What changed in this filing

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Item 1. Financial Statements

2024-12-05 compared with 2024-09-05 · 218 added, 116 removed, 578 unchanged (37% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 58 at July 27, 2024 and $ 159 at April 30, 2024

Accounts receivable, net of allowance for doubtful accounts of $ 92 at October 26, 2024 and $ 159 at April 30, 2024

Unbilled receivables and retentions

27 unchanged sentences

Authorized shares— 10,000,000 ;

none issued or outstanding at July 27, 2024 and April 30, 2024

none issued or outstanding at October 26, 2024 and April 30, 2024

Common stock, $ 0.0001 par value:

Authorized shares— 100,000,000

Issued and outstanding shares— 28,206,480 shares at July 27, 2024 and 28,134,438 shares at April 30, 2024

Issued and outstanding shares— 28,205,237 shares at October 26, 2024 and 28,134,438 shares at April 30, 2024

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Product sales

10 unchanged sentences

Interest expense, net

Other expense, net

Other income (expense), net

Income before income taxes

Provision for income taxes

(Benefit from) provision for income taxes

Equity method investment income (loss), net of tax

6 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income:

4 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended July 27, 2024 and July 29, 2023 (Unaudited)

For the three months ended October 26, 2024 and October 28, 2023 (Unaudited)

(In thousands except share data)

Comprehensive

Balance at April 30, 2024

Balance at July 27, 2024

Foreign currency translation

4 unchanged sentences

Stock based compensation

Balance at October 26, 2024

Comprehensive

Balance at July 29, 2023

Foreign currency translation

Restricted stock awards

Restricted stock awards forfeited

Tax withholding payment related to net share settlement of equity awards

Shares issued, net of issuance costs

Issuance of common stock for business acquisition

Stock based compensation

Balance at October 28, 2023

AeroVironment, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the six months ended October 26, 2024 and October 28, 2023 (Unaudited)

(In thousands except share data)

Comprehensive

1 unchanged sentence

Foreign currency translation

Stock options exercised

Restricted stock awards

1 unchanged sentence

Tax withholding payment related to net share settlement of equity awards

Issuance cost for shares issued

Stock based compensation

Balance at July 29, 2023

Balance at October 26, 2024

Comprehensive

Balance at April 30, 2023

Foreign currency translation

Restricted stock awards

Restricted stock awards forfeited

Tax withholding payment related to net share settlement of equity awards

Shares issued, net of issuance costs

Issuance of common stock for business acquisition

Stock based compensation

Balance at October 28, 2023

AeroVironment, Inc.

1 unchanged sentence

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

7 unchanged sentences

Non-cash lease expense

Loss on foreign currency transactions

Gain (loss) on foreign currency transactions

Unrealized loss on available-for-sale equity securities, net

13 unchanged sentences

Contributions in equity method investments

Acquisition of intangibles

Business acquisitions, net of cash acquired

Net cash used in investing activities

1 unchanged sentence

Principal payments of term loan

Holdback and retention payments for business acquisition

Proceeds from shares issued, net of issuance costs

Proceeds from long-term debt

Payment of debt issuance costs

1 unchanged sentence

Exercise of stock options

Net cash used in financing activities

Net cash (used in) provided by financing activities

Effects of currency translation on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosures of cash flow information

Cash paid (refunded), net during the period for:

Cash paid, net during the period for:

Non-cash activities

Issuance of common stock for business acquisition

Change in foreign currency translation adjustments

11 unchanged sentences

The Company’s reportable segments are as follows:

Uncrewed Systems (“UxS”) —The UxS segment, which consists of the former small uncrewed aircraft systems (“SUAS”), medium uncrewed aircraft systems (“MUAS”) and uncrewed ground vehicles (“UGV”) segments and the acquired Tomahawk, focuses primarily on small UAS products designed to operate reliably at lower altitudes in a wide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information as well as related support including training, spare and accessory parts, product repair, product replacement, maintenance and upgrades;

medium UAS products designed to operate reliably at medium altitudes with longer range while carrying larger payloads including airborne platforms, payloads and payload integration, and ground support equipment and other items and services related generally to uncrewed aircraft systems historically including ISR services;

UGV products designed to help responders remove, contain or neutralize these hazards in situations where improvised explosive devices, caustic chemicals, nuclear, radiological or biological hazards or violent individuals represent significant danger to humans;

and AI-enabled common control and communication solutions that allow any uncrewed system to be controlled from a common user interface while aggregating data from multiple platforms to provide real time intelligence.

(“Tomahawk”), which was acquired on September 15, 2023, focuses primarily on (i) small UAS products designed to operate reliably at lower altitudes in a wide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information as well as related support including training, spare and accessory parts, product repair, product replacement, maintenance and upgrades;

(ii) medium UAS products designed to operate reliably at medium altitudes with longer range while carrying larger payloads including airborne platforms, (iii) payloads and payload integration, ground support equipment and other items and services related generally to uncrewed aircraft systems historically including ISR services;

(iv) UGV products designed to help responders remove, contain or neutralize hazards in situations where improvised explosive devices, caustic chemicals, nuclear, radiological or biological hazards or violent individuals represent significant danger to humans;

and (v) AI-enabled common control and communication solutions that allow any uncrewed system to be controlled from a common user interface while aggregating data from multiple platforms to provide real time intelligence.

Loitering Munitions Systems (“LMS”) —The LMS segment, which consists of the former Tactical Missile Systems segment, focuses primarily on tube-launched aircraft that deploy with the push of a button, fly at higher speeds than small UAS products, and perform either effects delivery or reconnaissance missions, and related support services including training, spare parts, product repair, and product replacement.

8 unchanged sentences

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included.

The results of operations for the three months ended July 27, 2024 are not necessarily indicative of the results for the full year ending April 30, 2025.

The results of operations for the three and six months ended October 26, 2024 are not necessarily indicative of the results for the full year ending April 30, 2025.

For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2024, included in the Company’s Annual Report on Form 10-K.

