What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-03-10 compared with 2020-12-09 · 102 added, 96 removed, 123 unchanged (62% of the section changed)

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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 “Consolidated

Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the “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.

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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.

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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The impact of revisions in estimate of completion for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made.

During the three and six months ended October 31, 2020 and October 26, 2019, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended October 31, 2020 and October 26, 2019, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

During the three and nine months ended January 30, 2021 and January 25, 2020, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended January 30, 2021 and January 25, 2020, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

Three Months Ended

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Net favorable adjustments

For the three months ended October 31, 2020, favorable cumulative catch-up adjustments of $1.1 million were primarily due to final cost adjustments on nine contracts, which individually were not material.

For the three months ended January 30, 2021, favorable cumulative catch-up adjustments of $0.4 million were primarily due to final cost adjustments on nine contracts, which individually were not material.

For the same period, unfavorable cumulative catch-up adjustments of $0.2 million were primarily related to higher than expected costs on 12 contracts, which individually were not material.

For the three months ended October 26, 2019, favorable cumulative catch-up adjustments of $2.0 million were primarily due to final cost adjustments on 14 contracts.

The Company revised its estimates of the total expected costs to complete a contract associated with a design and development agreement which had a favorable impact of $1.1 million.

For the three months ended January 25, 2020, favorable cumulative catch-up adjustments of $1.4 million were primarily due to final cost adjustments on seven contracts, which individually were not material.

For the same period, unfavorable cumulative catch-up adjustments of $0.2 million were primarily related to higher than expected costs on 13 contracts, which individually were not material.

Six Months Ended

Nine Months Ended

Gross favorable adjustments

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Net favorable adjustments

For the six months ended October 31, 2020, favorable cumulative catch-up adjustments of $1.5 million were primarily due to final cost adjustments on 13 contracts, which individually were not material.

For the nine months ended January 30, 2021, favorable cumulative catch-up adjustments of $1.9 million were primarily due to final cost adjustments on 15 contracts, which individually were not material.

For the same period, unfavorable cumulative catch-up adjustments of $1.1 million were primarily related to higher than expected costs on 23 contracts, which individually were not material.

For the six months ended October 26, 2019, favorable cumulative catch-up adjustments of $2.1 million were primarily due to final cost adjustments on 20 contracts.

For the nine months ended January 25, 2020, favorable cumulative catch-up adjustments of $1.9 million were primarily due to final cost adjustments on 17 contracts.

The Company revised its estimates of the total expected costs to complete a contract associated with a design and development agreement, which had a favorable impact of $1.0 million.

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Results of Operations

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

Three Months Ended October 31, 2020 Compared to Three Months Ended October 26, 2019

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

Three Months Ended January 30, 2021 Compared to Three Months Ended January 25, 2020

Three Months Ended

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Research and development

Income from operations

Loss from operations

Other income:

Interest income, net

Other income, net

Income from continuing operations before income taxes

Provision for income taxes

Other (expense) income, net

(Loss) income before income taxes

Benefit from income taxes

Equity method investment loss, net of tax

Net income from continuing operations

Revenue for the three months ended October 31, 2020 was $92.7 million, as compared to $83.3 million for the three months ended October 26, 2019, representing an increase of approximately $9.4 million, or 11%.

The increase in revenue was primarily due to an increase in product revenue of $8.1 million and an increase in service revenue of $1.3 million.

The increase in product revenue was primarily due to an increase in TMS revenue.

Within small UAS, decreases in product deliveries to customers within the U.S.

Department of Defense were largely offset by increases in product deliveries to international allied customers.

The increase in service revenue was primarily due to an increase in customer-funded R&D revenue.

Net income (loss)

Revenue for the three months ended January 30, 2021 was $78.8 million, as compared to $61.9 million for the three months ended January 25, 2020, representing an increase of $16.9 million, or 27%.

The increase in revenue was due to an increase in product revenue of $21.9 million, partially offset by a decrease in service revenue of $5.0 million.

The increase in product revenue was primarily due to an increase in small UAS and TMS revenue.

Within small UAS, increases in product deliveries to customers within the U.S.

