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Item 7. Management’s Discussion and Analysis

2021-06-29 compared with 2020-06-24 · 141 added, 139 removed, 235 unchanged (54% of the section changed)

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Refer to “Forward-Looking Statements” on page 2 and “Risk Factors” beginning on page 23, for a discussion of the uncertainties, risks and assumptions associated with these statements.

The disclosures and references in this Annual Report, including financial data, management’s discussion and analysis of financial condition and results of operation do not include the Telerob Group acquisition, unless otherwise specifically noted.

The assets, liabilities and results of operations of the Telerob Group have not been consolidated into our results as of and for the period ended April 30, 2021 or any of the historical periods presented.

On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of our former EES Business to Webasto pursuant to the Purchase Agreement between Webasto and us.

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Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this Annual Report as discontinued operations for all periods presented.

We design, develop, produce, and support a technologically-advanced portfolio of products and services for government agencies and businesses.

We supply unmanned aircraft systems (“UAS”) and related services primarily to organizations within the U.S.

Department of Defense (“DoD”) and to international allied governments, and tactical

missile systems and related services to organizations within the U.S.

We derive the majority of our revenue from these business areas and we believe that the markets for these solutions have significant growth potential.

Additionally, we believe that some of the innovative potential products and services in our research and development pipeline will emerge as new growth platforms in the future, creating additional market opportunities.

We design, develop, produce, deliver and support a technologically-advanced portfolio of intelligent, multi-domain robotic systems and related services for government agencies and businesses.

We supply unmanned aircraft systems (“UAS”), tactical missile systems (“TMS”), unmanned ground vehicles (“UGV”) and related services primarily to organizations within the U.S.

Department of Defense (“DoD”) and to international allied governments.

We derive the majority of our revenue from these business areas and we believe that the markets for these solutions offer the potential for significant long-term growth.

Additionally, we believe that some of the innovative potential products, services and technologies in our research and development pipeline will emerge as new growth platforms in the future, creating additional market opportunities.

The success we have achieved with our current products and services stems from our investment in research and development and our ability to invent and deliver advanced solutions, utilizing our proprietary technologies, to help our government and commercial customers operate more effectively and efficiently.

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and integrated mission solutions for austere environments.

Our business focuses primarily on the design, development, production, marketing, support and operation of innovative UAS and tactical missile systems and the delivery of UAS-related services that provide situational awareness, remote sensing, multi-band communications, force protection and other information and mission effects to increase the safety and effectiveness of our customers’ operations.

Our business focuses primarily on the design, development, production, marketing, support and operation of innovative UAS and TMS and the delivery of UAS-related services that provide situational awareness, remote sensing, multi-band communications, force protection and other information and mission effects to increase the safety and effectiveness of our customers’ operations.

Due to the COVID-19 pandemic, there are currently limitations on international travel which may limit our ability to obtain international orders and perform training and other services for our customers.

If these travel limitations continue for an extended period of time, we may experience delays in obtaining additional international orders.

We generate our revenue primarily from the sale, support and operation of our small UAS and tactical missile systems.

Support for our small UAS and tactical missile systems customers includes training, spare parts, product repair, product replacement, and the customer-contracted operation of our small UAS by our personnel.

We generate our revenue primarily from the sale, support and operation of our UAS and TMS as well as ISR services by our medium UAS.

Support for our small UAS and TMS customers includes training, spare parts, product repair, product replacement, and the customer-contracted operation of our small UAS by our personnel.

Under ISR services contracts we deliver the information our medium UAS produce to our customers, who use that information to support their missions.

We refer to these support activities, in conjunction with customer-funded research and development (“R&D”), as our services operation.

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Direct costs include labor, materials, travel, subcontracts and other costs directly related to the execution of a specific contract.

Indirect costs include overhead expenses, fringe benefits, amortization of intangibles and other costs that are not directly charged to a specific contract.

Indirect costs include overhead expenses, fringe benefits, depreciation of in-service ISR assets, amortization of acquired intangible assets and other costs that are not directly charged to a specific contract.

Gross margin is equal to revenue minus cost of sales.

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Selling, General and Administrative

Our selling, general and administrative expenses (“SG&A”), include salaries and other expenses related to selling, marketing and proposal activities, and other administrative costs.

Our selling, general and administrative expenses (“SG&A”), include salaries and other expenses related to selling, marketing and proposal activities, and other administrative costs and amortization of acquired intangible assets.