4 unchanged sentences

All intercompany accounts and transactions have been eliminated.

On September 15, 2023, the Company closed its acquisition of Tomahawk Robotics, Inc.

(“Tomahawk”) pursuant to a merger agreement, and post-acquisition, Tomahawk has been incorporated into the UxS segment.

On September 15, 2023, the Company closed its acquisition of Tomahawk pursuant to a merger agreement, and post-acquisition, Tomahawk has been incorporated into the UxS segment.

The assets, liabilities and operating results of Tomahawk have been included in the Company’s unaudited condensed consolidated financial statements.

Refer to Note 16—Business Acquisitions for further details.

On November 13, 2024, the Company formed the Archangel Merger Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of the Company (“Merger Sub”), for the purpose of the announced acquisition with BlueHalo Financing Topco, LLC (“Blue Halo”).

Refer to Note 19—Subsequent Events for further details.

Recently Adopted Accounting Standards

The Company did not adopt any accounting standards during the three months ended July 27, 2024.

The Company did not adopt any accounting standards during the six months ended October 26, 2024.

Revenue Recognition

5 unchanged sentences

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.

Revenue is measured at the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its observable standalone selling price for products and services.

7 unchanged sentences

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 is composed of revenue recognized on contracts for the provision of services, including repairs and maintenance, training, engineering design,

development and prototyping activities, and technical support services.

Contract services revenue is recognized over time as services are rendered.

Typically, revenue is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.

Contract services revenue, which historically included revenue from intelligence, surveillance, and reconnaissance (“ISR”) services, is recognized over time as services are

Contract services revenue, which historically included revenue from intelligence, surveillance, and reconnaissance (“ISR”) services, is recognized over time as services are rendered.

In accordance with ASC 606, the Company 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.

7 unchanged sentences

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.

On July 27, 2024, the Company had approximately $ 372,904,000 of remaining performance obligations under fully funded contracts with its customers, which the Company also refers to as funded backlog.

The Company currently expects to recognize approximately 85 % of the remaining performance obligations as revenue in fiscal 2025 and the remaining 15 % in fiscal 2026 .

On October 26, 2024, the Company had approximately $ 467,094,000 of remaining performance obligations under fully funded contracts with its customers, which the Company also refers to as funded backlog.

The Company currently expects to recognize approximately 72 % of the remaining performance obligations as revenue in fiscal 2025 and the remaining 28 % in fiscal 2026 or beyond.

The Company collects sales, value added, and other taxes concurrent with revenue producing activities, which are excluded from revenue when they are both imposed on a specific transaction and collected from a customer.

10 unchanged sentences

In addition, the Company includes the estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the related uncertainty is resolved.

These estimates are based on historical award experience, anticipated performance and the Company’s best judgment at the time.

These estimates are based on historical award experience, anticipated

performance and the Company’s best judgment at the time.

Based on experience in estimating these amounts, they are included in the transaction price of the Company’s contracts and the associated remaining performance obligations.

As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company regularly reviews and updates its contract-related estimates.

Changes in cumulative revenue estimates, due to changes in the estimated transaction price or cost estimates, are recorded using a cumulative catch-up adjustment in the

period identified for contracts with performance obligations recognized over time.

Changes in cumulative revenue estimates, due to changes in the estimated transaction price or cost estimates, are recorded using a cumulative catch-up adjustment in the period identified for contracts with performance obligations recognized over time.

Changes in cumulative revenue estimates due to changes in the estimated transaction price are recorded using a cumulative catch-up adjustment in the period identified for contracts with performance obligations at a point in time, including undefinitized contract actions.

1 unchanged sentence

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter it is identified, and it is recorded in other current liabilities.

The balance of forward loss reserves as of July 27, 2024 and April 30, 2024 was $ 496,000 and $ 374,000 , respectively.

The balance of forward loss reserves as of October 26, 2024 and April 30, 2024 was $ 130,000 and $ 374,000 , respectively.

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.

No adjustment on the forward loss reserve for any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three months ended July 27, 2024 or July 29, 2023, respectively.

No adjustment on the forward loss reserve for any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three and six months ended October 26, 2024 or October 28, 2023, respectively.

The impact of adjustments in contract estimates on the Company’s operating earnings can be reflected in either operating costs and expenses, or revenue.

The aggregate impact of adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was not material for the three month period ended July 27, 2024 or July 29, 2023, respectively.

No adjustment on any one contract was material to the Company’s unaudited condensed consolidated financial statements for the three month periods ended July 27, 2024 or July 29, 2023.

The aggregate impact of adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was $ 6,973,000 and $ 8,555,000 for the three and six month periods ended October 26, 2024, respectively.

During the three and six months ended October 26, 2024, the Company definitized certain LMS undefinitized contract actions.

The aggregate impact of these cumulative catch-up revenue adjustments for the contract definitization was an increase to revenue of approximately $ 9,870,000 .

The aggregate impact of adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was $ 2,817,000 and $ 3,544,000 for the three and six months ended October 28, 2023, respectively.

During the three and six months ended October 28, 2023, the Company revised its 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 $ 1,716,000 and $ 1,439,000 , respectively.

Revenue by Category

1 unchanged sentence

Three Months Ended

Six Months Ended

Revenue by segment

1 unchanged sentence

Three Months Ended

Six Months Ended

Revenue by contract type

7 unchanged sentences

Three Months Ended

Six Months Ended

Revenue by customer category

1 unchanged sentence

Three Months Ended

Six Months Ended

Revenue by geographic location

2 unchanged sentences

Three Months Ended

Six Months Ended

Revenue percentage by recognition method

9 unchanged sentences

For the Company’s product revenue, the Company generally receives cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting in billed accounts receivable.

Changes in the contract asset and liability balances during the three month period ended July 27, 2024 were not materially impacted by any other factors.

Changes in the contract asset and liability balances during the three and six month periods ended October 26, 2024 were not materially impacted by any other factors.

