Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and the results of operations as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions. Such forward-looking statements are based on current expectations, estimates and projections about our industry, our management’s beliefs and assumptions made by our management. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2025, as updated by our subsequent filings under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).
Unless required by law, we expressly disclaim any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise.
Critical Accounting Estimates
The following should be read in conjunction with the critical accounting estimates presented in our Annual Report on Form 10-K for the fiscal year ended April 30, 2025.
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical estimates include those related to revenue recognition, inventory reserves for excess and obsolescence, intangible assets acquired in a business combination, goodwill, and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
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Revenue Recognition
Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications, including the finalization of undefinitized contract actions, occur. The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Changes in variable consideration associated with the finalization of undefinitized contract actions could result in cumulative catch up adjustments to revenue that could be material. During the three and nine months ended January 31, 2026 and January 25, 2025, changes in accounting estimates on contracts recognized using the over time method are presented below. Amounts representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or contract modification in accordance with ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”).
For the three months ended January 31, 2026 and January 25, 2025, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):
Three Months Ended
January 31,
January 25,
2026
2025
Gross favorable adjustments
$
12,453
$
10,304
Gross unfavorable adjustments
(7,994)
(1,154)
Net (unfavorable) favorable adjustments
$
4,459
$
9,150
For the three months ended January 31, 2026, favorable cumulative catch-up adjustments of $12.5 million were primarily due to cost adjustments on 30 contracts. During the three months ended January 31, 2026, we revised our estimates of the total expected costs to complete an LMS contract and a Small UAS (“SUAS”) contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $3.2 million. For the same period, unfavorable cumulative catch-up adjustments of $8.0 million were primarily related to higher than expected costs on 24 contracts, which individually were not material.
For the three months ended January 25, 2025, favorable cumulative catch-up adjustments of $10.3 million were primarily due to cost adjustments on three contracts. During the three months ended January 25, 2025, the Company revised its estimates of the total expected costs to complete three LMS contracts. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $9.6 million. For the same period, unfavorable cumulative catch-up adjustments of $1.2 million were primarily related to higher than expected costs on 23 contracts, which individually were not material.
For the nine months ended January 31, 2026 and January 25, 2025, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):
Nine Months Ended
January 31,
January 25,
2026
2025
Gross favorable adjustments
$
3,294
$
11,600
Gross unfavorable adjustments
(12,799)
(2,085)
Net favorable (unfavorable) adjustments
$
(9,505)
$
9,515
For the nine months ended January 31, 2026, favorable cumulative catch-up adjustments of $3.3 million were primarily due to cost adjustments on 13 contracts, which individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $12.8 million were primarily related to higher than expected costs on 31 contracts.
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During the nine months ended January 31, 2026, we revised our estimates of the total expected costs to complete an LMS contract. The impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was a decrease to revenue of approximately $1.9 million. The remaining adjustments individually were not material.
For the nine months ended January 25, 2025, favorable cumulative catch-up adjustments of $11.6 million were primarily due to cost adjustments on four contracts. During the nine months ended January 25, 2025, we definitized certain LMS undefinitized contract actions. The aggregate impact of these cumulative catch-up revenue adjustments for the contract definitization was an increase to revenue of approximately $9.9 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $2.1 million were primarily related to higher than expected costs on 30 contracts, which individually were not material.
Goodwill
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. We test goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.
Our evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. For the impairment test, we first assess qualitative factors, macroeconomic conditions, industry and market considerations, triggering events, cost factors, and overall financial performance, to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, we may bypass the qualitative assessment for some or all of our reporting units and apply the quantitative impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). For the quantitative impairment test, we estimate the fair value by weighting the results from the income approach and the market approach. These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business.
