tax in the unaudited condensed consolidated statements of operations, respectively. At July 27, 2024 and April 30, 2024, the carrying value of the investments in the limited partnership funds of $21,181,000 and $19,933,000, respectively, was recorded in long-term investments on the unaudited condensed consolidated balance sheet.

Investment in Altoy

On September 15, 2021, the Company entered into a Share Sale and Purchase Agreement with Toygun whereby the Company sold 35% of the common shares of Altoy to Toygun. On October 14, 2022, the company sold an additional 35% of the common shares of Altoy to Toygun. As a result of the sales, the Company decreased its interest in Altoy from 85% to 15%. The Company no longer controls Altoy, and therefore, has deconsolidated Altoy in the Company’s unaudited condensed consolidated financial statements. The Company maintains significant influence, accounts for its investment in Altoy as an equity method investment and records its proportion of any gains or losses of Altoy in equity method investment loss, net of tax. For the three months ended July 27, 2024 and July 29, 2023, the Company recorded $0 for its ownership percentage of the net activity of Altoy in equity method investment income (loss), net of tax in the

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unaudited condensed consolidated statements of operations. At July 27, 2024 and April 30, 2024, the carrying value of the investment in Altoy of $152,000 was recorded in other assets on the unaudited condensed consolidated balance sheet.

6. Warranty Reserves

The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. The warranty reserve is included in other current liabilities on the unaudited condensed consolidated balance sheet. The related expense is included in cost of sales. Warranty reserve activity is summarized as follows for the three months ended July 27, 2024 and July 29, 2023, respectively (in thousands):


	Three Months Ended
	July 27,		July 29,
	2024		2023
Beginning balance	$	5,538	$	3,642
Warranty expense		(647)		1,750
Warranty costs settled		(651)		(765)
Ending balance	$	4,240	$	4,627

7. Intangibles, net

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