For the Company’s contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.

Revenue recognized for the three month period ended July 27, 2024 that was included in customer advances balances as of April 30, 2024 was $ 5,486,000 and revenue recognized for the three month period ended July 29, 2023 that was included in customer advances balances as of April 30, 2023 was $ 2,538,000 .

Revenue recognized for the three and six month periods ended October 26, 2024 that was included in customer advances balances as of April 30, 2024 was $ 2,475,000 and $ 7,961,000 .

Revenue recognized for the three and six month periods ended October 28, 2023 that was included in customer advances balances as of April 30, 2023 was $ 696,000 and $ 2,416,000 .

Cost to Fulfill a Contract with a Customer

1 unchanged sentence

Contracts with Customers.

The assets related to costs to

fulfill contracts with customers are capitalized and amortized over the period the related performance obligations are satisfied.

As of July 27, 2024 the Company’s costs to fulfill were $ 4,396,000 , and as of April 30, 2024, the Company’s costs to fulfill were not material.

The assets related to costs to fulfill contracts with customers are capitalized and amortized over the period the related performance obligations are satisfied.

As of October 26, 2024, the Company had no costs to fulfill and as of April 30, 2024, the Company’s costs to fulfill were not material.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assess performance.

As of July 27, 2024, the Company’s CODM, the Chief Executive Officer, makes operating decisions, assesses performance and makes resource allocation decisions, including the allocation for research and development (“R&D”).

As of October 26, 2024, the Company’s CODM, the Chief Executive Officer, makes operating decisions, assesses performance and makes resource allocation decisions, including the allocation for research and development (“R&D”).

Accordingly, the Company identifies three reportable segments.

15 unchanged sentences

The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable government contracts to be recorded at actual rates unless collectability is not reasonably assured.

At July 27, 2024 and April 30, 2024, the Company had no reserve for incurred cost claim audits.

At October 26, 2024 and April 30, 2024, the Company had no reserve for incurred cost claim audits.

Earnings Per Share

2 unchanged sentences

Three Months Ended

July 27, 2024

July 29, 2023

Six Months Ended

October 26, 2024

October 28, 2023

October 26, 2024

October 28, 2023

Denominator for basic earnings per share:

2 unchanged sentences

Denominator for diluted earnings per share

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 72 for the three months ended July 27, 2024.

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 738 for the three months ended July 29, 2023.

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 83 and 180 for the three and six months ended October 26, 2024.

Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 1,284 and 1,082 for the three and six months ended October 28, 2023.

Recently Issued Accounting Standards

26 unchanged sentences

Three Months Ended

July 27, 2024

July 29, 2023

Six Months Ended

October 26, 2024

October 28, 2023

October 26, 2024

October 28, 2023

Net losses recognized during the period on equity securities

7 unchanged sentences

● Level 3—Inputs to the valuation that are unobservable inputs for the asset or liability.

The Company’s financial assets measured at fair value on a recurring basis at July 27, 2024, were as follows (in thousands):

The Company’s financial assets measured at fair value on a recurring basis at October 26 , 2024, were as follows (in thousands):

Fair Value Measurement Using

3 unchanged sentences

Equity securities

The Company had no financial liabilities measured at fair value on a recurring basis at July 27, 2024.

The Company had no financial liabilities measured at fair value on a recurring basis at October 26 , 2024.

The Company’s financial assets measured at fair value on a recurring basis at April 30, 2024, were as follows (in thousands):

5 unchanged sentences

The Company had no financial liabilities measured at fair value on a recurring basis at April 30, 2024.

On September 12, 2022, the Company invested $ 5,000,000 and acquired 500,000 shares and 500,000 privately placed, redeemable warrants of Amprius Technologies, Inc.

On September 12, 2022, the Company invested $ 5,000,000 and acquired 500,000 shares of common stock and 500,000 privately placed, redeemable warrants of Amprius Technologies, Inc.

The privately placed, redeemable warrants have an exercise price of $ 12.50 and redemption price of $ 20.00 .

18 unchanged sentences

The Company accounts for investments in limited partnerships as equity method investments as the Company is deemed to have significant influence when it holds more than a minor interest.

For the three months ended July 27, 2024 and July 29, 2023, the Company recorded its ownership percentage of the net gains (losses) of the limited partnerships, or $ 65,000 and $( 21,000 ), respectively, in equity method investment income (loss), net of $ 0 tax in the unaudited condensed consolidated statements of operations, respectively.

At July 27, 2024 and April 30, 2024, the carrying value of the investments in the limited partnership funds of $ 21,181,000 and $ 19,933,000 , respectively, was recorded in long-term investments on the unaudited condensed consolidated balance sheet.

For the three and six months ended October 26 , 2024, the Company recorded its ownership percentage of the net gains of the limited partnerships, or $ 1,001,000 and $ 1,066,000 , respectively, in equity method investment income (loss),

net of $ 0 tax in the unaudited condensed consolidated statements of operations, respectively.

For the three and six months ended October 28, 2023, the Company recorded its ownership percentage of the net losses of the limited partnerships, or $( 1,393,000 ) and $( 1,414,000 ), respectively, in equity method investment income (loss), net of $ 0 tax in the unaudited condensed consolidated statements of operations, respectively.

At October 26 , 2024 and April 30, 2024, the carrying value of the investments in the limited partnership funds of $ 22,182,000 and $ 19,933,000 , respectively, was recorded in long-term investments on the unaudited condensed consolidated balance sheet.

Investment in Altoy

4 unchanged sentences

The Company maintains significant influence, accounts for its investment in Altoy as an equity method investment and records its proportion of any gains or losses of Altoy in equity method investment loss, net of tax.

For the three months ended July 27, 2024 and July 29, 2023, the Company recorded $ 0 for its ownership percentage of the net activity of Altoy in equity method investment income (loss), net of tax in the

unaudited condensed consolidated statements of operations.

