AeroVironment Inc

Previous wording

We review cost performance, estimates-to-complete and variable consideration at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications, including the finalization of undefinitized contract actions, occur. The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Changes in variable consideration associated with the finalization of undefinitized contract actions could result in cumulative catch up adjustments to revenue that could be material. During the three months ended July 27, 2024 and July 29, 2023, changes in accounting estimates on contracts recognized using the over time method are presented below. Amounts representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or contract modification in accordance with ASC 606. Incentives or penalties and awards applicable to performance on contracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to assess anticipated contract performance.

Current wording

We review cost performance, estimates-to-complete and variable consideration at least quarterly and in many cases more frequently. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications, including the finalization of undefinitized contract actions, occur. The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Changes in variable consideration associated with the finalization of undefinitized contract actions could result in cumulative catch up adjustments to revenue that could be material. During the three and six months ended October 26, 2024 and October 28, 2023, changes in accounting estimates on contracts recognized using the over time method are presented below. Amounts representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or contract modification in accordance with ASC 606. Incentives or penalties and awards applicable to performance on contracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to assess anticipated contract performance.

Previous wording

For the three months ended July 27, 2024, favorable cumulative catch-up adjustments of $0.8 million were primarily due to final cost adjustments on 11 contracts, which individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $0.3 million were primarily related to higher than expected costs on 10 contracts, which individually were not material.

Current wording

For the three months ended October 26, 2024, favorable cumulative catch-up adjustments of $8.9 million were primarily due to final cost adjustments on five contracts. During the three months ended October 26, 2024, we 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 $9.9 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $1.9 million were primarily related to higher than expected costs on 26 contracts, which individually were not material.

Previous wording

For the three months ended July 29, 2023, favorable cumulative catch-up adjustments of $2.7 million were primarily due to final cost adjustments on 11 contracts, which individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $1.1 million were primarily related to higher than expected costs on seven contracts, which individually were not material.

Current wording

For the six months ended October 26, 2024, favorable cumulative catch-up adjustments of $10.3 million were primarily due to final cost adjustments on four contracts. During the six months ended October 26, 2024, we 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 $9.9 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $1.7 million were primarily related to higher than expected costs on 26 contracts, which individually were not material.

Previous wording

As of July 27, 2024, our MUAS reporting unit had 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. 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. D.o.D. 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. The intangibles included in the MUAS reporting unit of $12.8 million as of July 27, 2024 will also be evaluated for potential impairment during the fourth quarter impairment test. 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, we have not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

Current wording

As of October 26, 2024, our MUAS reporting unit had 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. 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. 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. D.o.D. 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. The intangibles included in the MUAS reporting unit of $11.8 million as of October 26, 2024 will also be evaluated for potential impairment during the fourth quarter impairment test. 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 October 26, 2024, we have not identified any events or circumstances that could trigger an impairment review prior to the Company’s annual impairment test.

Previous wording

Cost of Sales. Cost of sales for the three months ended July 27, 2024 was $108.0 million, as compared to $86.7 million for the three months ended July 29, 2023, representing an increase of $21.3 million, or 25%. The increase in cost of sales was a result of an increase in product cost of sales of $23.9 million, partially offset by a decrease in service costs of sales of $2.6 million. The increase in product costs of sales was primarily due to an increase of approximately $21 million associated with the increase in product revenue and approximately $3 million due to a mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production. The decrease in service cost of sales was primarily due to a decrease of approximately $3 million associated with the decrease in service revenue. Cost of sales for the three months ended July 27, 2024 included $3.7 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $2.4 million for the three months ended July 29, 2023. As a percentage of revenue, cost of sales remained consistent at 57%, resulting in gross margin of 43% in both quarters.

Current wording

Cost of Sales. Cost of sales for the three months ended October 26, 2024 was $114.8 million, as compared to $105.5 million for the three months ended October 28, 2023, representing an increase of $9.3 million, or 9%. The increase in cost of sales was a result of an increase in product cost of sales of $8.0 million and service costs of sales of $1.3 million. The increase in product costs of sales was primarily due to an increase of approximately $5 million associated with the increase in product revenue and approximately $3 million due to a mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production. The increase in service cost of sales was primarily due to an increase of approximately $1 million associated with the increase in service revenue. Cost of sales for the three months ended October 26, 2024 included $3.7 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $3.2 million for the three months ended October 28, 2023. As a percentage of revenue, cost of sales increased from 58% to 61% primarily due to an increase in the proportion of LMS product revenue, partially offset by the cumulative catch up adjustment for the definitization of LMS contracts, resulting in gross margin decreasing from 42% to 39%.

