What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-06 compared with 2023-09-06 · 162 added, 81 removed, 153 unchanged (61% of the section changed)

19 unchanged sentences

ASC 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 LMS product deliveries and customer-funded research and development contracts is recognized over time as costs are incurred.

Revenue for LMS product deliveries, certain Tomahawk 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.

Contract services revenue, including ISR services, is recognized over time as services are rendered.

Contract services revenue, which historically included ISR services, is recognized over time as services are rendered.

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

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For performance obligations satisfied over time, revenue is generally recognized using costs incurred to date relative to total estimated costs at completion to measure progress.

Incurred costs represent work performed, which correspond with, and thereby best depict, transfer of

control to the customer.

Incurred costs represent work

performed, which correspond with, and thereby best depict, transfer of control to the customer.

Contract costs include labor, materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts.

6 unchanged sentences

Changes in variable consideration associated with the finalization of undefinitized contract actions could result in cumulative catch up adjustments to revenue that could be material.

During the three months ended July 29, 2023 and July 30, 2022, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended July 29, 2023 and July 30, 2022, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

During the three and six months ended October 28, 2023 and October 29, 2022, changes in accounting estimates on contracts recognized over time are presented below.

For the three months ended October 28, 2023 and October 29, 2022, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

Three Months Ended

1 unchanged sentence

Gross unfavorable adjustments

Net favorable (unfavorable) adjustments

For the three months ended July 29, 2023, favorable cumulative catch-up adjustments of $2.7 million were primarily due to final cost adjustments on 11 contracts, which individually were not material.

Net favorable adjustments

For the three months ended October 28, 2023, favorable cumulative catch-up adjustments of $4.1 million were primarily due to final cost adjustments on seven contracts.

During the three months ended October 28, 2023, we revised our estimates of the total expected costs to complete an LMS 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 an increase to revenue of approximately $1.7 million.

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

For the three months ended July 30, 2022, favorable cumulative catch-up adjustments of $1.3 million were primarily due to final cost adjustments on 14 contracts, which individually were not material.

For the three months ended October 29, 2022, favorable cumulative catch-up adjustments of $2.6 million were primarily due to final cost adjustments on eight contracts.

During the three months ended October 29, 2022, we revised our estimates of the total expected costs to complete an LMS variant contract.

For the same period, unfavorable cumulative catch-up adjustments of $1.5 million were primarily related to higher than expected costs on six contracts, which individually were not material.

Also during the three months ended October 29, 2022, the Company recognized forward loss reserves on three MUAS ISR contracts totaling $2.3 million related to unfavorable changes in the estimated costs to complete the contracts.

The company recorded the forward loss reserves as the total estimated costs to complete the contracts are in excess of the total remaining consideration of the contracts.

The aggregate impact of the change in estimate decreased net income by $1.5 million and diluted loss per share by $0.06.

For the six months ended October 28, 2023 and October 29, 2022, 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 favorable (unfavorable) adjustments

For the six months ended October 28, 2023, favorable cumulative catch-up adjustments of $5.6 million were primarily due to final cost adjustments on 10 contracts.

During the six months ended October 28, 2023, we revised our estimates of the total expected costs to complete an LMS variant contract.

For the same period, unfavorable cumulative catch-up adjustments of $2.0 million were primarily related to higher than expected costs on 10 contracts, which individually were not material.

For the six months ended October 29, 2022, favorable cumulative catch-up adjustments of $2.0 million were primarily due to final cost adjustments on 20 contracts, which individually were not material.

For the same period, unfavorable cumulative catch-up adjustments of $3.4 million were primarily related to higher than expected costs on four contracts.

During the three months ended July 30, 2022, we revised our estimates of the total expected costs to complete an LMS variant contract.

During the six months ended October 29, 2022, we revised our estimates of the total expected costs to complete two LMS variant contracts.

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 $2.6 million.

Also during the six months ended October 29, 2022, the Company recognized forward loss reserves on three MUAS ISR contracts totaling $2.3 million related to unfavorable changes in the estimated costs to complete the contracts.

The company recorded the forward loss reserves as the total estimated costs to complete the contracts are in excess of the total remaining consideration of the contracts.

The aggregate impact of the change in estimate decreased net income by $1.5 million and diluted loss per share by $0.06.

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

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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.

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

If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).