Department of Defense were partially offset by decreases in product deliveries to international allied customers.

The decrease in service revenue was primarily due to a decrease in customer-funded R&D revenue.

Cost of Sales.

Cost of sales for the three months ended October 31, 2020 was $51.8 million, as compared to $48.1 million for the three months ended October 26, 2019, representing an increase of $3.7 million, or 8%.

The increase in cost of sales was a result of an increase in product cost of sales of $3.4 million and an increase in service costs of sales of $0.3 million.

The increase in product cost of sales was primarily due to an increase in product sales, partially offset by a favorable mix.

The increase in service costs of sales was primarily due to the increase in service revenue.

As a percentage of revenue, cost of sales decreased from 58% to 56%, primarily due to an increase in the proportion of product sales to total revenue and a favorable mix.

Cost of sales for the three months ended January 30, 2021 was $50.1 million, as compared to $38.4 million for the three months ended January 25, 2020, representing an increase of $11.7 million, or 31%.

The increase in cost of sales was a result of an increase in product cost of sales of $14.7 million, partially offset by a decrease in service costs of sales of $3.0 million.

The increase in product cost of sales was primarily due to an increase in product sales and an unfavorable mix.

The decrease in service costs of sales was primarily due to the decrease in service revenue.

As a percentage of revenue, cost of sales increased from 62% to 64%, primarily due to an unfavorable product mix, partially offset by an increase in the proportion of product sales to total revenue.

Gross Margin.

Gross margin for the three months ended October 31, 2020 was $40.9 million, as compared to $35.2 million for the three months ended October 26, 2019, representing an increase of $5.7 million, or 16%.

The increase in gross margin was primarily due to an increase in product margin of $4.7 million and an increase in service margin of $1.0 million.

The increase in product margin was primarily due to the increase in product sales and a favorable mix.

The increase in service margin was primarily due to the increase in service revenue.

As a percentage of revenue, gross margin increased from 42% to 44%, primarily due to an increase in the proportion of product sales to total revenue and a favorable mix.

Gross margin for the three months ended January 30, 2021 was $28.6 million, as compared to $23.5 million for the three months ended January 25, 2020, representing an increase of $5.1 million, or 22%.

The increase in gross margin was due to an increase in product margin of $7.2 million, partially offset by a decrease in service margin of $2.1 million.

The increase in product margin was primarily due to the increase in product sales, partially offset by an unfavorable product mix.

The decrease in service margin was primarily due to the decrease in service revenue.

As a percentage of revenue, gross margin decreased from 38% to 36%, primarily due to an unfavorable product mix, partially offset by an increase in the proportion of product sales to total revenue.

Selling, General and Administrative .

SG&A expense for the three months ended October 31, 2020 was $15.0 million, or 16% of revenue, as compared to SG&A expense of $16.3 million, or 20% of revenue, for the three months ended October 26, 2019.

SG&A expense for the three months ended January 30, 2021 was $15.7 million, or 20% of revenue, as compared to SG&A expense of $13.2 million, or 21% of revenue, for the three months ended January 25, 2020.

The increase in SG&A expense was primarily due to an increase in acquisition related expenses of $3.1 million related to the Arcturus Acquisition, ISG Acquisition and the pending acquisition of Telerob.

Research and Development.

R&D expense for the three months ended October 31, 2020 was $12.0 million, or 13% of revenue, as compared to R&D expense of $10.9 million, or 13% of revenue, for the three months ended October 26,

R&D expense increased by $1.1 million, or 10%, for the three months ended October 31, 2020, primarily due to an increase in development activities regarding enhanced capabilities for our products and development of new product lines.

R&D expense for the three months ended January 30, 2021 was $13.6 million, or 17% of revenue, as compared to R&D expense of $11.4 million, or 18% of revenue, for the three months ended January 25, 2020.

R&D expense increased by $2.3 million, or 20%, for the three months ended January 30, 2021, primarily due to an increase in development activities regarding enhanced capabilities for our products and development of new product lines.

Interest Income, net.