Previous wording

Selling, General and Administrative**.**SG&A expense for the three months ended July 27, 2024 was $33.8 million, or 18% of revenue, as compared to SG&A expense of $23.8 million, or 16% of revenue, for the three months ended July 29, 2023. The increase in SG&A expense was primarily due to an increase of $5.8 million of sales and marketing expense primarily driven by an increase in bid and proposal efforts and an increase of $3.3 million in employee related expenses primarily driven by an increase in average headcount to support our growth and expansion of our global business development team. Sales and marketing expense includes commissions on certain direct commercial sales to international customers, and an increase in revenue results in an increase in commission expense.

Current wording

Selling, General and Administrative**.**SG&A expense for the three months ended October 26, 2024 was $37.9 million, or 20% of revenue, as compared to SG&A expense of $28.1 million, or 16% of revenue, for the three months ended October 28, 2023. The increase in SG&A expense was primarily due to an increase of $4.3 million in employee related expenses primarily driven by an increase in average headcount to support our growth and expansion of our global business development team, an increase of $3.0 million of sales and marketing expense primarily driven by an increase in bid and proposal efforts, and an increase of $2.5 million in acquisition related expenses. Sales and marketing expense includes commissions on certain direct commercial sales to international customers, and an increase in revenue results in an increase in commission expense.

Previous wording

Research and Development. R&D expense for the three months ended July 27, 2024 was $24.6 million, or 13% of revenue, as compared to R&D expense of $15.5 million, or 10% of revenue, for the three months ended July 29, 2023. The increase was primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

Current wording

Research and Development. R&D expense for the three months ended October 26, 2024 was $28.7 million, or 15% of revenue, as compared to R&D expense of $22.0 million, or 12% of revenue, for the three months ended October 28, 2023. The increase was primarily due to an increase in development activities regarding enhanced capabilities for our products, development of new product lines and support for our acquired businesses.

Previous wording

Interest Expense, net. Interest expense, net for the three months ended July 27, 2024 was $0.2 million compared to interest expense, net of $2.0 million for the three months ended July 29, 2023. The decrease in interest expense, net was primarily due to lower average outstanding balances on our debt facility.

Current wording

Interest Expense, net. Interest expense, net for the three months ended October 26, 2024 was $0.7 million compared to interest expense, net of $2.0 million for the three months ended October 28, 2023. The decrease in interest expense, net was primarily due to lower average outstanding balances on our debt facility.

Previous wording

Provision for Income Taxes. Our effective income tax rate was 6.6% for the three months ended July 27, 2024, as compared to 5.7% for the three months ended July 29, 2023. The increase in our effective income tax rate was primarily due to a decrease in FDII deductions, partially offset by an increase in excess tax benefits from equity awards. The effective income tax rate for the three months ended July 27, 2024 was primarily impacted by expected federal R&D tax credits and FDII deductions and excess tax benefits from equity awards.

Current wording

Benefit from Income Taxes. Our effective income tax rate was (3.5)% for the three months ended October 26, 2024, as compared to 5.6% for the three months ended October 28, 2023. The decrease in our effective income tax rate was primarily due to an increase in FDII deductions and excess tax benefits from equity awards. The effective income tax rate for the three months ended October 26, 2024 was primarily impacted by expected federal R&D tax credits and FDII deductions and excess tax benefits from equity awards.

Previous wording

Equity Method Investment Income (Loss), net of Tax. Equity method investment income, net of tax for the three months ended July 27, 2024 was $0.1 million as compared to equity method investment loss, net of tax of $21 thousand for the three months ended July 29, 2023.

Current wording

Equity Method Investment Income (Loss), net of Tax. Equity method investment income, net of tax for the three months ended October 26, 2024 was $1.0 million as compared to equity method investment loss, net of tax of $(1.4) million for the three months ended October 28, 2023.