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

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

Subsequent to the performance of our annual goodwill impairment test for fiscal year 2023, in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value.

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Our MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests as an impairment was recorded during the most recent annual goodwill impairment test performed during the fourth quarter ended April 30, 2023.

The intangibles included in the MUAS reporting unit of $16.7 million as of July 29, 2023 will also be evaluated for potential impairment during the fourth quarter goodwill impairment test.

As of October 28, 2023, we have not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

The intangibles included in the MUAS reporting unit of $15.7 million as of October 28, 2023 will also be evaluated for potential impairment during the fourth quarter goodwill impairment test.

The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature.

8 unchanged sentences

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

Three Months Ended July 29, 2023 Compared to Three Months Ended July 30, 2022

Three Months Ended October 28, 2023 Compared to Three Months Ended October 29, 2022

Three Months Ended

3 unchanged sentences

Income (loss) from operations

Other (loss) income:

Interest expense, net

Other expense, net

Other (expense) income, net

Income (loss) before income taxes

Provision for income taxes

Provision for (benefit from) income taxes

Equity method investment loss, net of tax

1 unchanged sentence

We have identified three reportable segments, Unmanned Systems (“UMS”), Loitering Munitions Systems (“LMS”) and MacCready Works (“MW”).

The UMS segment consists of our small UAS, medium UAS and UGV product lines.

The UMS segment consists of our small UAS, including our recent Tomahawk acquisition,

medium UAS and UGV product lines.

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

The MW segment consists of the Company’s MacCready Works products and services and the development of High Altitude Pseudo-Satellite systems (“HAPS”).

The MW segment consists of our MacCready Works products and services and the development of High Altitude Pseudo-Satellite systems (“HAPS”).

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.

1 unchanged sentence

All corporate and headquarter expenses are allocated to the reportable segments.

Three Months Ended July 29, 2023

Three Months Ended October 28, 2023

Income (loss) from operations

1 unchanged sentence

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted income from operations

Three Months Ended July 30, 2022

Adjusted income (loss) from operations

Three Months Ended October 29, 2022

(Loss) income from operations

1 unchanged sentence

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 unaudited condensed consolidated statements of operations:

Adjusted (loss) income from operations

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

Three Months Ended

Six Months Ended

Cost of sales:

2 unchanged sentences

Selling, general and administrative

Revenue for the three months ended July 29, 2023 was $152.3 million, as compared to $108.5 million for the three months ended July 30, 2022, representing an increase of $43.8 million, or 40%.

Revenue for the three months ended October 28, 2023 was $180.8 million, as compared to $111.6 million for the three months ended October 29, 2022, representing an increase of $69.2 million, or 62%.

The increase in revenue was due to an increase in product revenue of $83.4 million, partially offset by a decrease in service revenue of $14.2 million.

The increase in product revenue was primarily due to increases in UMS and LMS product revenue.

The decrease in service revenue was primarily due to a decrease in UMS and LMS service revenue, partially offset by an increase in MW service revenue.

We expect the lower levels of UMS service revenues to continue through fiscal 2024 due to the closure of all COCO site locations.

The decrease in service revenue was due to a decrease in UMS, LMS and MW service revenue.

We expect the lower levels of UMS service revenues to continue through fiscal 2024 due to the closure of all COCO site locations during fiscal year 2023.

With the higher backlog, the increase in the UMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2024.

Cost of Sales.

Cost of sales for the three months ended July 29, 2023 was $86.7 million, as compared to $74.8 million for the three months ended July 30, 2022, representing an increase of $11.9 million, or 16%.

Cost of sales for the three months ended October 28, 2023 was $105.5 million, as compared to $85.7 million for the three months ended October 29, 2022, representing an increase of $19.8 million, or 23%.

The increase in cost of sales was a result of an increase in product cost of sales of $39.6 million, partially offset by a decrease in service costs of sales of $19.8 million.

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

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

revenue, partially offset by a favorable product mix.

The decrease in service cost of sales was primarily due to a decrease in service revenue.

Cost of sales for the three months ended July 29, 2023 included $2.4 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $3.0 million for the three months ended July 30, 2022.

Cost of sales for the three months ended July 30, 2022 also included $4.0 million of depreciation of in-service ISR assets.

As a percentage of revenue, cost of sales decreased from 69% to 57%, primarily due to an increase in the proportion of product revenue to total revenue and a favorable product mix.

