Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included herein as Item 8. This discussion contains forward-looking statements. Refer to Part I, “Forward-Looking Statements” on page 2 and Part 1A, “Risk Factors” beginning on page 24, for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
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 uncrewed aircraft and ground robot systems, loitering munitions systems and related services primarily to organizations within or supplying the U.S. DoD, other federal agencies 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. In addition, 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 of our current product and service offerings stems from our investments in R&D to invent and deliver advanced solutions, utilizing proprietary and commercially available technologies, and in acquiring leading businesses that help our customers achieve their desired outcomes. We develop and acquire these highly innovative solutions by working closely with our key customers to solve their most important challenges related to our areas of expertise. Our core technological capabilities, developed through more than 50 years of innovation or acquired through acquisitions, include robotics and robotics systems autonomy; modular open systems architecture, sensor design, development, miniaturization and integration; embedded software and firmware; miniature, low power, secure wireless digital communications and networks; lightweight aerostructures; high-altitude systems design, integration and operations; machine vision, machine learning and autonomy; land, maritime and air deployment of munitions and aircraft systems; design and qualification for robotics in extreme terrestrial and space environments; munitions systems warhead integration; low SWaP (Size, Weight and Power) system design and integration; collaborative multi-robotic crewed and uncrewed mission operation; power electronics and electric propulsion systems; efficient electric power conversion, storage systems and high density energy packaging; controls and systems integration; vertical takeoff and landing for fixed wing and hybrid aircraft and rotocraft systems; image stabilization and target tracking; advanced flight control systems; fluid dynamics; human-machine interface development; modular dismounted, networked multi-domain robotic control interfaces and analytic processing architecture; and integrated mission solutions for austere environments.
Our business focuses primarily on the design, development, production, marketing, support and operation of innovative UxS and LMS 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.
Revenue
We generate our revenue primarily from the sale, support, design and operation of our UxS and LMS and HAPS. Support for our SUAS, MUAS and LMS customers includes training, spare parts, product repair and product replacement. Under historical ISR services contracts we have delivered the information our MUAS produce to our customers, who use that information to support their missions; however, these services are no longer a revenue driver. We refer to these support activities, in conjunction with customer-funded R&D, as our services operation. We derive
60
Table of Contents
most of our SUAS, MUAS, LMS and HAPS revenue from fixed-price and cost-plus-fee contracts with the majority from U.S. government and allied foreign governments for SUAS, MUAS, and LMS.
Cost of Sales
Cost of sales consists of direct costs and allocated indirect costs. Direct costs include labor, materials, travel, subcontracts and other costs directly related to the execution of a specific contract. Indirect costs include overhead expenses, fringe benefits, depreciation of in-service ISR assets, which have been fully depreciated as of April 30, 2023, amortization of acquired intangible assets and other costs that are not directly charged to a specific contract.
Gross Margin
Gross margin is equal to revenue minus cost of sales. We use gross margin as a financial metric to help us understand trends in our direct costs and allocated indirect costs when compared to the revenue we generate.
Selling, General and Administrative
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. 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.
Research and Development Expense
R&D is an integral part of our business model. We normally conduct significant internally funded R&D. Our R&D activities focus specifically on creating capabilities that support our existing product portfolio as well as new solutions.
Impairment of Goodwill
Subsequent to the performance of our annual goodwill impairment test, in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value. Specifically, we received notification that we were not down selected for a U.S. DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit. As a result, we updated our estimates of long-term future cash flows to reflect lower revenue and EBITDA growth rate expectations used in the valuation of the MUAS reporting unit. These changes in estimates, resulted in the recognition of a goodwill impairment charge of $156.0 million recorded during the year ended April 30, 2023. We determined that it was more likely than not that the fair value of the other reporting units were more than their carrying values as of the annual goodwill impairment test date.
Other (Loss) Income, net
Other (loss) income, net includes unrealized losses associated with decreases in the fair market value for equity security investments, the gain on the sale of our equity interest in HAPSMobile, legal accruals related to our former efficient energy systems (“EES”) business, interest income, and interest expense.
61
Table of Contents
Provision for (Benefit from) Income Taxes
Our effective tax rates are lower than the statutory rates primarily due to foreign derived intangible income (“FDII”) deductions, R&D tax credits and excess tax benefits from equity awards.
Equity Method Investment (Loss) Income, Net of Tax
Equity method investment (loss) income, net of tax, includes equity method income or loss related to our investment in limited partnership funds for which we have concluded we have influence for holding more than a minor interest. Beginning October 14, 2022, equity method investment (loss) income, net of tax also includes our proportion of any gains or losses of our Turkish joint venture, Altoy Savunma Sanayi ve Havacilik Anonim Sirketi (“Altoy”), due to our share sale in which we decreased our ownership interest to 15% but concluded we retain the ability to exercise significant influence. As of March 2022, equity method investment (loss) income, net of tax, no longer includes equity method income or loss related the HAPSMobile joint venture we formed in December 2017 with SoftBank as we sold our entire equity interest in HAPSMobile.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests includes the 50% interest in the income or losses of Altoy, between September 15, 2021 and October 14, 2022 and 85% interest for all prior periods presented. Subsequent to October 14, 2022, Altoy is no longer consolidated, and therefore, noncontrolling interest is no longer recorded.
Critical Accounting Policies and Estimates
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. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical estimates include those related to revenue recognition, inventory reserves for excess and obsolescence, intangible assets acquired in a business combination, goodwill, and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
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 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.