Some SG&A expenses relate to marketing and business development activities that support both ongoing business areas as well as new and emerging market areas.

These activities can be directly associated with developing requirements for and applications of capabilities created in

our R&D activities.

These activities can be directly associated with developing requirements for and applications of capabilities created in our R&D activities.

SG&A is an important financial metric that we analyze to help us evaluate the contribution of our selling, marketing and proposal activities to revenue generation.

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Other Income and Expenses

Other income and expenses includes a one-time gain from a litigation settlement, income from transition services performed on behalf of the buyer of the discontinued EES Business, interest income, interest expense, and amortization of capital lease payments.

Other income and expenses includes legal accruals related to our former EES Business, a one-time gain from a litigation settlement, income from transition services performed on behalf of the buyer of the discontinued EES Business, interest income, interest expense, and amortization of capital lease payments.

Income Tax Expense

Our effective tax rates are lower than the statutory rates primarily due to R&D tax credits and the foreign derived intangible income tax deduction (“FDII”).

Our effective tax rate for the fiscal year ended April 30, 2018 was also impacted by the Tax Cut and Jobs Act of 2017.

Our effective tax rates are lower than the statutory rates primarily due to R&D tax credits, foreign derived intangible income tax deduction (“FDII”) and excess tax benefit of equity awards, partially offset by valuation allowances.

Equity Method Investment Loss, Net of Tax

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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.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using observable standalone selling prices for similar products and services.

For contracts with

multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using observable standalone selling prices for similar products and services.

When the standalone selling price is not directly observable, we use our best estimate of the standalone selling price of each distinct good or service in the contract using the cost plus reasonable margin approach.

Our performance obligations are satisfied over time or at a point in time.

Revenue for tactical missile systems product deliveries and Customer-Funded R&D contracts is recognized over time as costs are incurred.

Revenue for TMS product deliveries and Customer-Funded R&D 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, including ISR services, is recognized over time as services are rendered.

We elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, such as flight hours for ISR services, the entity may recognize revenue in the amount to which the entity has a right to invoice.

Training services are recognized over time using an output method based on days of training completed.

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For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is recognized at the point in time in which each performance obligation is fully satisfied.

Our small UAS product sales revenue is composed of revenue recognized on contracts for the delivery of small UAS systems and spare parts.

Our small and medium UAS product sales revenue is composed of revenue recognized on contracts for the delivery of small and medium UAS systems and spare parts.

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.

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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 occur.

The impact of

revisions in the estimated costs to complete for contracts using the over time method are recognized on a cumulative catch-up basis in the period in which the revisions are made.

The impact of revisions in the estimated costs to complete for contracts using the over time method are recognized on a cumulative catch-up basis in the period in which the revisions are made.

During the fiscal years ended April 30, 2021, 2020 and 2019, changes in accounting estimates on contracts recognized using the over time method are presented below.

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Net adjustments

For the year ended April 30, 2021, favorable cumulative catch up adjustments of $2.0 million were primarily due to final cost adjustments on 12 contracts, which individually were not material.

For the same period, unfavorable cumulative catch up adjustments of $2.2 million were primarily related to higher than expected costs on nine contracts.

During the year ended April 30, 2021, we revised our estimates of the total expected costs to complete a TMS variant contract.

The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was a decrease to revenue of approximately $1.0 million.

For the year ended April 30, 2020, favorable cumulative catch-up adjustments of $2.2 million were primarily due to final cost adjustments on 13 contracts.

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For the same period, unfavorable cumulative catch-up adjustments of $2.0 million were primarily related to higher than expected costs on seven contracts.

During the year ended April 30, 2020, we revised our estimates of the total expected costs to complete a tactical missile systems contract.

During the year ended April 30, 2020, we revised our estimates of the total expected costs to complete a TMS contract.

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For the same period, unfavorable cumulative catch up adjustments of $1.3 million were primarily related to higher than expected costs on 14 contracts, which individually were not material.

For the year ended April 30, 2018, favorable cumulative catch up adjustments of $1.6 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 $2.3 million were primarily related to higher than expected costs on six contracts.

During the year ended April 30, 2018, we revised our estimates of the total expected costs to complete a tactical missile systems variant contract.

Inventories Reserves for Excess and Obsolescence

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Acquired intangible assets include:

technology, in-process research and development, customer relationships, trademarks and tradenames, and non-compete agreements.

technology, in-process research and development, customer relationships, licenses, trademarks and tradenames, and non-compete agreements.