Previous wording

Revenue. UxS revenue for the three months ended July 27, 2024 was $120.0 million, as compared to $98.2 million for the three months ended July 29, 2023, representing an increase of $21.8 million, or 22%. The increase in revenue was due to an increase in product revenue of $19.1 million and an increase in service revenue of $2.7 million. The increase in product revenue was primarily due to $19.1 million from increased product shipments of our SUAS family of systems and UGV product systems driven by increased global demand for our uncrewed systems associated with the current global conflicts as well as U.S. D.o.D. resupply including $1.1 million associated with the Tomahawk acquisition. The increase in service revenue was primarily due to an increase of $3.1 million of training and repairs service revenue driven by the increased product sales.

Current wording

Revenue. UxS revenue for the three months ended October 26, 2024 was $85.4 million, as compared to $132.8 million for the three months ended October 28, 2023, representing a decrease of $47.4 million, or 36%. The decrease in revenue was due to a decrease in product revenue of $41.8 million and an increase in service revenue of $5.5 million. The decrease in product revenue was primarily due to $40.4 million from decreased product shipments of our SUAS family of systems and UGV product systems driven by to a decrease in international sales due to lower sales to Ukraine. The decrease in service revenue was primarily due to a decrease of $3.1 million of training and repairs service revenue driven by the decreased product sales and a decrease of $2.5 million of customer-funded R&D and engineering services.

Previous wording

Revenue. LMS revenue for the three months ended July 27, 2024 was $52.0 million, as compared to $30.9 million for the three months ended July 29, 2023, representing an increase of $21.1 million, or 68%. The increase in revenue was due to an increase in product revenue of $21.9 million, partially offset by a decrease in service revenue of $0.8 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our loitering munitions systems associated with the current global conflicts as well as U.S. D.o.D. resupply. The decrease in service revenue was primarily due to decreases in customer-funded R&D activities primarily associated with the shift from development to production of certain Switchblade products.

Current wording

Revenue. LMS revenue for the three months ended October 26, 2024 was $77.7 million, as compared to $30.2 million for the three months ended October 28, 2023, representing an increase of $47.5 million, or 157%. The increase in revenue was due to an increase in product revenue of $47.9 million, partially offset by a decrease in service revenue of $0.5 million. The increase in product revenue was primarily due to increased production of our LMS systems primarily due to increased global demand for our loitering munitions systems associated with the current global conflicts as well as U.S. D.o.D. resupply and a cumulative catch-up revenue adjustment for the definitization of LMS contracts of $9.9 million. The decrease in service revenue was primarily due to decreases in customer-funded R&D activities primarily associated with the shift from development to production of certain Switchblade products.

Previous wording

LMS Segment adjusted gross margin. LMS segment adjusted gross margin for the three months July 27, 2024 was $13.3 million, as compared to $12.3 million for the three months ended July 29, 2023, representing an increase of $1.0 million, or 8%. The increase in LMS segment adjusted gross margin was primarily due to an increase in revenue of $21.1 million, partially offset by an increase in adjusted cost of sales of $20.1 million. The increase in adjusted cost of sales was primarily due to an increase in sales volume of approximately $12 million, an unfavorable contract mix primarily due to an increase in revenue earned on undefinitized contracts for the three months ended July 27, 2024 and a decrease in favorable cumulative catch up adjustments. LMS is operating under multiple undefinitized contract actions, or UCA's, which we recognize revenue based upon estimates of the final price negotiations. In the period these contracts are definitized a cumulative catch-up revenue adjustment will be recorded. For the full fiscal year we anticipate LMS adjusted gross margin as a percentage of revenues to trend toward the prior year levels.

Current wording

LMS Segment adjusted gross margin. LMS segment adjusted gross margin for the three months October 26, 2024 was $30.2 million, as compared to $9.3 million for the three months ended October 28, 2023, representing an increase of $20.8 million, or 223%. The increase in LMS segment adjusted gross margin was primarily due to an increase in revenue of $47.5 million, inclusive of the cumulative catch-up revenue adjustment of $9.9 million, partially offset by an increase in adjusted cost of sales of $26.7 million. The increase in adjusted cost of sales was primarily due to an increase in sales volume of approximately $26 million. LMS is operating under multiple unpriced change orders, or UCO's, for which we recognize revenue based upon estimates of the final price negotiations. In the period these contracts are definitized a cumulative catch-up revenue adjustment will be recorded. For the full fiscal year, we anticipate LMS adjusted gross margin as a percentage of revenues to trend toward the prior year levels.