Revenue Recognition
Significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period. Material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of the business or market conditions. Management judgments and estimates have been applied consistently and have been reliable historically. We believe that there are two key factors which impact the reliability of management’s estimates. The first of those key factors is that the terms of our contracts are typically less than six months. The short-term nature of such contracts reduces the risk that material changes in accounting estimates will occur on the basis of market conditions or other factors. The second key factor is that we have hundreds of contracts in any given accounting period, which
62
Table of Contents
reduces the risk that any one change in an accounting estimate on one or several contracts would have a material impact on our consolidated financial statements.
The substantial majority of our revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products, and to provide related engineering, technical and other services according to customer specifications. These contracts may be fixed price, cost-reimbursable, or time and materials. 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. 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 LMS 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. Contract services revenue, including ISR services, is recognized over time as services are rendered. We elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, such as flight hours for ISR services, the entity may recognize revenue in the amount to which the entity has a right to invoice. Training services are recognized over time using an output method based on days of training completed. 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. Contract costs include labor, materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts.
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 UxS product sales revenue is primarily composed of revenue recognized on contracts for the delivery of UxS systems and spare parts, respectively. Revenue is recognized at the point in time when control transfers to the customer, which generally occurs when title and risk of loss have passed to the customer.
We review cost performance, estimates to complete and variable consideration at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications, including the finalization of undefinitized contract actions, occur. The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. 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 fiscal years ended April 30, 2024, 2023 and 2022, changes in accounting estimates on contracts recognized using the over time method are presented below. Amounts representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or contract modification in accordance with ASC 606. Incentives or penalties and awards applicable to performance on contracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to assess anticipated contract performance.
63
Table of Contents
For the years ended April 30, 2024, 2023 and 2022, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):
Year Ended April 30,
2024
2023
2022
Gross favorable adjustments
$
7,359
$
2,893
$
1,331
Gross unfavorable adjustments
(1,951)
(3,771)
(2,857)
Net adjustments
$
5,408
$
(878)
$
(1,526)
For the year ended April 30, 2024, favorable cumulative catch up adjustments of $7.4 million were primarily due to final cost adjustments on 17 contracts, which individually were not material. For the same period, unfavorable cumulative catch up adjustments of $2.0 million were primarily related to higher than expected costs on 11 contracts. During the year ended April 30, 2024, we revised our estimates of the total expected costs to complete two LMS contracts. 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 $2.7 million.
For the year ended April 30, 2023, favorable cumulative catch up adjustments of $2.9 million were primarily due to final cost adjustments on 23 contracts, which individually were not material. For the same period, unfavorable cumulative catch up adjustments of $3.8 million were primarily related to higher than expected costs on 5 contracts. During the year ended April 30, 2023, 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 $1.9 million.
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 $2.9 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 LMS 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.
Inventories Reserves for Excess and Obsolescence
Our policy for valuation of inventory, including the determination of obsolete or excess inventory, requires us to perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, an estimate of future demand for products within specific time horizons, valuation of existing inventory, as well as product lifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow-moving items. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand and market conditions and record to cost of sales. We may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management.
Intangible Assets – Acquired in Business Combinations
We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocate the purchase price of each acquired business to our respective net tangible and intangible assets. Acquired intangible assets include: 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 of such assets are consumed. Due to the closure of all of our MUAS COCO sites during the three months ended April 30, 2023, we revised the estimated useful life for MUAS customer relationships which resulted in accelerated intangible amortization expenses of $34.1 million during the fiscal year ended April 30, 2023. Additionally, in conjunction with the goodwill
64
Table of Contents
impairment test performed during the year ended April 30, 2023, the remaining intangibles in the MUAS reporting unit were tested for recoverability. The asset recoverability test did not result in an impairment for the remaining intangibles in the MUAS reporting unit. Refer to Note 6—Goodwill for further details.
Goodwill
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 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.
Subsequent to the performance of our annual goodwill impairment test, in May 2023, a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value. Specifically, we received notification that we were not down selected for a U.S. DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit. As a result, we updated our estimates of long-term future cash flows to reflect lower revenue and EBITDA growth rate expectations used in the valuation of the MUAS reporting unit. These changes in estimates, resulted in the recognition of a goodwill impairment charge of $156.0 million in the MUAS reporting unit recorded during the fiscal year ended April 30, 2023.
As of April 30, 2024, our MUAS reporting unit has a goodwill balance of $135.8 million. The estimated fair value of the MUAS reporting unit does not substantially exceed its carrying value due to the impairment recorded during the fourth quarter ended April 30, 2023, resulting in carrying value being equal to estimated fair value. The fair value of the MUAS reporting unit exceeded the carrying value by 10% as of January 28, 2024, the date of the most recent annual goodwill impairment test. Fair value determinations utilized in the quantitative goodwill impairment test require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. Estimated future annual net cash flows based in part upon our ability to obtain contracts from the U.S. DoD and foreign allied nations and negotiate the estimated pricing are considered the most significant, sensitive assumptions. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to long-term operating plans, then MUAS may become impaired in the future. Accordingly, the MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests. During the most recent annual impairment test during the fourth quarter of fiscal year 2024, the estimated fair value of all reporting units, other than MUAS, substantially exceeded their carrying value.
The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature. Actual results can be materially different from the estimates and assumptions. If actual market conditions are less
65
Table of Contents
favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the carrying amounts, we could recognize future impairment charges, the amount of which could be material.
Income Taxes
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. We currently have significant deferred tax assets, which are subject to periodic recoverability assessments. Realizing our deferred tax assets principally depends on our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors, which may result in recording a valuation allowance against those deferred tax assets. We 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 we expect the foreign earnings will be indefinitely reinvested in such foreign jurisdictions.