We use valuation techniques to value these intangibles assets, with the primary technique being a discounted cash flow analysis.

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We are required to estimate our income taxes, which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes.

We currently have significant deferred assets, which are subject to periodic recoverability assessments.

We currently have significant deferred tax assets, which are subject to periodic recoverability assessments.

Realizing our deferred tax assets principally depends on our achieving projected future taxable income.

We may change our judgments regarding future profitability due to future market conditions and other factors, which may result in recording a valuation allowance against those deferred tax assets.

We may change our judgments

regarding future profitability due to future market conditions and other factors, which may result in recording a valuation allowance against those deferred tax assets.

We have various foreign subsidiaries to conduct or support our business outside the United States.

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Income from continuing operations

Interest income, net

Other income (expense), net

Interest (expense) income, net

Other (expense) income, net

Income from continuing operations before income taxes

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Loss from discontinued operations, net of tax

Net loss attributable to noncontrolling interest

Net (gain) loss attributable to noncontrolling interest

Net income attributable to AeroVironment, Inc.

The Company operates its business as two reportable segments, Unmanned Aircraft Systems (“UAS”) and Medium Unmanned Aircraft Systems (“MUAS”).

The UAS segment consists of our existing small UAS, tactical missile systems and HAPS product lines and the recently acquired ISG business.

The MUAS segment consists of our recently acquired Arcturus business.

The following table (in thousands) sets forth our revenue, gross margin and income (loss) from operations generated by each operating segment for the periods indicated:

Fiscal Year Ended April 30,

Gross margin:

Income (loss) from operations

Fiscal Year Ended April 30, 2021 Compared to Fiscal Year Ended April 30, 2020

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The increase in revenue was due to an increase in product revenue of $22.1 million and an increase in service revenue of $5.5 million.

UAS segment revenue increased $11.8 million from fiscal 2020, or 3%, to $379.1 million for the fiscal year ended April 30, 2021 due to an increase in product deliveries of $21.8 million, partially offset by a decrease in service revenue of $10.0 million.

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

The decrease in service revenue was primarily due to a decrease in customer-funded R&D primarily associated with a design and development agreement, partially offset by customer-funded R&D primarily associated with TMS.

MUAS segment recorded revenue of $15.8 million for the fiscal year ended April 30, 2021 resulting from our acquisition of Arcturus in February 2021.

Cost of Sales.

Cost of sales for the fiscal year ended April 30, 2021 was $230.4 million, as compared to $214.2 million for the fiscal year ended April 30, 2020, representing an increase of $16.2 million, or 8%.

As a percentage of revenue, cost of sales remained consistent at 58%.

The increase in cost of sales was a result of an increase in product cost of sales of $10.6 million and an increase in service costs of sales of $5.6 million.

UAS cost of sales increased $3.3 million to $217.5 million for the fiscal year ended April 30, 2021 primarily due to an increase in product sales, partially offset by a decrease in service revenues.

As a percentage of revenue, UAS cost of sales decreased from 58% to 57%, primarily due to a favorable product mix.

MUAS recorded cost of sales of $12.9 million for the fiscal year ended April 30, 2021 resulting from our acquisition of Arcturus in February 2021.

Cost of sales for fiscal 2021 included $1.7 million and $2.8 million of intangible amortization expense and other related non-cash purchase accounting expense related to increasing the carrying value of certain assets to fair value for MUAS and UAS, respectively, as compared to $2.4 million for UAS in fiscal 2020.

Gross Margin.

Gross margin for the fiscal year ended April 30, 2021 was $164.6 million, as compared to $153.1 million for the fiscal year ended April 30, 2020, representing an increase of $11.5 million, or 7%.

As a percentage of revenue, gross margin remained consistent at 42%.

The increase in gross margin was primarily due to an increase in product margin of $11.5 million.

UAS gross margin increased $8.5 million to $161.6 million for the fiscal year ended April 30, 2021 primarily due to an increase in product sales, partially offset by a decrease in service revenues and a favorable mix.

As a percentage of revenue, UAS gross margin increased from 42% to 43%, primarily due to a favorable product mix.

MUAS gross margin was $3.0 million for the fiscal year ended April 30, 2021 resulting from our acquisition of Arcturus in February 2021.

Selling, General and Administrative.

SG&A expense for the fiscal year ended April 30, 2021 was $67.5 million, or 17% of revenue, compared to SG&A expense of $59.5 million, or 16% of revenue, for the fiscal year ended April 30, 2020.