Previous wording

MW Segment adjusted gross margin. MW segment adjusted gross margin for the three months July 27, 2024 was $4.7 million, as compared to $5.3 million for the three months ended July 29, 2023, representing a decrease of $0.6 million. The decrease in MW adjusted gross margin was primarily due to a decrease in revenue of $5.7 million, partially offset by a decrease in adjusted cost of sales. The decrease in adjusted cost of sales was primarily due to a decrease in sales volume of approximately $5 million.

Current wording

MW Segment adjusted gross margin. MW segment adjusted gross margin for the three months October 26, 2024 was $5.8 million, as compared to $3.6 million for the three months ended October 28, 2023, representing an increase of $2.2 million or 62%. The increase in MW adjusted gross margin was primarily due to an increase in revenue of $7.5 million, partially offset by an increase in adjusted cost of sales of $5.3 million. The increase in adjusted cost of sales was primarily due to an increase in sales volume of approximately $6 million.

Previous wording

Revenue. Revenue for the three months ended July 27, 2024 was $189.5 million, as compared to $152.3 million for the three months ended July 29, 2023, representing an increase of $37.2 million, or 24%. The increase in revenue was due to an increase in product revenue of $40.0 million, partially offset by a decrease in service revenue of $2.9 million. The increase in product revenue was primarily due to an increase of $21.9 million from the production of our Switchblade products and an increase of $19.1 million of product deliveries of our UxS products, including $1.1 million associated with the Tomahawk acquisition. These increases were primarily driven by increased global demand for our LMS and uncrewed systems associated with the current global conflicts as well as U.S. D.o.D. resupply. The decrease in service revenue was primarily due to a decrease of $5.9 million in customer funded R&D and engineering services due to a decrease in development programs in part due to delays in the establishment of the government fiscal year 2024 budget, partially offset by an increase of $3.0 million of training and repairs service revenue driven by the increased product sales. The increase in the LMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2025.

Current wording

Revenue. Revenue for the six months ended October 26, 2024 was $377.9 million, as compared to $333.2 million for the six months ended October 28, 2023, representing an increase of $44.8 million, or 13%. The increase in revenue was due to an increase in product revenue of $45.5 million, partially offset by a decrease in service revenue of $0.7 million. The increase in product revenue was primarily due to an increase of $69.8 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. D.o.D. resupply and a cumulative catch-up revenue adjustment for the definitization of LMS contracts of $9.9 million. The increase was partially offset by a decrease of $24.3 million of product deliveries of our UxS and MW products, primarily due to a decrease in international sales. The decrease in service revenue was primarily due to a decrease of $0.7 million in customer funded R&D and engineering services due to a decrease in development programs in part due to delays in the establishment of the government fiscal year 2024 budget. The increase in the LMS product revenues as compared to the prior year period is expected to continue for the remainder of the fiscal year ending April 30, 2025.

Previous wording

Other Expense, net. Other expense, net, for the three months ended July 27, 2024 was $0.2 million compared to $1.1 million for the three months ended July 29, 2023. The decrease was primarily due to lower net unrealized losses associated with the fair market value of our equity security investments.

Current wording

Other Expense, net. Other expense, net, for the six months ended October 26, 2024 was $0.2 million compared to $4.0 million for the six months ended October 28, 2023. The decrease was primarily due to lower net unrealized losses associated with the fair market value of our equity security investments.

Previous wording

UxS Segment adjusted gross margin. UxS segment adjusted gross margin for the three months July 27, 2024 was $67.3 million, as compared to $50.4 million for the three months ended July 29, 2023, representing an increase of $16.8 million, or 33%. The increase in UxS segment adjusted gross margin was primarily due to an increase in revenue of $21.8 million, partially offset by an increase of $5.0 million in adjusted cost of sales. The increase in adjusted cost of sales was due to an increase in sales volume of approximately $10 million, partially offset by a favorable sales mix of approximately $5 million primarily due to a higher proportion of international products sales. Adjusted cost of sales is defined as cost of sales before intangible amortization expense including amortization of purchase accounting adjustments.