Fiscal Periods
Our fiscal year ends on April 30. Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday.
66
Table of Contents
Results of Operations
The following table sets forth certain historical consolidated income statement data expressed in dollars (in thousands) and as a percentage of revenue for the periods indicated. Certain amounts may not sum due to rounding.
Fiscal Year Ended April 30,
2024
2023
2022
Revenue
$
716,720
100
%
$
540,536
100
%
$
445,732
100
%
Cost of sales
432,789
60
%
367,022
68
%
304,496
68
%
Gross margin
283,931
40
%
173,514
32
%
141,236
32
%
Selling, general and administrative
114,420
16
%
131,905
24
%
96,434
22
%
Research and development
97,687
14
%
64,255
12
%
54,689
12
%
Impairment of goodwill
—
—
%
156,017
29
%
—
—
%
Income (loss) from continuing operations
71,824
10
%
(178,663)
(33)
%
(9,887)
(2)
%
Interest expense, net
(4,220)
(1)
%
(9,368)
(2)
%
(5,440)
(1)
%
Other expense, net
(4,373)
(1)
%
(346)
—
%
(10,313)
(2)
%
Sale of ownership in HAPSMobile Inc. joint venture
—
—
%
—
—
%
6,497
1
%
Income (loss) before income taxes
63,231
9
%
(188,377)
(35)
%
(19,143)
(4)
%
Provision for (benefit from) income taxes
1,891
—
%
(14,663)
(3)
%
(10,369)
(2)
%
Equity method investment (loss) income, net of tax
(1,674)
—
%
(2,453)
—
%
4,589
1
%
Net income (loss)
59,666
8
%
(176,167)
(33)
%
(4,185)
(1)
%
Net income attributable to noncontrolling interest
—
—
%
(45)
—
%
(3)
—
%
Net income (loss) attributable to AeroVironment, Inc.
$
59,666
8
%
$
(176,212)
(33)
%
$
(4,188)
(1)
%
Effective May 1, 2023, the Company reorganized its product lines into the following segments: UnCrewed Systems (“UxS”) segment, our renamed Unmanned Systems segment, consisting of SUAS, including our recent Tomahawk acquisition, MUAS and UGV product lines; Loitering Munition Systems (“LMS”) segment; and the MacCready Works (“MW”) segment, consisting of the HAPS and the MacCready Works businesses. The following table (in thousands) sets forth our revenue 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 impairment of goodwill and accelerated amortization, intangible amortization, amortization of purchase accounting adjustments, and acquisition related expenses.
Year Ended April 30, 2024
UxS
LMS
MW
Total
Revenue:
Product sales
$
415,074
$
168,863
$
1,834
$
585,771
Contract services
32,932
23,724
74,293
130,949
$
448,006
$
192,587
$
76,127
$
716,720
Segment adjusted income (loss) from operations
$
93,122
$
24,062
$
(24,706)
Year Ended April 30, 2023
UxS
LMS
MW
Total
Revenue:
Product sales
$
268,021
$
84,686
$
355
$
353,062
Contract services
75,889
35,938
75,647
187,474
$
343,910
$
120,624
$
76,002
$
540,536
Segment adjusted income from operations
$
30,568
$
8,074
$
3,664
67
Table of Contents
Year Ended April 30, 2022
UxS
LMS
MW
Total
Product sales
$
194,517
$
46,162
$
4
$
240,683
Contract services
106,226
30,253
68,570
205,049
$
300,743
$
76,415
$
68,574
$
445,732
Segment adjusted income (loss) from operations
$
28,703
$
(2,823)
$
5,794
The Company recorded intangible amortization expense and other purchase accounting adjustments in the following categories on the accompanying consolidated statements of income (loss):
Year Ended April 30,
2024
2023
2022
Cost of sales:
Product sales
$
8,214
$
4,091
$
8,301
Contract services
5,334
9,915
10,331
Selling, general and administrative
5,010
49,561
18,075
Total
$
18,558
$
63,567
$
36,707
Fiscal Year Ended April 30, 2024 Compared to Fiscal Year Ended April 30, 2023
Revenue. Revenue for the fiscal year ended April 30, 2024 was $716.7 million, as compared to $540.5 million for the fiscal year ended April 30, 2023, representing an increase of $176.2 million, or 33%. The increase in revenue was due to an increase in product revenue of $232.7 million, partially offset by a decrease in service revenue of $56.5 million. The increase in product revenue was primarily due to an increase of $147.1 million of product deliveries of our UxS products, including $10.6 million associated with the recent Tomahawk acquisition, and an increase of $84.2 million from the production of our Switchblade products. These increases were primarily driven by increased global demand for our uncrewed systems and loitering munitions systems associated with the current global conflicts as well as U.S. DoD resupply. The decrease in service revenue was primarily due to a decrease of $49.7 million due to the closure of all COCO site locations during fiscal year 2023 and a decrease of $11.1 million in other engineering services and customer-funded R&D activities primarily associated with the shift from development to production of certain LMS products, partially offset by $5.3 million associated with the recent Tomahawk acquisition. We expect the increases in LMS product sales to continue into the fiscal year ending April 30, 2025.