Interest income, net for the three months ended October 31, 2020 was $0.1 million compared to interest income, net of $1.3 million for the three months ended October 26, 2019.

Interest income, net for the three months ended January 30, 2021 was $0.1 million compared to interest income, net of $1.1 million for the three months ended January 25, 2020.

The decrease in interest income was primarily due to a decrease in the average interest rate earned on our investment portfolio.

Other Income, net.

Other income, net, for the three months ended October 31, 2020 was $0.1 million compared to other income, net of $0.2 million for the three months ended October 26, 2019.

The decrease in other income, net was primarily due to a decrease in transition services performed on behalf of the buyer of the discontinued EES Business.

Provision for Income Taxes.

Our effective income tax rate was 17.7% for the three months ended October 31, 2020, as compared to 11.7% for the three months ended October 26, 2019.

The increase in the effective income tax rate was primarily due to higher projected annual effective tax rate in the current fiscal year over last fiscal year.

Other (Expense) Income, net.

Other expense, net, for the three months ended January 30, 2021 was $37 thousand compared to other income, net of $0.1 million for the three months ended January 25, 2020.

Benefit from Income Taxes.

Our effective income tax rate was 157.9% for the three months ended January 30, 2021, as compared to (28.4)% for the three months ended January 25, 2020.

The decrease in the effective income tax rate was primarily due to lower projected annual effective tax rate in the current fiscal year over last fiscal year.

Equity Method Investment Loss, net of Tax.

Equity method investment loss, net of tax for the three months ended October 31, 2020 was $9.5 million compared to $0.9 million for the three months ended October 26, 2019.

The increase was primarily due to a loss of $8.4 million for our proportion of HAPSMobile impairment of its investment in Loon LLC.

Six Months Ended October 31, 2020 Compared to Six Months Ended October 26, 2019

Six Months Ended

Equity method investment loss, net of tax for the three months ended January 30, 2021 was $0.1 million compared to $1.2 million for the three months ended January 25, 2020.

Nine Months Ended January 30, 2021 Compared to Nine Months Ended January 25, 2020

Nine Months Ended

Cost of sales:

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Other income, net

Income from continuing operations before income taxes

Income before income taxes

Provision for income taxes

Equity method investment loss, net of tax

Net income from continuing operations

Revenue for the six months ended October 31, 2020 was $180.1 million, as compared to $170.2 million for the six months ended October 26, 2019, representing an increase of $9.9 million, or 6%.

The increase in revenue was due an increase in service revenue of $9.3 million and an increase in product deliveries of $0.7 million.

The increase in service revenue was primarily due to an increase in customer-funded R&D revenue.

The increase in product deliveries was primarily due to an increase in TMS revenue, partially offset by a decrease in product deliveries of small UAS.

Revenue for the nine months ended January 30, 2021 was $258.9 million, as compared to $232.1 million for the nine months ended January 25, 2020, representing an increase of $26.8 million, or 12%.

The increase in revenue was due an increase in product revenue of $22.6 million and an increase in service revenue of $4.2 million.

The increase in product deliveries was primarily due to an increase in TMS revenue and an increase in product deliveries of small UAS.

Within small UAS, increases in product deliveries to customers within the U.S.

Department of Defense were partially offset by decreases in product deliveries to international allied customers.

The increase in service revenue was primarily due to an increase in customer-funded R&D revenue, partially offset by a decrease in engineering services revenue.

Cost of Sales.

Cost of sales for the six months ended October 31, 2020 was $103.9 million, as compared to $93.7 million for the six months ended October 26, 2019, representing an increase of $10.1 million, or 11%.

Cost of sales for the nine months ended January 30, 2021 was $154.0 million, as compared to $132.1 million for the nine months ended January 25, 2020, representing an increase of $21.9 million, or 17%.

The increase in cost of sales was a result of an increase in product cost of sales of $19.8 million and an increase in service costs of sales of $2.1 million.

The increase in product costs was primarily due to the increase in product deliveries.

The increase in product costs was primarily due to the increase in product deliveries and an unfavorable product mix.

The increase in service costs of sales was primarily due to the increase in service revenue.

