What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-06-29 compared with 2021-06-29 · 179 added, 169 removed, 207 unchanged (63% of the section changed)

2 unchanged sentences

This discussion contains forward-looking statements.

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.

Refer to Part I, “Forward-Looking Statements” on page 2 and Part 1A, “Risk Factors” beginning on page 25, for a discussion of the uncertainties, risks and assumptions associated with these statements.

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.

We determined that the EES Business met the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategic shift in our operations.

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.

Therefore, 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, 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 supply UAS, TMS, UGV and related services primarily to organizations within the U.S.

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.

We develop these highly innovative solutions by working very closely with our key customers and solving their most important challenges related to our areas of expertise.

The success of 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.

We develop these highly innovative solutions by working closely with our key customers and solving their most important challenges related to our areas of expertise.

Our core technological capabilities, developed through nearly 50 years of innovation, include robotics and robotics systems autonomy;

17 unchanged sentences

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 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 generate our revenue primarily from the sale, support, design and operation of our UAS, TMS, HAPS and UGV as well as ISR services by our MUAS.

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 MUAS 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.

We derive most of our small UAS revenue from fixed-price and cost-plus-fee contracts with the U.S.

We derive most of our small UAS, MUAS, HAPS and TMS revenue from fixed-price and cost-plus-fee contracts with the U.S.

government and allied foreign governments.

6 unchanged sentences

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 and amortization of acquired intangible assets.

Our selling, general and administrative expenses (“SG&A”), include salaries, fringe benefits, 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 research and development (“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.

4 unchanged sentences

Other Income and Expenses

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, foreign derived intangible income tax deduction (“FDII”) and excess tax benefit of equity awards, partially offset by valuation allowances.

Other income and expenses includes the gain on the sale of our equity interest in HAPSMobile, 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 (Benefit)

Our effective tax rates are higher than the statutory rates primarily due to R&D tax credits and excess tax benefit of equity awards.

Equity Method Investment Loss, Net of Tax

Equity method investment loss, net of tax, includes equity method gain or loss related to the HAPSMobile Inc.

joint venture we formed in December 2017 with SoftBank Corp and our investment in a limited partnership fund for which we have concluded we have influence for holding more than a minor interest.

Equity method investment loss, net of tax, includes equity method income or loss related to the HAPSMobile joint venture we formed in December 2017 with SoftBank and our investment in a limited partnership fund for which we have concluded we have influence for holding more than a minor interest.

In March 2022, we sold our equity interest in HAPSMobile and will no longer record equity method income (loss) of HAPSMobile.

Loss from Discontinued Operations, Net of Tax

1 unchanged sentence

We determined that the EES Business met the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategic shift in our operations.

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.

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

Net Loss Attributable to Noncontrolling Interests

Net loss attributable to noncontrolling interests includes the 15% interest in the income or losses of our Turkish joint venture, Altoy.

Net loss attributable to noncontrolling interests includes the 50% interest in the income or losses of our Turkish joint venture, Altoy, as of September 15, 2021 and 15% interest for all prior periods presented.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

4 unchanged sentences

We believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements.

Please see Note 1 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Organization and Significant Accounting Policies.

Please see Note 1 to our consolidated financial statements entitled “Organization and Significant Accounting Policies,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report.

There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

9 unchanged sentences

These contracts may be fixed price, cost-reimbursable, or time and materials.

We account for all revenue contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

We account for all revenue contracts in accordance with ASC 606.

A performance obligation is a promise in a contract to transfer distinct goods or services to a customer, and it is the unit of account in ASC 606.

A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized when each performance obligation under the terms of a contract is satisfied.

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

Revenue for TMS product deliveries, customization of UGV transport vehicles 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.

6 unchanged sentences

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 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.

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.

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.

11 unchanged sentences

For the year ended April 30, 2022, favorable cumulative catch up adjustments of $1.3 million were primarily due to final cost adjustments on 19 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.

For the same period, unfavorable cumulative catch up adjustments of $2.9 million were primarily related to higher than expected costs on 10 contracts.

During the year ended April 30, 2022, 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 $1.1 million.

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.

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.

4 unchanged sentences

For the year ended April 30, 2019, favorable cumulative catch up adjustments of $1.2 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 $1.3 million were primarily related to higher than expected costs on 14 contracts, which individually were not material.

Inventories Reserves for Excess and Obsolescence

6 unchanged sentences

Acquired intangible assets include:

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

technology, backlog, 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.

A discounted cash flow analysis requires us to make various assumptions and estimates including projected revenue, gross margins, operating costs, growth rates, useful lives and discount rates.