Cost of Sales. Cost of sales for the fiscal year ended April 30, 2024 was $432.8 million, as compared to $367.0 million for the fiscal year ended April 30, 2023, representing an increase of $65.8 million, or 18%. The increase in cost of sales was a result of an increase in product cost of sales of $136.8 million, partially offset by a decrease in service costs of sales of $71.0 million. The increase of $136.8 million in product cost of sales was primarily due to approximately $126 million associated with the increase in product sales volume, an increase in inventory reserve charges of $5.8 million primarily related to the introduction of our next generation products and an increase of $4.1 million in intangible amortization expense primarily resulting from the Tomahawk acquisition. The decrease of $71.0 million in service costs of sales was primarily due to approximately $47 million associated with the decreased service volume, of which $44.4 million is due to the closure of all COCO site locations in the prior year, mix shift of approximately $20 million due to the continuation of services with higher margins than the ceased COCO services, and a decrease of $4.6 million in intangible amortization expense due to intangible assets being fully amortized. Cost of sales for the fiscal year ended April 30, 2024 included $13.5 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $14.0 million for the fiscal year ended April 30, 2023. As a percentage of revenue, cost of sales decreased from 68% to 60%, primarily due to an increase in the proportion of product revenue to total revenue and the prior year COCO accelerated depreciation and amortization expenses resulting in an increase in gross margin from 32% to 40%.
Gross Margin. Gross margin is equal to revenue minus cost of sales.
Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2024 was $114.4 million, or 16% of revenue, as compared to SG&A expense of $131.9 million, or 24% of revenue, for the fiscal year
68
Table of Contents
ended April 30, 2023. The decrease in SG&A expense was primarily due to a decrease of $44.6 million in intangible amortization and other non-cash purchase accounting expenses. The decrease in intangible amortization expense was primarily driven by a decrease in COCO customer relationship amortization of $46.5 million due to the accelerated amortization of COCO customer relationships recorded during the three months ended April 30, 2023, partially offset by an increase of $1.7 million resulting from the Tomahawk acquisition. The decrease in SG&A expense was partially offset by an increase in employee related expenses of $15.7 million driven by an increase in average headcount and expansion of our global business development team, an increase in sales and marketing expense of $6.4 million primarily due to an increase in bid and proposal efforts and an increase in depreciation expense of $1.4 million driven by increased capital requirements to support our growth.
Research and Development. R&D expense for the fiscal year ended April 30, 2024 was $97.7 million, or 14% of revenue, as compared to R&D expense of $64.3 million, or 12% of revenue, for the fiscal year ended April 30, 2023. R&D expense increased by $33.4 million, or 52%, for the fiscal year ended April 30, 2024, 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.
Impairment of Goodwill. During the fiscal year ended April 30, 2023, we recorded a goodwill impairment charge of $156.0 million in the MUAS reporting unit due to a trigger event identified once we received notification that we were not down selected for a U.S. DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit.
Interest Expense, net. Interest expense, net for the fiscal year ended April 30, 2024 was $4.2 million, as compared to interest expense net of $9.4 million for the fiscal year ended April 30, 2023. The decrease in interest expense, net was primarily due to an increase of $2.7 million in interest income due to an increase in the average interest rate earned on our cash balances and a decrease in interest expense of $2.5 million due to lower average outstanding balances on our debt facility, partially offset by higher interest rates applicable to our debt facility.
Other Expense, net. Other expense, net for the fiscal year ended April 30, 2024 was $4.4 million, as compared to other expense, net of $0.3 million for the fiscal year ended April 30, 2023. The increase in other expense, net is primarily due to unrealized losses associated with decreases in fair market value for equity security investments of $3.9 million.
Income Taxes. Our effective income tax rate was 3.0% for the fiscal year ended April 30, 2024, as compared to 7.8% for the fiscal year ended April 30, 2023. The decrease in our effective tax rate was primarily due to the prior year’s loss before income taxes, an increase in the foreign-derived intangible income deduction and an increase in R&D tax credits, partially offset by the prior year non-deductible goodwill impairment expense.
69
Table of Contents
Equity method investment loss, net of tax. Equity method investment loss, net of tax for the fiscal year ended April 30, 2024 was $1.7 million, as compared to $2.5 million for the fiscal year ended April 30, 2023.
Business Segment Results of Operations
UnCrewed Systems
Year Ended
April 30,
April 30,
2024
2023
Revenue:
Product sales
$
415,074
$
268,021
Contract services
32,932
75,889
$
448,006
$
343,910
Segment adjusted income from operations
$
93,122
$
30,568
Revenue. UxS revenue for the fiscal year ended April 30, 2024 was $448.0 million, as compared to $343.9 million for the fiscal year ended April 30, 2023, representing an increase of $104.1 million, or 30%. The increase in revenue was due to an increase in product revenue of $147.1 million, partially offset by a decrease in service revenue of $43.0 million. The increase in product revenue was primarily due to $136.1 million from increased product shipments of our SUAS family of systems and Jump 20 product systems driven by increased global demand for our uncrewed systems associated with the current global conflicts as well as U.S. DoD resupply and $10.6 million associated with the recent Tomahawk acquisition. The decrease in service revenue was primarily due to decreases of $49.7 million from the closure of all COCO site locations during fiscal year 2023, partially offset by an increase of $5.3 million associated with the recent Tomahawk acquisition.
UxS Segment Adjusted Income from Operations. UxS segment adjusted income from operations for the fiscal year ended April 30, 2024 was $93.1 million, as compared to $30.6 million for the fiscal year ended April 30, 2023, representing an increase of $62.5 million. The increase in UxS segment adjusted income from operations was primarily due to an increase of $104.1 million in revenue, partially offset by an increase of $18.3 million in cost of sales excluding intangible amortization. The increase of $18.3 million in costs of sales excluding intangible amortization is primarily due to an increase of approximately $65 million associated with the increased sales volume and $6.0 million from an increase in inventory reserve charges primarily related to the introduction of our next generation products, partially offset by shift in mix of approximately $53 million due to a higher proportion of international products sales and lower levels of COCO service revenue. The increase in revenue was also partially offset by an increase in SG&A excluding intangible amortization of $14.6 million, driven by an increase in sales and marketing expense and employee related expenses of $3.4 million and $2.8 million, respectively. The sales and marketing and employee related expenses were associated with the increase in average headcount to support our growth and expansion of our global business development team, and an increase in R&D of $8.7 million due to development activities regarding enhanced capabilities for our products.
Loitering Munitions Systems
Year Ended
April 30,
April 30,
2024
2023
Revenue:
Product sales
$
168,863
$
84,686
Contract services
23,724
35,938
$
192,587
$
120,624
Segment adjusted income from operations
$
24,062
$
8,074
70
Table of Contents
Revenue. LMS revenue for the fiscal year ended April 30, 2024 was $192.6 million, as compared to $120.6 million for the fiscal year ended April 30, 2023, representing an increase of $72.0 million, or 60%. The increase in revenue was due to an increase in product revenue of $84.2 million, partially offset by a decrease in service revenue of $12.2 million. The increase in product revenue was primarily due to increased production of our LMS systems due to global demand for our LMS systems associated with the current global conflicts as well as U.S. DoD resupply. The decrease in service revenue was primarily due to a decrease of $11.9 million in customer-funded R&D activities primarily associated with the shift from development to production of certain Switchblade products.
LMS Segment Adjusted Income from Operations. LMS segment adjusted income from operations for the fiscal year ended April 30, 2024 was $24.1 million, as compared to $8.1 million for the fiscal year ended April 30, 2023, representing an increase of $16.0 million. The increase in LMS segment adjusted income from operations was primarily due to an increase of $72.0 million in revenue; partially offset by an increase of $46.5 million in cost of sales excluding amortization of intangibles, of which approximately $46 million is associated with the increased sales volume. The increase in revenue was also partially offset by an increase in SG&A excluding amortization of intangibles of $6.9 million, driven by an increase in sales and marketing expense and employee related expenses of $2.5 million and $2.3 million, respectively, associated with the increase in average headcount to support our growth and expansion of our global business development team. The increase in revenue was also partially offset by an increase in R&D of $2.6 million due to development activities regarding enhanced capabilities for our products.
MacCready Works
Year Ended
April 30,
April 30,
2024
2023
Revenue:
Product sales
$
1,834
$
355
Contract services
74,293
75,647
$
76,127
$
76,002
Segment adjusted (loss) income from operations
$
(24,706)
$
3,664
Revenue. MW revenue for the fiscal year ended April 30, 2024 was $76.1 million, as compared to $76.0 million for the fiscal year ended April 30, 2023, representing an increase of $0.1 million. The increase in revenue was primarily due to an increase of $1.5 million in product sales, partially offset by a decrease of $1.4 million in service revenue. The increase in product sales is primarily due to the shift from development to early-stage production of certain products. The decrease in service revenue is primarily due to a decrease in engineering services and customer-funded R&D due to delays in anticipated contract awards associated with the government budget authorization process.
MW Segment Adjusted (Loss) Income from Operations. MW segment adjusted loss from operations for the fiscal year ended April 30, 2024 was $24.7 million, as compared to MW segment adjusted income from operations of $3.7 million for the fiscal year ended April 30, 2023, representing an increased loss of $28.4 million. The increase in MW adjusted loss from operations was primarily due to an increase in R&D of $22.2 million due to increased investments largely related to HAPS development efforts to support the decrease in customer-funded R&D programs in part due to delays in the establishment of the government fiscal year 2024 budget, an increase in SG&A excluding amortization of intangibles of $4.8 million driven by increased employee related expenses of $2.4 million associated with the increase in average headcount to support our growth and expansion and an increase of $1.5 million in cost of sales excluding amortization of intangibles driven by increased sales mix of approximately $1 million due to the shift from development to early-stage production of certain products.
Fiscal Year Ended April 30, 2023 Compared to Fiscal Year Ended April 30, 2022
Revenue. Revenue for the fiscal year ended April 30, 2023 was $540.5 million, as compared to $445.7 million for the fiscal year ended April 30, 2022, representing an increase of $94.8 million, or 21%. The increase in revenue was due to an increase in product revenue of $112.4 million, partially offset by a decrease in service revenue of $17.6 million. The increase in product revenue was due to an increase of $73.5 million of product deliveries of our UxS
71
Table of Contents
products and an increase of $38.5 million from the production of our Switchblade products. These increases were primarily driven by increased global demand for our uncrewed systems and loitering munitions associated with the current global conflicts. The decrease in service revenue was primarily due to a decrease of $38.3 million due to the closure of all COCO site locations during fiscal year 2023, partially offset by an increase of $17.0 million in customer-funded R&D and engineering services primarily due to an increase in development activities related to the creation of new capabilities for customers and an increase in training and repair services of $3.7 million associated with the increased sales volume. We expect the lower levels of MUAS service revenues to continue into fiscal 2024 due to the closure of all of our MUAS COCO operations site locations. Due to the higher backlog, the increase in the UxS product revenues as compared to the prior year is expected to continue through the at least first half of the fiscal year ending April 30, 2024.