At July 27, 2024 and April 30, 2024, the carrying value of the investment in Altoy of $ 152,000 was recorded in other assets on the unaudited condensed consolidated balance sheet.

For the three and six months ended October 26 , 2024 the Company recorded $( 11,000 ) for its ownership percentage of the net activity of Altoy in equity method investment income (loss), net of tax in the unaudited condensed consolidated statements of operations.

For the three and six months ended October 28 , 2023, the Company recorded $ 0 for its ownership percentage of the net activity of Altoy in equity method investment income (loss), net of tax in the unaudited condensed consolidated statements of operations.

At October 26 , 2024 and April 30, 2024, the carrying value of the investment in Altoy of $ 141,000 and $ 152,000 , respectively, was recorded in other assets on the unaudited condensed consolidated balance sheet.

Warranty Reserves

2 unchanged sentences

The related expense is included in cost of sales.

Warranty reserve activity is summarized as follows for the three months ended July 27, 2024 and July 29, 2023, respectively (in thousands):

Warranty reserve activity is summarized as follows for the three and six months ended October 26 , 2024 and October 28 , 2023, respectively (in thousands):

Three Months Ended

Six Months Ended

Beginning balance

Balance acquired from acquisition

Warranty expense

10 unchanged sentences

Intangibles, net

The weighted average amortization period at each of July 27, 2024 and April 30, 2024 was three years .

Amortization expense for the three months ended July 27, 2024 and July 29, 2023 was $ 4,774,000 and $ 3,030,000 respectively.

The weighted average amortization period as of October 26 , 2024 and April 30, 2024 was four and three years , respectively.

Amortization expense for the three and six months ended October 26 , 2024 was $ 4,795,000 and $ 9,569,000 respectively.

Amortization expense for the three and six months ended October 28, 2023 was $ 4,262,000 and $ 7,276,000 , respectively.

Estimated amortization expense for the next five years is as follows (in thousands):

2 unchanged sentences

Change to goodwill

Balance at July 27, 2024

Balance at October 26, 2024

The UxS segment includes goodwill from the acquisitions of Pulse Aerospace, LLC (“Pulse”), Arcturus UAV, Inc.

5 unchanged sentences

The fair value of the MUAS reporting unit exceeded its 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.

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 the Company to make assumptions and estimates regarding future plans, as well as industry, economic, and regulatory conditions.

4 unchanged sentences

Accordingly, the MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests.

The MUAS reporting unit has a goodwill balance of $ 135,774,000 as of July 27, 2024.

The MUAS reporting unit has a goodwill balance of $ 135,774,000 as of October 26, 2024.

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.

As of July 27, 2024, the company has not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

As of October 26, 2024, the company has not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

The annual impairment test for the fiscal year ending April 30, 2025 will be performed during the fourth quarter.

The intangibles included in the MUAS reporting unit of $ 12,771,000 as of July 27, 2024 will also be evaluated for potential impairment during the fourth quarter.

The intangibles included in the MUAS reporting unit of $ 11,847,000 as of October 26, 2024 will also be evaluated for potential impairment during the fourth quarter.

In connection with the consummation of the acquisition of Arcturus, a California corporation, pursuant to a Stock Purchase Agreement with Arcturus and each of the shareholders and other equity interest holders of Arcturus, to purchase 100 % of the issued and outstanding equity of Arcturus (the “Arcturus Acquisition”) on February 19, 2021, the Company, as borrower, and Arcturus, as guarantor, entered into a Credit Agreement with certain lenders, letter of credit issuers, Bank of America, N.A., as the administrative agent and the swingline lender, and BofA Securities, Inc., JPMorgan Chase Bank, N.A., and U.S.

1 unchanged sentence

The Credit Agreement and its associated Security and Pledge Agreement set forth the terms and conditions for (i) a five-year $ 100,000,000 revolving credit facility, which includes a $ 25,000,000 sublimit for the issuance of standby and commercial letters of credit (the “Revolving Facility”), and (ii) a five-year amortized $ 200,000,000 term A loan (the “Term Loan Facility”, and together with the Revolving Facility, the “Credit Facilities”).

Certain existing letters of credit issued by JPMorgan Chase Bank were reserved for under the Revolving Facility at closing and remain outstanding under

the terms thereof.

Certain existing letters of credit issued by JPMorgan Chase Bank were reserved for under the Revolving Facility at closing and remain outstanding under the terms thereof.

Upon execution of the Credit Agreement, the Company drew the full principal of the Term Loan Facility for use in the acquisition of Arcturus.

1 unchanged sentence

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

The Company’s ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $ 7,508,000 as of July 27, 2024.

As of July 27, 2024, approximately $ 92,492,000 was available under the Revolving Facility.

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

Any borrowing under the Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid under the Revolving Facility may be reborrowed.

4 unchanged sentences

The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including certain restrictions on the ability of the Company and its subsidiaries (as defined in the Credit Agreement) to incur any additional indebtedness or guarantee indebtedness of others, to create liens on properties or assets, or to enter into certain asset and stock-based transactions.

In addition, the Credit Agreement includes certain financial maintenance covenants, requiring that (x) the Consolidated Leverage Ratio (as defined in the Credit Agreement) shall not be more than 3.00 to 1.00 as of the end of any fiscal quarter and (y) the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) shall not be less than 1.25 to 1.00 as of the end of any fiscal quarter.

On February 4, 2022, the Company entered into a First Amendment to Credit Agreement and Waiver relating to its existing Credit Agreement (the “First Amendment to Credit Agreement”).

9 unchanged sentences

or (b) Base Rate (defined as the highest of (a) the Federal Funds Rate plus one-half percent ( 0.50 %), (b) the Bank of America prime rate, and (c) the one (1) month SOFR plus one percent ( 1.00 %)) plus the Applicable Margin.

The Applicable Margin is based upon the

Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects SOFR (ranging from 1.50 - 2.50 %) or Base Rate (ranging from 0.50 - 1.50 %).

