What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-08 compared with 2021-09-09 · 141 added, 61 removed, 148 unchanged (58% of the section changed)

18 unchanged sentences

Topic 606 requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which we expect to be entitled in exchange for those goods or services.

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

Revenue for TMS product deliveries and customer-funded research and development contracts is recognized over time as costs are incurred.

Contract services revenue is composed of revenue recognized on contracts for the provision of services, including repairs and maintenance, training, engineering design, development and prototyping activities, and technical support services.

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

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

Revenue is recognized at the point in time when control transfers to the customer, which generally occurs when title and risk of loss have passed to the customer.

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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 months ended July 31, 2021 and August 1, 2020, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended July 31, 2021 and August 1, 2020, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

During the three and six months ended October 30, 2021 and October 31, 2020, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended October 30, 2021 and October 31, 2020, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

Three Months Ended

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Net (unfavorable) favorable adjustments

For the three months ended July 31, 2021, favorable cumulative catch-up adjustments of $0.6 million were primarily due to final cost adjustments on 17 contracts, which individually were not material.

For the three months ended October 30, 2021, favorable cumulative catch-up adjustments of $0.3 million were primarily due to final cost adjustments on six 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 18 contracts, which individually were not material.

For the three months ended August 1, 2020, favorable cumulative catch-up adjustments of $0.8 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 $0.4 million were primarily related to higher than expected costs on eight contracts, which individually were not material.

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 same period, unfavorable cumulative catch-up adjustments of $0.9 million were primarily related to higher than expected costs on 30 contracts, which individually were not material.

For the six months ended October 30, 2021 and October 31, 2020, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

Six Months Ended

Gross favorable adjustments

Gross unfavorable adjustments

Net (unfavorable) favorable adjustments

For the six months ended October 30, 2021, favorable cumulative catch-up adjustments of $0.9 million were primarily due to final cost adjustments on 18 contracts, which individually were not material.

For the same period, unfavorable cumulative catch-up adjustments of $1.9 million were primarily related to higher than expected costs on 17 contracts, which individually were not material.

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 same period, unfavorable cumulative catch-up adjustments of $1.0 million were primarily related to higher than expected costs on 21 contracts, which individually were not material.

Fiscal Periods

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

Three Months Ended July 31, 2021 Compared to Three Months Ended August 1, 2020

Three Months Ended October 30, 2021 Compared to Three Months Ended October 31, 2020

Three Months Ended

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Research and development

(Loss) income from operations

Income from operations

Other (loss) income:

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Other (expense) income, net

(Loss) income before income taxes

Income before income taxes

(Benefit from) provision for income taxes

Equity method investment loss, net of tax

Net (loss) income

We operate the business as three reportable segments, Small Unmanned Aircraft Systems (“Small UAS”), Tactical Missile Systems (“TMS”) and Medium Unmanned Aircraft Systems (“MUAS”).

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The MUAS segment consists of our recently acquired Arcturus business.

All other includes HAPS, MacCready Works and the recently acquired ISG and Telerob businesses.

All other includes HAPS, MacCready Works, which includes the recently acquired ISG and Telerob businesses.

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

Adjusted operating income is defined as operating income before intangible amortization, amortization of purchase accounting adjustments, and acquisition related expenses.

Three Months Ended July 31, 2021

Three Months Ended October 30, 2021

Income (loss) from operations

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Adjusted income (loss) from operations

Three Months Ended August 1, 2020

Three Months Ended October 31, 2020

Income (loss) from operations

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Three Months Ended

Six Months Ended

Cost of sales:

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Selling, general and administrative

Revenue for the three months ended July 31, 2021 was $101.0 million, as compared to $87.5 million for the three months ended August 1, 2020, representing an increase of $13.6 million, or 16%.

The increase in revenue was due to an increase in service revenue of $18.8 million, partially offset by a decrease in product revenue of $5.2 million.