Cost of Sales. Cost of sales for the fiscal year ended April 30, 2023 was $367.0 million, as compared to $304.5 million for the fiscal year ended April 30, 2022, representing an increase of $62.5 million, or 21%. The increase in cost of sales was a result of an increase in product cost of sales of $62.8 million, partially offset by a decrease in service costs of sales of $0.3 million. The increase in product cost of sales was primarily due to an increase of approximately $61 million associated with the increase in product revenue and an increase of $5.9 million in inventory reserve charges primarily related to the introduction of our next generation products, partially offset by a decrease of $4.2 million in intangible amortization primarily due to intangible assets and other purchase accounting adjustments being fully amortized. The decrease of $0.3 million in service costs of sales was primarily related to approximately $13 million associated with the decreased service volume, driven by the closure of all COCO site locations, largely offset by accelerated depreciation charges of certain deployed fixed assets related to the closure of all of our MUAS site locations of $11.5 million. Cost of sales for the fiscal year ended April 30, 2023 included $14.0 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $18.6 million for the fiscal year ended April 30, 2022. As a percentage of revenue, cost of sales remained consistent at 68%, with an increase in the proportion of product revenue to total revenues offset by the MUAS accelerated depreciation charges resulting in gross margin remaining consistent at 32%.
Gross Margin. Gross margin is equal to revenue minus cost of sales.
Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2023 was $131.9 million, or 24% of revenue, as compared to SG&A expense of $96.4 million, or 22% of revenue, for the fiscal year ended April 30, 2022. The increase in SG&A expense was primarily due to the $31.4 million of accelerated amortization of COCO customer relationships recorded during the three months ended April 30, 2023 and an increase in employee related expenses of $3.9 million driven by the acquisitions of acquisitions of Arcturus, ISG and Telerob, partially offset by a decrease of $3.5 million in acquisition-related expenses for those acquisitions incurred during fiscal year ended April 30, 2022. SG&A included $50.9 million, inclusive of $34.1 million of MUAS accelerated intangible asset amortization expenses, and $22.9 million of intangible amortization expenses and acquisition-related expenses for the fiscal year ended April 30, 2023 and 2022, respectively.
Research and Development. R&D expense for the fiscal year ended April 30, 2023 was $64.3 million, or 12% of revenue, as compared to R&D expense of $54.7 million, or 12% of revenue, for the fiscal year ended April 30, 2022. R&D expense increased by $9.6 million, or 17%, for the fiscal year ended April 30, 2023, 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.
Impairment of Goodwill. In May 2023, a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value. Specifically, we received notification that we were not down selected for a U.S. DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit. As a result, we updated our estimates of long-term future cash flows to reflect lower revenue and EBITDA growth rate expectations used in the valuation of the MUAS reporting unit. These changes in estimates, resulted in the recognition of a goodwill impairment charge of $156.0 million in the MUAS reporting unit.
Interest Expense, net. Interest expense, net for the fiscal year ended April 30, 2023 was $9.4 million, as compared to interest expense net of $5.4 million for the fiscal year ended April 30, 2022. The increase in interest
72
Table of Contents
expense, net was primarily due to an increase of $4.8 million in interest expense resulting from higher interest rates on our debt facility, partially offset by lower average outstanding balances.
Other Expense, net. Other expense, net for the fiscal year ended April 30, 2023 was $0.3 million, as compared to other expense, net of $10.3 million for the fiscal year ended April 30, 2022. Other expense, net for the fiscal year ended April 30, 2023 included unrealized losses associated with decreases in the fair market value for equity security investments. Other expense, net for the fiscal year ended April 30, 2022 included $10.0 million of expense related to the Webasto legal settlement.
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 7.8% for the fiscal year ended April 30, 2023, as compared to 54.2% for the fiscal year ended April 30, 2022. The decrease in our effective tax rate was primarily due to the loss before income taxes, non-deductible goodwill impairment expense, and foreign-derived intangible income deduction, partially offset by R&D tax credits.
Equity method investment (loss) income, net of tax. Equity method investment loss, net of tax for the fiscal year ended April 30, 2023 was $(2.5) million, as compared to equity method investment income, net of $4.6 million for the fiscal year ended April 30, 2022. In March 2022, the Company sold its 7% equity interest in HAPSMobile to SoftBank. Subsequent to the equity interest sale in HAPSMobile during the three months ended April 30, 2022, equity method investment loss, net of tax relates to activity of the investments in limited partnership funds.
Business Segment Results of Operations
UnCrewed Systems
Year Ended
April 30,
April 30,
2023
2022
Revenue:
Product sales
$
268,021
$
194,517
Contract services
75,889
106,226
$
343,910
$
300,743
Segment adjusted income from operations
$
30,568
$
28,703
Revenue. UxS revenue for the fiscal year ended April 30, 2023 was $343.9 million, as compared to $300.7 million for the fiscal year ended April 30, 2023, representing an increase of $43.2 million, or 14%. The increase in revenue was due to an increase in product revenue of $73.5 million, partially offset by a decrease in service revenue of $30.3 million. The increase in product revenue was primarily due to increased product shipments of our SUAS, UGV and Jump 20 family of systems driven by increased global demand for our uncrewed systems associated with the current global conflicts as well as U.S. DoD resupply. The decrease in service revenue was primarily due to decreases of $38.3 million from the closure of all COCO site locations during fiscal year 2023, partially offset by an increase in customer-funded R&D and engineering services of $4.5 million primarily due to expanded services provided by MUAS and an increase in training and repair services of $3.4 million associated with the increased sales volume.
UxS Segment adjusted income from operations. UxS segment adjusted income from operations for the fiscal year ended April 30, 2023 was $30.6 million, as compared to $28.7 million for the fiscal year ended April 30, 2022, representing an increase of $1.9 million. The increase in UxS segment adjusted income from operations was primarily due to an increase of $43.2 million in revenue, partially offset by an increase of $33.4 million in cost of sales excluding intangible amortization. The increase in cost of sales excluding intangible amortization was primarily related to approximately $27 million associated with the increased sales volume, accelerated depreciation charges of $11.5 million for certain deployed fixed assets related to the closure of all of our MUAS site locations, and an increase in inventory reserve charges of $3.8 million primarily related to the introduction of our next generation products, partially offset by a shift in
73
Table of Contents
mix of approximately $9 million due to a higher proportion of international products sales and lower levels of COCO service revenue. The increase in revenue was also partially offset by an in increase in R&D of $7.9 million due to development activities regarding enhanced capabilities for our products.