The increase in SG&A expense was primarily due to an increase in acquisition related expenses of $6.5 million primarily related to the acquisition of Arcturus, ISG and Telerob and an increase in intangible amortization expense of $2.8 million.

Research and Development.

R&D expense for the fiscal year ended April 30, 2021 was $53.8 million, or 14% of revenue, compared to R&D expense of $46.5 million, or 13% of revenue, for the fiscal year ended April 30, 2020.

R&D expense increased primarily due to an increase in development activities regarding enhanced capabilities for our products and development of new product lines.

Interest (Expense) Income, net.

Interest expense, net for the fiscal year ended April 30, 2021 was $0.6 million, compared to interest income net of $4.8 million for the fiscal year ended April 30, 2020.

The increase in interest expense is primarily due to a combination of a decrease in the average interest rates earned on our investments portfolio and a decrease in the average investment balances and an increase in interest expense of $0.9 million resulting from the term debt issued concurrent with the acquisition of Arcturus.

Other (Expense) Income, net.

Other expense, net for the fiscal year ended April 30, 2021 was $8.3 million, as compared to other income, net of $0.7 million for the fiscal year ended April 30, 2020.

The increase in other expense, net was primarily due to a legal accrual related to our former EES Business.

Income Taxes.

Our effective income tax rate was 1.6% for the fiscal year ended April 30, 2021, as compared to 11.1% for the fiscal year ended April 30, 2020.

The decrease in our effective tax rate was primarily due to the decrease in income before income taxes and an increase in certain federal income tax credits.

Equity method investment loss, net of tax.

Equity method investment loss, net of tax for the fiscal year ended April 30, 2021 was $10.5 million, as compared to equity method investment loss, net of $5.5 million for the fiscal year ended April 30, 2020.

The increase was primarily due to a loss of $8.4 million for our proportionate share of the HAPSMobile Inc.

joint venture’s impairment of its investment in Loon LLC.

Loss on sale of business, net of tax.

Loss on sale of business, net of tax for the fiscal year ended April 30, 2021 was $0, as compared to $0.3 million for the fiscal year ended April 30, 2020.

The loss on sale of business, net of tax related to the sale of our former EES Business during the fiscal year ended April 30, 2019.

We recorded an adjustment related to a settled working capital dispute during the fiscal year ended April 30, 2020.

Fiscal Year Ended April 30, 2020 Compared to Fiscal Year Ended April 30, 2019

Revenue for the fiscal year ended April 30, 2020 was $367.3 million, as compared to $314.3 million for the fiscal year ended April 30, 2019, representing an increase of $53.0 million, or 17%.

The increase in revenue was due to an increase in product revenue of $44.7 million and an increase in service revenue of $8.3 million.

The increase in product revenue was primarily due to an increase in product deliveries of small UAS to customers within the U.S.

government and an increase in tactical missile systems revenue from customers within the U.S.

government and an increase in TMS revenue from customers within the U.S.

government, partially offset by a slight decrease in product deliveries of small UAS to international customers.

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The increase in service revenue was primarily due to an increase in customer-funded R&D work primarily associated with our design and development agreement with HAPSMobile, development efforts for customers within the U.S.

government, an increase in other engineering services, and an increase in sustainment activities in support of tactical missile system product deliveries, partially offset by a decrease in customer-funded R&D work associated with tactical missile systems and tactical missile system variants.

government, an increase in other engineering services, and an increase in sustainment activities in support of TMS product deliveries, partially offset by a decrease in customer-funded R&D work associated with TMS and TMS variants.

Cost of Sales.

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The increase in cost of sales was a result of an increase in product cost of sales of $25.6 million and an increase in service costs of sales of $2.7 million.

The increase in product costs was primarily due to the increase in product deliveries and an increase of $2.5 million in intangible asset amortization expense associated with our acquisition of Pulse Aerospace in June 2019.

The increase in product costs was primarily due to the increase in product deliveries and an increase of $2.5

million in intangible asset amortization expense associated with our acquisition of Pulse Aerospace in June 2019.

The increase in service costs of sales was primarily due to the increase in service revenue, partially offset by a favorable service mix.

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The increase in gross margin was primarily due to an increase in product margins of $19.0 million and an increase in service margins of $5.7 million.

The increase in product margins was primarily due to the increase in product deliveries, partially offset

by an increase of $2.5 million in intangible asset amortization expense associated with our acquisition of Pulse Aerospace in June 2019.