The Applicable Margin is based upon the Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether the Company elects SOFR (ranging from 1.50 - 2.50 %) or Base Rate (ranging from 0.50 - 1.50 %).

The Company may choose interest periods of one, three or six months with respect to Term SOFR and all such rates will include a 0.10 % SOFR adjustment.

1 unchanged sentence

In the event of a default, an additional 2 % default interest rate in addition to the applicable rate if specified or the Base Rate plus Applicable Margin if an applicable rate is not specified.

As of July 27, 2024, the Company is in compliance with all amended covenants.

On October 4, 2024, the Company entered into a Third Amendment to Credit Agreement with the existing lenders, Bank of America, N.A., the administrative agent and the swingline lender, JPMorgan Chase Bank, N.A., and U.S.

Bank National Association, and Citibank, N.A.

(the “New Lender”) (the “Third Amendment to Credit Agreement” and the existing Credit Agreement as amended thereby, the “Amended Credit Agreement”).

The Amended Credit Agreement now provides for an aggregate $ 200,000,000 revolving credit facility, including a $ 25,000,000 sublimit for the issuance of standby and commercial letters of credit, and a $ 10,000,000 sublimit for swingline loans, secured by all assets of the Company and the Guarantors, and extends the maturity date for obligations pursuant to the Amended Credit Agreement to October 4, 2029.

Upon effectiveness of the Amended Credit Agreement, the Company drew $ 15,000,000 from the amended Revolving Facility and repaid in full all outstanding amounts owed pursuant to the prior Term Loan Facility.

The Amended Credit Agreement reflects the removal of the Term Loan Facility.

The unamortized debt issuance costs allocated to the Term Loan Facility of $ 590,000 were expensed upon repayment of the Term Loan Facility and recorded in interest expense.

In addition to adding the New Lender and adjusting certain fee schedules, the Amended Credit Agreement also allows the Company to incur additional forms of secured and unsecured permitted indebtedness without separate consent of the Administrative Agent and make certain payments related thereto, including certain bilateral letters of credit, supply chain

financing transactions, securitization transactions pertaining to its accounts receivable, and issuance of unsecured convertible debt pertaining to its Common Stock (and certain call spread transactions related thereto), subject in each instance to further specified parameters, including aggregate dollar limits on certain activities and satisfaction of ongoing and pro forma financial covenants.

The Amended Credit Agreement substitutes a Consolidated Senior Secured Leverage Ratio for the Consolidated Leverage Ratio required to be maintained under the existing Credit Agreement.

The Consolidated Leverage Ratio is now an incurrence test, used to determine whether or not the Company may take certain actions, such as borrowing under the Amended Credit Agreement, making acquisitions, incurring certain unsecured debt, or making payments on junior debt.

In order to take such actions, the Consolidated Leverage Ratio may not exceed 4.00 to 1.0 .

However, the ratio increases to 4.50 to 1.0 during a Leverage Increase Period, covering each of the four fiscal quarters of the Company immediately following the consummation of any qualified acquisition.

The newly added Consolidated Senior Secured Leverage Ratio, measuring the Consolidated Senior Secured Funded Indebtedness, as of a date of determination, to Consolidated EBITDA for the applicable measurement period, shall not exceed 3.00 to 1.0 at the end of any fiscal quarter of the Company, increasing to 3.50 to 1.0 in a Leverage Increase Period.

In each case, no more than one Leverage Increase Period shall be in effect at any time, and the basic ratio levels must be achieved and maintained for at least two fiscal quarters immediately following each Leverage Increase Period prior to giving effect to another Leverage Increase Period.

The requirement for the Consolidated Fixed Charge Coverage Ratio to be no less than 1.25 to 1.0 at the end of any fiscal quarter of the Company remains unchanged in the Amended Credit Agreement.

The Amended Credit Agreement removes the requirement that the Company prepay the loans with the proceeds of dispositions of assets or newly incurred debt.

The Company’s ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $ 9,792,000 as of October 26, 2024.

As of October 26, 2024, approximately $ 175,208,000 was available under the Revolving Facility.

Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes, including acquisitions that meet certain parameters.

As of October 26, 2024, the Company is in compliance with all amended covenants.

Long-term debt and the current period interest rates were as follows:

8 unchanged sentences

Current period interest rate

Future contractual long-term debt principal payments at July 27, 2024 were as follows:

Future contractual long-term debt principal payments at October 26, 2024 were as follows:

(In thousands)

11 unchanged sentences

For rent holidays and rent escalation clauses during the lease term, the Company records rental expense on a straight-line basis over the term of the lease.

For these lease incentives, the Company uses the date of initial possession

as the commencement date, which is generally when the Company is given the right of access to the space and begins to make improvements in preparation for intended use.

For these lease incentives, the Company uses the date of initial possession as the commencement date, which is generally when the Company is given the right of access to the space and begins to make improvements in preparation for intended use.

The Company does not have any material restrictions or covenants in its lease agreements, sale-leaseback transactions, land easements or residual value guarantees.

2 unchanged sentences

The components of lease costs recorded in cost of sales and selling, general and administrative (“SG&A”) expense were as follows (in thousands):

Three Months Ended

Six Months Ended

Operating lease cost

4 unchanged sentences

Supplemental lease information was as follows:

Three Months Ended

Six Months Ended

(In thousands)

4 unchanged sentences

Weighted average discount rate

Maturities of operating lease liabilities as of July 27, 2024 were as follows (in thousands):

Maturities of operating lease liabilities as of October 26, 2024 were as follows (in thousands):

Total lease payments

3 unchanged sentences

The components of accumulated other comprehensive loss and adjustments are as follows (in thousands):

Three Months Ended

Six Months Ended

Balance as of April 30, 2024 and April 30, 2023, respectively

Change in foreign currency translation adjustments

Balance as of July 27, 2024 and July 29, 2023, respectively

Balance as of October 26, 2024 and October 28, 2023, respectively

Customer-Funded Research & Development

2 unchanged sentences

Revenue from customer-funded R&D contracts is recognized in accordance with ASC 606 over time as costs are incurred.

Revenue from customer-funded R&D was approximately $ 18,559,000 for the three months ended July 27, 2024.

Revenue from customer-funded R&D was approximately $ 24,383,000 for the three months ended July 29, 2023.

Revenue from customer-funded R&D was approximately $ 20,280,000 and $ 38,839,000 for the three and six months ended October 26, 2024.

Revenue from customer-funded R&D was approximately $ 19,078,000 and $ 43,461,000 for the three and six months ended October 28, 2023.

Long-Term Incentive Awards

3 unchanged sentences

At the award date, target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the PRSUs would vest at 100 % for each such metric.

Threshold achievement levels for which the PRSUs would vest at 50 % for each such metric and maximum achievement levels for which such awards would vest at 250 % for each such metric were also established.

Threshold achievement levels for which the PRSUs would vest at 50 % for each such metric and maximum achievement levels for which such awards would vest at 250 % for each such metric were also

The actual payout for the PRSUs at the end of the performance period will be calculated based upon the Company’s achievement of the established revenue and non-GAAP adjusted EBITDA targets for the performance period.

Settlement of the PRSUs will be made in fully-vested shares of the Company’s common stock.

For the three months ended July 27, 2024, the Company recorded $ 306,000 of compensation expense related to the Fiscal 2025 LTIP.

The Company recorded no compensation expense related to the Fiscal 2025 LTIP for the three months ended July 29, 2023.

At July 27, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2025 LTIP is $ 18,207,000 .

For the three and six months ended October 26, 2024, the Company recorded $ 968,000 and $ 1,274,000 of compensation expense related to the Fiscal 2025 LTIP.

The Company recorded no compensation expense related to the Fiscal 2025 LTIP for the three and six months ended October 28, 2023.

At October 26, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2025 LTIP is $ 23,359,000 .

During the three months ended July 29, 2023, the Company granted awards under the 2021 Plan to key employees (“Fiscal 2024 LTIP”).

5 unchanged sentences

Settlement of the PRSUs will be made in fully-vested shares of the Company’s common stock.

For the three months ended July 27, 2024 and July 29, 2023, the Company recorded $ 1,112,000 and $ 634,000 of compensation expense related to the Fiscal 2024 LTIP, respectively.

At July 27, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2024 LTIP is $ 15,836,000 .

For the three and six months ended October 26, 2024, the Company recorded $ 1,078,000 and $ 2,190,000 of compensation expense related to the Fiscal 2024 LTIP, respectively.

For the three and six months ended October 28, 2023, the Company recorded $ 1,200,000 and $ 1,834,000 of compensation expense related to the Fiscal 2024 LTIP, respectively.

At October 26, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2024 LTIP is $ 19,929,000 .

During the three months ended July 30, 2022, the Company granted awards under the 2021 Plan to key employees (“Fiscal 2023 LTIP”).

Awards under the Fiscal 2023 LTIP consist of:

(i) time-based restricted stock awards and time-

based restricted stock units, which vest in equal tranches in July 2023, July 2024 and July 2025, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and non-GAAP adjusted EBITDA targets for the three-year period ending April 30, 2025.

(i) time-based restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2023, July 2024 and July 2025, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and non-GAAP adjusted EBITDA targets for the three-year period ending April 30, 2025.

At the award date, target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the PRSUs would vest at 100 % for each such metric.

2 unchanged sentences

Settlement of the PRSUs will be made in fully-vested shares of the Company’s common stock.

For the three months ended July 27, 2024 and July 29, 2023, the Company recorded $ 865,000 , and $ 661,000 of compensation expense related to the Fiscal 2023 LTIP, respectively.

At July 27, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2023 LTIP is $ 11,611,000 .

For the three and six months ended October 26, 2024, the Company recorded $ 801,000 , and $ 1,666,000 of compensation expense related to the Fiscal 2023 LTIP, respectively.

For the three and six months ended October 28, 2023, the Company recorded $ 1,191,000 and $ 1,852,000 of compensation expense related to the Fiscal 2023 LTIP, respectively.

At October 26, 2024, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal 2023 LTIP is $ 15,303,000 .

During the three months ended July 31, 2021, the Company also granted awards under the Restated 2006 Plan to key employees (“Fiscal 2022 LTIP”).

2 unchanged sentences

During the three months ended July 27, 2024, the Company issued a total of 15,427 fully-vested shares of the Company’s common stock to settle the PRSUs in the Fiscal 2022 LTIP.

For the three months ended July 27, 2024 and July 29, 2023, the Company recorded no compensation expense and $ 132,000 of compensation expense related to the Fiscal 2021 LTIP, respectively.

For the three and six months ended October 26, 2024, the Company recorded no compensation expense.

For the three and six months ended October 28, 2023, the Company recorded $ 356,000 and $ 488,000 of compensation expense related to the Fiscal 2022 LTIP, respectively.

At each reporting period, the Company reassesses the probability of achieving the performance targets for the PRSUs.

1 unchanged sentence

No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited.

For the three months ended July 27, 2024, the Company recorded a provision for income taxes of $ 1,485,000 , yielding an effective tax rate of 6.6 %.

For the three months ended July 29, 2023, the Company recorded a provision for income taxes of $ 1,314,000 yielding an effective tax rate of 5.7 %.

The variance from statutory rates for the three months ended July 27, 2024 was primarily due to foreign-derived intangible income (“FDII”) deductions, federal R&D credits and excess tax benefits from the exercise of stock options and vesting of equity awards.

The variance from statutory rates for the three months ended July 29, 2023 was primarily due to FDII deductions and federal R&D credits.

For the three and six months ended October 26, 2024, the Company recorded a benefit from income taxes of $( 221,000 ), and a provision for income taxes of $ 1,264,000 yielding an effective tax rate of ( 3.5 )% and 4.4 %, respectively.

For the three and six months ended October 28, 2023, the Company recorded a provision for income taxes of $ 1,137,000 and $ 2,451,000 , respectively, yielding an effective tax rate of 5.6 % for both periods.

The variance from statutory rates for the three and six months ended October 26, 2024 was primarily due to foreign-derived intangible income (“FDII”) deductions, federal R&D credits and excess tax benefits from the exercise of stock options and vesting of equity awards.

The variance from statutory rates for the three and six months ended October 28, 2023 was primarily due to foreign derived intangible income deductions and to federal R&D credits.

Share Repurchase Plan and Issuances

On September 8, 2022 the Company filed an S-3 shelf registration statement to offer and sell shares of the Company’s 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 the Company’s common stock having an aggregate offering price of up to $ 200,000,000 from time to time through Jefferies LLC as the sales agent.

There were no shares sold during the three months ended July 29, 2023.

During the fiscal year ended April 30, 2024, the Company completed the Open Market Sale Agreement SM , and the Company sold 807,370 shares, for total gross proceeds of $ 91,313,000 , total proceeds received of $ 88,574,000 , net of commission expense, and $ 88,437,000 , net of equity issuance costs.

During the three and six months ended October 28, 2023, the Company sold 807,370 shares for total gross proceeds of $ 91,313,000 , total proceeds received of $ 88,574,000 , net of commission expense and $ 88,437,000 net of equity issuance costs.

As of October 28, 2023, the Company completed the Open Market Sale Agreement SM and sold 1,917,100 of its shares for total gross proceeds of $ 200,000,000 , total proceeds received of $ 193,999,000 , net of commission expense and $ 193,086,000 net of equity issuance costs.

Business Acquisitions

2 unchanged sentences

Pursuant to the merger agreement, the Company acquired 100 % of Tomahawk equity for an aggregate purchase price of $ 134,467,000 consisting of 985,999 shares of restricted common stock of the Company valued at $ 109,820,000 and $ 27,205,000 cash-on-hand, net of $ 3,048,000 cash acquired, plus a $ 490,000 holdback.

fiscal year ended April 30, 2024, the holdback was decreased $ 100,000 as part of the working capital adjustment, and the total purchase price and goodwill, therefore, decreased by $ 100,000 as well.

During the fiscal year ended April 30, 2024, the holdback was decreased $ 100,000 as part of the working capital adjustment, and the total purchase price and goodwill, therefore, decreased by $ 100,000 as well.

The remaining $ 390,000 holdback was paid during the three months ended October 26, 2024.

The fair value of the shares issued was the closing price on September 15, 2023, the close of the Tomahawk purchase agreement.

2 unchanged sentences

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

The following table summarizes the provisional allocation of the purchase price over the estimated fair value of the assets and liabilities assumed in the acquisition of Tomahawk.

The purchase price allocation is expected to be finalized as soon as practicable within the measurement period, but not later than one year following the acquisition date (in thousands):

The following table summarizes the final allocation of the purchase price over the estimated fair value of the assets and liabilities assumed in the acquisition of Tomahawk (in thousands):

September 15,

28 unchanged sentences

The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing customers, the workforce of Tomahawk and expected future customers in the UxS market.

For income tax purposes the acquisition is treated as a stock acquisition, and none of the goodwill is expected to be deductible.

For income tax purposes the acquisition is treated as a stock acquisition, as such the goodwill associated with this purchase is not deductible.

Tomahawk Supplemental Pro Forma Information (unaudited)

1 unchanged sentence

Three Months Ended

Six Months Ended

The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business acquisition included in the reported pro forma revenue and earnings.

12 unchanged sentences

Funded status of the plan

The projected benefit obligation includes assumptions of a discount rate of 3.9 % and pension increase for in-payment benefits of 2.5 % for July 27, 2024 and April 30, 2024.

The projected benefit obligation includes assumptions of a discount rate of 3.9 % and pension increase for in-payment benefits of 2.5 % for both October 26, 2024 and April 30, 2024.

The accumulated benefit obligation is approximately equal to the Company’s projected benefit obligation.

2 unchanged sentences

The Company does not expect to make any contributions to the plan in the fiscal year ending April 30, 2025.

The Company assumed expected return on plan assets of 2.9 % for July 27, 2024 and April 30, 2024.

The Company assumed expected return on plan assets of 2.9 % for October 26, 2024 and April 30, 2024.

Expected benefit payments as of April 30, 2024 (in thousands):

2 unchanged sentences

Three Months Ended

(In thousands)

Six Months Ended

Expected return on plan assets

6 unchanged sentences

Prior period segment information has been revised to align with the new segment measure of profitability.

Three Months Ended July 27, 2024

Three Months Ended October 26, 2024

Product sales

2 unchanged sentences

Depreciation and amortization

Three Months Ended July 29, 2023

Three Months Ended October 28, 2023

Product sales

2 unchanged sentences

Depreciation and amortization

Six Months Ended October 26, 2024

Product sales

Contract services

Segment adjusted gross margin

Depreciation and amortization

Six Months Ended October 28, 2023

Product sales

Contract services

Segment adjusted gross margin

Depreciation and amortization

The following table (in thousands) provides a reconciliation from segment adjusted gross margin to income before income taxes:

1 unchanged sentence

Three Months Ended

Six Months Ended

Segment adjusted gross margin

7 unchanged sentences

Corporate assets primarily consist of cash and cash equivalents, prepaid expenses and other current assets, long-term investments, property and equipment, net, operating lease right-of-use assets, deferred income taxes and other assets managed centrally on behalf of the business segments.

As of July 27, 2024

As of October 26, 2024

As of April 30, 2024

Capital expenditures are summarized in the table below (in thousands):

Three Months Ended July 27, 2024

Three Months Ended July 29, 2023

Subsequent Events

On November 19, 2024, the Company announced the execution of a definitive agreement under which the Company will acquire BlueHalo in an all-stock transaction.

The Company, Merger Sub, BlueHalo, and BlueHalo Holdings Parent, LLC, a Delaware limited liability company and sole member of BlueHalo Financing Topco, LLC (“Seller”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into BlueHalo, with BlueHalo continuing as a wholly owned subsidiary of the Company and the surviving company of the merger (the “Merger” and together with the other transactions contemplated by the Merger Agreement, the “Transactions”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), all of the equity interests of BlueHalo issued and outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive a number of shares of the Company’s common stock (“Company Common Stock”) equal to 18,548,698 shares (the “Transaction Consideration”), which will represent approximately 39.5 % of the fully diluted shares outstanding of the pro forma combined company immediately prior to the execution and delivery of the Merger Agreement.

The Transaction Consideration is subject to downwards adjustments, which shall be determined prior to the consummation of the Transactions (the “Closing”), for certain items of leakage, distribution or payment of cash or other property up to the Closing, incurred by BlueHalo and its subsidiaries since June 30, 2024 as set forth in the Merger Agreement.

The closing of the Merger is subject to satisfaction or waiver of certain conditions including, among other things, (i) the required approval by the Company’s stockholders, the Company’s stockholders, holders of incentive units and restricted common units of Seller (the “Seller Members”) and Seller, as the sole member of BlueHalo (ii) the accuracy of the respective representations and warranties of each party, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants, (iv) the absence of any order that is in effect and restrains, enjoins or otherwise prohibits the consummation of the Merger, (v) the receipt of specified regulatory approvals and the expiration or termination of applicable waiting periods, including the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “Required Regulatory Approvals”) (vi) the shares of Company Common Stock to be issued in the Merger being approved for listing (subject to official notice of issuance) on Nasdaq as of the Closing, (vii) the Registration Statement (as defined below) having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order or proceeding (or threatened proceeding by the Securities and Exchange Commission (the “SEC”)) seeking a stop order with respect to the Registration Statement that has not been withdrawn, (viii) delivery of certain closing certificates and executed ancillary agreements, (ix) the absence of any material adverse effect with respect to BlueHalo or the Company, (x) receipt of certain waivers and evidence that a shareholder vote was solicited related to Section 280G of the United States Internal Revenue Code of 1986, as amended, and (xi) receipt by the Company of executed Joinder and Lock-Up Agreements from Seller Members entitled to receive at least 85 % of the Transaction Consideration, as adjusted.

The Merger Agreement contains customary representations, warranties and covenants made by the Company, BlueHalo, and the Seller, including covenants relating to obtaining the requisite approvals of the stockholders of the Company, the Seller Members and Seller, as the sole member of BlueHalo, indemnification of directors and officers, and the Company’s and Seller and BlueHalo’s conduct of their respective businesses between the date of signing the Merger Agreement and the closing of the Merger.

The Merger Agreement further provides that the Company may be required to pay a termination fee of $ 200,000,000 to Seller upon termination of the Merger Agreement under specified circumstances, including (i) termination by the Company to accept an Alternative Sale Transaction, (ii) termination by Seller due to the occurrence of a Company Board Adverse Recommendation Change or (iii) if the Company consummates an Alternative Sale Transaction within 9 months of termination of the Merger Agreement, subject to certain conditions as set forth in the Merger Agreement.

Concurrently with the execution and delivery of the Merger Agreement, Arlington Capital Partners V, L.P.

and Arlington Capital Partners VI, L.P., the equityholders of the Key Seller Member (collectively, the “Sponsor Members”) have entered into a shareholder’s agreement (the “Shareholder’s Agreement”) with the Company pursuant to which the Sponsor Members have, among other things, agreed to abide by customary standstill covenants, obligations to vote consistent with the recommendation of the Company Board, and customary employee non-solicit restrictions with respect to the employees of the Company and its subsidiaries (including BlueHalo and its subsidiaries after the Closing).

The Company has, among other things, agreed to provide the Sponsor Members with certain board designation rights and customary registration rights, including customary demand and piggyback rights.

The Sponsor Members will have such designation rights to designate two directors until it and its affiliates cease to collectively hold and own, directly or indirectly, at least 20 % of the issued and outstanding Company Common Stock and the Sponsor Members will have such designation rights to designate one director until they and their affiliates cease to collectively hold and own, directly or indirectly, at least 15 % but less than 20 % of the issued and outstanding Company Common Stock.

The Sponsor Members are expected to beneficially own approximately 26.2 % of the Company Common Stock at Closing (assuming no adjustments under the Merger Agreement).

At the Effective Time, the Board of Directors of the Company (the “New Company Board”) is expected to consist of ten members, two of whom may be designated by the Sponsor Members for approval by the stockholders of the Company for appointment to the New Company Board, subject to certain conditions and qualifications as set forth in the Shareholder’s Agreement.

In connection with the Merger Agreement, the Company entered into a commitment letter (the “Debt Commitment Letter”) with BofA NA and BofA Securities, Inc.

(collectively, “BofA”) and JPM (JPM and BofA, collectively, the “Joint Lead Arrangers”) on November 18, 2024, pursuant to which the Joint Lead Arrangers have committed to amend the Existing Credit Agreement (such amendment, the “Credit Agreement Amendment”) to provide a new Term Loan A facility (the “Acquisition Financing Facility”).

The initial principal amount of the Acquisition Financing Facility will be $ 700,000,000 , and the Acquisition Financing Facility will have a maturity date of two years from effective date of the Credit Agreement Amendment.

The Joint Lead Arrangers expect that the effective date of the Credit Agreement Amendment will be prior to the date of the Closing.

The proceeds of the Acquisition Financing Facility will be used to refinance a portion of BlueHalo’s debt and pay fees, costs and expenses incurred in connection with the Transactions.

The definitive documentation governing the Financing has not been finalized, and accordingly, the actual terms may differ from the description of such terms in the Debt Commitment Letter.

The consummation of the Transactions is not conditioned upon receipt of the proceeds from the Acquisition Financing Facility or any replacement financing.

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 1. Financial Statements