Loitering Munitions Systems
Year Ended
April 30,
April 30,
2023
2022
Revenue:
Product sales
$
84,686
$
46,162
Contract services
35,938
30,253
$
120,624
$
76,415
Segment adjusted income (loss) from operations
$
8,074
$
(2,823)
Revenue. LMS revenue for the fiscal year ended April 30, 2023 was $120.6 million, as compared to $76.4 million for the fiscal year ended April 30, 2022, representing an increase of $44.2 million, or 58%. The increase in revenue was due to an increase in product revenue of $38.5 million and an increase in service revenue of $5.7 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our LMS systems associated with the current global conflicts as well as U.S. DoD resupply. The increase in service revenue was primarily due to an increase of $5.4 million in engineering services and customer-funded R&D activities primarily associated with development activities regarding enhanced capabilities for our customers.
LMS Segment adjusted income (loss) from operations. LMS segment adjusted income from operations for the fiscal year ended April 30, 2023 was $8.1 million, as compared to LMS segment adjusted loss from operations of ($2.8) million for the fiscal year ended April 30, 2022, representing an increase of $10.9 million. The increase in LMS segment adjusted income from operations was primarily due to an increase of $44.2 million in revenue, partially offset by an increase of $26.0 million in cost of sales excluding intangible amortization was primarily related to approximately $30 million associated with the increased sales volume, partially offset by sales mix of approximately $4 million due to new contract awards with higher estimated margins. The increase in revenue was also partially offset by an increase in SG&A excluding intangible amortization of $4.4 million driven by increased sales and marketing activity in support of additional bid and proposal efforts, and an increase in R&D of $2.9 million due to increased development activities regarding enhanced capabilities for our products.
MacCready Works
Year Ended
April 30,
April 30,
2023
2022
Revenue:
Product sales
$
355
$
4
Contract services
75,647
68,570
$
76,002
$
68,574
Segment adjusted income from operations
$
3,664
$
5,794
74
Table of Contents
Revenue. MW revenue for the fiscal year ended April 30, 2023 was $76.0 million, as compared to $68.6 million for the fiscal year ended April 30, 2022, representing an increase of $7.4 million, or 11%. The increase in revenue was primarily due to an increase of $7.1 million in service revenue. The increase in service revenue is primarily due to an increase in engineering services and customer-funded R&D efforts of $7.1 million due to an increase in development activities related to the creation of new capabilities for customers.
MW Segment adjusted income from operations. MW segment adjusted income from operations for the fiscal year ended April 30, 2023 was $3.7 million, as compared to $5.8 million for the fiscal year ended April 30, 2022, representing a decrease of $2.1 million. The decrease in MW adjusted income from operations was primarily due to an increase of $7.9 million in cost of sales primarily due to approximately $5 million associated with the increased service volume and sales mix of approximately $3 million due to higher margins on newer service contracts. The decrease in MW segment adjusted income from operations was also driven by an increase in SG&A excluding amortization of $2.8 million driven by $3.8 million in increased employee related expenses and sales and marketing activity driven by the ISG acquisition, partially offset by an increase of $7.4 million in revenue and a decrease in R&D of $1.2 million due to a decrease in internally developed capabilities for our products.
Liquidity and Capital Resources
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 October 28, 2023, we 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 proceeds received, net of equity issuance costs. During the fiscal year ended April 30, 2024, 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.
On February 19, 2021 in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement (as amended February 4, 2022 and June 6, 2023, the “Credit Agreement”) for (i) a five-year $100 million revolving credit facility, which includes a $25 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. 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 $15.5 million as of April 30, 2024. As of April 30, 2024, approximately $84.5 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 11—Debt to our financial statements for further details. In addition, Telerob has a line of credit of €5.5 million (approximately $5.9 million) available for issuing letters of credit of which €0.1 million (approximately $0.1 million) was outstanding as of April 30, 2024.
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 acquisitions of Arcturus, ISG, Telerob, Planck and Tomahawk. The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers. We believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure requirements, future obligations related to the acquisitions and obligations under the Credit Facilities during the next twelve months. There can be no assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or draw on our Credit Facilities. We
75
Table of Contents
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, support our credit facility, introducing new products and enhancing existing products, marketing acceptance and adoption of our products and services. Our future capital requirements, to a certain extent, are also subject to general conditions in or affecting the defense industry and are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from 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 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.
Our working capital requirements vary by contract type. 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.
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 $11.1 million was remaining at April 30, 2024. The remaining contributions are anticipated to be paid over the next three fiscal years. During the fiscal year ended April 30, 2022, the Telerob Seller earned the 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 $134.4 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, which requires R&D expenditures to be capitalized and amortized over a 5-year period for tax return purposes, we experienced an increase in cash paid for U.S. federal income taxes during the fiscal year ended April 30, 2024 and expect higher levels of cash taxes in in future fiscal years relative to historical periods. On May 31, 2024, we prepaid $8.0 million of the Term Loan principle.