Cost of sales for the three months ended October 28, 2023 included $3.2 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $4.0 million for the three months ended October 29, 2022.

Cost of services for the three months ended October 29, 2022 also included $7.6 million of depreciation of in-service ISR assets.

As a percentage of revenue, cost of sales decreased from 77% to 58%, primarily due to an increase in the proportion of product revenue to total revenue, a favorable product mix and the prior year COCO operations costs.

Gross Margin.

Gross margin for the three months ended July 29, 2023 was $65.7 million, as compared to $33.7 million for the three months ended July 30, 2022, representing an increase of $31.9 million, or 95%.

The increase in gross margin was primarily due to an increase in product margin of $32.8 million, partially offset by a decrease in service margin of $0.8 million.

Gross margin for the three months ended October 28, 2023 was $75.4 million, as compared to $25.9 million for the three months ended October 29, 2022, representing an increase of $49.5 million, or 191%.

The increase in gross margin was primarily due to an increase in product margin of $43.8 million and an increase in service margin of $5.6 million.

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

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

As a percentage of revenue, gross margin increased from 31% to 43%, primarily due to an increase in the proportion of product revenue to total revenue and a favorable product mix.

The increase in service margin was primarily due to the decrease of $7.6 million of depreciation of in-service ISR assets, partially offset by a decrease in service revenue.

As a percentage of revenue, gross margin increased from 23% to 42%, primarily due to an increase in the proportion of product revenue to total revenue, a favorable product mix and the prior year costs related to COCO operations costs.

Selling, General and Administrative .

SG&A expense for the three months ended July 29, 2023 was $23.8 million, or 16% of revenue, as compared to SG&A expense of $21.9 million, or 20% of revenue, for the three months ended July 30, 2022.

SG&A expense for the three months ended October 28, 2023 was $28.1 million, or 16% of revenue, as compared to SG&A expense of $23.6 million, or 21% of revenue, for the three months ended October 29, 2022.

The increase in SG&A expense was primarily due to an increase in employee related expenses, partially offset by a decrease in intangible amortization and other non-cash purchase accounting expenses largely driven by the accelerated amortization of COCO customer relationships recorded during the three months ended April 30, 2023.

Research and Development.

R&D expense for the three months ended July 29, 2023 was $15.5 million, or 10% of revenue, as compared to R&D expense of $15.0 million, or 14% of revenue, for the three months ended July 30, 2022, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

R&D expense for the three months ended October 28, 2023 was $22.0 million, or 12% of revenue, as compared to R&D expense of $16.6 million, or 15% of revenue, for the three months ended October 29, 2022, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

Interest Expense, net.

Interest expense, net for the three months ended July 29, 2023 was $2.0 million compared to interest expense, net of $1.6 million for the three months ended June 30, 2022.

The increase in interest expense, net was primarily due to an increase in interest expense resulting from higher interest rates on our debt facility, partially offset by lower average outstanding balances.

Interest expense, net for the three months ended October 28, 2023 was $2.0 million compared to interest expense, net of $2.3 million for the three months ended October 29, 2022.

The decrease in interest expense, net was primarily due to lower average outstanding balances on our debt facility, partially offset by higher interest rates.

Other Expense, net.

Other expense, net, for the three months ended July 29, 2023 was $1.1 million compared to other expense, net of $0.4 million for the three months ended July 30, 2022.

Other expense, net for the three months ended July 29, 2023 includes unrealized losses associated with decreases in the fair market value for equity security investments.

Provision for Income Taxes.

Our effective income tax rate was 5.7% for the three months ended July 29, 2023, as compared to (49.3)% for the three months ended June 30, 2022.

The increase in our effective income tax rate was in part due to an increase in projected full year income before income taxes combined with increases in expected foreign-derived intangible income deductions and federal R&D tax credits.

The effective income tax rate for the three months ended July 29, 2023 was primarily impacted by expected federal R&D tax credits, foreign-derived intangible income deductions and excess tax benefits on equity awards.

Other expense, net, for the three months ended October 28, 2023 was $2.9 million compared to other income, net of $0.8 million for the three months ended October 29, 2022 primarily due to unrealized losses associated with decreases in the fair market value for equity security investments.

Provision for (Benefit from) Income Taxes.