The increase in service revenue was primarily due to an increase in MUAS service revenue, resulting from our acquisition of Arcturus in February 2021, partially offset by a decrease in HAPS service revenue.

The decrease in product revenue was primarily due to a decrease in small UAS revenue, partially offset by an increase in TMS revenue and an increase in UGV revenue, resulting from our acquisition of Telerob in May 2021.

Within small UAS, decreases in product revenue was primarily due to a decrease in product deliveries to customers within the U.S.

Department of Defense.

Revenue for the three months ended October 30, 2021 was $122.0 million, as compared to $92.7 million for the three months ended October 31, 2020, representing an increase of $29.3 million, or 32%.

The increase in revenue was due to an increase in service revenue of $23.9 million and an increase in product revenue of $5.5 million.

The increase in product revenue was primarily due to an increases in UGV and MUAS product revenue, resulting from our acquisitions of Telerob and Arcturus, respectively, partially offset by a decrease in small UAS product revenue.

Cost of Sales.

Cost of sales for the three months ended July 31, 2021 was $72.3 million, as compared to $52.0 million for the three months ended August 1, 2020, representing an increase of $20.2 million, or 39%.

Cost of sales for the three months ended October 30, 2021 was $79.6 million, as compared to $51.8 million for the three months ended October 31, 2020, representing an increase of $27.7 million, or 54%.

The increase in cost of sales was a result of an increase in service cost of sales of $23.0 million and an increase in product costs of sales of $4.7 million.

The increase in service cost of sales was primarily due to the increase in service revenues resulting from the acquisitions of Arcturus and ISG, and an increase in intangible amortization expense and other purchase accounting adjustments.

The increase in product costs of sales was primarily due to an increase in intangible amortization expense and other purchase accounting adjustments, an increase in product revenue and an unfavorable product mix.

Cost of sales for the three months ended October 30, 2021 included $5.5 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $0.7 million for the three months ended October 31, 2020.

As a percentage of revenue, cost of sales increased from 56% to 65%, primarily due to an increase in the proportion of service revenue to total revenues resulting from the acquisitions of Arcturus and ISG, an increase in intangible amortization expense and other purchase accounting adjustments, and an unfavorable product mix.

Gross Margin.

Gross margin for the three months ended October 30, 2021 was $42.5 million, as compared to $40.9 million for the three months ended October 31, 2020, representing an increase of $1.6 million, or 4%.

The increase in gross margin was due to an increase in service margin of $0.9 million and an increase in product margin of $0.7 million.

The increase in product margin was primarily due to the increase in product sales, partially offset by an increase in intangible amortization expense and other purchase accounting adjustments and an unfavorable product mix.

The increase in service margin was primarily due to an increase in service revenue, partially offset by an increase in intangible amortization expense and other purchase accounting adjustments.

As a percentage of revenue, gross margin decreased from 44% to 35%, primarily due to an increase in the proportion of service revenue to total revenues resulting from the acquisitions of Arcturus and ISG, an increase in intangible amortization expense and other purchase accounting

adjustments, and an unfavorable product mix.

With the acquisitions of Arcturus and ISG we expect that we will continue to experience a higher proportion of service revenue, which generally have lower gross margins than our product sales, in future quarters as compared to our historical trends in future quarters.

Selling, General and Administrative .

SG&A expense for the three months ended October 30, 2021 was $24.8 million, or 20% of revenue, as compared to SG&A expense of $15.0 million, or 16% of revenue, for the three months ended October 31, 2020.

The increase in SG&A expense was primarily due to an increase in headcount and related costs associated with our Arcturus, ISG and Telerob acquisitions and an increase in intangible amortization and acquisition related expenses, partially offset by a decrease in bonus and equity based compensation expense.

SG&A included $5.7 million and $0.4 million of acquisition-related expenses and intangible amortization expenses for the three months ended October 30, 2021 and October 31, 2020, respectively.

Research and Development.

R&D expense for the three months ended October 30, 2021 was $14.3 million, or 12% of revenue, as compared to R&D expense of $12.0 million, or 13% of revenue, for the three months ended October 31, 2020.

R&D expense increased by $2.3 million, or 19%, for the three months ended October 30, 2021, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and to support our recently acquired businesses.

Interest (Expense) Income, net.

Interest expense, net for the three months ended October 30, 2021 was $1.4 million compared to interest income, net of $0.1 million for the three months ended October 31, 2020.

The increase in interest expense was primarily due to an increase in interest expense resulting from the term debt issued concurrent with the acquisition of Arcturus.

Other (Expense) Income, net.

Other expense, net, for the three months ended October 30, 2021 was $10.0 million compared to other income, net of $0.1 million for the three months ended October 31, 2020.

The increase was due to an additional legal accrual of $10.0 million for the expected settlement of all claims made by the buyers of our former EES business.

(Benefit from) Provision for Income Taxes.

Our effective income tax rate was 117.6% for the three months ended October 30, 2021, as compared to 17.7% for the three months ended October 31, 2020.

The increase in the effective income tax rate was primarily due to a change in estimate during the current quarter to reduce projected annual income (loss) before income taxes, combined with the year over year decrease in projected annual income (loss) before income taxes.

Equity Method Investment Income (Loss), net of Tax.

Equity method investment income, net of tax for the three months ended October 30, 2021 was $1.1 million compared to equity method investment loss, net of tax of $9.5 million for the three months ended October 31, 2020.

The increase was primarily due to a loss of $8.4 million for our proportion of HAPSMobile impairment of its investment in Loon LLC during the three months ended October 31, 2020.

The equity method investment income during the current quarter was due to an increase in our limited partnership investment.

Six Months Ended October 30, 2021 Compared to Six Months Ended October 31, 2020

Six Months Ended

Cost of sales

Selling, general and administrative

Research and development

(Loss) income from operations

Other (loss) income:

Interest (expense) income, net

Other (expense) income, net

(Loss) income before income taxes

(Benefit from) provision for income taxes

Equity method investment loss, net of tax

Net (loss) income

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

Adjusted operating income is defined as operating income before intangible amortization, amortization of purchase accounting adjustments, and acquisition related expenses.

Six Months Ended October 30, 2021

Income (loss) from operations

Acquisition-related expenses

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted income (loss) from operations

Six Months Ended October 31, 2020

Income (loss) from operations

Acquisition-related expenses

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted income (loss) from operations

Revenue for the six months ended October 30, 2021 was $223.0 million, as compared to $180.1 million for the six months ended October 31, 2020, representing an increase of $42.9 million, or 24%.

The increase in revenue was due to an increase in service revenue of $42.7 million and an increase in product revenue of $0.2 million.

The increase in service revenue was primarily due to an increase in MUAS service revenue, resulting from our acquisition of Arcturus in February 2021, and small UAS service revenue, partially offset by a decrease in HAPS service revenue.

The increase in product revenue was primarily due to an increase in TMS revenue, an increase in UGV and MUAS product revenue,

resulting from our acquisitions of Telerob and Arcturus, respectively, partially offset by a decrease in small UAS product revenue.

Cost of Sales.

Cost of sales for the six months ended October 30, 2021 was $151.8 million, as compared to $103.9 million for the six months ended October 31, 2020, representing an increase of $48.0 million, or 46%.

The increase in cost of sales was a result of an increase in service cost of sales of $42.8 million and an increase in product costs of sales of $5.2 million.

The increase in product costs of sales was primarily due to an increase in intangible amortization expense and other purchase accounting adjustments and an unfavorable product mix.

Cost of sales for the first quarter of fiscal 2022 included $4.0 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $0.6 million in the first quarter of fiscal 2021.

Cost of sales for the six months ended October 30, 2021 included $9.5 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $1.3 million for the six months ended October 31, 2020.