The increase in product margins was primarily due to the increase in product deliveries, partially offset by an increase of $2.5 million in intangible asset amortization expense associated with our acquisition of Pulse Aerospace in June 2019.

The increase in services margins was primarily due to the increase in services revenue and a favorable service mix.

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The loss from discontinued operations, net of tax for the prior year period related to the results of our EES Business prior to the sale.

Fiscal Year Ended April 30, 2019 Compared to Fiscal Year Ended April 30, 2018

Revenue for the fiscal year ended April 30, 2019 was $314.3 million, as compared to $268.4 million for the fiscal year ended April 30, 2018, representing an increase of $45.9 million, or 17%.

The increase in revenue was due to an increase in service revenue of $25.5 million and an increase in product deliveries of $20.4 million.

The increase in service revenue was primarily due to an increase in customer-funded R&D work of $23.9 million predominantly associated with our design and development agreement with HAPSMobile, partially offset by a decrease in tactical missile systems and tactical missile system variant programs, and an increase in sustainment activities in support of tactical missile system product deliveries.

The increase in product deliveries was primarily due to an increase in product deliveries of small UAS to international customers and to customers within the U.S.

government and an increase in tactical missile systems revenue from customers within the U.S.

Cost of Sales.

Cost of sales for the fiscal year ended April 30, 2019 was $185.9 million, as compared to $160.7 million for the fiscal year ended April 30, 2018, representing an increase of $25.1 million, or 16%.

The increase in cost of sales was a result of an increase in service costs of sales of $21.0 million and an increase in product cost of sales of $4.1 million.

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

The increase in product costs was primarily due to the increase in product deliveries and an increase in inventory reserve charges largely related to our commercial Quantix product.

As a percentage of revenue, cost of sales decreased from 60% to 59%, primarily due to a favorable product mix, partially offset by an increase in inventory reserve charges and an unfavorable service mix.

Gross Margin.

Gross margin for the fiscal year ended April 30, 2019 was $128.4 million, as compared to $107.7 million for the fiscal year ended April 30, 2018, representing an increase of $20.7 million, or 19%.

The increase in gross margin was primarily due to an increase in product margins of $16.3 million and an increase in service margins of $4.4 million.

The increase in product margins was primarily due to the increase in product deliveries, partially offset by an increase in inventory reserve charges largely related to our commercial Quantix product.

The increase in services margins was primarily due to the increase in customer-funded R&D revenue.

As a percentage of revenue, gross margin increased from 40% to 41%, primarily due to a favorable product mix, partially offset by an increase in inventory reserve charges and an unfavorable service mix.

Selling, General and Administrative.

SG&A expense for the fiscal year ended April 30, 2019 was $60.3 million, or 19% of revenue, compared to SG&A expense of $50.8 million, or 19% of revenue, for the fiscal year ended April 30, 2018.

The increase in SG&A expense was primarily due to an impairment charge related to the long-lived assets of our commercial Quantix product, an increase in corporate development expenses primarily related to the sale of our EES Business, an increase in costs incurred related to the transition services agreement with Webasto, and an increase in employee-related expenses, partially offset by a decrease in legal expenses, a decrease in amortization expense, and a decrease in bad debt expense.

Research and Development.

R&D expense for the fiscal year ended April 30, 2019 was $34.2 million, or 11% of revenue, compared to R&D expense of $26.4 million, or 10% of revenue, for the fiscal year ended April 30, 2018.

R&D expense increased primarily due to increased development activities for certain strategic initiatives.

Interest Income, net.

Interest income, net for the fiscal year ended April 30, 2019 was $4.7 million, compared to $2.2 million for the fiscal year ended April 30, 2018.

The increase in interest income was primarily due to an increase in the average interest rates earned on our investments portfolio.

Other Income (Expense), net.

Other income, net for the fiscal year ended April 30, 2019 was $12.0 million, as compared to other expense, net of $49,000 for the fiscal year ended April 30, 2018.

The increase in other income, net was primarily due to a litigation settlement and income earned under a transition services agreement with Webasto, the buyer of our former EES Business.

Income Taxes.

Our effective income tax rate was 9.2% for the fiscal year ended April 30, 2019, as compared to 30.0% for the fiscal year ended April 30, 2018.

The provision for income taxes for the fiscal year ended 2018 included the impact of the Tax Cut and Jobs Act of 2017, inclusive of a reduction in the blended fiscal year 2018 federal statutory tax rate from 35% to 30.4% and a $3.3 million one-time expense resulting from the remeasurement of our deferred tax assets and liabilities.

Equity method investment loss, net of tax.

Equity method investment loss, net of tax for the fiscal year ended April 30, 2019 was $3.9 million, as compared to equity method investment loss, net of $1.3 million for the fiscal year ended April 30, 2018.

The increase was due to the equity method loss associated with our investment in the HAPSMobile joint venture formed in December 2017 and our increase to 10% ownership in March 2019 which was diluted to approximately 5% during the first fiscal quarter of fiscal year 2020.

Gain on sale of business, net of tax.

Gain on sale of business, net of tax for the fiscal year ended April 30, 2019 was $8.5 million, as compared to $0 for the fiscal year ended April 30, 2018.

The gain on sale of business, net of tax, for the fiscal year ended April 30, 2019 resulted from the sale of our former EES Business.

Loss from discontinued operations, net of tax.

Loss from discontinued operations, net of tax for the fiscal year ended April 30, 2019 was $3.0 million, as compared to a loss from discontinued operations, net of tax of $3.9 million for the fiscal year ended April 30, 2018.

The loss from discontinued operations, net of tax related to the results of our EES Business.

Liquidity and Capital Resources

We currently have no material cash commitments, except for normal recurring trade payables, accrued expenses and ongoing research and development 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.

Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $5.0 million as of April 30, 2021.

As of April 30, 2021, approximately $95.0 million was available under the Revolving Facility.

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

Refer to Note 12—Debt to our financial statements for further details.

On May 3, 2021, the Company paid €37,455,398.11 (approximately $45.4 million) in cash to purchase Telerob, less (a) €3,000,000 (approximately $3.6 million) to be held in escrow.

Funding for the acquisition came from existing sources of liquidity, Credit Facilities, and cash flows from operations.

Refer to Note 24—Subsequent Events to our financial statements 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, ISG and 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, capital expenditure and debt service requirements, if any, 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.

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 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 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.

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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On cost-plus-fee programs, we typically bill our incurred costs and fees monthly as work progresses, and therefore working capital investment is minimal.

On fixed-price contracts, we typically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin.

On fixed-price

contracts, we typically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the lead time from contract award until contract deliveries begin.

To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources.

However, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future.

During the three months ended April 30, 2020, in consideration of the impact of the COVID-19 pandemic, we made the strategic decision to sell a significant

portion of our corporate and municipal held-to-maturity securities and invested the proceeds in cash and cash equivalents and U.S.

In consideration of the impact of the COVID-19 pandemic, we continue to hold a significant portion of our investments in cash and cash equivalents and U.S.

government and U.S.

government agency securities.

During the fiscal year ended April 30, 2020, we made certain commitments outside of the ordinary course of business, none of which were material either alone or in the aggregate, including capital contributions totaling $5.0 million to a limited partnership fund.

Under the terms of the limited partnership agreement, we have committed to make additional capital contributions of $5.0 million to the fund.

Although not material in value alone or in aggregate, during the fiscal year ended April 30, 2021, we made certain commitments outside of the ordinary course of business, including capital contributions of $2.7 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 $2.4 million was remaining at April 30, 2021.

The following table provides our cash flow data from continuing operations for the periods ended:

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Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by financing activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Cash Provided by Operating Activities.

Net cash provided by operating activities for the fiscal year ended April 30, 2021 increased by $61.4 million to $86.5 million, compared to net cash provided by operating activities of $25.1 million for the fiscal year ended April 30, 2020.

This increase in net cash provided by operating activities was primarily due to an increase in the cash provided as a result of changes in operating assets and liabilities of $66.9 million largely resulting from increases in accounts receivable and unbilled retentions and receivables due to year over year timing differences, partially offset by decreases in inventory primarily due to year over year timing differences in purchases to support anticipated product deliveries, and decreases in prepaid expenses and other assets due to year over year timing differences, and an increase in non-cash expenses of $12.5 million primarily due to an increase in depreciation and amortization and loss from equity method investments.

Net cash provided by operating activities for the fiscal year ended April 30, 2020 decreased by $1.8 million to $25.1 million, compared to net cash provided by operating activities of $26.9 million for the fiscal year ended April 30, 2019.

This decrease in net cash provided by operating activities was primarily due to a decrease in the cash provided as a result of changes in operating assets and liabilities of $2.5 million largely resulting from decreases in accounts receivable due to year over year timing differences, partially offset by increases in inventory primarily due to year over year timing differences in purchases to support anticipated product deliveries, increases in unbilled retentions and receivables due to year over year timing differences in revenue and related billings, and decreases in accounts payable due to year over year timing differences, partially offset by an increase in non-cash expenses of $1.3 million primarily due to an increase in depreciation and amortization and loss from equity method investments.

Net cash provided by operating activities for the fiscal year ended April 30, 2019 decreased by $42.9 million to $26.9 million, compared to net cash provided by operating activities of $69.8 million for the fiscal year ended April 30, 2018.

This decrease in net cash provided by operating activities was primarily due to a decrease in the cash provided as a result of changes in operating assets and liabilities of $70.9 million largely resulting from increases in unbilled retentions and receivables due to year over year timing differences in revenue and related billings and increases in inventory primarily due to year over year timing differences in purchases to support anticipated product deliveries, partially offset by an increase in non-cash expenses of $7.7 million primarily due to an increase in the equity method loss associated with the our HAPS JV, partially offset by a decrease in amortization of held-to-maturity investments, and an increase in net income from continuing operations of $20.4 million.

Cash Provided by (Used in) Investing Activities.

Cash (Used in) Provided by Investing Activities.

Net cash used in investing activities increased by $437.9 million to $378.7 million for the fiscal year ended April 30, 2021, compared to net cash provided by investing activities of $59.2 million for the fiscal year ended April 30, 2020.

The increase in net cash used in investing activities was primarily due to the acquisitions of Arcturus and ISG, net of cash for $385.6 million in fiscal year ended April 30, 2021 and a decrease in redemptions of available-for-sale investments net of purchases.

During the fiscal years ended April 30, 2021 and 2020, we used cash to purchase property and equipment totaling $11.3 million and $11.2 million, respectively.

Net cash provided by investing activities increased by $47.6 million to $59.2 million for the fiscal year ended April 30, 2020, compared to net cash provided by investing activities of $11.5 million for the fiscal year ended April 30, 2019.

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During the fiscal years ended April 30, 2020 and 2019, we used cash to purchase property and equipment totaling $11.2 million and $8.9 million, respectively.

Net cash provided by investing activities increased by $17.9 million to $11.5 million for the fiscal year ended April 30, 2019, compared to net cash used in investing activities of $6.4 million for the fiscal year ended April 30, 2018.

The increase in net cash provided by investing activities was primarily due to the proceeds from the sale of the EES Business of $32.0 million in fiscal 2019, partially offset by higher net purchases of held-to-maturity investments of

$12.2 million.

During the fiscal years ended April 30, 2019 and 2018, we used cash to purchase property and equipment totaling $8.9 million and $9.6 million, respectively.

Cash (Used in) Provided by Financing Activities.

Cash Provided by (Used in) Financing Activities.

Net cash provided by financing activities increased by $196.0 million to $194.2 million for the fiscal year ended April 30, 2021, compared to net cash used in financing activities of $1.8 million for the fiscal year ended April 30, 2020.

The increase in net cash provided by financing activities was primarily due to the proceeds of long-term debt of $200.0 million, partially offset by payment of debt issuance costs of $3.9 million.

Net cash used in financing activities increased by $0.6 million to $1.8 million for the fiscal year ended April 30, 2020, compared to net cash used in financing activities of $1.2 million for the fiscal year ended April 30, 2019.

The increase in net cash used by financing activities was primarily due to the payment of contingent consideration of $0.9 million related to the purchase of Pulse Aerospace, LLC.

Net cash used in financing activities increased by $3.2 million to $1.2 million for the fiscal year ended April 30, 2019, compared to net cash provided by financing activities of $2.0 million for the fiscal year ended April 30, 2018.

The increase was primarily due to a decrease in the cash provided from the exercise of employee stock options of $2.6 million.

Contractual Obligations

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Purchase obligations(1)

Long-term debt obligations

(1) Consists of all cancelable and non-cancelable purchase orders as of April 30, 2021.

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Recently Adopted Accounting Standards

Effective May 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), along with several additional clarification ASU’s issued during 2018 (“New Lease Standard”).

This New Lease Standard requires the lessee to recognize the assets and liabilities for the rights and obligations created by leases.

We elected to adopt the New Lease Standard using the modified retrospective transition approach through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

As such we did not recast comparative consolidated financial statements.

We also elected the package of practical expedients which allows us to not reassess existing or expired contracts for existence of a lease, lease classification, or amortization of previously capitalized initial direct leasing cost.

Additionally, we elected the short-term lease exception to not record right-of-use assets and lease liabilities for leases with a term less than 12 months and the practical expedient to not separate lease and non-lease components for property.

Adoption of the New Lease Standard resulted in the recording of lease assets and lease liabilities on the consolidated balance sheet with no cumulative impact to retained earnings and did not have a material

impact on the consolidated statement of cash flows.

Refer to Note 11—Leases for additional information required as part of the adoption of the New Lease Standard.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements” (“ASU 2018-09”).

ASU 2018-09 provides technical corrections, clarifications and other improvements across a variety of accounting topics.

Among the clarifications, ASU 2018-09 clarifies that an entity should recognize excess tax benefits in the period in which the amount of the deduction is determined.

This includes deductions that are taken on the entity’s return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether the entity will receive a tax deduction and the amount of the tax deduction is resolved.

Certain amendments were applicable immediately while others provide transition guidance and are effective in our first quarter of fiscal year 2020.

We adopted ASU 2018-09 on May 1, 2019 using the modified retrospective method.

The adoption of ASU 2018-09 resulted in a cumulative adjustment to increase retained earnings by $665,000 at May 1, 2019.

Effective May 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , along with several additional clarification ASU’s issued during 2018 and 2019, collectively “CECL”.

CECL requires the reporting entity to estimate expected credit losses over the life of a financial asset.

CECL requires the credit loss to be recognized upon initial recognition of the financial asset.

ASU 2016-13 requires the entity to adopt CECL using the modified retrospective transition approach through a cumulative-effect adjustment to the opening balance of retained earnings in

the period of adoption.

As part of the assessment of the adequacy of the Company’s allowances for credit losses, the Company considered a number of factors including, but not limited to, customer credit ratings, age of receivables, and expected loss rates.

However, the adoption of CECL did not have a material impact to retained earnings for the Company.

Effective May 1, 2020, the Company adopted ASU 2018-15, “ Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ” (“ASU 2018-15”).

ASU 2018-15 provides guidance on the treatment of accounting for fees paid by a customer in a cloud computing arrangement.

This guidance includes the requirements for capitalizing implementation costs incurred in a hosting arrangement.

The Company adopted ASU 2018-15 using the prospective method, applying the new guidance to all implementation costs incurred after adoption.

The adoption of ASU 2018-15 did not have an impact on the Company’s consolidated financial statements.

New Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).

This ASU, and several related amendments the FASB has issued to provide additional supplemental guidance on certain aspects of the original pronouncement, is intended to replace the incurred loss impairment methodology under GAAP with a methodology that reflects using a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments, and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.

The guidance is effective for fiscal years beginning after December 15, 2019 and the interim periods therein, with early adoption permitted.

We plan to adopt the guidance effective May 1, 2020 using the modified retrospective approach.

We do not believe the guidance will have a material impact on our allowance for doubtful accounts for accounts receivable.

We are still evaluating the potential impact on its consolidated financial statements for remaining financial instruments within the scope of this guidance, primarily the debt securities in our investment portfolio.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820).

This ASU removes or modifies current disclosures while adding certain new disclosure requirements.

The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods therein, with early adoption permitted for the removed or modified disclosures.

The removed and modified disclosures can be adopted retrospectively, and the added disclosures should be adopted prospectively.

We are evaluating the potential impact of this adoption on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Topic 350-40).

This ASU allows for capitalization of implementation costs associated with certain cloud computing arrangements.

The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods therein, with early adoption permitted.

We are evaluating the potential impact of this adoption on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).

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The adoption method is dependent on the specific amendment included in this update as certain amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified retrospective, and prospective adoption.

We are evaluating the potential impact of this adoption on its consolidated financial statements.

The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (Topic 321, Topic 323, and Topic 815).

1 unchanged sentence

These topics include measuring equity securities using the measurement alternative, how the measurement alternative should be applied to equity method accounting, and certain forward contracts and purchased options which would be accounted for under the equity method of accounting upon settlement or exercise.

The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods therein,

with early adoption permitted.

The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods therein, with early adoption permitted.

The amendments should be adopted prospectively.

We are evaluating the potential impact of this adoption on its consolidated financial statements.

The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

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-K

Item 7. Management’s Discussion and Analysis