Our effective income tax rate was 5.6% for the three months ended October 28, 2023, as compared to (66.1)% for the three months ended October 29, 2022.

The increase in our effective income tax rate was primarily due to an increase in income before income taxes combined with an increase in projected full year income before income taxes and increases in expected foreign-derived intangible income deductions and federal R&D tax credits.

The effective income tax rate for the three months ended October 28, 2023 was primarily impacted by expected federal R&D tax credits and foreign-derived intangible income deductions.

Equity Method Investment Loss, net of Tax.

Equity method investment loss, net of tax for the three months ended July 29, 2023 was $21 thousand as compared to equity method investment loss, net of tax of $0.5 million for the three months ended July 30, 2022.

Equity method investment loss, net of tax for the three months ended October 28, 2023 was $1.4 million as compared to equity method investment loss, net of tax of $1.3 million for the three months ended October 29, 2022.

Six Months Ended October 28, 2023 Compared to Six Months Ended October 29, 2022

The following tables (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.

All corporate and headquarter expenses are allocated to the reportable segments.

Six Months Ended

Cost of sales

Selling, general and administrative

Research and development

Income (loss) from operations

Other (loss) income:

Interest expense, net

Other (expense) income, net

Income (loss) before income taxes

Provision for (benefit from) income taxes

Equity method investment loss, net of tax

Net income (loss)

Six Months Ended October 28, 2023

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 29, 2022

(Loss) income from operations

Acquisition-related expenses

Amortization of acquired intangible assets and other purchase accounting adjustments

Adjusted (loss) income from operations

Revenue for the six months ended October 28, 2023 was $333.2 million, as compared to $220.1 million for the six months ended October 29, 2022, representing an increase of $113.1 million, or 51%.

The increase in revenue was due to an increase in product revenue of $144.9 million, partially offset by a decrease in service revenue of $31.9 million.

The increase in product revenue was primarily due to an increase in UMS, LMS and MW product revenue.

The decrease in service revenue was primarily due to a decrease in UMS and LMS service revenue, partially offset by an increase in MW service revenue.

We expect the lower levels of UMS service revenues to continue through fiscal 2024 due to the closure of all COCO site locations during fiscal year 2023.

With the higher backlog, the increase in the UMS product

revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2024.

Cost of Sales.

Cost of sales for the six months ended October 28, 2023 was $192.2 million, as compared to $160.5 million for the six months ended October 29, 2022, representing an increase of $31.7 million, or 20%.

The increase in cost of sales was a result of an increase in product cost of sales of $68.3 million, partially offset by a decrease in service costs of sales of $36.6 million.

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

The decrease in service cost of sales was primarily due to a decrease in service revenue.

Cost of sales for the six months ended October 28, 2023 included $5.6 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $7.1 million for the six months ended October 29, 2022.

Cost of services for the six months ended October 29, 2022 also included $11.8 million of depreciation of in-service ISR assets.

As a percentage of revenue, cost of sales decreased from 73% to 58%, primarily due to an increase in the proportion of product revenue to total revenue, a favorable product mix and the prior year COCO operation costs.

Gross Margin.

Gross margin for the six months ended October 28, 2023 was $141.0 million, as compared to $59.6 million for the six months ended October 29, 2022, representing an increase of $81.4 million, or 137%.

The increase in gross margin was due to an increase in product margin of $76.6 million and an increase in service margin of $4.8 million.

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

The increase in service margin was primarily due to the decrease of $11.8 million of depreciation of in-service ISR assets, partially offset by a decrease in service revenue.

As a percentage of revenue, gross margin increased from 27% to 42%, primarily due to an increase in the proportion of product revenue to total revenue, a favorable product mix and the prior year COCO operations costs.

Selling, General and Administrative .

SG&A expense for the six months ended October 28, 2023 was $52.0 million, or 16% of revenue, as compared to SG&A expense of $45.6 million, or 21% of revenue, for the six months ended October 29, 2022.

Research and Development.

R&D expense for the six months ended October 28, 2023 was $37.5 million, or 11% of revenue, as compared to R&D expense of $31.6 million, or 14% of revenue, for the six months ended October 29, 2022, primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and to support our acquired businesses.

Interest Expense, net.

Interest expense, net for the six months ended October 28, 2023 was $4.0 million compared to interest expense, net of $3.9 million for the six months ended October 29, 2022.

The increase in interest expense, net was primarily due to higher interest rates on our debt facility, partially offset by lower average outstanding balances.

Other (Expense) Income, net.

Other expense, net, for the six months ended October 28, 2023 was $(4.0) million compared to other income, net of $0.4 million for the six months ended October 29, 2022.

The increase in other expense, net is primarily due to unrealized losses associated with decreases in fair market value for equity security investments.

Provision for (Benefit from) Income Taxes.

Our effective income tax rate was 5.6% for the six months ended October 28, 2023, as compared to (37.2)% for the six months ended October 29, 2022.

The increase in our effective income tax rate was in part due to an increase in year to date actual and projected full year income before income taxes combined with increases in expected foreign-derived intangible income deductions and federal R&D tax credits.

The effective income tax rate for the six months ended October 28, 2023 was primarily impacted by expected federal R&D tax credits and foreign-derived intangible income deductions.

Equity Method Investment Loss, net of Tax.

Equity method investment loss, net of tax for the six months ended October 28, 2023 was $1.4 million as compared to $1.8 million for the six months ended October 29, 2022.

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 29, 2023, our funded backlog was approximately $539.7 million, as compared to $424.1 million as of April 30, 2023.

In addition to our funded backlog, we also had unfunded backlog of $174.9 million as of July 29, 2023.

As of October 28, 2023, our funded backlog was approximately $487.0 million, as compared to $424.1 million as of April 30, 2023.

In addition to our funded backlog, we also had unfunded backlog of $173.2 million as of October 28, 2023.

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

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On September 8, 2022 we filed an S-3 shelf registration statement to offer and sell shares of our common stock, including a prospectus supplement in relation to an Open Market Sale Agreement SM , also dated September 8, 2022, with Jefferies LLC relating to the proposed offer and sale of shares of our common stock having an aggregate offering price of up to $200.0 million from time to time through Jefferies LLC as our sales agent.

As of July 29, 2023, we have sold 1,109,730 of our shares for total gross proceeds of $108.7 million and $105.4 million proceeds received, net of commission expense and $104.6 million net of equity issuance costs.

We have $91.3 million aggregate offering price remaining available under the registration statement.

On February 19, 2021 in connection with the consummation of the Arcturus acquisition, we entered into the Credit Agreement for (i) the Revolving Facility, and (ii) the Term Loan Facility, and together with the Revolving Credit

Facility, the “Credit Facilities”.

During the three and six months ended October 28, 2023, we sold 807,370 shares for total gross proceeds of $91.3 million, total proceeds received of $88.6 million, net of commission expense and $88.4 million net of equity issuance costs.

As of October 28, 2023, we have completed the Open Market Sale Agreement SM and sold 1,917,100 of our shares for total gross proceeds of $200.0 million and $194.0 million proceeds received, net of commission expense and $193.1 million net of equity issuance costs.

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

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

Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $11.3 million as of July 29, 2023.

As of July 29, 2023, approximately $88.7 million was available under the Revolving Facility.

Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $11.4 million as of October 28, 2023.

As of October 28, 2023, approximately $88.6 million was available under the Revolving Facility.

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

Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

In addition, Telerob has a line of credit of €5.5 million ($6.1 million) available for issuing letters of credit of which €1.9 million ($2.1 million) was outstanding as of July 29, 2023.

In addition, Telerob has a line of credit of €7.0 million ($7.4 million) available for issuing letters of credit of which €2.0 million ($2.1 million) was outstanding as of October 28, 2023.

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.

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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 acquisition of entities.

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.

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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 a 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 $14.2 million was remaining at June 29, 2023.

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

The UGV second year earnout of €2.0 million (approximately $2.2 million) is expected to be paid during the three months ended October 28, 2023.

The recently announced acquisition of Tomahawk Robotics, Inc.

is expected to close during the three months ended October 28, 2023 and a total purchase price of $120.0 million will be paid with a mix of cash and stock.

The UGV second year earnout of €2.0 million (approximately $2.1 million) was paid in November 2023.

The Tomahawk acquisition closed on September 15, 2023, and we paid a total purchase price of $134.5 million consisting of $109.8 million in stock and $24.2 million from cash on hand, net of cash acquired.

Due to the new internal revenue service tax capitalization rules, Section 174, we expect an increase in cash paid for U.S.

federal income taxes during the fiscal year ended April 30, 2024 relative to prior periods.