In January 2026, a stop-work order was received on the Company’s Other Transaction Agreement for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program. We concluded that the stop-work order represented a trigger event that indicated the carrying value of the Space reporting unit exceeded its fair value. As a result, we updated our estimates of the long-term cash flows of the Space reporting unit to reflect the reduced revenue associated with the stop-work order as well as an increase in expected research and development and capital investments to achieve product commercialization, which is expected to result in expanded opportunities and improve long term product margins. The changes in estimates resulted in the recognition of a goodwill impairment charge of approximately $151 million in the Space reporting unit. As of January 31, 2026, we have not identified any events or circumstances, other than those identified for the Space reporting unit, that could trigger an impairment review prior to the our annual impairment test during the fourth quarter of fiscal year 2026, including taking into account the reporting units identified from the BlueHalo acquisition on May 1, 2025. Due to the trigger event, we also performed a recoverability test on the long-lived assets, inclusive of the intangibles, of the Space reporting unit for impairment in accordance with ASC 360. The undiscounted cash flows exceeded the carrying value and no impairment was recorded.
As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the Uncrewed Ground Vehicles (“UGV”) reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025. These changes in estimates resulted in the recognition of a goodwill impairment charge of $18.4 million during the three months ended April 30, 2025 in the UGV reporting unit. We determined that it
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was more likely than not that the fair values of our other reporting units were more than their carrying values as of the annual goodwill impairment test date. As such, during the most recent annual impairment test during the fourth quarter of fiscal year 2025, the estimated fair value of all reporting units, other than UGV, substantially exceeded their carrying value.
The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature. Actual results can be materially different from the estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the carrying amounts, we could recognize future impairment charges, the amount of which could be material.
Fiscal Periods
Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday. Our 2026 fiscal year ends on April 30, 2026 and our fiscal quarters end on August 2, 2025, November 1, 2025 and January 31, 2026, respectively.
Results of Operations
The following tables set forth our results of operations for the periods indicated (in thousands):
Three Months Ended January 31, 2026 Compared to Three Months Ended January 25, 2025
Three Months Ended
January 31,
January 25,
2026
2025
Revenue
$
408,045
$
167,636
Cost of sales
309,251
104,437
Gross margin
98,794
63,199
Selling, general and administrative
99,414
43,788
Research and development
27,112
22,498
Impairment of goodwill
151,306
—
Loss from operations
(179,038)
(3,087)
Other income (loss):
Interest income (expense), net
3,696
(248)
Other (expense) income, net
(400)
976
Loss before income taxes
(175,742)
(2,359)
Benefit from income taxes
(19,486)
(605)
Equity method investment loss, net of tax
(295)
—
Net loss
$
(156,551)
$
(1,754)
Three Months Ended January 31, 2026
AxS
SCDE
Total
Revenue
$
278,744
$
129,301
$
408,045
Segment adjusted EBITDA
$
46,167
$
(1,691)
$
44,476
Three Months Ended January 25, 2025
AxS
SCDE
Total
Revenue
$
167,636
$
—
$
167,636
Segment adjusted EBITDA
$
21,766
$
—
$
21,766
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Revenue. Revenue for the three months ended January 31, 2026 was $408.0 million, as compared to $167.6 million for the three months ended January 25, 2025, representing an increase of $240.4 million, or 143%. The increase in revenue was due to an increase in product revenue of $138.1 million and an increase in service revenue of $102.3 million. The increase in product revenue was primarily due to the $85.1 million of product revenue resulting from our acquisition of BlueHalo in May 2025. Legacy AV product revenue included in the AxS segment increased by $53.0 million driven by an increase in LMS, MacCready Works, SUAS, medium uncrewed aircraft systems (“MUAS”) and uncrewed ground vehicles (“UGV”) products due to increase in domestic and international demand. The increase in service revenue was primarily due to the $91.4 million service revenue resulting from our acquisition of BlueHalo. Legacy AV service revenue increased by $10.9 million driven by customer funded R&D and engineering services increase of $10.2 million driven by an increase in SUAS customer funded R&D awards. Proportion of service revenue to product revenue is expected to remain higher following the acquisition of BlueHalo.
Cost of Sales. Cost of sales for the three months ended January 31, 2026 was $309.3 million, as compared to $104.4 million for the three months ended January 25, 2025, representing an increase of $204.9 million, or 196%. The increase in cost of sales was a result of an increase in product cost of sales of $119.0 million and an increase in service costs of sales of $85.9 million. The increase in product costs of sales was primarily due to an increase of approximately $63.1 million associated with the recently acquired BlueHalo product lines and an increase of approximately $9.4 million in intangible amortization primarily related to the BlueHalo acquisition. For legacy AV business, product cost of sales increased $46.5 million. The increase in legacy product costs of sales was primarily due to an increase of approximately $30 million due to the increase in sales volume and approximately $17 million due to mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production. The increase in service cost of sales was primarily due to an increase of approximately $87.2 million associated with the BlueHalo acquisition, partially offset by a decrease in legacy AV service cost of sales of $1.9 million primarily due to a mix shift of approximately $11 million due to a higher proportion of higher margin services driven by an increase in customer funded R&D, partially offset by an increase of approximately $9 million due to the increase in service revenue. Cost of sales for the three months ended January 31, 2026 included $12.7 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $3.7 million for the three months ended January 25, 2025. As a percentage of revenue, cost of sales increased from 62% to 76% primarily due to increased amortization and other non-cash purchase accounting expenses and an increase in the proportion of service revenue resulting from the effect of the BlueHalo acquisition, resulting in gross margin decreasing from 38% to 24%.
Gross Margin. Gross margin is equal to revenue minus cost of sales.
Selling, General and Administrative . SG&A expense for the three months ended January 31, 2026 was $99.4 million, or 24% of revenue, as compared to SG&A expense of $43.8 million, or 26% of revenue, for the three months ended January 25, 2025. The increase in SG&A expense was primarily due to an increase of $30.1 million of intangible amortization expense related to the BlueHalo acquisition and an increase of approximately $7 million of employee related expenses related to the increase in headcount.
Research and Development. R&D expense for the three months ended January 31, 2026 was $27.1 million, or 7% of revenue, as compared to R&D expense of $22.5 million, or 13% of revenue, for the three months ended January 25, 2025. The increase was primarily related to the BlueHalo acquisition. R&D expense is expected to continue to be 7% to 8% of revenue.
Impairment of Goodwill . Impairment of goodwill for the three months ended January 31, 2026 was $151.3 million. In January 2026, a stop-work order was received on the Company’s Other Transaction Agreement for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program. The Company concluded that the stop-work order represented a trigger event that indicated the carrying value of the Space reporting unit exceeded its fair value. As a result, we updated our estimates of the long-term cash flows of the Space reporting unit to reflect the reduced revenue associated with the stop-work order as well as an increase in expected research and development and capital investments to achieve product commercialization, which is expected to result in expanded opportunities and improve long term product margins. The changes in estimates resulted in the recognition of a goodwill impairment charge of approximately $151 million in the Space reporting unit.
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Interest Income (Expense), net. Interest income, net for the three months ended January 31, 2026 was $3.7 million compared to interest expense, net of $0.2 million for the three months ended January 25, 2025 due to a combination of higher cash and investment balances and lower interest bearing debt balances.
Other (Expense) Income, net. Other expense, net, for the three months ended January 31, 2026 was $0.4 million as compared to other income, net of $1.0 million for the three months ended January 25, 2025. The increase in other expense, net was driven by unrealized losses in equity security investments.
Benefit from Income Taxes. Our effective income tax rate was (11.1)% for the three months ended January 31, 2026, as compared to (25.6)% for the three months ended January 25, 2025. The change in our effective income tax rate was primarily attributable to FDII, federal R&D credits and non-deductible goodwill impairment loss for the quarter. The effective income tax rate for the three months ended January 31, 2026, was primarily attributable to non-deductible goodwill impairment loss
Equity Method Investment Loss, net of Tax. Equity method investment loss, net of tax for the three months ended January 31, 2026 was $0.3 million as compared $0 for the three months ended January 25, 2025.
Autonomous Systems
Three Months Ended
January 31,
January 25,
2026
2025
Revenue
$
278,744
$
167,636
Segment adjusted EBITDA
$
46,167
$
21,766
Revenue. Revenue for the three months ended January 31, 2026 was $278.7 million, as compared to $167.6 million for the three months ended January 25, 2025, representing an increase of $111.1 million, or 66%. The increase in revenue was due to an increase in product revenue of $83.0 million and an increase in service revenue of $28.1 million. The increase in product revenue was primarily due to the $30.0 million of product revenue resulting from our acquisition of BlueHalo in May 2025. Legacy AV product revenue included in the AxS segment increased by $53.0 million driven by an increase in LMS, MacCready Works, SUAS, MUAS and UGV products due to increase in domestic and international demand. The increase in service revenue was primarily due to the $17.2 million service revenue resulting from our acquisition of BlueHalo. Legacy AV service revenue increased by $11.0 million driven by customer funded R&D and engineering services increase of $10.2 million driven by an increase in SUAS customer funded R&D awards. Proportion of service revenue to product revenue is expected to remain higher following the acquisition of BlueHalo.
AxS Segment Adjusted EBITDA. AxS segment adjusted EBITDA for the three months January 31, 2026 was $46.2 million, as compared to $21.8 million for the three months ended January 25, 2025, representing an increase of $24.4 million, or 112%. The increase in AxS segment adjusted EBITDA was primarily due to an increase in revenue of $111.1 million. The increase in revenue was partially offset by an increase in adjusted cost of sales of $79.8 million, adjusted SG&A of $6.2 million and R&D of $1.6 million. The increase in adjusted cost of sales was primarily due to an increase of approximately $37 million associated with the recently acquired BlueHalo product lines, an increase of approximately $38 million due to the increase in sales volume and approximately $7 million due to mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production.
Space, Cyber and Directed Energy
Three Months Ended
January 31,
January 25,
2026
2025
Revenue
$
129,301
$
—
Segment adjusted EBITDA
$
(1,691)
$
—
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Revenue. SCDE revenue for the three months ended January 31, 2026 was $129.3 million, as compared to $0 for the three months ended January 25, 2025. The SCDE segment consists of business units obtained in the BlueHalo acquisition on May 1, 2025, and the increase in revenue is a result of the acquisition.
SCDE Segment Adjusted EBITDA. SCDE segment adjusted EBITDA for the three months January 31, 2026 was $(1.7) million, as compared to $0 for the three months ended January 25, 2025. The SCDE segment consists of business units obtained in the BlueHalo acquisition on May 1, 2025, and the increase in segment adjusted EBITDA is a result of the acquisition.
Nine Months Ended January 31, 2026 Compared to nine Months Ended January 25, 2025
Nine Months Ended
January 31,
January 25,
2026
2025
Revenue
$
1,335,229
$
545,577
Cost of sales
1,037,212
327,273
Gross margin
298,017
218,304
Selling, general and administrative
329,026
115,499
Research and development
96,219
75,827
Impairment of goodwill
151,306
—
(Loss) income from operations
(278,534)
26,978
Other loss:
Interest expense, net
(9,050)
(1,177)
Other income, net
6,912
758
(Loss) income before income taxes
(280,672)
26,559
(Benefit from) provision for income taxes
(36,960)
659
Equity method investment income, net of tax
2,688
1,055
Net (loss) income
$
(241,024)
$
26,955
Nine Months Ended January 31, 2026
AxS
SCDE
Total
Revenue
$
865,642
$
469,587
$
1,335,229
Segment adjusted EBITDA
$
149,998
$
(4,010)
$
145,988
Nine Months Ended January 25, 2025
AxS
SCDE
Total
Revenue
$
545,577
$
—
$
545,577
Segment adjusted EBITDA
$
84,806
$
—
$
84,806
Revenue. Revenue for the nine months ended January 31, 2026 was $1,335.2 million, as compared to $545.6 million for the nine months ended January 25, 2025, representing an increase of $789.6 million, or 145%. The increase in revenue was due to an increase in product revenue of $465.9 million and an increase in service revenue of $323.7 million. The increase in product revenue was primarily due to the $343.3 million of product revenue resulting from our acquisition of BlueHalo in May 2025. Legacy AV product revenue included in the AxS segment increased by $122.6 million driven by an increase in LMS, MUAS, MacCready Works, and UGV products due to increase in domestic and international demand, partially offset by a decrease in SUAS due to a decrease in international sales. The increase in service revenue was primarily due to the $313.6 million service revenue resulting from our acquisition of BlueHalo. Legacy AV service revenue, included in the AxS segment, increased by $10.1 million driven by an increase in customer funded R&D and engineering services of $11.7 million. Proportion of service revenue to product revenue is expected to remain higher following the acquisition of BlueHalo.