Current wording

UxS Segment adjusted gross margin. UxS segment adjusted gross margin for the six months October 26, 2024 was $108.6 million, as compared to $116.0 million for the six months ended October 28, 2023, representing a decrease of $7.4 million, or 6%. The decrease in UxS segment adjusted gross margin was primarily due to a decrease in revenue of $25.6 million, partially offset by a decrease of $18.1 million in adjusted cost of sales. The decrease in adjusted cost of sales was due to a decrease in sales volume of approximately $12 million, partially offset by a mix shift of approximately $6 million primarily due to a lower proportion of international products sales. Adjusted cost of sales is defined as cost of sales before intangible amortization expense including amortization of purchase accounting adjustments.

Previous wording

Consistent with ASC 606, we define funded backlog as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract. As of July 27, 2024, our funded backlog was approximately $372.9 million, as compared to $400.2 million as of April 30, 2024. Funded backlog does not include $128 million of initial funding under the recently announced indefinite delivery, indefinite quantity (“IDIQ”) contract to deliver LMS systems for the U.S. Army’s Directed Requirement for Lethal Unmanned Systems with a contract ceiling value of $990 million received in August 2024.

Current wording

Consistent with ASC 606, we define funded backlog as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract. As of October 26, 2024, our funded backlog was approximately $467.1 million, as compared to $400.2 million as of April 30, 2024.

Previous wording

In addition to our funded backlog, we also had unfunded backlog of $141.1 million as of July 27, 2024. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with (i) multiple one-year

Current wording

In addition to our funded backlog, we also had unfunded backlog of $1,829.1 million as of October 26, 2024. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and fixed price contracts with (i) multiple one-year options and IDIQ contracts, or (ii) incremental funding. Unfunded backlog does not obligate the customer to purchase goods or services. There can be no assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts. A protest has been filed with the U.S. Government Accountability Office (“GAO”) challenging the U.S Department of the Army’s decision on August 27, 2024 to award an indefinite delivery, indefinite quantity contract with a ceiling value of $990.0 million on a sole source basis to AeroVironment, Inc. (the “Company”) related to the Company’s Switchblade systems, of which $860.0 million is included in unfunded backlog.

Previous wording

Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire or are renewed or new contracts are awarded. A majority of our contracts, specifically our IDIQ contracts, do not currently obligate the U.S. government to purchase any goods or services. Additionally, all U.S. government contracts included in backlog, whether or not they are funded, may be terminated at the convenience of the U.S. government.

Current wording

Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire or are renewed or new contracts are awarded. A majority of our contracts, specifically our IDIQ contracts, do not currently obligate the U.S. government to purchase any goods or services. Additionally, all U.S.

Previous wording

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 net of equity issuance costs.

Current wording

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. During the three and six months ended October 28, 2023, we sold 807,370 shares for total gross proceeds of $91.3 million, total proceeds received of $88.6 million, net of commission expense and $88.4 million net of equity issuance costs. As of October 28, 2023, we completed the Open Market Sale Agreement SM and sold 1,917,100 of our shares for total gross proceeds of $200.0 million and $194.0 million proceeds received, net of commission expense and $193.1 million net of equity issuance costs.

Previous wording

On February 19, 2021, in connection with the consummation of the Arcturus acquisition, we entered into the Credit Agreement for (i) the Revolving Facility, and (ii) the Term Loan Facility, and together with the Revolving Credit Facility, the “Credit Facilities.” 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 $7.5 million as of July 27, 2024. As of July 27, 2024, approximately $92.5 million was available under the Revolving Facility. Borrowings under the Revolving Facility may be used for working capital and other general corporate purposes. Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. In addition, the Company has a separate letter of credit of $2.1 million and Telerob has a line of credit of €7.0 million ($7.6 million) available for issuing letters of credit of which €0.1 million ($0.1 million) was outstanding as of July 27, 2024.

Current wording

On February 19, 2021, in connection with the consummation of the Arcturus Acquisition, we entered into the Credit Agreement for (i) the Revolving Facility, and (ii) the Term Loan Facility, and together with the Revolving Credit Facility, the “Credit Facilities.” The Term Loan Facility required payment of 5% of the outstanding obligations in each of the first four loan years, 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. On October 4, 2024, we amended the Credit Facility agreement to increase the Revolving Facility to $200 million, and the Term Loan Facility was fully repaid in full and removed from the Amended Credit Facility. Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $9.8 million as of October 26, 2024. As of October 26, 2024, approximately $175.2 million 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. Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. In addition, Telerob has a line of credit of €7.0 million ($7.6 million) available for issuing letters of credit of which €0.3 million ($0.3 million) was outstanding as of October 26, 2024.

Previous wording

our products and services, and possible acquisition of entities. Our future capital requirements, to a certain extent, are also subject to general conditions in or affecting the defense industry and are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from our Credit Agreement are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in our Credit Facility agreement. In addition, we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services or technologies.

Current wording

Our primary liquidity needs are for financing working capital, investing in capital expenditures, supporting product development efforts, introducing new products and enhancing existing products, marketing acceptance and adoption of our products and services, and possible acquisition of entities or strategic assets. Our future capital requirements, to a certain extent, are also subject to general conditions in or affecting the defense industry and are subject to general economic, political, financial, competitive, legislative and regulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from our Credit Agreement are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in our Credit Facility agreement. In addition, we may also need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services or technologies.

Previous wording

The following table provides our cash flow data for the three months ended July 27, 2024 and July 29, 2023 (in thousands):

Current wording

The following table provides our cash flow data for the six months ended October 26, 2024 and October 28, 2023 (in thousands):

Previous wording

Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities for the three months ended July 27, 2024 increased by $45.4 million to $28.4 million, as compared to net cash used in operating activities of $(17.1) million for the three months ended July 29, 2023. The increase in net cash provided by operating activities was primarily due to an increase in cash as a result of changes in operating assets and liabilities of $43.2 million, largely related to inventories and accounts receivable, partially offset by unbilled receivables and retentions and other liabilities, due to year over year timing differences as well as an increase in non-cash expenses of $2.9 million primarily due to an increase in depreciation and amortization and stock-based compensation.

Current wording

Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities for the six months ended October 26, 2024 increased by $50.3 million to $24.7 million, as compared to net cash used in operating activities of $(25.6) million for the six months ended October 28, 2023. The increase in net cash provided by operating activities was primarily due to an increase in cash as a result of changes in operating assets and liabilities of $65.7 million, largely related to inventories and unbilled receivables and retentions, partially offset by accounts receivable and other liabilities, due to year over year timing differences as well as an increase in non-cash expenses of $4.4 million primarily due to a decrease in reserve for inventory excess and obsolescence, partially offset by an increase in depreciation and amortization.

Previous wording

Cash Used in Investing Activities. Net cash used in investing activities increased by $3.0 million to $6.6 million for the three months ended July 27, 2024, as compared to $3.6 million for the three months ended July 29, 2023. The increase in net cash used in investing activities was due to an increase in acquisition of property and equipment acquisitions of $1.8 million and an increase in equity securities investments of $1.2 million.

Current wording

Cash Used in Investing Activities. Net cash used in investing activities decreased by $26.0 million to $(11.6) million for the six months ended October 26, 2024, as compared to $(37.6) million for the six months ended October 28, 2023. The decrease in net cash used in investing activities was primarily due to a decrease in business acquisitions due to Tomahawk acquisition during the six months ended October 26, 2024.

Previous wording

Cash Used in Financing Activities. Net cash used in financing activities increased by $7.6 million to $14.0 million for the three months ended July 27, 2024, as compared to $6.3 million for the three months ended July 29, 2023. The

Current wording

Cash Used in Financing Activities. Net cash used in financing activities increased by $49.0 million to $(17.5) million for the six months ended October 26, 2024, as compared to net cash provided by financing activities of $31.5 million for the six months ended October 28, 2023. The increase in net cash used in financing activities was primarily due to a decrease in proceeds from shares issued of $88.4 million, partially offset by net principal payments of the credit facilities of $42 million.

Previous wording

Please refer to Note 1—Organization and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the conclusion that we did not adopt any accounting standards during the three months ended July 27, 2024.

Current wording

Please refer to Note 1—Organization and Significant Accounting Policies to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the conclusion that we did not adopt any accounting standards during the six months ended October 26, 2024.