Cash Flows
The following table provides our cash flow data from continuing operations for the periods ended:
Fiscal Year Ended April 30,
2024
2023
2022
(In thousands)
Net cash provided by (used in) operating activities
$
15,292
$
11,400
$
(9,618)
Net cash used in investing activities
$
(51,714)
$
(7,003)
$
(52,288)
Net cash (used in) provided by financing activities
$
(22,852)
$
50,834
$
(16,607)
Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities for the fiscal year ended April 30, 2024 increased by $3.9 million to $15.3 million, as compared to $11.4 million for the fiscal year ended April 30, 2023. This increase in net cash provided by operating activities was primarily due an increase in net income of $235.8 million, partially offset by a decrease in non-cash expenses of $209.3 million, primarily due to a goodwill impairment of $156.0 million in the fiscal year ended April 30, 2023 and a decrease in depreciation and amortization, largely due to $34.1 million of accelerated MUAS intangible amortization expenses in the prior year end, partially offset by an increase in stock-based compensation and an in increase in inventory reserve charges primarily related to the introduction of our next generation products and an increase in the cash used as a result of changes in operating assets and liabilities largely resulting from increases in unbilled receivables and retentions and prepaid expenses and other assets, partially offset by decreases in accounts receivables and inventory due to year over year timing differences.
76
Table of Contents
Net cash provided by operating activities for the fiscal year ended April 30, 2023 increased by $21.0 million to $11.4 million, compared to net cash used in operating activities of $9.6 million for the fiscal year ended April 30, 2022. This increase in net cash provided by operating activities was primarily due to an increase in non-cash expenses of $199.4 million, primarily due to a goodwill impairment of $156.0 million, an increase in depreciation and amortization, largely due to $34.1 million of accelerated MUAS intangible amortization expenses, losses from equity method investments, inventory reserve and stock based compensation, partially offset by a decrease in deferred income taxes and loss on disposal of property and equipment. The increase in non-cash expenses was partially offset by an increase in net loss of $172.0 million and an increase in the cash used as a result of changes in operating assets and liabilities largely resulting from increases in accounts receivable and inventory primarily due to year over year timing differences, partially offset by decreases in unbilled receivables and retentions and increases in accounts payable due to year over year timing differences.
Cash Used in Investing Activities. Net cash used in investing activities increased by $44.7 million to $51.7 million for the fiscal year ended April 30, 2024, compared to $7.0 million for the fiscal year ended April 30, 2023. The increase in net cash used in investing activities was primarily due to a decrease in net redemptions of available-for-sale investments of $24.7 million, an increase in business acquisitions, net of cash acquired of $19.1 million, and an increase in the acquisition of property and equipment of $8.1 million, partially offset by a decrease in equity security investments of $5.1 million. During the fiscal years ended April 30, 2024 and 2023, we used cash to purchase property and equipment totaling $23.0 million and $14.9 million, respectively.
Net cash used in investing activities decreased by $45.3 million to $7.0 million for the fiscal year ended April 30, 2023, compared to net cash used in investing activities of $52.3 million for the fiscal year ended April 30, 2022. The decrease in net cash used in investing activities was primarily due to a decrease in business acquisitions, net of cash acquired of $41.0 million, a decrease in net purchases of available-for-sale investments of $12.8 million and a decrease in the acquisition of property and equipment of $7.4 million, partially offset by an increase in equity security investments of $5.1 million, and a decrease in the proceeds from the sale of ownership in equity method investment and from loan repayment of $6.5 million and $4.3 million, respectively. During the fiscal years ended April 30, 2023 and 2022, we used cash to purchase property and equipment totaling $14.9 million and $22.3 million, respectively.
Cash (Used in) Provided by Financing Activities. Net cash used in financing activities increased by $73.7 million to $22.9 million for the fiscal year ended April 30, 2024, compared to net cash provided by financing activities of $50.8 million for the fiscal year ended April 30, 2023. The increase in net cash used in financing activities was primarily due to an increase in the principal payments on the debt facility of $52.0 million and a decrease in the proceeds from shares issued, net of issuance costs of $16.2 million in the fiscal year ended April 30, 2023, a decrease in the exercise of stock options of $2.3 million and increase in the payment of contingent consideration of $2.1 million.
Net cash provided by financing activities increased by $67.4 million to $50.8 million for the fiscal year ended April 30, 2023, compared to net cash used in financing activities of $16.6 million for the fiscal year ended April 30, 2022. The increase in net cash provided by financing activities was primarily due to the proceeds from shares issued, net of issuance costs of $104.6 million in the fiscal year ended April 30, 2022 and a decrease in holdback and retention payments of $7.8 million, partially offset by an increase in the principal payments on the debt facility of $45.0 million.
77
Table of Contents
Contractual Obligations
The following table describes our commitments to settle contractual obligations as of April 30, 2024:
Payments Due By Period (2)
Less Than
More Than
Total
1 Year
1 to 3 Years
3 to 5 Years
5 Years
(In thousands)
Operating lease obligations
$
38,447
$
10,722
$
15,986
$
10,111
$
1,628
Purchase obligations(1)
125,322
125,322
—
—
—
Long-term debt obligations
28,000
10,000
18,000
—
—
Total
$
191,769
$
146,044
$
33,986
$
10,111
$
1,628
(1) Consists of all cancelable and non-cancelable purchase orders as of April 30, 2024.
(2) Not included in the table above is additional capital contributions of $11.1 million committed under the terms of a limited partnership agreement.
Recently Adopted Accounting Standards
The Company did not adopt any accounting standards during the fiscal year ended April 30, 2024.
New Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses reported to the CODM. ASU 2023-07 also requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 is adopted retrospectively. We are evaluating the potential impact of this adoption on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires updates to the rate reconciliation, income taxes paid and other disclosures. The new standard is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. ASU 2023-09 is adopted retrospectively. We are evaluating the potential impact of this adoption on its consolidated financial statements.