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Cost of Sales. Cost of sales for the nine months ended January 31, 2026 was $1,037.2 million, as compared to $327.3 million for the nine months ended January 25, 2025, representing an increase of $709.9 million, or 217%. The increase in cost of sales was a result of an increase in product cost of sales of $418.5 million and an increase in service costs of sales of $291.4 million. The increase in product costs of sales was primarily due to an increase of approximately $242.1 million associated with the recently acquired BlueHalo product lines and an increase of $60.7 million intangible amortization related to the BlueHalo acquisition. For legacy AV business, product cost of sales increased $115.7 million. The increase in legacy product costs of sales was primarily due to an increase of approximately $67 million due to the increase in sales volume and approximately $52 million due to mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production. The increase in service cost of sales was primarily due to an increase of $290.1 million associated with the BlueHalo acquisition and an increase of $5.3 million intangible amortization related to the BlueHalo acquisition, partially offset by a decrease in legacy AV service cost of sales of $4.0 million primarily due to a mix shift of approximately $11 million due to a higher proportion of higher margin services driven by customer funded R&D, partially offset by an increase of approximately $7 million due to an increase in service volume. Cost of sales for the nine months ended January 31, 2026 included $74.3 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $11.1 million for the nine months ended January 25, 2025. As a percentage of revenue, cost of sales increased from 60% to 78% primarily due to increased amortization and other non-cash purchase accounting expenses and an increase in the proportion of service revenue resulting from the effect of the BlueHalo acquisition, resulting in gross margin decreasing from 40% to 22%.
Gross Margin. Gross margin is equal to revenue minus cost of sales.
Selling, General and Administrative . SG&A expense for the nine months ended January 31, 2026 was $329.0 million, or 25% of revenue, as compared to SG&A expense of $115.5 million, or 21% of revenue, for the nine months ended January 25, 2025. The increase in SG&A expense was primarily due to an increase of $94.2 million of intangible amortization expense primarily related to the BlueHalo acquisition, an increase of approximately $34 million of employee related expenses related to the increase in headcount, and an increase of $32.5 million of acquisition related expenses related to the BlueHalo acquisition.
Research and Development. R&D expense for the nine months ended January 31, 2026 was $96.2 million, or 7% of revenue, as compared to R&D expense of $75.8 million, or 14% of revenue, for the nine months ended January 25, 2025. The increase was primarily related to the BlueHalo acquisition. R&D expense is expected to continue to be 7% to 8% of revenue.
Impairment of Goodwill . Impairment of goodwill for the nine months ended January 31, 2026 was $151.3 million. In January 2026, a stop-work order was received on the Company’s Other Transaction Agreement for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program. The Company concluded that the stop-work order represented a trigger event that indicated the carrying value of the Space reporting unit exceeded its fair value. As a result, we updated our estimates of the long-term cash flows of the Space reporting unit to reflect the reduced revenue associated with the stop-work order as well as an increase in expected research and development and capital investments to achieve product commercialization, which is expected to result in expanded opportunities and improve long term product margins. The changes in estimates resulted in the recognition of a goodwill impairment charge of approximately $151 million in the Space reporting unit.
Interest Expense, net. Interest expense, net for the nine months ended January 31, 2026 was $9.1 million compared to $1.2 million for the nine months ended January 25, 2025. The increase was driven by the interest expense related to the Term Loan and Revolver Facility obtained on May 1, 2025 in conjunction with the BlueHalo acquisition and the unamortized debt issuance costs allocated to the Term Loan Facility of $6.7 million, which were expensed upon repayment of the Term Loan Facility in July 2025 using the proceeds from the Notes and common stock issuances in July 2025.