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Gross Margin.

Gross margin for the six months ended October 31, 2020 was $76.3 million, as compared to $76.4 million for the six months ended October 26, 2019.

The decrease in gross margin was primarily due to a decrease in product margin of $4.4 million, partially offset by an increase in service margin of $4.2 million.

The decrease in product margin was primarily due to an unfavorable product mix.

Gross margin for the nine months ended January 30, 2021 was $104.9 million, as compared to $99.9 million for the nine months ended January 25, 2020.

The increase in gross margin was primarily due to an increase in product margin of $2.8 million and an increase in service margin of $2.2 million.

The increase in product margin was primarily due to an increase in product sales, partially offset by an unfavorable product mix.

The increase in service margin was primarily due to an increase in service revenue.

As a percentage of revenue, gross margin decreased from 45% to 42%, primarily due to a decrease in the proportion of product revenue to total revenue and an unfavorable product mix.

As a percentage of revenue, gross margin decreased from 43% to 41%, primarily due to an unfavorable product mix.

Selling, General and Administrative .

SG&A expense for the six months ended October 31, 2020 was $27.0 million, or 15% of revenue, as compared to SG&A expense of $29.9 million, or 18% of revenue, for the six months ended October 26, 2019.

The decrease in SG&A expense was primarily due to lower advertising, business travel and trade show expenses primarily related to COVID-19 related restrictions.

SG&A expense for the nine months ended January 30, 2021 was $42.6 million, or 16% of revenue, as compared to SG&A expense of $43.1 million, or 19% of revenue, for the nine months ended January 25, 2020.

The decrease in SG&A expense was primarily due to lower advertising, business travel and trade show expenses primarily related to COVID-19 related restrictions, partially offset by an increase in employee related expenses and acquisition related expenses of $3.1 million related to the Arcturus Acquisition, ISG Acquisition and the pending acquisition of Telerob.

Research and Development.

R&D expense for the six months ended October 31, 2020 was $23.1 million, or 13% of revenue, as compared to R&D expense of $19.6 million, or 11% of revenue, for the six months ended October 26, 2019.

R&D expense increased by $3.5 million, or 18%, for the six months ended October 26, 2019, primarily due to an increase in development activities for certain strategic initiatives.

R&D expense for the nine months ended January 30, 2021 was $36.7 million, or 14% of revenue, as compared to R&D expense of $30.9 million, or 13% of revenue, for the nine months ended January 25, 2020.

R&D expense increased by $5.8 million, or 19%, for the nine months ended January 30, 2021, primarily due to an increase in development activities regarding enhanced capabilities for our products and development of new product lines.

Interest Income, net.

Interest income, net for the six months ended October 31, 2020 was $0.3 million compared to interest income, net of $2.6 million for the six months ended October 26, 2019.

Interest income, net for the nine months ended January 30, 2021 was $0.4 million compared to interest income, net of $3.7 million for the nine months ended January 25, 2020.

The decrease in interest income was primarily due to a decrease in the average interest rate earned on our investment portfolio.

Other Income, net.

Other income, net, for the six months ended October 31, 2020 was $0.1 million compared to other income, net of $0.5 million for the six months ended October 26, 2019.

Other income, net, for the nine months ended January 30, 2021 was $0.1 million compared to other income, net of $0.6 million for the nine months ended January 25, 2020.

The decrease in other income, net was primarily due to a decrease in transition services performed on behalf of the buyer of the discontinued EES Business.

Provision for Income Taxes.

Our effective income tax rate was 13.9% for the six months ended October 31, 2020, as compared to 10.8% for the six months ended October 26, 2019.

The increase in effective income tax rate was primarily due to higher projected annual effective tax rate in the current fiscal year over last fiscal year.

Equity Method Investment Activity, net of tax.

Equity method investment activity, net of tax for the six months ended October 31, 2020 was a loss of $10.8 million compared to equity method investment activity, net of tax of $2.2 million for the six months ended October 26, 2019.

Our effective income tax rate was 10.7% for the nine months ended January 30, 2021, as compared to 10.6% for the nine months ended January 25, 2020.