As a percentage of revenue, cost of sales increased from 58% to 68%, primarily due to an increase in the proportion of service revenue to total revenues resulting from the acquisitions of Arcturus and ISG, an increase in intangible amortization expense and other purchase accounting adjustments, and an unfavorable product mix.

Gross Margin.

Gross margin for the three months ended July 31, 2021 was $28.7 million, as compared to $35.4 million for the three months ended August 1, 2020, representing a decrease of $6.7 million, or 19%.

Gross margin for the six months ended October 30, 2021 was $71.2 million, as compared to $76.3 million for the six months ended October 31, 2020, representing a decrease of $5.1 million, or 7%.

The decrease in gross margin was due to a decrease in product margin of $5.0 million and a decrease in service margin of $0.1 million.

The decrease in product margin was primarily due to the decrease in product sales, an increase in intangible amortization expense and other purchase accounting adjustments and an unfavorable product mix.

The decrease in product margin was primarily due to an increase in intangible amortization expense and other purchase accounting adjustments and an unfavorable product mix.

The decrease in service margin was primarily due to an increase in intangible amortization expense and other purchase accounting adjustments, partially offset by the increase in service revenue.

As a percentage of revenue, gross margin decreased from 40% to 28%, primarily due to an increase in the proportion of service revenue to total revenues resulting from the acquisitions of Arcturus and ISG, an increase in intangible amortization expense and other purchase accounting adjustments, and an

unfavorable product mix, partially offset by the increase in service revenue.

As a percentage of revenue, gross margin decreased from 42% to 32%, primarily due to an increase in the proportion of service revenue to total revenues resulting from the acquisitions of Arcturus and ISG, an increase in intangible amortization expense and other purchase accounting adjustments, and an unfavorable product mix.

Selling, General and Administrative .

SG&A expense for the three months ended July 31, 2021 was $27.1 million, or 27% of revenue, as compared to SG&A expense of $12.0 million, or 14% of revenue, for the three months ended August 1, 2020.

SG&A expense for the six months ended October 30, 2021 was $51.9 million, or 23% of revenue, as compared to SG&A expense of $27.0 million, or 15% of revenue, for the six months ended October 31, 2020.

SG&A included $5.1 million and $38 thousand of intangible amortization expenses for the three months ended July 31, 2021 and August 1, 2020, respectively.

SG&A included $14.0 million and $0.5 million of acquisition-related expenses and intangible amortization expenses for the six months ended October 30, 2021 and October 31, 2020, respectively.

Research and Development.

R&D expense for the three months ended July 31, 2021 was $13.7 million, or 14% of revenue, as compared to R&D expense of $11.1 million, or 13% of revenue, for the three months ended August 1, 2020.

R&D expense increased by $2.6 million, or 23%, for the three months ended July 31, 2021, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and to support our recently acquired businesses.

R&D expense for the six months ended October 30, 2021 was $28.0 million, or 13% of revenue, as compared to R&D expense of $23.1 million, or 13% of revenue, for the six months ended October 31, 2020.

R&D expense increased by $4.9 million, or 21%, for the six months ended October 30, 2021, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and to support our recently acquired businesses.

Interest (Expense) Income, net.

Interest expense, net for the three months ended July 31, 2021 was $1.3 million compared to interest income, net of $0.2 million for the three months ended August 1, 2020.

Interest expense, net for the six months ended October 30, 2021 was $2.7 million compared to interest income, net of $0.3 million for the six months ended October 31, 2020.

The increase in interest expense was primarily due to an increase in interest expense resulting from the term debt issued concurrent with the acquisition of Arcturus.

Other (Expense) Income, net.

Other expense, net, for the three months ended July 31, 2021 was $0.3 million compared to other income, net of $33 thousand for the three months ended August 1, 2020.

Benefit from Income Taxes.

Our effective income tax rate was 7.0% for the three months ended July 31, 2021, as compared to 9.6% for the three months ended August 1, 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.

Other expense, net, for the six months ended October 30, 2021 was $10.4 million compared to other income, net of $0.1 million for the six months ended October 31, 2020.

The increase was due to an additional legal accrual of $10.0 million for the expected settlement of all claims made by the buyers of our former EES business.

(Benefit from) Provision for Income Taxes.

Our effective income tax rate was 48.0% for the six months ended October 30, 2021, as compared to a provision for 13.9% for the six months ended October 31, 2020.

The increase in the effective

income tax rate was primarily due to lower projected annual income (loss) before income taxes in the current fiscal year as compared to the prior fiscal year.

Equity Method Investment Loss, net of Tax.

Equity method investment loss, net of tax for the three months ended July 31, 2021 was $1.1 million compared to $1.3 million for the three months ended August 1, 2020.

Equity method investment loss, net of tax for the six months ended October 30, 2021 was $8 thousand compared to $10.8 million for the six months ended October 31, 2020.

The decrease was primarily due to a loss of $8.4 million for our proportion of HAPSMobile impairment of its investment in Loon LLC during the three months ended October 31, 2020.

During the six months ended October 30, 2021 equity method losses from HAPSMobile were largely offset by equity method income from our limited partnership investment.

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 July 31, 2021, our funded backlog was approximately $257.7 million.

In addition to our funded backlog, we also had unfunded backlog of $188.3 million as of July 31, 2021.

As of October 30, 2021, our funded backlog was approximately $252.0 million.

In addition to our funded backlog, we also had unfunded backlog of $155.1 million as of October 30, 2021.

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

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Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts.

Unfunded backlog, with the exception of the remaining potential value of the FCS domain, does not include the remaining potential value associated with a U.S.

Unfunded backlog, with the exception of the remaining potential value of the Flight Control Systems (“FCS”) domain, does not include the remaining potential value associated with a U.S.

Army IDIQ-type contract for small UAS because values for each of the other domains within the contract have not been disclosed by the customer, and we cannot be certain that we will secure all task orders issued against the contract.

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

In addition, Telerob has a line of credit of €5.5 million available for issuing letters of credit of which €1.6 million ($1.8 million) was outstanding as of July 31, 2021.

In addition, Telerob has a line of credit of €5.5 million available for issuing letters of credit of which €1.6 million ($1.8 million) was outstanding as of October 30, 2021.

The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants.

Based upon our revised projections, there is a substantial risk that we may be required to make a prepayment to reduce the outstanding balance of our Term Loan Facility or to obtain an amendment to the Credit Agreement to remain in compliance with all of the financial covenants in the Credit Agreement during the fiscal quarter ending January 29, 2022.

We currently estimate the range of the potentially required prepayment to be $50 million to $60 million.

We are in discussions with the lenders regarding obtaining an amendment to the Credit Agreement to allow us to remain in compliance with the financial covenants;

however, if we are not able to obtain such an amendment to the Credit Agreement, we have both the ability and intent to make any required prepayment.

We expect to be in compliance with all financial covenants under the terms of our Credit Agreement, including any amendment to such agreement, during the quarter ending April 30, 2022 regardless of whether a required prepayment is made or loan amendment is obtained.

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, ISG and Telerob.

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

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

If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures and/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.

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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.

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.

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 municipal securities.

In December 2021, we agreed in principle subject to formal written documentation with Webasto to settle all existing claims related to the sale of our former EES business for $20 million and allowing Webasto to keep the holdback amount.

Under the terms of the expected settlement agreement, payment of the settlement amount will occur over a 24 month period after the execution of the settlement agreement.

Although not material in value alone or in aggregate, we made certain commitments outside of the ordinary course of business.

We made commitments for capital contributions 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 $0.9 million was remaining at July 31, 2021.

We also made commitments to lend HAPSMobile loans to continue the development of Solar HAPS.

The Company committed to lend 500 million yen ($4.6 million) of which 370 million yen (approximately $3.4 million) was remaining at July 31, 2021.

On August 13, 2021, we made the second payment of the loan agreement for 180 million yen ($1.6 million).

Under the terms of the limited partnership agreement, we have committed to make capital contributions totaling $10.0 million to the fund of which $0.6 million was remaining at October 30, 2021.

We also made commitments to lend HAPSMobile funds to continue the development of Solar HAPS.

The Company committed to and lent 500 million yen ($4.6 million) as of October 30, 2021.

As of October 30, 2021, there are no further lending commitments to HAPSMobile.

Under the terms of the agreement the loans are guaranteed and will be repaid when financing is obtained, or by Softbank.

We currently anticipate repayment within the fiscal year ended April 30, 2022.

The following table provides our cash flow data for the three months ended July 31, 2021 and August 1, 2020 (in thousands):

Three Months Ended

We currently anticipate repayment of all amounts loaned to HAPS within the fiscal year ended April 30, 2022.

The following table provides our cash flow data for the six months ended October 30, 2021 and October 31, 2020 (in thousands):

Six Months Ended

Net cash (used in) provided by operating activities

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Cash (Used in) Provided by Operating Activities.

Net cash used in operating activities for the three months ended July 31, 2021 increased by $42.1 million to $15.3 million, as compared to net cash provided by operating activities of $26.8 million for the three months ended August 1, 2020.

The increase in net cash used in operating activities was primarily due to a decrease in net income of $24.0 million and a decrease in cash as a result of changes in operating assets and liabilities of $30.4 million, largely related to accounts receivable and unbilled retentions and receivables due to year over year timing differences, partially offset by an increase in depreciation and amortization of $10.9 million.

Net cash used in operating activities for the six months ended October 30, 2021 increased by $61.9 million to $3.3 million, as compared to net cash provided by operating activities of $58.6 million for the six months ended October 31, 2020.

The increase in net cash used in operating activities was primarily due to a decrease in net income of $23.5 million and a decrease in cash as a result of changes in operating assets and liabilities of $55.2 million, largely related to accounts receivable and unbilled retentions and receivables due to year over year timing differences and income taxes receivable, partially offset by an increase in depreciation and amortization of $24.3 million.

Cash Used in Investing Activities.

Net cash used in investing activities increased by $2.9 million to $36.3 million for the three months ended July 31, 2021, as compared to net cash used by investing activities of $33.5 million for the three months ended August 1, 2020.

The increase in net cash used in investing activities was primarily due an increase in cash used for the acquisition of Telerob of $46.2 million, a decrease in redemptions of available-for-sale investments of $23.8 million, an increase in equity method investments of $1.5 million and an increase in acquisition of property and equipment of $1.4 million, partially offset by a decrease in purchases of available-for-sale investments of $70.0 million.

Net cash used in investing activities increased by $2.8 million to $34.8 million for the six months ended October 30, 2021, as compared to net cash used by investing activities of $31.9 million for the six months ended October 31, 2020.

The increase in net cash used in investing activities was primarily due an increase in cash used for the acquisition of Telerob of $46.2 million and a decrease in redemptions of available-for-sale investments of $61.7 million, partially offset by a decrease in purchases of available-for-sale investments of $116.9 million.

Cash Used in Financing Activities.

Net cash used in financing activities increased by $7.9 million to $9.6 million for the three months ended July 31, 2021, as compared to net cash used by financing activities of $1.7 million for the three months ended August 1, 2020.

Net cash used in financing activities increased by $10.4 million to $12.1 million for the six months ended October 30, 2021, as compared to net cash used by financing activities of $1.7 million for the six months ended October 31, 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 $6.0 million and an increase in payments of loan principal of $5.0 million.

Contractual Obligations

During the three months ended July 31, 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, 2021.

During the three and six months ended October 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, 2021.

Off-Balance Sheet Arrangements

As of July 31, 2021, we had no off‑balance sheet arrangements as defined in Item 303(a)(4) of Regulation S‑K.

As of October 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 three months ended July 31, 2021.

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

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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