Other Income, net. Other income, net, for the nine months ended January 31, 2026 was $6.9 million compared to other income, net of $0.8 million for the nine months ended January 25, 2025. The increase was primarily due to unrealized gains associated with the fair market value of our equity security investments.
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(Benefit from) Provision for Income Taxes. Our effective income tax rate was (13.2)% for the nine months ended January 31, 2026, as compared to 2.5% for the nine months ended January 25, 2025. The change in our effective income tax rate was primarily attributable to FDII, federal R&D credits and non-deductible goodwill impairment loss. The effective income tax rate for the nine months ended January 31, 2026, was primarily attributable to non-deductible goodwill impairment loss.
Equity Method Investment Income, net of Tax. Equity method investment income, net of tax for the nine months ended January 31, 2026 was $2.7 million as compared $1.1 million for the nine months ended January 25, 2025.
Autonomous Systems
Nine Months Ended
January 31,
January 25,
2026
2025
Revenue:
865,642
545,577
Segment adjusted EBITDA
$
149,998
$
84,806
Revenue. AxS revenue for the nine months ended January 31, 2026 was $865.6 million, as compared to $545.6 million for the nine months ended January 25, 2025, representing an increase of $320.0 million, or 59%. The increase in revenue was due to an increase in product and service revenues of $262.5 million and $57.5 million, respectively. The increase in product revenue was primarily due to the $139.8 million of product revenue resulting from our acquisition of BlueHalo. Legacy AV product revenue included in the AxS segment increased by $122.6 million driven by an increase in LMS, MUAS, MacCready Works, and UGV products due to increase in domestic and international demand, partially offset by a decrease in SUAS due to a decrease in international sales. The increase in service revenue was primarily due to the $47.4 million of service revenue resulting from our acquisition of BlueHalo. Legacy AV service revenue, included in the AxS segment, increased by $10.1 million driven by an increase in customer funded R&D and engineering services of $11.7 million. Proportion of service revenue to product revenue is expected to remain higher following the acquisition of BlueHalo.
AxS Segment Adjusted EBITDA. AxS segment adjusted EBITDA for the nine months January 31, 2026 was $150.0 million, as compared to $84.8 million for the nine months ended January 25, 2025, representing an increase of $65.2 million, or 77%. The increase in AxS segment adjusted EBITDA was primarily due to an increase in revenue of $320.0 million. The increase in revenue was partially offset by an increase in adjusted cost of sales of $223.1 million, adjusted SG&A of $20.2 million primarily due employee related costs driven by the increased headcount, and R&D of $10.2 million. The increase in adjusted cost of sales was primarily due to an increase of approximately $117.9 million associated with the recently acquired BlueHalo product lines, an increase of approximately $77 million due to the increase in sales volume and approximately $38 million due to mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production.
Space, Cyber and Directed Energy
Nine Months Ended
January 31,
January 25,
2026
2025
Revenue:
469,587
—
Segment adjusted EBITDA
$
(4,010)
$
—
Revenue. SCDE revenue for the nine months ended January 31, 2026 was $469.6 million, as compared to $0 for the nine months ended January 25, 2025. The SCDE segment consists of business units obtained in the BlueHalo acquisition on May 1, 2025, and the increase in revenue is a result of the acquisition.
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SCDE Segment Adjusted EBITDA. SCDE segment adjusted EBITDA for the nine months January 31, 2026 was $(4.0) million, as compared to $0 for the nine months ended January 25,2025. The SCDE segment consists of business units obtained in the BlueHalo acquisition on May 1, 2025, and the increase in segment adjusted EBITDA is a result of the acquisition.
Backlog
Consistent with ASC 606, we define funded backlog as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract. As of January 31, 2026, our funded backlog was approximately $1,120.7 million, as compared to $726.6 million as of April 30, 2025.