Equity Method Investment Loss, net of Tax.

Equity method investment loss, net of tax for the nine months ended January 30, 2021 was a loss of $10.9 million compared to equity method investment loss, net of tax of $3.4 million for the nine months ended January 25, 2020.

The increase was primarily due to a loss of $8.4 million for our proportion of HAPSMobile’s impairment of its investment in Loon LLC.

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 October 31, 2020, our funded backlog was approximately $130.6 million.

In addition to our funded backlog, we also had unfunded backlog of $116.8 million as of October 31, 2020.

As of January 30, 2021, our funded backlog was approximately $103.9 million.

In addition to our funded backlog, we also had unfunded backlog of $116.1 million as of January 30, 2021.

Unfunded backlog does not meet the definition of a performance obligation under ASC Topic 606.

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Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented.

Our backlog is typically subject to large variations from quarter to quarter as

existing contracts expire or are renewed or new contracts are awarded.

Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire or are renewed or new contracts are awarded.

A majority of our contracts, specifically our IDIQ contracts, do not currently obligate the U.S.

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Liquidity and Capital Resources

We currently have no material cash commitments, except for normal recurring trade payables, accrued expenses and ongoing R&D costs, all of which we anticipate funding through our existing working capital and funds provided by operating activities.

On February 19, 2021 in connection with the consummation of the Arcturus Acquisition, we entered into a Credit Agreement for (i) a five-year $100 million revolving credit facility, which includes a $10 million sublimit for the issuance of standby and commercial letters of credit, and (ii) a five-year amortized $200 million term A loan (together the “Credit Facilities”).

The Term Loan Facility requires payment of 5% of the outstanding obligations in each of the first four loan years, with the remaining 80.0% payable in loan year five, consisting of three quarterly payments of 1.25% each, with the remaining outstanding principal amount of the Term Loan Facility due and payable on the final maturity date.

Proceeds from the Term Loan Facility were used in part to finance a portion of the cash consideration for the Arcturus Acquisition.

Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes.

Refer to Note 18—Subsequent Events to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

We anticipate funding our normal recurring trade payables, accrued expenses, ongoing R&D costs and obligations under the Credit Facilities through our existing working capital and funds provided by operating activities including those provided by our recent acquisitions of Arcturus UAV and ISG and our pending acquisition of Telerob.

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 and capital expenditure requirements during the next twelve months.

We believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure requirements, future obligations related to the recent acquisitions and obligations under the Credit Facilities during the next twelve months.

There can be no assurance, however, that our business will continue to generate cash flow at current levels.

If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or obtain additional financing.

We anticipate that existing sources of liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.

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

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 short term borrowing are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing.

If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or draw on our Credit Facilities.

We anticipate that existing sources of liquidity, Credit Facilities, and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.

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

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 our Credit Facility agreement.

In addition, we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services or technologies.

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government agency securities.

Although not material in value alone or in aggregate, during the six months ended October 31, 2020, we made certain commitments outside of the ordinary course of business, including a capital contribution of $1.2 million to a limited partnership fund.

Under the terms of the limited partnership agreement, we have committed to make capital contributions totaling $10.0 million to the fund of which $3.9 million was remaining at October 31, 2020.

The following table provides our cash flow data for the six months ended October 31, 2020 and October 26, 2019 (in thousands):

Six Months Ended

Although not material in value alone or in aggregate, during the nine months ended January 30, 2021, we made certain commitments outside of the ordinary course of business, including capital contributions of $2.1 million to a limited partnership fund.

Under the terms of the limited partnership agreement, we have committed to make capital contributions totaling $10.0 million to the fund of which $2.9 million was remaining at January 30, 2021.

The following table provides our cash flow data for the nine months ended January 30, 2021 and January 25, 2020 (in thousands):

Nine Months Ended

Net cash provided by operating activities

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Cash Provided by Operating Activities.

Net cash provided by operating activities for the six months ended October 31, 2020 increased by $50.7 million to $58.6 million, as compared to net cash provided by operating activities of $7.9 million for the six months ended October 26, 2019.