Intangible assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern in which the economic benefits are consumed.

Intangible assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern in which the economic benefits of such assets are consumed.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets.

We test goodwill for impairment annually during the fourth quarter of the Company’s fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired.

Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.

We test goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired.

Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.

Our evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

For the impairment test, we first assess qualitative factors, macroeconomic conditions, industry and market considerations, triggering events, cost factors, and overall financial performance, to determine whether it is necessary to perform a quantitative goodwill impairment test.

Alternatively, we may bypass the qualitative assessment for some or all of its reporting units and apply the quantitative impairment test.

If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill

impairment loss to be recognized (if any).

For the quantitative impairment test we estimate the fair value by weighting the results from the income approach and the market approach.

These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of its business.

Our income tax provision and related income tax assets and liabilities are based on actual and expected future income, U.S.

and foreign statutory income tax rates, and tax regulations and planning opportunities in the various jurisdictions in which it operates.

We believe that the accounting estimates related to income taxes are "critical accounting estimates"

because significant judgment is required in interpreting tax regulations in the United States and in foreign jurisdictions, evaluating our worldwide uncertain tax positions, and assessing the likelihood of realizing certain tax benefits.

Actual results could differ materially from those judgments, and changes in judgments could materially affect our consolidated financial statements.

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.

1 unchanged sentence

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 record a valuation allowance to reduce our deferred tax assets if, based on the weight of available evidence, we believe expected future taxable income is not likely to support the use of a deduction or credit in that jurisdiction.

We evaluate the level of our valuation allowances during the interim and annually.

We record unrecognized tax benefits for U.S.

federal, state, local, and foreign tax positions related primarily to tax credits claimed and tax nexus.

For each reporting period, we apply a consistent methodology to measure unrecognized tax benefits and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant.

Our measurement of our unrecognized tax benefits is based on our assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax audits, lapsing of applicable statutes of limitations, identification of new issues, and any administrative guidance or developments.

We recognize unrecognized tax benefits in the first financial reporting period in which information becomes available indicating that such benefits will more likely than not (a greater than 50% likelihood) be realized.

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

We do not provide for U.S.

income taxes on undistributed earnings for our foreign subsidiaries as management expects the foreign earnings will be indefinitely reinvested in such foreign jurisdictions.

income taxes on undistributed earnings for our foreign subsidiaries as we expect the foreign earnings will be indefinitely reinvested in such foreign jurisdictions.

Fiscal Periods

10 unchanged sentences

Research and development

Income from continuing operations

(Loss) income from continuing operations

Interest (expense) income, net

Other (expense) income, net

Income from continuing operations before income taxes

Income tax expense

Equity method investment loss, net of tax

Sale of ownership in HAPSMobile Inc.

joint venture

(Loss) income from continuing operations before income taxes

(Benefit from) provision for income taxes

Equity method investment income (loss), net of tax

Net income from continuing operations

(Loss) gain on sale of business, net of tax

Loss from discontinued operations, net of tax

Net (gain) loss attributable to noncontrolling interest

Loss on sale of business, net of tax

Net (income) 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 Company operates its business as four reportable segments, small UAS, TMS, MUAS and HAPS.

The small UAS segment consists of our existing small UAS product lines.

The TMS segment consists of our existing tactical missile systems product lines.

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,

The HAPS segment consists of our existing development of High Altitude Pseudo-Satellite systems in conjunction with SoftBank.

The segment below entitled “All other” includes 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.

Year Ended April 30, 2022

Income (loss) from continuing operations

Acquisition-related expenses

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted income (loss) from operations

Year Ended April 30, 2021

Income (loss) from continuing operations

Acquisition-related expenses

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted income (loss) from operations

Year Ended April 30, 2020

Income (loss) from continuing operations

Acquisition-related expenses

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted income (loss) from operations

The Company recorded intangible amortization expense and other purchase accounting adjustments in the following categories on the accompanying consolidated statements of operations:

Cost of sales:

Product sales

Contract services

Selling, general and administrative

Fiscal Year Ended April 30, 2022 Compared to Fiscal Year Ended April 30, 2021

Revenue for the fiscal year ended April 30, 2022 was $445.7 million, as compared to $394.9 million for the fiscal year ended April 30, 2021, representing an increase of $50.8 million, or 13%.

The increase in revenue was due to an increase in service revenue of $89.0 million, partially offset by a decrease in product revenue of $38.2 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 an increase in customer-funded R&D largely resulting from our acquisition of ISG.

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

Cost of Sales.

Cost of sales for the fiscal year ended April 30, 2022 was $304.5 million, as compared to $230.4 million for the fiscal year ended April 30, 2021, representing an increase of $74.1 million, or 32%.

The increase in cost of sales was a result of an increase in service cost of sales of $83.3 million, partially offset by a decrease in product costs of sales of $9.1 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 decrease in product costs of sales was primarily due to the decrease in product revenue, unfavorable product mix and an increase in intangible amortization expense and other purchase accounting adjustments.

Cost of sales for the fiscal year ended April 30, 2022 included $18.6 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $4.5 million for the fiscal year ended April 30, 2021.

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.

Income (loss) from operations

Gross margin for the fiscal year ended April 30, 2022 was $141.2 million, as compared to $164.6 million for the fiscal year ended April 30, 2021, representing a decrease of $23.3 million, or 14%.

The decrease in gross margin was due to a decrease in product margin of $29.1 million, partially offset by an increase in service margin of $5.8 million.

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

The increase in service margin was primarily due to the 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 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.

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

Additionally, we expect inflationary and supply chain constraint trends to continue throughout our fiscal year 2023, which will negatively impact our gross margin.

Selling, General and Administrative.

SG&A expense for the fiscal year ended April 30, 2022 was $96.4 million, or 22% of revenue, compared to SG&A expense of $67.5 million, or 17% of revenue, for the fiscal year ended April 30, 2021.

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.

SG&A included $22.9 million and $11.0 million of intangible amortization expenses and acquisition-related expenses for the fiscal year ended April 30, 2022 and April 30, 2021, respectively.

Research and Development.

R&D expense for the fiscal year ended April 30, 2022 was $54.7 million, or 12% of revenue, compared to R&D expense of $53.8 million, or 14% of revenue, for the fiscal year ended April 30, 2021.

R&D expense increased by $0.9 million, or 2%, for the fiscal year ended April 30, 2022, 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, net.

Interest expense, net for the fiscal year ended April 30, 2022 was $5.4 million, compared to interest expense, net of $0.6 million for the fiscal year ended April 30, 2021.

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, net.

Other expense, net for the fiscal year ended April 30, 2022 was $10.3 million, as compared to other expense, net of $8.3 million for the fiscal year ended April 30, 2021.

Other expense, net for the fiscal year ended April 30, 2022 included $10 million of expense related to the Webasto legal settlement.

Other expense, net for the fiscal year ended April 30, 2021 included $9.3 million of expense related to the Webasto legal accrual.

Sale of ownership in HAPSMobile Inc.

joint venture.

Sale of ownership in HAPSMobile Inc.

joint venture for the fiscal year ended April 30, 2022 was $6.5 million gain related to the sale of our equity interest in HAPSMobile.

Income Taxes.

Our effective income tax rate was 54.2% for the fiscal year ended April 30, 2022, as compared to 1.6% for the fiscal year ended April 30, 2021.

The increase 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 income (loss), net of tax.

Equity method investment income, net of tax for the fiscal year ended April 30, 2022 was $4.6 million, as compared to equity method investment loss, net of $(10.5) million for the fiscal year ended April 30, 2021.

The increase in equity method investment income, net of tax was primarily due to our proportionate share of the income from our limited partnership investment fund for the fiscal year ended April 30, 2022 and a loss of $8.4 million for our proportionate share of the HAPSMobile joint venture’s impairment of its investment in Loon LLC in the fiscal year ended April 30, 2021.

With the sale of our equity interest in HAPSMobile during the fiscal year ended April 30, 2022, no future joint venture equity income or losses for HAPSMobile will be recorded.

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

1 unchanged sentence

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.

The increase in product revenue 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 an increase in MUAS service revenue, resulting from our acquisition of Arcturus in February 2021, and customer-funded R&D primarily associated with TMS.

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.

The increase in product costs of sales was primarily due to an increase in product sales.

The increase in service cost of sales was primarily due to the increase in service revenues resulting from the acquisitions of Arcturus in February 2021, partially offset by a decrease in service revenues for the HAPS segment.

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 as compared to $2.4 million for the fiscal year ended April 30, 2020.

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

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.

The increase in product gross margin was 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, gross margin remained consistent at 42%.

Selling, General and Administrative.

15 unchanged sentences

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.

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

Loss on sale of business, net of tax.

2 unchanged sentences

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 TMS revenue from customers within the U.S.

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

The increase in product deliveries of small UAS included product deliveries of our VAPOR helicopter unmanned aircraft system associated with our acquisition of Pulse Aerospace in June 2019.

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 TMS product deliveries, partially offset by a decrease in customer-funded R&D work associated with TMS and TMS variants.

Cost of Sales.

Cost of sales for the fiscal year ended April 30, 2020 was $214.2 million, as compared to $185.9 million for the fiscal year ended April 30, 2019, representing an increase of $28.3 million, or 15%.

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

As a percentage of revenue, cost of sales decreased from 59% to 58%, primarily due to an increase in the proportion of product sales to total revenue and a favorable service mix, partially offset by acquired intangible asset amortization expense.

Gross Margin.

Gross margin for the fiscal year ended April 30, 2020 was $153.1 million, as compared to $128.4 million for the fiscal year ended April 30, 2019, representing an increase of $24.7 million, or 19%.

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

As a percentage of revenue, gross margin increased from 41% to 42%, primarily due to an increase in the proportion of product sales to total revenue and a favorable service mix, partially offset by acquired intangible asset amortization expense.

As a percentage of revenue, product gross margin for fiscal 2020 decreased by nearly 70 basis points to 46%.

We anticipate product margin in fiscal year 2021 to continue to decline primarily due to an unfavorable product mix.

Selling, General and Administrative.

SG&A expense for the fiscal year ended April 30, 2020 was $59.5 million, or 16% of revenue, compared to SG&A expense of $60.3 million, or 19% of revenue, for the fiscal year ended April 30, 2019.

The decrease in SG&A expense was primarily due to a $4.4 million impairment charge related to the long-lived assets of our commercial Quantix product during the fiscal year ended April 30, 2019, a decrease in corporate development expenses primarily related to the sale of our EES Business and a decrease in costs incurred related to the transition services agreement with Webasto, partially offset by an increase in employee-related expenses and an increase in commission expenses associated with an increase in the number of international small UAS contracts under which we utilized sales agents.

Research and Development.

R&D expense for the fiscal year ended April 30, 2020 was $46.5 million, or 13% of revenue, compared to R&D expense of $34.2 million, or 11% of revenue, for the fiscal year ended April 30, 2019.

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, 2020 was $4.8 million, compared to $4.7 million for the fiscal year ended April 30, 2019.

The increase in interest income was primarily due to an increase in the average interest rates earned on our investments portfolio, partially offset by a decrease in our investments balances.

Due to the significant decline in market interest rates combined with a shift in our investment composition towards U.S.

government and U.S.

government agency securities during the fourth quarter of fiscal year 2020, we anticipate interest income earned on our investments portfolio to decrease in future periods.

Other Income (Expense), net.

Other income, net for the fiscal year ended April 30, 2020 was $0.7 million, as compared to other income, net of $12.0 million for the fiscal year ended April 30, 2019.

The decrease in other income, net was primarily due to a one-time litigation settlement during the fiscal year ended April 30, 2019 and a decrease in income earned under a transition services agreement with Webasto, the buyer of our former EES Business.

Income Taxes.

Our effective income tax rate was 11.1% for the fiscal year ended April 30, 2020, as compared to 9.2% for the fiscal year ended April 30, 2019.

The increase in our effective tax rate was primarily due to decrease in excess tax benefits from the vesting of employee equity awards and a lower proportion of R&D expense which qualifies for R&D tax credits.

Equity method investment loss, net of tax.

Equity method investment loss, net of tax for the fiscal year ended April 30, 2020 was $5.5 million, as compared to equity method investment loss, net of $3.9 million for the fiscal year ended April 30, 2019.

The increase was primarily due to the equity method loss associated with our investment in the HAPSMobile joint venture formed in December 2017.

(Loss) gain on sale of business, net of tax.

Loss on sale of business, net of tax for the fiscal year ended April 30, 2020 was $0.3 million, as compared to gain on sale of business, net of tax of $8.5 million for the fiscal year ended April 30, 2019.

The gain on sale of business, net of tax for the prior year period resulted from 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.

Loss from discontinued operations, net of tax.

Loss from discontinued operations, net of tax for the fiscal year ended April 30, 2020 was $0, as compared to $3.0 million for the fiscal year ended April 30, 2019.

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.

Liquidity and Capital Resources

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”).

On February 19, 2021 in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement (as amended February 4, 2022, the “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 (the “Revolving Facility”), and (ii) a five-year amortized $200 million term A loan (the “Term Loan Facility,” and together with the Revolving Credit Facility, 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.

4 unchanged sentences

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.

4 unchanged sentences

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 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.

1 unchanged sentence

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.

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.

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

government and U.S.

government agency securities.

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.

During the fiscal year ended April 30, 2022, we made certain commitments outside of the ordinary course of business, including capital contribution commitments to a second limited partnership fund.

Under the terms of the new limited partnership agreement, we have committed to make capital contributions to such fund totaling $20.0 million, inclusive of the expected reinvestment of distributions from our existing limited partnership fund, of which $20.0 million was remaining at April 30, 2022.

The contributions are anticipated to be paid over the next five fiscal years.

The remaining $15 million obligation under the legal settlement with Webasto will be paid during the fiscal year ending April 30, 2023.

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

1 unchanged sentence

(In thousands)

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Cash Provided by Operating Activities.

Net cash (used in) provided by financing activities

Cash (Used in) Provided by Operating Activities.

Net cash used in operating activities for the fiscal year ended April 30, 2022 increased by $96.2 million to $9.6 million, compared to net cash provided by operating activities of $86.5 million for the fiscal year ended April 30, 2021.

This increase in net cash used in operating activities was primarily due to an increase in the cash used as a result of changes in operating assets and liabilities of $98.5 million largely resulting from increases in accounts receivable and unbilled retentions and receivables due to year over year timing differences, increases in inventory primarily due to year over year timing differences in purchases to support anticipated product deliveries, and increases in accounts payable due to year over year timing differences, and an increase in net loss of $27.5 million, partially offset by an increase in non-cash expenses of $29.9 million primarily due to an increase in depreciation and amortization, partially offset by gains from equity method investments.

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.

Cash (Used in) Provided by Investing Activities.

Net cash used in investing activities decreased by $326.5 million to $52.3 million for the fiscal year ended April 30, 2022, compared to net cash used in investing activities of $378.8 million for the fiscal year ended April 30, 2021.

The decrease 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,

partially offset by the acquisition of Telerob, net of cash for $46.2 million, and a decrease in purchases of available-for-sale investments of $101.8 million, partially offset by a decrease in redemptions of available-for-sale investments of $110.6 million and an increase in the acquisition of property and equipment of $11.0 million to support our existing and newly acquired businesses.

During the fiscal years ended April 30, 2022 and 2021, we used cash to purchase property and equipment totaling $22.3 million and $11.3 million, respectively.

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.

1 unchanged sentence

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.

The increase in net cash provided by investing activities was primarily due to higher net redemptions of available-for-sale investments of $92.0 million and held-to-maturity investments of $15.4 million, partially offset by the proceeds received from the sale of the EES Business in the amount of $32.0 million in the first quarter of fiscal 2019, and the cash used to purchase Pulse Aerospace, LLC during fiscal 2020, in the amount of $18.6 million.

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.

Cash Provided by (Used in) Financing Activities.

Cash (Used in) Provided by Financing Activities.

Net cash used in financing activities increased by $210.8 million to $16.6 million for the fiscal year ended April 30, 2022, compared to net cash provided by financing activities of $194.2 million for the fiscal year ended April 30, 2021.

The increase in net cash provided by financing activities was primarily due to the proceeds of long-term debt of $200.0 million in the fiscal year ended April 30, 2021 and the principal payment of the loan in the fiscal year ended April 30, 2022 of $10.0 million.

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.

Contractual Obligations

5 unchanged sentences

Long-term debt obligations

Webasto legal settlement

(1) Consists of all cancelable and non-cancelable purchase orders as of April 30, 2022.

(2) Not included in the table above is an additional capital contribution of $20.0 million committed under the terms of a limited partnership agreement.

Off-Balance Sheet Arrangements

As of April 30, 2021, we had no off-balance sheet arrangements, as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

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

Historically, we have been successful in adjusting prices to our customers to reflect changes in our material and labor costs.

Recently Adopted Accounting Standards

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.

Effective May 1, 2021, we adopted ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”).

This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, including removing the requirement to limit income tax expense (benefit) in an interim period to the full year projected amounts.

We adopted ASU 2019-12 using the prospective method, applying the new guidance accounting for income taxes after adoption.

The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

New Accounting Standards

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

This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

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

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.

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).

This ASU clarifies accounting certain topics impacted by Topic 321 Investments—Equity Securities.

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 amendments should be adopted prospectively.

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

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).

ASU 2021-08 requires an acquirer to

apply the guidance in ASC 606, Revenue from Contracts with Customers , to recognize and measure contract assets and contract liabilities in a business combination, rather than using fair value.

The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.

ASU 2021-08 is adopted prospectively and could impact future acquisitions.

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