In addition to our funded backlog, we also had unfunded backlog of $2,968.8 million as of January 31, 2026. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining value of awarded Cost Plus and FFP contracts with 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, or at all. Unfunded backlog includes a $1,493.2 million of unexercised options related to the SCAR program which are no longer expected to be awarded.
Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire or are renewed or new contracts are awarded. Additionally, all U.S. government contracts included in backlog, whether or not they are funded, may be terminated at the convenience of the U.S. government.
Liquidity and Capital Resources
On October 4, 2024, we amended the Credit Agreement to increase the Revolving Facility to $200 million, and the Term Loan Facility was repaid in full and removed from the Credit Agreement. Borrowings under the Amended Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions that meet certain parameters. In February 2025, we borrowed $15.0 million under the Revolving Facility. In May 2025, in connection with the consummation of the BlueHalo Acquisition, the Company entered into a Fourth Amendment to Credit Agreement with BofA NA, the administrative agent and the swingline lender, JPM, U.S. Bank, Citibank, BMO, Citizens and RBC. The Amended Credit Agreement provides for an aggregate $700.0 million term loan and an aggregate $350.0 million revolving credit facility. Upon effectiveness of the Amended Credit Agreement, we drew $225.0 million from the amended Revolving Facility and the full $700.0 million of the Term Loan Facility. The proceeds from the Term Loan Facility and the Revolving Facility were used to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs. In June 2025, we drew an additional $10.0 million under the Revolving Facility.
In July 2025, we issued 4,057,460 shares of common stock at a public offering price of $248.00 per share (the “Common Stock Offering”) and issued $747,500,000 aggregate principal amount of 0% convertible senior notes due 2030 (the “Notes Offering”). The aggregate net proceeds from the Common Stock Offering and the Notes Offering, after deducting underwriting discounts and debt and equity issuance costs, was approximately $1.70 billion. The Company used approximately $965.3 million of the net proceeds from the Common Stock Offering and the Notes Offering to repay indebtedness under the Term Loan Facility and outstanding borrowings under the Revolving Credit Facility, and the remainder is expected to be used for general corporate purposes, including to increase manufacturing capacity.
Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $11.0 million as of January 31, 2026. As of January 31, 2026, approximately $339.0 million was available under the Revolving Facility. Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. In addition, Telerob has a line of credit of €7.0 million ($8.2 million) available for issuing letters of credit of which €2.2 million ($2.6 million) was outstanding as of January 31, 2026.
We anticipate funding our normal recurring trade payables, accrued expenses, ongoing R&D costs and obligations under the Credit Facilities through our existing working capital and funds provided by operating activities including those
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provided by our acquisition. The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers. We believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure requirements, and future obligations related to the acquisition during the next twelve months. There can be no assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or draw on our Credit Facilities. We anticipate that existing sources of liquidity, Credit Facilities, and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.
The Company is party to receivables purchase agreement with Citibank, N.A., with an aggregate capacity of $100 million. As of January 31, 2026, no receivables have been sold, proceeds collected, or purchase discount fees incurred.
Our primary recurring liquidity needs are for financing working capital, investing in capital expenditures, supporting product development efforts, introducing new products and enhancing existing products, marketing acceptance and adoption of our products and services, and possible acquisitions of entities or strategic assets. Our future capital requirements, to a certain extent, are also subject to general conditions in or affecting the defense industry and are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from our Credit Facilities are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Amended Credit Agreement. In addition, we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services or technologies.
Our working capital requirements vary by contract type. On Cost Plus and T&M contracts, we typically bill our incurred costs and fees monthly as work progresses, and therefore working capital investment is minimal. On FFP contracts, we typically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin. Certain contracts have negotiated progress payments, which facilitates billing and collection as work is completed.
Due to the July 2025 reconciliation bill, commonly known as the One Big Beautiful Bill Act, which allows R&D expenditures to be deducted, we expect our cash taxes paid for U.S. federal income taxes to be significantly reduced for the fiscal year ending April 30, 2026.
Cash Flows
The following table provides our cash flow data for the nine months ended January 31, 2026 and January 25, 2025 (in thousands):
Nine Months Ended
January 31,
January 25,
2026
2025
(Unaudited)
Net cash used in operating activities
$
(173,917)
$
(1,054)
Net cash used in investing activities
$
(1,224,921)
$
(16,601)
Net cash provided by (used in) financing activities
$
1,647,210
$
(8,388)
Cash Used in Operating Activities. Net cash used in operating activities for the nine months ended January 31, 2026 increased by $172.9 million to $(173.9) million, as compared to $(1.1) million for the nine months ended January 25, 2025 . The increase in net cash used in operating activities was primarily due to a decrease in cash as a result of changes in operating assets and liabilities of $260.3 million, largely related to increases in unbilled receivables and retentions due to year over year timing differences as well as increases in inventory to meet demand. The increase in cash used in operating activities was also driven by a decrease in net income of $268.0 million, partially offset by an increase in depreciation and amortization of $175.8 million, largely due to the intangibles and acquired property and equipment from the BlueHalo acquisition, and goodwill impairment of the Space reporting unit of $151.3 million.
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Cash Used in Investing Activities. Net cash used in investing activities increased by $1,208.3 million to $(1,224.9) million for the nine months ended January 31, 2026, as compared to $16.6 million for the nine months ended January 25, 2025 . The increase in net cash used in investing activities was primarily due to the cash consideration for the acquisition of BlueHalo, net of cash acquired of $844.6 million and the net purchase of available-for-sale securities of $313.7 million.
Cash Provided by (Used in) Financing Activities. Net cash provided by financing activities increased by $1,655.6 million to $1,647.2 million for the nine months ended January 25, 2025, as compared to net cash used in financing activities of $8.4 million for the nine months ended January 25, 2025. The increase in net cash provided by financing activities was primarily due to proceeds from issuance of common shares of $968.5 million, net of underwriter costs and proceeds from the issuance of Notes of $726.9 million, net of underwriter costs. Part of the proceeds were used to repay the outstanding balances of the Term Loan Facility and Revolving Facility drawn in conjunction with the acquisition of BlueHalo.
Recent Developments
Since the acquisition of BlueHalo, we have been working to integrate the computer systems of Legacy BlueHalo and Legacy AV, and we expect to have an integrated system that complies with the Department of Defense’s CMMC cybersecurity requirements by summer 2026. During the course of this integration effort, we became aware of potential issues concerning Legacy AV’s compliance with certain cybersecurity requirements. Accordingly, in February 2026, we initiated an internal investigation, led by external counsel, regarding Legacy AV’s compliance with cybersecurity requirements in certain Department of Defense contracts and subcontracts, to include an evaluation of the accuracy of Legacy AV’s cybersecurity information in the Supplier Performance Risk System (SPRS). We are committed to complying with all applicable cybersecurity requirements, and depending on the outcome of the evaluation, we will update SPRS as needed.
Our investigation is ongoing, and we cannot predict whether it will lead to any adverse impact, nor can we predict the timing, outcome, or nature of any possible impact. It is possible that, for a period of time, Legacy AV’s ability to receive certain new Department of Defense contracts, subcontracts, or follow-on work could be affected. Additionally, the U.S. Government or other customers could terminate Legacy AV’s existing contracts, cease doing business with Legacy AV, or impose additional requirements. We also could be subject to significant penalties, damages, criminal fines, and suspension or debarment from U.S. Government contracting. Any of these potential consequences could materially and adversely affect our business, prospects, financial condition, and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, and foreign currency exchange rates. For a discussion of market risks at April 30, 2025, refer to Item 7A in our 2025 annual report on Form 10-K. During the nine months ended January 26, 2026, there were no material changes or developments that would materially alter the market risk assessment performed as of April 30, 2025, except as discussed below.
Interest Rate Risk
In July 2025, we issued $747.5 million of Notes. The Notes have a zero percent coupon rate. We used the proceeds from the Notes Offering as well as the Common Stock Offering to repay indebtedness under our Term Loan Facility and outstanding borrowings under the Revolving Facility. The Revolving Facility has no current outstanding balance .
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.