The following table provides our cash flow data for the three months ended July 29, 2023 and July 30, 2022 (in thousands):

Three Months Ended

On November 30, 2023, we prepaid $15.5 million of the Term Loan principle.

The following table provides our cash flow data for the six months ended October 28, 2023 and October 29, 2022 (in thousands):

Six Months Ended

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Cash (Used in) Provided by Operating Activities.

Net cash used in operating activities for the three months ended July 29, 2023 increased by $32.9 million to $17.1 million, as compared to net cash provided by operating activities of $15.9 million for the three months ended July 30, 2022.

The increase in net cash used in operating activities was primarily due to a decrease in cash as a result of changes in operating assets and liabilities of $61.0 million, largely related to inventories, unbilled receivables and retentions, prepaid expenses and other assets and accounts payable due to year over year timing differences as well as a decrease in non-cash expenses of $2.2 million primarily due to a decrease in depreciation and amortization, partially offset by an increase in net income of $30.3 million.

Net cash used in operating activities for the six months ended October 28, 2023 increased by $57.5 million to $25.6 million, as compared to net cash provided by operating activities of $31.9 million for the six months ended October 29, 2022.

The increase in net cash used in operating activities was primarily

due to a decrease in cash as a result of changes in operating assets and liabilities of $107.9 million, largely related to unbilled receivables and retentions, inventories, accounts payable, and prepaid expenses and other assets due to year over year timing differences as well as a decrease in non-cash expenses of $4.4 million primarily due to a decrease in depreciation and amortization, partially offset by an increase in net income of $54.8 million.

Cash (Used in) Provided by Investing Activities.

Net cash used in investing activities increased by $7.4 million to $3.6 million for the three months ended July 29, 2023, as compared to net cash provided by investing activities of $3.8 million for the three months ended July 30, 2022.

The increase in net cash used in investing activities was primarily due to a decrease in net redemptions of available-for-sale investments of $12.0 million, partially offset by a decrease in equity securities investments of $2.8 million and a decrease in acquisitions of property and equipment of $1.8 million.

Cash Used in Financing Activities.

Net cash used in financing activities increased by $3.0 million to $6.3 million for the three months ended July 29, 2023, as compared to net cash used in financing activities of $3.3 million for the three months ended July 30, 2022.

The increase in net cash used in financing activities was primarily due to an increase in principal payment of the term loan of $2.5 million.

Net cash used in investing activities increased by $41.1 million to $37.6 million for the six months ended October 28, 2023, as compared to net cash provided by investing activities of $3.4 million for the six months ended October 29, 2022.

The increase in net cash used in investing activities was primarily due to a decrease in net redemptions of available-for-sale investments of $24.6 million and an increase in business acquisitions, net of cash acquired of $19.1 million, partially offset by a decrease in equity securities investments of $5.1 million.

Cash Provided by (Used in) Financing Activities.

Net cash provided by financing activities increased by $42.5 million to $31.5 million for the six months ended October 28, 2023, as compared to net cash used in financing activities of $10.9 million for the six months ended October 29, 2022.

The increase in net cash provided by financing activities was primarily due to an increase in proceeds from shares issued of $76.7 million, partially offset by an increase in the principal payment of the term loan of $32.5 million.

New Accounting Standards

Please refer to Note 1—Organization and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the conclusion that we did not adopt any accounting standards during the three months ended July 29, 2023.

Recent Developments

On August 22, 2023 we announced our anticipated acquisition of Tomahawk Robotics, Inc.

(“Tomahawk Robotics”), a leader in AI-enabled robotic control systems.

Under the definitive agreement under we entered into with Tomahawk Robotics, we will acquire 100% of Tomahawk Robotics equity for a total purchase price of $120.0 million to be paid in a mix of cash and stock.

Refer to Note 19—Subsequent Events to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

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

The current outstanding balance of

the Credit Facilities is $130.0 million and bears a variable interest rate.

The current outstanding balance of the Credit Facilities is $80.0 million and bears a variable interest rate.

The market interest rate has increased significantly, and if market interest rates continue to increase, interest due on the Credit Facilities would increase.

An increase or decrease in the variable interest rate of 100 basis points would result in an increase or decrease to our interest expense for the fiscal year ending April 30, 2024 of approximately $1.0 million.

Foreign Currency Exchange Rate 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