Net cash provided by operating activities for the nine months ended January 30, 2021 increased by $63.9 million to $79.0 million, as compared to net cash provided by operating activities of $15.1 million for the nine months ended January 25, 2020.

The increase in net cash provided by operating activities was primarily due to an increase in cash as a result of changes in operating assets and liabilities of $64.3 million, largely related to collections of receivables, and losses from equity method investments of $7.5 million, partially offset by a decrease in net income $11.2 million.

Cash Used in Investing Activities.

Net cash used in investing activities decreased by $12.3 million to $31.9 million for the six months ended October 31, 2020, as compared to net cash used by investing activities of $44.2 million for the six months ended October 26, 2019.

The decrease in net cash used in investing activities was primarily due a decrease in cash used in business acquisition of $18.6 million and a decrease in purchases net of redemptions of held-to-maturity investments of $9.3 million, partially offset by an increase in purchases net of redemptions of available-for-sale investments of $19.8 million.

Net cash used in investing activities decreased by $44.2 million to $6.2 million for the nine months ended January 30, 2021, as compared to net cash used by investing activities of $50.4 million for the nine months ended January 25, 2020.

The decrease in net cash used in investing activities was primarily due a decrease in cash used in business acquisition of $18.6 million and a decrease in purchases net of redemptions of available-for-sale investments of $22.6 million, partially offset by an increase in purchases net of redemptions of held-to-maturity investments of $4.4 million.

Cash Used in Financing Activities.

Net cash used in financing activities increased by $1.0 million to $1.7 million for the six months ended October 31, 2020, as compared to net cash used by financing activities of $0.7 million for the six months ended October 26, 2019.

The increase in net cash used by financing activities was primarily due to an increase in tax withholding payments related to net settlement of equity awards of $1.0 million.

Net cash used in financing activities increased by $2.4 million to $3.4 million for the nine months ended January 30, 2021, as compared to net cash used by financing activities of $0.9 million for the nine months ended January 25, 2020.

The increase in net cash used by financing activities was primarily due to an increase in holdback and retention payments related to a prior business acquisition of $1.5 million and an increase in tax withholding payments related to net settlement of equity awards of $0.9 million.

Contractual Obligations

During the three months ended October 31, 2020, there were no material changes in our contractual obligations and commercial commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.

During the three months ended January 30, 2021, there were no material changes in our contractual obligations and commercial commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.

Off-Balance Sheet Arrangements

As of October 31, 2020, we had no off‑balance sheet arrangements as defined in Item 303(a)(4) of Regulation S‑K.

As of January 30, 2021, we had no off‑balance sheet arrangements as defined in Item 303(a)(4) of Regulation S‑K.

Our operations have not been, and we do not expect them to be, materially affected by inflation.

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New Accounting Standards

Please refer to Note 1—Organization and Significant Accounting Policies to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of new accounting pronouncements and accounting pronouncements adopted during the six months ended October 31, 2020.

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

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It is our policy not to enter into interest rate derivative financial instruments.

We do not currently have any significant interest rate exposure.

On February 19, 2021 in connection with the consummation of the Arcturus Acquisition, we entered into the Credit Facilities.

The current outstanding balance of the Credit Facilities is $200 million and bears a variable interest rate.

If market interest rates increase significantly, interest due on the Credit Facilities would increase.

Foreign Currency Exchange Rate Risk

Since a significant part of our sales and expenses are denominated in U.S.

dollars, we have not experienced significant foreign exchange gains or losses to date and do not expect to incur significant foreign exchange gains or losses in the future.

We occasionally engage in forward contracts in foreign currencies to limit our exposure on non-U.S.

dollars, we have not experienced significant foreign exchange gains or losses to date.

On December 3, 2020, we entered into a share purchase agreement to purchase 100% of the issued and outstanding shares of Seller’s wholly-owned subsidiary, Telerob Gesellschaft für Fernhantierungstechnik mbH for €51 million inclusive of certain contingent consideration payments.

In addition, we occasionally engage in forward contracts in foreign currencies to limit our exposure on non-U.S.

dollar transactions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis