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Item 7. Management’s Discussion and Analysis

2025-06-25 compared with 2024-06-27 · 214 added, 206 removed, 296 unchanged (59% of the section changed)

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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.

Refer to Part I, “Forward-Looking Statements” on page 2 and Item 1A, “Risk Factors” beginning on page 14, for a discussion of the uncertainties, risks and assumptions associated with these statements.

The disclosures and references in Item 7 of this Annual Report, including the description of our business, financial data, management’s discussion and analysis of financial condition and results of operations do not include the BlueHalo acquisition which closed on May 1, 2025, unless otherwise specifically noted.

The assets, liabilities and results of operations of BlueHalo have not been consolidated into our results as of and for the period ended April 30, 2025 or any of the historical periods presented.

We design, develop, produce, deliver and support a technologically advanced portfolio of intelligent, multi-domain robotic systems and related services for government agencies and businesses.

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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;

Our core technological capabilities, developed over 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;

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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.

We generate our revenue primarily from the sale, support, design and operation of our UxS and LMS and HAPS.

Our business focuses primarily on the design, development, production, marketing, support and operation of innovative UxS and LMS products 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.

We generate our revenue primarily from the sale, support, design and operation of our UxS, LMS and HAPS products.

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.

Under ISR services contracts we deliver the information our MUAS produce to our customers, who use that information to support their missions.

We refer to these support activities, in conjunction with customer-funded R&D, as our services operation.

most of our SUAS, MUAS, LMS and HAPS revenue from fixed-price and cost-plus-fee contracts with the majority from U.S.

We derive 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.

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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.

Indirect costs include overhead expenses, fringe benefits, depreciation of in-service ISR assets, amortization of acquired intangible assets and other costs that are not directly charged to a specific contract.

Gross margin is equal to revenue minus cost of sales.

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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.

Some SG&A expenses relate to marketing, commissions on certain direct commercial sales to international customers 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.

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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.

As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30, 2025, we determined carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025.

These changes in estimates resulted in the recognition of a goodwill impairment charge of $18.4 million during the three months ended April 30, 2025 in the UGV reporting unit.

For the fiscal year ended April 30, 2025, we determined that it was more likely than not that the fair value of each of the other reporting units, other than UGV, was more than their carrying values as of the annual goodwill impairment test date, including the MUAS reporting unit which was no longer considered at an increased risk of failing future quantitative goodwill impairment tests due to an increase in the estimated fair value of the reporting unit from significant increases in forecasted results.

Subsequent to the performance of our annual goodwill impairment test for the fiscal year ended April 30, 2023, 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.

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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.

Other (loss) income, net includes unrealized losses associated with decreases in the fair market value for equity security investments, interest income, and interest expense.

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.

Our effective tax rates for fiscal years 2025 and 2024 were lower than the U.S.

federal statutory rate of 21% primarily due to tax benefits from the Foreign Derived Intangible Income deduction (“FDII”), excess benefits from stock-based compensation, the U.S.

federal research tax credit.

Equity Method Investment (Loss) Income, Net of Tax

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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.

Net income attributable to noncontrolling interests includes the 50% interest in the income or losses of Altoy, between May 1, 2022 and October 14, 2022.

Subsequent to October 14, 2022, Altoy is no longer consolidated, and therefore, noncontrolling interest is no longer recorded.

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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.

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.

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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

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 second key factor is that we have hundreds of contracts in any given accounting period, which 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.

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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.

Changes in variable consideration associated with the finalization of

undefinitized contract actions or unpriced change orders could result in cumulative catch up adjustments to revenue that could be material.

During the fiscal years ended April 30, 2025, 2024 and 2023, changes in accounting estimates on contracts recognized using the over time method are presented below.

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Net adjustments

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.

For the year ended April 30, 2025, favorable cumulative catch up adjustments of $11.1 million were primarily due to favorable adjustments on eight contracts.

Four LMS undefinitized contract actions were definitized during the year ended April 30, 2025, which resulted in cumulative catch-up revenue adjustments that increased revenue by approximately $9.9 million.

The remaining adjustments individually were not material.

For the same period, unfavorable cumulative catch up adjustments of $5.1 million were primarily related to unfavorable adjustments on 17 contracts for higher revised estimates of the total expected costs to complete the contract, including one LMS contract, which decreased revenue by approximately $2.9 million.

The remaining adjustments individually were not material.

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.

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 same period, unfavorable cumulative catch up adjustments of $2.0 million were primarily related to higher than expected costs on 11 contracts, which individually were not material.

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 $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.

For the same period, unfavorable cumulative catch up adjustments of $3.8 million were primarily related to unfavorable adjustments on 5 contracts for higher revised estimates of the total expected costs to complete the contract, including one LMS variant contract, which decreased revenue by approximately $1.9 million.

The remaining adjustments individually were not material.

Inventories Reserves for Excess and Obsolescence

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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.

intangible assets.

Acquired intangible assets include:

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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.

As part of our annual goodwill impairment and identifiable asset test, performed during the quarter ended April 30, 2025, a decrease in forecasted results for the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025 resulted in accelerated intangible amortization expenses of $4.3 million which were recorded during the three months ended April 30, 2025.

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

impairment test performed during the year ended April 30, 2023, the remaining intangibles in the MUAS reporting unit were tested for recoverability.

Additionally, in conjunction with the goodwill 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.

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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.

As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025.

These changes in estimates resulted in the recognition of a goodwill impairment charge of $18.4 million during the three months ended April 30, 2025 in the UGV reporting unit.

We determined that it was more likely than not that the fair value of our other reporting units were more than their carrying values as of the annual goodwill impairment test date.

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.

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, 2025, 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.

During the most recent annual impairment test during the fourth quarter of fiscal year 2025, the estimated fair value of all reporting units, other than UGV, 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

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.

If actual market conditions are less 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.

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.

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.

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Impairment of goodwill

Income (loss) from continuing operations

Income (loss) from operations

Interest expense, net

Other expense, net

Sale of ownership in HAPSMobile Inc.

joint venture

Other income (expense), net

Income (loss) before income taxes

Provision for (benefit from) income taxes

Equity method investment (loss) income, net of tax

Equity method investment income (loss), net of tax

Net income (loss)

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Net income (loss) attributable to AeroVironment, Inc.

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.

We have the following reportable segments through its fiscal year ended April 30, 2025:

Uncrewed Systems (“UxS”) segment, Loitering Munition Systems (“LMS”) segment;

and the MacCready Works (“MW”) segment.

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

Segment adjusted gross margin is defined as gross margin before intangible amortization and amortization of other purchase accounting adjustments.

Effective May 1, 2025 due to the acquisition of BlueHalo and our reorganization, reportable segments will be updated into the two reportable segments (i) Autonomous Systems and (ii) Space, Cyber and Directed Energy.

Autonomous Systems will include the historical AeroVironment businesses (UxS, LMS and MW) as well as Unmanned Maritime, Radio Frequency and Kinetic C-UAS, Electronic Warfare Systems and Autonomous R&D.

Space, Cyber and Directed Energy will include the remaining acquired BlueHalo businesses including Digital beamforming technology, Laser Communications, Space-Qualified Hardware, Phased Array Antenna Technology, Directed Energy, Cyber and Mission Systems.

We will begin to report our segments in the new structure in our Quarterly Report on Form 10-Q for the quarter ending July 26, 2025, the period in which the new organizational structure became effective.

Also effective May 1, 2025 due to the increased size and complexity of the businesses, the significant amount of debt to finance the acquisition and the related debt covenants, the Chief Operating Decision Maker’s (“CODM”) measure of profitability for the new reportable segments will be Segment Adjusted EBITDA, defined as income from operations before interest income, interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for the impact of certain other non-cash items, including goodwill impairment, amortization of implementation of cloud computing arrangements, stock-based compensation, other purchase accounting adjustments and cash items including acquisition related expenses.

Year Ended April 30, 2025

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Contract services

Segment adjusted income (loss) from operations

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

Year Ended April 30, 2024

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Contract services

Segment adjusted income from operations

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

Year Ended April 30, 2023

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Contract services

Segment adjusted income (loss) from operations

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

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

We 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,

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The increase in revenue was due to an increase in product revenue of $107.0 million, partially offset by a decrease in service revenue of $3.0 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.

The increase in product revenue was primarily due to an increase of $164.7 million from the production of our Switchblade products, driven by increased global demand for our LMS associated with the current global conflicts as well as U.S.

resupply and an increase of $4.4 million from the delivery of MW products driven by demand for new product releases, partially offset by a decrease of $62.1 million of product deliveries of our UxS products, primarily due to a decrease in international sales to Ukraine.

Fiscal 2025 also included favorable cumulative catch-up revenue adjustments of $12.0 million due to changes in estimates associated with the definitization of certain LMS contracts.

The decrease in service revenue was primarily due to a decrease of $2.8 million in other engineering services and customer-funded R&D activities primarily associated with the shift from development to production of certain LMS products.

With the acquisition of BlueHalo, we expect the proportion of service revenue to total revenue to increase in fiscal year 2026 and beyond.

Cost of Sales.

Cost of sales for the fiscal year ended April 30, 2025 was $502.0 million, as compared to $432.8 million for the fiscal year ended April 30, 2024, representing an increase of $69.2 million, or 16%.

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%.

The increase in cost of sales was a result of an increase in product cost of sales of $64.2 million and an increase in service costs of sales of $5.0 million.

The increase in product cost of sales was primarily due to approximately $62 million associated with the increase in product sales volume, $4.6 million due to the UGV accelerated intangible amortization expenses, partially offset by a decrease of approximately $3 million due to product mix shift primarily to the definitization of LMS contracts.

The increase of $5.0 million in service costs of sales was primarily due to approximately $7 million increase due to mix shift associated with a higher proportion of engineering services, partially offset by approximately $2 million associated with the decreased service volume.

Cost of sales for the fiscal year ended April 30, 2025 included $19.4 million of intangible amortization as compared to $13.5 million of intangible amortization and other related non-cash purchase accounting expenses for the fiscal year ended April 30, 2024.

As a percentage of revenue, cost of sales increased from 60% to 61%, primarily due to the accelerated amortization of UGV intangibles of $4.6 million, partially offset by an increase in the proportion of product revenue to total revenue, resulting in a decrease in gross margin from 40% to 39%.

Gross Margin.

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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

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.

SG&A expense for the fiscal year ended April 30, 2025 was $158.8 million, or 19% of revenue, as compared to SG&A expense of $114.4 million, or 16% of revenue, for the fiscal year ended April 30, 2024.

The increase in SG&A expense was primarily due to an increase of $17.2 million in acquisition related expenses related to the BlueHalo acquisition, an increase in employee related expenses of $10.0 million driven by an increase in average headcount and expansion of our global business development team, and an increase in sales and marketing expense of $9.4 million driven by an increase in bid and proposal efforts associated with the higher sales volume.

Research and Development.

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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.

A goodwill impairment charge of $18.4 million resulting from a decrease in forecasted results of the UGV reporting unit identified during our annual goodwill impairment test during the three months ended April 30, 2025 in the UGV reporting unit.

Interest Expense, net.

Interest expense, net for the fiscal year ended April 30, 2025 was $2.2 million, as compared to interest expense net of $4.2 million for the fiscal year ended April 30, 2024.

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.

The decrease in interest expense, net was primarily due to a decrease of $5.0 million in interest expense primarily due to lower average outstanding balances on our debt facility, partially offset by a decrease in interest income of $2.5 million primarily due to lower interest rates and a decrease in our average investment balances.

On May 1, 2025 in connection with the closing of the BlueHalo acquisition, we entered into a new Term A Loan and borrowed from our revolving credit facility (the “Revolving Credit Facility,” and together with the Term A Loan, the “Credit Facilities”).

As of May 1, 2025, the outstanding balance of the Credit Facilities was $955.0 million, which bears a variable interest rate.

Interest expense for fiscal year 2026 is expected to increase significantly.

Other Income (Expense), net.

Other income, net for the fiscal year ended April 30, 2025 was $1.1 million, as compared to other expense, net of $4.4 million for the fiscal year ended April 30, 2024.

The increase in other income, net is primarily due to a decrease in unrealized losses associated with increases in fair market value for equity security investments of $4.1 million.

Income Taxes.

Our effective income tax rate was 2.2% for the fiscal year ended April 30, 2025 as compared to 3.0% for the fiscal year ended April 30, 2024.

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.

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.

The decrease in our effective tax rate in fiscal 2025 compared with fiscal 2024 was primarily due to a decrease in net income, a decrease in our FDII deduction, offset by non-deductible goodwill impairment expense from our foreign subsidiary.

Equity method investment gain (loss), net of tax.

Equity method investment gain, net of tax for the fiscal year ended April 30, 2025 was $4.8 million, as compared to equity method investment loss of $(1.7) million for the fiscal year ended April 30, 2024.

Business Segment Results of Operations

UnCrewed Systems

Product sales

Contract services

Segment adjusted income from operations

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

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Contract services

Segment adjusted income from operations

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

LMS revenue for the fiscal year ended April 30, 2025 was $352.0 million, as compared to $192.6 million for the fiscal year ended April 30, 2024, representing an increase of $159.4 million, or 83%.

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DoD resupply.

Fiscal 2025 also included favorable cumulative catch-up revenue adjustments of $12.0 million due to changes in estimates associated with the definitization of certain LMS contracts.

The decrease in service revenue was primarily due to a decrease of $4.2 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.

LMS Segment Adjusted Gross Margin.

LMS segment adjusted gross margin for the fiscal year ended April 30, 2025 was $128.6 million, as compared to $68.2 million for the fiscal year ended April 30, 2024, representing an increase of $60.4 million.

The increase in LMS segment adjusted gross margin was primarily due to an increase of $159.4 million in revenue, inclusive of the cumulative catch-up revenue adjustments of $12.0 million, partially offset by an increase of $99.0 million in cost of sales excluding amortization of intangibles, of which approximately $103 million is associated with the increased sales volume, partially offset by approximately $4 million due to shift in mix primarily related to the definitization of LMS contracts.

Uncrewed Systems

Product sales

Contract services

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

UxS revenue for the fiscal year ended April 30, 2025 was $381.8 million, as compared to $448.0 million for the fiscal year ended April 30, 2024, representing a decrease of $66.2 million, or 15%.

The decrease in revenue was due to a decrease in product revenue of $62.1 million and a decrease in service revenue of $4.1 million.

The decrease in product revenue was primarily due to a decrease of $51.0 million for product shipments of our SUAS and MUAS family of systems driven by decreased international sales, most significantly to Ukraine.

The decrease in service revenue was primarily due to a decrease of $3.3 million of customer funded R&D and engineering services primarily due to the completion of certain MUAS contracts during the fiscal year ended April 30, 2024.

UxS Segment Adjusted Gross Margin.

UxS segment adjusted gross margin for the fiscal year ended April 30, 2025 was $187.1 million, as compared to $210.5 million for the fiscal year ended April 30, 2024, representing a decrease of $23.4 million.

The decrease in UxS segment adjusted gross margin was primarily due to a decrease of $66.2 million in revenue, partially offset by a decrease of $42.8 million in cost of sales excluding intangible amortization.

The decrease of $42.8 million in costs of sales excluding intangible amortization is primarily due to a decrease of approximately $35 million associated with the decreased sales volume and shift in mix of approximately $8 million due to mix.

MacCready Works

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Contract services

Segment adjusted (loss) income from operations

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.

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

MW revenue for the fiscal year ended April 30, 2025 was $86.9 million, as compared to $76.1 million for the fiscal year ended April 30, 2024, representing an increase of $10.8 million, or 14%.

The increase in revenue was primarily due to an increase of $6.3 million in service revenue and an increase of $4.5 million in product sales.

The increase in service revenue is primarily due to an increase in engineering services and customer-funded R&D in part due to HAPS return to flight services.

The increase in product sales is primarily due to the shift from development to early-stage production of certain new products.

MW Segment Adjusted Gross Margin.

MW segment adjusted gross margin for the fiscal year ended April 30, 2025 was $22.4 million, as compared to MW segment adjusted gross margin of $18.7 million for the fiscal year ended April 30, 2024, representing an increase of $3.7 million.

The increase in MW segment adjusted gross margin was primarily due to an increase of $10.8 million in revenue, partially offset by an increase of $7.1 million in cost of sales excluding amortization of intangibles of which approximately $8 million is associated with the increased sales volume.

Fiscal Year Ended April 30, 2024 Compared to Fiscal Year Ended April 30, 2023

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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 due to an increase of $73.5 million of product deliveries of our UxS

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.

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.

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.

Cost of Sales.

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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 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.

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.

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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 ended April 30, 2023.

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.

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.

Research and Development.

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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, 2024 was $4.2 million, as compared to interest expense net of $9.4 million for the fiscal year ended April 30, 2023.

The increase in interest

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, 2024 was $4.4 million, as compared to other expense, net of $0.3 million for the fiscal year ended April 30, 2023.

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.

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 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.

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

Loitering Munitions Systems

Product sales

Contract services

Segment adjusted income from operations

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%.

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

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 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.

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 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

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

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 Gross Margin.

LMS segment adjusted gross margin for the fiscal year ended April 30, 2024 was $68.2 million, as compared to $42.7 million for the fiscal year ended April 30, 2023, representing an increase of $25.5 million.

The increase in LMS segment adjusted gross margin 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.

Uncrewed Systems

Product sales

Contract services

Segment adjusted income (loss) from operations

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.

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

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 and MUAS 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 and $10.6 million associated with the recent Tomahawk acquisition.

UxS Segment Adjusted Gross Margin.

UxS segment adjusted gross margin for the fiscal year ended April 30, 2024 was $210.5 million, as compared to $124.7 million for the fiscal year ended April 30, 2023, representing an increase of $85.8 million.

The increase in UxS segment adjusted margin 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.

MacCready Works

1 unchanged sentence

Contract services

Segment adjusted income from operations

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.

Cost of sales

Intangible amortization included in cost of sales

Segment adjusted gross margin

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.

MW Segment Adjusted Gross Margin.

MW segment adjusted gross margin for the fiscal year ended April 30, 2024 was $18.7 million, as compared to MW segment adjusted gross margin of $20.1 million for the fiscal year ended April 30, 2023, representing a decrease of $1.4 million.

The decrease in MW segment adjusted gross margin was primarily due to 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.

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.

On February 19, 2021 in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement, subsequently amended February 4, 2022, June 6, 2023, October 4, 2024 and May 1, 2025, (as amended, the “Credit Agreement”).

The October 4, 2024 amendment increased the Revolving Credit Facility to $200 million, and a previously provided Term Loan Facility was fully repaid in full and removed from the Credit Agreement.

Our ability to borrow under the Revolving Credit Facility includes a sublimit for the issuance of standby and commercial letters of credit, of which there were outstanding letters of credit of $39.4 million as of April 30, 2025.

As of April 30,

2025, approximately $160.6 million was available under the Revolving Facility.

Borrowings under the Revolving Facility may be used for working capital, acquisition costs 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 €7.0 million (approximately $8.0 million) available for issuing letters of credit of which €2.3 million (approximately $2.6 million) was outstanding as of April 30, 2025.

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.

On May 1, 2025 in connection with the closing of the BlueHalo acquisition, we amended the Credit Agreement to provide for a new $700 million term A loan (the “Term A Loan,” and with the Revolving Credit Facility, the “Credit Facilities”), the proceeds of which were used on the Closing Date to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs.

The Term A Loan matures two years after the closing date of the BlueHalo acquisition and amortizes at a rate of 5.00% per annum, with the remaining outstanding principal amount due and payable on the maturity date.

The applicable margin on the Term A Loan is based upon our Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether we elect as its benchmark rate (i) SOFR (in which case, the applicable margin ranges from 1.50 - 2.50% per annum depending on our Consolidated Leverage Ratio) plus a credit spread adjustment of 0.10% or (ii) Base Rate (in which case, the applicable margin ranges from 0.50 - 1.50% per annum depending on our Consolidated Leverage Ratio).

Upon the occurrence of an event of default, an additional 2.00% per annum default interest rate may apply.

Mandatory prepayments of the Term A Loan are required in connection with (i) the disposition of certain assets to the extent not reinvested and (ii) the incurrence of non-permitted debt.

The May 1, 2025 amendment also, among other things, (a) increased the revolving commitment amount to an aggregate principal amount of $350 million, (b) increased certain negative covenant baskets, thresholds and de minimis amounts, (c) amended the definition of “Consolidated EBITDA” to include additional add-backs thereto and (d) added materiality qualifiers to certain covenants and events of default.

On May 1, 2025, we borrowed approximately $225 million under the amended Revolving Credit Facility to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs.

The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers.

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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.

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.

We anticipate that existing sources of liquidity, Credit Facilities, and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.

Our primary liquidity needs are for financing working capital, investing in capital expenditures, supporting product development efforts, support our credit facility, introducing new products and enhancing existing products, marketing acceptance and adoption of our products and services.

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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.

Any financing or refinancing with new debt could be at higher interest rates and may require us to comply with more onerous covenants than the Credit Facilities, which could further restrict our business operations.

Any financing or refinancing through our sale of equity or equity-linked securities would result in further dilution to our stockholders or may provide for rights, preferences or privileges senior to those of holders of our common stock.

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.

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.

We have made certain investment commitments outside of the ordinary course of business, including capital contribution commitments to certain limited partnership funds.

Under the terms of the most recent 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 investments in an affiliated fund, at April 30, 2025, $5.5 million of our commitment remains to be funded.

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, 2025 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.

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

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(In thousands)

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Cash Provided by (Used in) Operating Activities.

Cash (Used in) Provided by Operating Activities.

Net cash used in operating activities for the fiscal year ended April 30, 2025 increased by $16.6 million to $1.3 million, as compared to net cash provided by operating activities of $15.3 million for the fiscal year ended April 30, 2024.

This decrease in net cash provided by operating activities was primarily due to a decrease in net income of $16.0 million and changes in operating assets and liabilities, largely resulting from increases in accounts receivable and income tax receivable and a decrease in other liabilities, partially offset by a decrease in inventories and an increase in accounts payable due to year over year timing differences.

The decrease in cash provided by operating activities was partially offset by an increase in non-cash expenses of $10.9 million, primarily due to a goodwill impairment of $18.4 million in the fiscal year ended April 30, 2025, an increase in stock-based compensation and depreciation and amortization, partially offset by a decrease in stock inventory reserve charges.

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.

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 decreased by $23.2 million to $28.5 million for the fiscal year ended April 30, 2025, compared to $51.7 million for the fiscal year ended April 30, 2024.

The decrease in net cash used in investing activities was primarily due to a decrease in business acquisitions, net of cash acquired of $24.2 million related to the Tomahawk acquisition in the fiscal year ended April 30, 2024.

During the fiscal years ended April 30, 2025 and 2024, we used cash to purchase property and equipment totaling $22.8 million and $23.0 million, respectively.

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.

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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 decreased by $20.0 million to $2.9 million for the fiscal year ended April 30, 2025, compared to net cash provided by financing activities of $22.9 million for the fiscal year ended April 30, 2024.

The decrease in net cash used in financing activities was primarily due to a decrease in the principal payments on the credit facility of $69.0 million and an increase in proceeds from the credit facility of $40.0 million, partially offset by a decrease in the proceeds from shares issued, net of issuance costs of $88.4 million in the fiscal year ended April 30, 2024.

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.

Contractual Obligations

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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):

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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.

Effective April 30, 2025, we adopted ASU 2023-07.

ASU 2023-07 was adopted retrospectively and did not have a material impact on our consolidated financial statements.

New Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

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We are evaluating the potential impact of this adoption on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU 2024-03”).

ASU 2024-03 requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses included in each expense caption on the face of the income statement at interim and annual reporting periods.

The new standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, and should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements.

We are evaluating the potential impact of this adoption on our consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis