AeroVironment narrows Q1 loss on $480M sales
AeroVironment, Inc. (AVAV) reported fiscal Q1 2027 revenue of $480.5 million, up from $454.7 million a year earlier, driven by growth in product sales and contract services across its AxS and SCDE segments.
AeroVironment, Inc. (AVAV) reported fiscal Q1 2027 revenue of $480.5 million, up from $454.7 million a year earlier, driven by growth in product sales and contract services across its AxS and SCDE segments. Loss from operations narrowed sharply to $10.9 million from $69.3 million, and net loss improved to $5.1 million compared with $67.4 million.
Total assets were $5.73 billion, including $278.4 million of cash and cash equivalents and $396.6 million in short- and long-term investments. The company carries $747.5 million of 0% Convertible Senior Notes due 2030 and stockholders’ equity of $4.40 billion. Operating cash flow turned positive at $13.5 million versus a use of $123.7 million in the prior-year quarter.
AeroVironment closed the acquisition of Empirical Systems Aerospace (ESAero) in March 2026 for preliminary consideration of $177.9 million, adding to its AxS segment, and continues integrating the larger BlueHalo acquisition completed in May 2025. Funded backlog was $1.46 billion as of August 1, 2026, with about 78% expected to convert to revenue in fiscal 2027. Subsequent to quarter-end, the company purchased a new Southern California campus for $29.3 million for research, engineering, manufacturing and administrative use.
Positive
- Net loss shrank to $5.1 million from $67.4 million, with loss from operations and interest expense both much lower, indicating improved profitability despite ongoing integration and amortization costs.
- Operating cash flow turned positive at $13.5 million compared with a $123.7 million outflow a year earlier, reflecting better working capital management and reduced acquisition-related cash usage.
- Revenue rose to $480.5 million from $454.7 million, supported by growth in product sales and a strong AxS contribution, while funded backlog reached $1.46 billion, underpinning near-term demand.
Negative
- Despite improvements, the company still reported a net loss of $5.1 million, and results remain pressured by high amortization expense of $56.0 million tied to recent acquisitions.
- Goodwill of $2.49 billion and intangibles of $886.5 million represent a significant portion of assets, and management highlights increased impairment risk for the Space reporting unit within the SCDE segment.
- Long-term debt consists of $747.5 million of 0% Convertible Senior Notes due 2030, creating future refinancing, redemption or dilution considerations depending on stock performance and conversion behavior.
Key Figures
Key Terms
funded backlog financial
performance obligations financial
segment adjusted EBITDA financial
0% Convertible Senior Notes financial
Make-Whole Fundamental Change financial
Simple Agreement for Future Equity financial
Earnings Snapshot
FAQ
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AI-generated analysis. How Rhea-AI works. Not financial advice.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Non-accelerated filer ☐ | | Smaller reporting company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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AeroVironment, Inc.
Table of Contents
Item 1. | Financial Statements: | | |
| Condensed Consolidated Balance Sheets as of August 1, 2026 (Unaudited) and April 30, 2026 | | 3 |
| Condensed Consolidated Statements of Operations for the three months ended August 1, 2026 (Unaudited) and August 2, 2025 (Unaudited) | | 4 |
| Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended August 1, 2026 (Unaudited) and August 2, 2025 (Unaudited) | | 5 |
| Condensed Consolidated Statements of Stockholders’ Equity for the three months ended August 1, 2026 (Unaudited) and August 2, 2025 (Unaudited) | | 6 |
| Condensed Consolidated Statements of Cash Flows for the three months ended August 1, 2026 (Unaudited) and August 2, 2025 (Unaudited) | | 7 |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | | 8 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 30 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | | 37 |
Item 4. | Controls and Procedures | | 38 |
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PART II. OTHER INFORMATION | | | |
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Item 1. | Legal Proceedings | | 39 |
Item 1A. | Risk Factors | | 41 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | 41 |
Item 3. | Defaults Upon Senior Securities | | 41 |
Item 4. | Mine Safety Disclosures | | 41 |
Item 5. | Other Information | | 41 |
Item 6. | Exhibits | | 42 |
Signatures | | 43 | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AeroVironment, Inc.
Condensed Consolidated Balance Sheets
(In thousands except share and per share data)
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| | August 1, | | April 30, | | ||
| | 2026 | | 2026 | | ||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | | | $ | | |
Short-term investments | | | | | | | |
Accounts receivable, net of allowance for credit losses of $ | |
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Unbilled receivables and retentions | |
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Inventories, net | |
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Income taxes receivable | | | | | | | |
Prepaid expenses and other current assets | |
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Total current assets | |
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Long-term investments | | | | | | | |
Property and equipment, net | |
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Operating lease right-of-use assets | | | | | | | |
Intangibles, net | | | | | | | |
Goodwill | | | | | | | |
Other assets | |
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Total assets | | $ | | | $ | | |
Liabilities and stockholders’ equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | | | $ | | |
Wages and related accruals | |
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Customer advances | |
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Current operating lease liabilities | | | | | | | |
Income taxes payable | | | | | | | |
Other current liabilities | |
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Total current liabilities | |
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Long-term debt | | | | | | | |
Non-current operating lease liabilities | | | | | | | |
Other non-current liabilities | | | | | | | |
Liability for uncertain tax positions | |
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Deferred income taxes | | | | | | | |
Commitments and contingencies | | | | | | | |
Stockholders’ equity: | | | | | | | |
Preferred stock, $ | | | | | | | |
Authorized shares— | |
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Common stock, $ | | | | | | | |
Authorized shares— | | | | | | | |
Issued and outstanding shares— | |
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Additional paid-in capital | |
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Accumulated other comprehensive loss | |
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Retained (loss) earnings | |
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Total stockholders’ equity | | | | | | | |
Total liabilities and stockholders’ equity | | $ | | | $ | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
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AeroVironment, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)
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| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
| | 2026 | | 2025 | | ||
Revenue: | | | | | | | |
Product sales | | $ | | | $ | | |
Contract services | |
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Cost of sales: | | | | | | | |
Product sales | |
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Contract services | |
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Gross margin: | |
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Product sales | | | | | | | |
Contract services | | | | | | | |
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Selling, general and administrative | |
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Research and development | |
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Loss from operations | |
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Other income (loss): | | | | | | | |
Interest income (expense), net | |
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Other (expense) income, net | |
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Loss before income taxes | |
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Benefit from income taxes | |
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Equity method investment income, net of tax | |
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Net loss | | $ | ( | | $ | ( | |
Net loss per share | | | | | | | |
Basic | | $ | ( | | $ | ( | |
Diluted | | $ | ( | | $ | ( | |
Weighted-average shares outstanding: | | | | | | | |
Basic | |
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Diluted | |
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See accompanying notes to condensed consolidated financial statements (unaudited).
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AeroVironment, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
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| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
| | 2026 | | 2025 |
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Net loss | | $ | ( | | $ | ( | |
Other comprehensive (loss) income: | | | | | | | |
Unrealized loss on available-for-sale investments, net of deferred tax expense of $ | | | ( | | | — | |
Change in foreign currency translation adjustments | | | | | | | |
Total comprehensive loss | | $ | ( | | $ | ( | |
See accompanying notes to condensed consolidated financial statements (unaudited).
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AeroVironment, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the three months ended August 1, 2026 and August 2, 2025 (Unaudited)
(In thousands except share data)
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| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||||
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Total | |||||
Balance at April 30, 2026 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Net loss |
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Unrealized loss on investments | | — | |
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Foreign currency translation | | — | |
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Employee stock purchase plan contributions | | | |
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Restricted stock awards | | | |
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Restricted stock awards forfeited |
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Tax withholding payment related to net share settlement of equity awards | | ( | |
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Stock based compensation |
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Balance at August 1, 2026 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
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| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||||
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Total | |||||
Balance at April 30, 2025 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Net loss |
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Foreign currency translation | | — | | | — | | | — | | | — | | | | | | |
Employee stock purchase plan contributions | | | | | — | | | | | | — | | | — | | | |
Restricted stock awards | | | | | — | | | — | | | — | | | — | | | — |
Restricted stock awards forfeited |
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Tax withholding payment related to net share settlement of equity awards | | ( | | | — | | | ( | | | — | | | — | | | ( |
Issuance of common stock for business acquisitions | | | | | | | | | | | — | | | — | | | |
Shares issued, net of issuance costs | | | | | — | | | | | | — | | | — | | | |
Stock based compensation | | — | |
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Balance at August 2, 2025 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
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AeroVironment, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
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| | Three Months Ended | | ||||
| | August 1, | | August 2, |
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Operating activities | | 2026 | | 2025 | | ||
Net loss | | $ | ( | | $ | ( | |
Adjustments to reconcile net loss to cash provided by (used in) operating activities: | | | | | | | |
Depreciation and amortization | |
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Gain from equity method investments | | | ( | | | ( | |
Amortization of debt issuance costs | | | | | | | |
Provision for credit losses | |
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Reserve for inventory excess and obsolescence | | | | | | | |
Other non-cash expense, net | | | | | | | |
Non-cash lease expense | | | | | | | |
Loss on foreign currency transactions | |
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Gain on sale of equity securities, net | | | — | | | ( | |
Stock-based compensation | |
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Loss on disposal of property and equipment | | | — | | | | |
Amortization of debt securities | | | ( | | | — | |
Changes in operating assets and liabilities, net of acquisitions: | | | | | | | |
Accounts receivable | |
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Unbilled receivables and retentions | |
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Inventories | |
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Income taxes receivable | | | | | | ( | |
Prepaid expenses and other assets | |
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Accounts payable | |
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Other liabilities | | | ( | | | ( | |
Net cash provided by (used in) operating activities | |
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Investing activities | | | | | | | |
Acquisition of property and equipment | |
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Acquisition of capitalized software to be sold | | | ( | | | ( | |
Purchase of available-for-sale investments | | | ( | | | — | |
Redemption of available-for-sale investments | | | | | | — | |
Business acquisitions, net of cash acquired | | | — | | | ( | |
Net cash used in investing activities | |
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Financing activities | | | | | | | |
Proceeds from revolving credit facility | | | — | | | | |
Principal payments of term loan | | | — | | | ( | |
Proceeds from term loan | | | — | | | | |
Principal payments of revolver | | | — | | | ( | |
Proceeds from shares issued, net of underwriter costs | | | — | | | | |
Proceeds from convertible debt, net of underwriter costs | | | — | | | | |
Payment of debt issuance costs | | | — | | | ( | |
Payment of equity issuance costs | | | — | | | ( | |
Tax withholding payment related to net settlement of equity awards | | | ( | | | ( | |
Employee stock purchase plan contributions | | | | | | | |
Other | | | ( | | | ( | |
Net cash (used in) provided by financing activities | |
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Effects of currency translation on cash and cash equivalents | | | ( | | | ( | |
Net (decrease) increase in cash and cash equivalents | |
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Cash and cash equivalents at beginning of period | |
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Cash and cash equivalents at end of period | | $ | | | $ | | |
Supplemental disclosures of cash flow information | | | | | | | |
Cash (received) paid, net during the period for: | | | | | | | |
Income taxes | | $ | ( | | $ | ( | |
Interest | | $ | | | $ | | |
Non-cash activities | | | | | | | |
Issuance of common stock for business acquisition | | $ | — | | $ | | |
Unrealized loss on available-for-sale investments | | $ | ( | | $ | — | |
Change in foreign currency translation adjustments | | $ | | | $ | | |
Acquisitions of property and equipment included in accounts payable | | $ | | | $ | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
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AeroVironment, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization and Significant Accounting Policies
Organization
AeroVironment, Inc., a Delaware corporation (together with its fully-owned subsidiaries, collectively referred to herein as the “Company”), is engaged in the design, development, production, delivery and support of autonomous systems, precision strike systems, Counter-Uncrewed Aircraft Systems (“C-UAS”) technologies, space-based platforms, directed energy systems, and cyber and electronic warfare capabilities. The Company provides these products and services primarily to organizations within or supplying the U.S. Department of Defense (“DoD”), other federal agencies and to international allied governments.
The Company’s reportable segments are as follows:
Autonomous Systems (“AxS”)— The AxS segment focuses on the design, development, production, delivery, and support of intelligent, multi-domain robotic systems, including uncrewed aircraft systems (“UAS”), uncrewed underwater vehicles and ground robot systems. The segment includes the Company’s former Uncrewed Systems (“UxS”), Loitering Munitions Systems (“LMS”), and MacCready Works (“MW”) segments as well as Integrated Air and Missile Defense (“IAMD”), Electronic Warfare Systems (“EW”) and Uncrewed Maritime (“UUV”) products and services from the BlueHalo acquisition. This segment encompasses the Company’s core autonomous platforms, such as drones and robotic systems, tailored for mission-critical applications across air, land and sea domains.
Space, Cyber, and Directed Energy (“SCDE”)— The SCDE segment focuses on advanced technologies in the space domain providing space-based and ground-based platforms, cyber capabilities, and directed energy systems. This segment positions the Company in high-growth areas of next-generation defense technology, addressing emerging threats and mission requirements in space, cyber warfare, and directed energy applications (e.g., high-energy lasers).
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three months ended August 1, 2026 are not necessarily indicative of the results for the full year ending April 30, 2027. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2026, included in the Company’s Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including estimates of anticipated contract costs and revenue utilized in the revenue recognition process, that affect the reported amounts in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The Company’s unaudited condensed consolidated financial statements include the assets, liabilities and operating results of wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Recent Acquisitions
On May 1, 2025, the Company closed its acquisition of BlueHalo, a Delaware limited liability company, pursuant to the Agreement and Plan of Merger, dated as of November 18, 2024 by and among AV, Archangel Merger Sub LLC, a
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Delaware limited liability company, BlueHalo, and BlueHalo Holdings Parent, LLC, a Delaware limited liability company and sole member of BlueHalo. Refer to Note 15—Business Acquisitions for further details.
On March 16, 2026, the Company closed its acquisition of Empirical Systems Aerospace, Inc. (“ESAero”), a leading producer of UAS and advanced air mobility platforms. ESAero is incorporated into AeroVironment’s AxS segment. Refer to Note 15—Business Acquisitions for further details.
Recently Adopted Accounting Standards
The Company did not adopt any accounting standards during the three months ended August 1, 2026.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, the Company’s prior year disaggregated revenue disclosures and segment information have been reclassified to conform to the current year presentation.
Revenue Recognition
The Company’s 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 the specifications of its customers. These contracts may be firm fixed price (“FFP”), cost plus fixed fee, cost plus award fee, and cost plus incentive fee (collectively “Cost Plus”), or time and materials (“T&M”). The Company considers all such contracts to be within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).
Performance Obligations
On August 1, 2026, the Company had approximately $
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Revenue by Category
The following tables present the Company’s revenue disaggregated by operating group, contract type, customer category and geographic location (in thousands).
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| Three Months Ended | | ||||
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| August 1, | | August 2, | | ||
Revenue by operating group | | 2026 | | 2025 | | ||
Uncrewed Aircraft Systems | | $ | | | $ | | |
Precision Strike and Defense Systems | | | | | | | |
Other | | | | | | | |
Space and Directed Energy | | | | | | | |
Cyber and Mission Solutions | | | | | | | |
Total revenue | | $ | | | $ | | |
| | | | | | | |
| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
Revenue by contract type | | 2026 | | 2025 | | ||
FFP | | $ | | | $ | | |
Cost Plus | | | | | | | |
T&M |
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Total revenue | | $ | | | $ | | |
Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more risk with FFP contracts. However, these types of contracts generally offer additional profits when the Company completes the work for less than originally estimated. Cost Plus contracts generally subject the Company to lower risk. Accordingly, the associated base fees are usually lower than fees on FFP contracts. Under T&M contracts, the Company’s profit may vary if actual labor hour rates vary significantly from the negotiated rates.
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| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
Revenue by customer category | | 2026 | | 2025 | | ||
U.S. government | | $ | | | $ | | |
Non-U.S. government | | | | | | | |
Total revenue | | $ | | | $ | | |
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| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
Revenue by geographic location | | 2026 | | 2025 | | ||
Domestic | | $ | | | $ | | |
International | | | | | | | |
Total revenue | | $ | | | $ | | |
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| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
Revenue percentage by recognition method | | 2026 | | 2025 | | ||
Over time | | | | | | ||
Point in time | | | | | | ||
Total revenue | | | | | | ||
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Customer-Funded Research & Development
Customer-funded R&D costs are incurred pursuant to contracts (revenue arrangements) to perform R&D activities according to customer specifications. These costs are direct contract costs and are expensed to cost of sales as costs are incurred. Revenue from customer-funded R&D contracts is recognized in accordance with ASC 606 over time as costs are incurred. Revenue from customer-funded R&D was approximately $
Contract Balances
Changes in the contract asset and liability balances during the three month period ended August 1, 2026 were not materially impacted by factors other than billings, cash collections, and timing of revenue recognition. For the Company’s contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.
Revenue recognized for the three month period ended August 1, 2026 that was included in customer advances balances as of April 30, 2026 was $
Investments
Certain of the Company’s investments are accounted for as available-for-sale and are reported at fair value. Unrealized gains and losses for debt securities are excluded from earnings and reported as a separate component of stockholders’ equity, net of deferred income taxes for available-for-sale investments. Gains and losses realized on the disposition of investment securities are determined on the specific identification basis and credited or charged to income. Investments in equity securities and warrants are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in other income (expense), net. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, unbilled receivables and retentions, and accounts payable approximate cost due to the short period of time to maturity.
Accounts Receivable
The Company is party to a receivables sales agreement with Citibank, N.A. with an aggregate capacity of $
Government Contracts
Payments to the Company on government Cost Plus or T&M contracts are based on provisional, or estimated indirect rates, which are subject to an annual audit by the Defense Contract Audit Agency (“DCAA”). The cost audits result in the negotiation and determination of the final indirect cost rates that the Company may use for the period(s) audited. The final rates, if different from the provisional rates, may create an additional receivable or liability for the Company for Cost Plus and T&M contracts.
For example, during the course of its audits, the DCAA may question the Company’s incurred costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallow such costs. Historically, the Company has not experienced material disallowed costs as a result of government
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audits. However, the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future. The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable government contracts to be recorded at estimated full year rates unless collectability is not reasonably assured. As of August 1, 2026, the company had a reserve for incurred cost claims of $
Loss Per Share
Basic loss per share is computed using the weighted-average number of common shares outstanding, excluding shares of unvested restricted stock.
The reconciliation of basic to diluted shares is as follows (in thousands except share data):
| | | | | | | |
| | | Three Months Ended | | |||
| | August 1, 2026 | | August 2, 2025 | | ||
Net loss | | $ | ( | | $ | ( | |
Denominator for basic loss per share: | | | | | | | |
Weighted average common shares | |
| | |
| |
|
Dilutive effect of employee stock options, restricted stock and restricted stock units | |
| — | |
| — |
|
Denominator for diluted loss per share | | | | | | | |
Due to the net loss for the three months ended August 1, 2026 and August 2, 2025,
Recently Issued Accounting Standards
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. The Company is currently evaluating the potential impact of this adoption on its consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which better aligns the accounting guidance to how software is developed by eliminating project stages from capitalization criteria. The new standard is effective for annual reporting periods beginning after December 15, 2027 and interim periods within those annual reporting periods. The standard allows for prospective, modified, or retrospective transition. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new pronouncement.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (“ASU 2025-11”), which is intended to improve the navigability of required interim disclosures and clarify when that guidance is applicable, and also to provide additional guidance on what disclosures should be provided in interim reporting periods. The new standard is effective for annual reporting periods beginning after December 15, 2027 and interim periods within those annual reporting periods. The standard allows for prospective or retrospective transition. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new pronouncement.
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2. Investments
Investments consist of the following (in thousands):
| | | | | | | |
| | August 1, | | April 30, | | ||
| | 2026 | | 2026 |
| ||
Short-term investments: | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. government securities | | | | | | | |
Corporate securities | | | | | | | |
Total short-term investments | | | | | | | |
Long-term investments: | | | | | | | |
Available-for-sale securities: | | | | | | | |
U.S. government securities | | | | | | | |
Corporate securities | | | | | | | |
Investments at cost | | | | | | | |
Total long-term available-for-sale securities investments | |
| | |
| | |
Equity method investments | | | | | | | |
Investments in limited partnership funds | |
| | |
| | |
Total equity method investments | |
| | |
| | |
Total long-term investments | | $ | | | $ | | |
Available-For-Sale Securities
As of August 1, 2026, the balance of available-for-sale securities consisted of U.S. government securities, money market funds, treasury bills, and high-grade corporate bonds. Interest earned from these investments is recorded in interest income (expense), net. Realized gains on sales of these investments on the basis of specific identification are recorded in interest income (expense), net.
The following table is a summary of the activity related to the available-for-sale investments recorded in short-term and long-term investments as of August 1, 2026 (in thousands):
| | | | | | | | | | | | |
| | August 1, 2026 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
| | Cost | | Gains | | Losses | | Value | ||||
Corporate securities | | $ | | | $ | — | | $ | ( | | $ | |
U.S. government securities | | | | | | — | | | ( | | | |
Total available-for-sale securities | | $ | | | $ | — | | $ | ( | | $ | |
The following table is a summary of the activity related to the available-for-sale investments recorded in short-term and long-term investments as of April 30, 2026 (in thousands):
| | | | | | | | | | | | |
| | April 30, 2026 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
| | Cost | | Gains | | Losses | | Value | ||||
Corporate securities |
| $ | | | $ | | | $ | ( | | $ | |
U.S. government securities | |
| | | | | | | ( | | | |
Total available-for-sale securities |
| $ | | | $ | | | $ | ( |
| $ | |
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Equity Securities
Certain equity securities and warrants are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in other income (expense), net.
| | | | | | |
| Three months ended | |||||
| | August 1, 2026 | | August 2, 2025 | ||
Net gain (loss) recognized during the period on equity securities | | $ | — | | $ | |
Less: Net gain recognized during the period on equity securities sold during the period | | | — | | | — |
Unrealized gain (loss) recognized during the period on equity securities still held at the reporting date | | $ | — | | $ | |
Investments Measured at Cost
On December 22, 2025, the Company invested $
On April 13, 2026, the Company invested $
3. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:
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The Company’s financial assets measured at fair value on a recurring basis as of August 1, 2026, were as follows (in thousands):
| | | | | | | | | | | | | |
| | Fair Value Measurement Using | | ||||||||||
| | | | | Significant | | | | | | | | |
| | Quoted prices in | | other | | Significant | | | | | |||
| | active markets for | | observable | | unobservable | | | | | |||
| | identical assets | | inputs | | inputs | | | | | |||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | ||||
Available-for-sale securities | | $ | — | | $ | | | $ | — | | $ | | |
Total | | $ | — | | $ | | | $ | — | | $ | | |
The Company’s financial assets measured at fair value on a recurring basis as of April 30, 2026, were as follows (in thousands):
| | | | | | | | | | | | |
| | Fair Value Measurement Using | ||||||||||
| | | | | Significant | | | | | | | |
| | Quoted prices in | | other | | Significant | | | | |||
| | active markets for | | observable | | unobservable | | | | |||
| | identical assets | | inputs | | inputs | | | | |||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||
Available-for-sale securities | | $ | — | | $ | | | $ | — | | $ | |
Total | | $ | — | | $ | | | $ | — | | $ | |
4. Inventories, net
Inventories consist of the following (in thousands):
| | | | | | | |
| | August 1, | | April 30, | | ||
| | 2026 | | 2026 |
| ||
| | | | ||||
Raw materials | | $ | | | $ | | |
Work in process | |
| | |
| | |
Finished goods | |
| | |
| | |
Inventories, gross | |
| | |
| | |
Reserve for inventory excess and obsolescence | |
| ( | |
| ( | |
Inventories, net | | $ | | | $ | | |
5. Equity Method Investments
Investments in Limited Partnership Funds
In July 2019, the Company made its initial capital contribution to a limited partnership fund focusing on highly relevant technologies and start-up companies serving defense and industrial markets. Under the terms of the limited partnership agreement, the Company contributed a total of $
For the three months ended August 1, 2026 and August 2, 2025, the Company recorded its ownership percentage of the net gain of equity method investments of $
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method investment income within the unaudited condensed consolidated statements of operations, respectively. As of August 1, 2026 and April 30, 2026, the carrying value of the equity method investments of $
6. Warranty Reserves
The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. The warranty reserve is included in other current liabilities on the unaudited condensed consolidated balance sheet. The related expense is included in cost of sales.
| | | | | | | |
| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
| | 2026 | | 2025 | | ||
Beginning balance | | $ | | | $ | | |
Balance acquired from acquisition | | | — | | | | |
Warranty expense | |
| | |
| | |
Warranty costs settled | |
| ( | |
| ( | |
Ending balance | | $ | | | $ | | |
7. Intangibles, net
The components of intangibles are as follows (in thousands):
| | | | | | | |
| | August 1, | | April 30, | | ||
| | 2026 | | 2026 | | ||
Technology | | $ | | | $ | | |
Licenses | | | | | | | |
Customer relationships | | | | | | | |
Backlog | | | | | | | |
In-process research and development | | | | | | | |
Non-compete agreements | | | | | | | |
Trademarks and tradenames | | | | | | | |
Other | | | | | | | |
Intangibles, gross | | | | | | | |
Less accumulated amortization | |
| ( | |
| ( | |
Intangibles, net | | $ | | | $ | | |
The weighted average amortization period as of August 1, 2026 and April 30, 2026 was six and
Estimated remaining amortization expense for the next five years is as follows (in thousands):
| | | | |
| | Year ending |
| |
| | April 30, |
| |
2027 | | $ | | |
2028 | |
| | |
2029 | |
| | |
2030 | |
| | |
2031 | |
| | |
| | $ | | |
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8. Goodwill
The following table presents the changes in the Company’s goodwill balance by segment (in thousands):
| | | | | | | | | |
| | AxS | | SCDE | | Total | |||
Goodwill | | $ | | | $ | | | $ | |
Accumulated impairment losses | | | ( | | | ( | | | ( |
Balance at April 30, 2026 | | | | | | | | | |
| | | | | | | | | |
Additions to goodwill | | | | | | — | | | |
| | | | | | | | | |
Goodwill | | | | | | | | | |
Accumulated impairment losses | | | ( | | | ( | | | ( |
Balance at August 1, 2026 | | $ | | | $ | | | $ | |
The AxS segment includes goodwill from the acquisitions of ESAero, Pulse Aerospace, LLC, Arcturus UAV, Inc., Telerob Gesellschaft für Fernhantierungstechnik mbH (“Telerob”), which has since been fully impaired, Planck Aerosystems, Inc., Tomahawk Robotics, Inc. (“Tomahawk”), certain reporting units from BlueHalo and includes goodwill from the purchase of certain assets of Intelligent Systems Group business segment of Progeny Systems Corporation. The SCDE segment includes goodwill from certain reporting units from BlueHalo.
During the three months ended August 1, 2026, the additions relate to adjustments to the purchase price allocation of the ESAero acquisition. Refer to Note 15—Business Acquisitions for further details.
During the most recent annual impairment test during the fourth quarter of fiscal year 2026, the estimated fair value of all reporting units with goodwill from acquisitions in years prior to fiscal year 2026 substantially exceeded their carrying value. The reporting units from the BlueHalo and ESAero acquisitions were recently recorded at estimated fair value during the fiscal year ended April 30, 2026 and no triggering event for goodwill impairment was since identified with the exception of the Space reporting unit for which a triggering event was identified in January 2026.
The Space reporting unit, included in the SCDE reportable segment, is considered to have an increased risk of failing future quantitative goodwill impairment tests as an impairment was recorded during the quarter ended January 31, 2026. The Company’s annual impairment test for the fiscal year ending April 30, 2027 will be performed during the fourth quarter of fiscal year 2027 or if interim triggering events are identified.
9. Debt
Credit Facilities
In connection with the consummation of the Arcturus Acquisition on February 19, 2021, the Company, as borrower, and Arcturus, as guarantor, entered into a Credit Agreement with certain lenders, letter of credit issuers, Bank of America, N.A. (“BofA NA”), as the administrative agent and the swingline lender, and BofA Securities, Inc., JPMorgan Chase Bank, N.A. (“JPM”), and U.S. Bank National Association (“U.S. Bank”), as joint lead arrangers and joint bookrunners (the “Credit Agreement”).
The Credit Agreement and its associated Security and Pledge Agreement set forth the terms and conditions for (i) a
On February 4, 2022, the Company entered into a First Amendment to Credit Agreement and Waiver relating to its existing Credit Agreement. On June 6, 2023, the Company entered into a Second Amendment to Credit Agreement relating to its existing credit Agreement which increased the sublimit from $
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administrative agent and the swingline lender, JPM, and U.S. Bank, and Citibank, N.A. (“Citibank”) (the “Third Amendment to Credit Agreement”). The Third Amendment to Credit Agreement provided for an aggregate $
On May 1, 2025, in connection with the consummation of the BlueHalo Acquisition, the Company entered into a Fourth Amendment to Credit Agreement with the lenders, BofA NA, the administrative agent and the swingline lender, JPM, and U.S. Bank, and Citibank (the “Fourth Amendment to Credit Agreement” and the existing Credit Agreement as amended by the First Amendment to Credit Agreement, the Second Amendment to Credit Agreement, Third Amendment to Credit Agreement and Fourth Amendment to Credit Agreement, the “Amended Credit Agreement”). The Amended Credit Agreement now provides for an aggregate $
In July 2025, the Company used approximately $
The Company’s ability to borrow under the Revolving Facility is reduced by outstanding letters of credit, which as of August 1, 2026 and April 30, 2026 was $
Convertible Notes
In July 2025, the Company entered into an underwriting agreement (the “Note Underwriting Agreement”) with certain underwriters (the “Note Underwriters”) agreeing, subject to customary conditions, to issue and sell $
The Notes were issued pursuant to, and are governed by, an indenture (the “Base Indenture”), dated as of July 3, 2025, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), as supplemented
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by a first supplemental indenture (the “Supplemental Indenture,” and the Base Indenture, as supplemented by the Supplemental Indenture, the “Indenture”), dated as of July 3, 2025, between the Company and the Trustee.
The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness, including any borrowings under the Company’s Revolving Credit Facility; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Notes do not bear regular interest, and the principal amount of the Notes will not accrete. Special interest will accrue on the Notes upon the occurrence of certain events relating to the Company's failure to file certain SEC reports as provided in the Indenture. The Notes will mature on July 15, 2030, unless earlier repurchased, redeemed or converted. Before April 15, 2030, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 15, 2030, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will have the right to elect to settle conversions either entirely in cash or in a combination of cash and shares of its common stock. Upon conversion of any Note, the consideration due upon conversion, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of
The Notes will be redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after July 21, 2028 and on or before the 61st scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds
If certain events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to a limited exception for certain cash mergers as provided in the Indenture, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. The definition in the Indenture of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.
The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of special interest on the Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to convert a Note in accordance with the
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Indenture within a specified period of time; (iv) the Company’s failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (v) a default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest, if any, on all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least
Long-term debt and the current period interest rates were as follows:
| | | | | | |
| | August 1, | | April 30, | ||
| | 2026 | | 2026 | ||
| | (In thousands) | | (In thousands) | ||
Convertible notes | | | | | | |
Total long-term debt | | | | | | |
Less unamortized debt issuance costs–convertible notes | | | | | | |
Total long-term debt, net of unamortized debt issuance costs–convertible notes | | $ | | | $ | |
Unamortized debt issuance costs–revolving credit facility | | $ | | | $ | |
Current period interest rate | | | — | | | — |
Future contractual long-term debt principal payments as of August 1, 2026 were as follows:
| | | |
Fiscal Year | | (In thousands) | |
2027 | | $ | — |
2028 | | | — |
2029 | | | — |
2030 | | | — |
2031 | | | |
| | $ | |
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10. Leases
The components of lease costs recorded in cost of sales and selling, general and administrative (“SG&A”) expense were as follows (in thousands):
| | | | | | |
| | Three Months Ended | | Three Months Ended | ||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
Operating lease cost | | $ | | | $ | |
Short term lease cost | | | | | | |
Variable lease cost | | | | | | |
Sublease income | | | — | | | — |
Total lease costs, net | | $ | | | $ | |
Supplemental lease information was as follows:
| | | | | | |
| | Three Months Ended | | Three Months Ended | ||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
| | (In thousands) | | (In thousands) | ||
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | | | $ | |
Right-of-use assets obtained in exchange for new lease liabilities | | $ | | | $ | |
| | | | | | |
Weighted average remaining lease term | | | | | ||
Weighted average discount rate | | | | | ||
Maturities of operating lease liabilities as of August 1, 2026 were as follows (in thousands):
| | | |
Fiscal Year | | | |
2027 | | $ | |
2028 | |
| |
2029 | |
| |
2030 | |
| |
2031 | |
| |
Thereafter | | | |
Total lease payments | | $ | |
Less: imputed interest | | | ( |
Total present value of operating lease liabilities | | $ | |
11. Accumulated Other Comprehensive Loss and Reclassifications Adjustments
The components of accumulated other comprehensive loss and adjustments are as follows (in thousands):
| | | | | | |
| | Three Months Ended | | Three Months Ended | ||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
Balance as of April 30, 2026 and April 30, 2025, respectively | | $ | ( | | $ | ( |
Unrealized available-for-sale security losses | | | ( | | | — |
Change in foreign currency translation adjustments | | | | | | |
Balance as of August 1, 2026 and August 2, 2025, respectively | | $ | ( | | $ | ( |
12. Long-Term Incentive Awards
During the three months ended August 1, 2026, the Company granted awards under its 2021 Equity Incentive Plan (the “2021 Plan”) to key employees (“Fiscal 2027 LTIP”). Awards under the Fiscal 2027 LTIP consist of: (i) time-based
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restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2027, July 2028 and July 2029, and (ii) performance-based restricted stock units (“PRSUs”), which vest based on the Company’s achievement of revenue and non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) targets for the
During the three months ended August 2, 2025, the Company granted awards under its 2021 Plan to key employees (“Fiscal 2026 LTIP”). Awards under the Fiscal 2026 LTIP consist of: (i) time-based restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2026, July 2027 and July 2028, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and non-GAAP adjusted EBITDA targets for the
During the three months ended July 27, 2024, the Company granted awards under its 2021 Plan to key employees (“Fiscal 2025 LTIP”). Awards under the Fiscal 2025 LTIP consist of: (i) time-based restricted stock awards and time-based restricted stock units, which vest in equal tranches in July 2025, July 2026 and July 2027, and (ii) PRSUs, which vest based on the Company’s achievement of revenue and non-GAAP adjusted EBITDA targets for the
During the three months ended July 29, 2023, the Company granted awards under the 2021 Plan to key employees (“Fiscal 2024 LTIP”). During the three months ended August 1, 2026, the Company issued a total of
At each reporting period, the Company reassesses the probability of achieving the performance targets for the PRSUs. The estimation of whether the performance targets will be achieved requires judgment, and, to the extent actual results or updated estimates differ from the Company’s current estimates, the cumulative effect on current and prior periods of
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those changes will be recorded in the period estimates are revised. No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited.
13. Income Taxes
For the three months ended August 1, 2026, the Company recorded an income tax benefit of $(
On July 4, 2025, the reconciliation bill, commonly known as the One Big Beautiful Bill Act (“OBBBA”), was enacted into law. The OBBBA, among other things, eliminates the requirement to capitalize U.S. R&D expenses, permanently extends certain provisions of the Tax Cuts & Jobs Act of 2017 and modifies certain international tax provisions, as part of a broader set of updates to the U.S. international tax rules. As the OBBBA was enacted during the Company’s fiscal quarter ended August 2, 2025, the Company reflected the impacts of the OBBBA on the condensed consolidated financial statements during such period. Cash tax payments for the fiscal year ending April 30, 2027 are expected to be significantly reduced as a result of the accelerated tax deductions. However, the Company’s total income tax expense and effective tax rate are not expected to materially change as a result of the legislation.
14. Share Issuances
In July 2025, the Company entered into an underwriting agreement (the “Common Stock Underwriting Agreement”) with certain underwriters (the “Common Stock Underwriters”) agreeing, subject to customary conditions, to issue and sell
15. Business Acquisitions
ESAero Acquisition
On March 16, 2026, the Company closed its acquisition of ESAero, a leading producer of UAS and advanced air mobility platforms. Pursuant to the merger agreement, the Company acquired
The following table summarizes the preliminary allocation of the fair value of the acquisition consideration transferred to assets acquired and liabilities assumed as of the acquisition date. The allocation of the purchase price is preliminary and subject to change as the Company continues to evaluate the fair values of certain assets and liabilities acquired. Open items in the purchase price allocation include the valuation of assets acquired and liabilities assumed including, but not limited to customer relationships, backlog developed technology, non-compete agreements, and tradename intangibles;
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leases; details surrounding tax matters; and assumptions underlying certain existing or potential reserves, such as those for inventory and legal matters (in thousands):
| | | | |
| | March 16, | | |
| | 2026 | | |
Fair value of assets acquired: | | | | |
Accounts receivable | | $ | | |
Unbilled receivables and retentions | | | | |
Inventories, net | | | | |
Prepaid expenses and other current assets | | | | |
Property and equipment | | | | |
Operating lease right-of-use assets | | | | |
Intangibles | | | | |
Goodwill | | | | |
Total identifiable assets | | $ | | |
| | | | |
Fair value of liabilities assumed: | | | | |
Accounts payable | | $ | | |
Wages and related accruals | | | | |
Customer advances | | | | |
Current operating lease liabilities | | | | |
Other current liabilities | | | | |
Non-current operating lease liabilities | | | | |
Income taxes payable (non-current) | | | | |
Deferred income taxes | | | | |
Total liabilities assumed | | | | |
Total identifiable net assets | | $ | | |
Determining the fair value of the intangible assets acquired requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The fair value of the intangible assets was determined using a discounted cash flow analysis, which were based on the Company’s preliminary estimates of future sales, earnings and cash flows after considering such factors as general market conditions, anticipated customer demand, changes in working capital, long term business plans and recent operating performance. Use of different estimates and judgments could yield materially different results.
The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing customers, the workforce of ESAero and expected future customers in the AxS market. For income tax purposes the acquisition is treated as a stock acquisition, as such the goodwill associated with this purchase is not deductible.
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ESAero Supplemental Pro Forma Information (unaudited)
ESAero revenue and income from operations for the period ended April 30, 2026 since acquisition on March 16, 2026 was $
| | | |
| | Three Months Ended | |
| | August 2, | |
| | 2025 | |
Revenue | | $ | |
Net loss | | $ | ( |
These pro forma amounts have been calculated by applying the Company’s accounting policies, assuming transaction costs had been incurred during the year ended April 30, 2025, reflecting the additional amortization that would have been charged and including the results of ESAero prior to acquisition.
The Company incurred approximately $
The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable and are not necessarily indicative of the results that have been realized had the acquisition been consolidated in the tables above as of May 1, 2024, nor are they indicative of results of operations that may occur in the future.
BlueHalo Acquisition
On May 1, 2025, the Company closed its acquisition of BlueHalo for merger consideration, net of cash acquired, of $
| | |
(in thousands) | | Amount |
Equity consideration transferred | $ | |
Settlement of BlueHalo’s transaction expenses | | |
Settlement of BlueHalo’s debt | | |
Merger consideration | $ | |
Less cash acquired | | ( |
Fair value of consideration transferred | $ | |
The fair value of the Company’s common stock issued is based on
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The following table summarizes the preliminary allocation of the fair value of the merger consideration transferred to assets acquired and liabilities assumed as of the acquisition date (in thousands):
| | | |
| | May 1, | |
| | 2025 | |
Fair value of assets acquired: | | | |
Accounts receivable, net of allowance for credit losses of $ | | $ | |
Unbilled receivables and retentions | | | |
Inventories, net | | | |
Income taxes receivable | | | |
Prepaid expenses and other current assets | | | |
Long-term investments | | | |
Property and equipment | | | |
Operating lease right-of-use assets | | | |
Intangibles | | | |
Goodwill | | | |
Other assets | | | |
Total identifiable assets | | $ | |
| | | |
Fair value of liabilities assumed: | | | |
Accounts payable | | | |
Wages and related accruals | | | |
Customer advances | | | |
Current operating lease liabilities | | | |
Other current liabilities | | | |
Non-current operating lease liabilities | | | |
Liability for uncertain tax positions | | | |
Deferred income taxes | | | |
Total liabilities assumed | | | |
Total identifiable net assets | | $ | |
Determining the fair value of the intangible assets acquired requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The fair value assigned to intangible assets has been estimated based on third-party preliminary valuation studies utilizing income-based methodologies and corroborated with benchmarks of similar transactions in the industry. Use of different estimates and judgments could yield materially different results. All intangible assets acquired in the BlueHalo acquisition are subject to amortization.
The goodwill is attributable to the differences between the estimated fair value of the consideration transferred and the estimated fair value of the assets acquired, and liabilities assumed. For income tax purposes the goodwill and intangibles are not deductible for tax purposes.
The following table summarizes the valuation of the fair value of intangible assets acquired (in thousands):
| | | |
| | Fair Value | Estimated Useful Life |
| | | Years |
Fair value of intangible assets acquired: | | | |
Backlog | $ | | |
Customer relationships | | | |
Developed technology | | | |
Intangible assets acquired | $ | | |
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BlueHalo Supplemental Pro Forma Information (unaudited)
BlueHalo revenue and loss from operations for the twelve months ended April 30, 2026 since its acquisition on May 1, 2025 was $
| | | |
| | Three Months Ended | |
| | August 2, | |
| | 2025 | |
Revenue | | $ | |
Net loss | | $ | ( |
The Company recognized a nonrecurring pro forma adjustment to pro forma earnings to amortize an increase in the fair value of inventory acquired during the year ended April 30, 2026. In addition, for the twelve months ended April 30, 2026, the amortization expense associated with the Company’s
These pro forma amounts have been calculated by applying the Company’s accounting policies, assuming transaction costs had been incurred during the year ended April 30, 2025, reflecting the additional amortization and depreciation that would have been charged, incremental interest expense associated with the initial financing for the acquisition under the term loan and revolver, and including the results of BlueHalo prior to acquisition.
The Company incurred approximately $
The unaudited pro forma combined financial information presented above does not give effect to the July 2025 common stock issuance and Notes issuance, as such proceeds were not used to fund the BlueHalo acquisition. As the Company’s repayment of indebtedness using the proceeds of the common stock issuance and Notes issuance was not directly attributable to the acquisition, the related reduction in interest expense is not reflected in this unaudited pro forma combined financial information.
16. Pension
As part of the Telerob acquisition, the Company acquired a small foreign-based defined benefit pension plan. The Rheinmetall-Zusatzversorgung service plan covers
The table below includes the projected benefit obligation and fair value of plan assets as of April 30, 2026. The net fair value of plan assets (in thousands) is recorded in other assets on the unaudited condensed consolidated balance sheet.
| | | |
| | April 30, | |
| | 2026 | |
| | (In thousands) | |
Projected benefit obligation | | $ | ( |
Fair value of plan assets | |
| |
Funded status of the plan | | $ | |
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The projected benefit obligation includes assumptions of a discount rate of
Expected benefit payments as of April 30, 2026 (in thousands):
| | | |
2026 | | $ | |
2027 | | | |
2028 | |
| |
2029 | |
| |
2030 | | | |
2031-2035 | |
| |
Total expected benefit payments | | $ | |
Net periodic benefit cost (in thousands) is recorded in interest expense, net.
| | | | | | |
| | Three Months Ended | ||||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
Expected return on plan assets | | $ | — | | $ | — |
Interest cost | |
| | | | |
Actuarial gain | | | — | | | — |
Net periodic benefit cost | | $ | | | $ | |
17. Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM, who is the Chief Executive Officer, makes operating decisions, assesses performance and makes resource allocation decisions, including the focus of R&D and other significant expenses, leading to decisions related to resource allocations in relation to profit and loss. Accordingly, the Company identifies
The Company’s reportable segments are AxS and SCDE. The accounting policies of the segments are the same as those described in Note 1, “Organization and Significant Accounting Policies.” The operating segments sales to each other are eliminated. Effective May 1, 2025, segment adjusted EBITDA is the measure of profitability used by the CODM for purposes of making decisions about allocating resources to the segments and assessing performance. Segment adjusted EBITDA is defined as segment (loss) income from operations before depreciation and amortization, adjusted for the impact of certain other non-cash items, including amortization of implementation of cloud computing arrangements, stock-based compensation, and acquisition related expenses.
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| | | | | | | | | |
| | Three Months Ended August 1, 2026 | |||||||
| | AxS | | SCDE | | Total | |||
Revenue: | | | | | | | | | |
Product sales | | $ | | | $ | | | $ | |
Contract services | | | | | | | | | |
| | | | | | | | | |
Less: | | | | | | | | | |
Cost of sales less intangible amortization and other purchase accounting adjustments | | | | | | | | | |
Intangible amortization included in cost of sales | | | | | | | | | |
SG&A less intangible amortization | | | | | | | | | |
Intangible amortization included in SG&A | | | | | | | | | |
Research and development | | | | | | | | | |
Other expense (income) | | | | | | ( | | | |
Add: | | | | | | | | | |
Depreciation | | | | | | | | | |
Amortization | | | | | | | | | |
Acquisition-related expenses | | | | | | | | | |
Amortization of cloud computing arrangement implementation | | | | | | — | | | |
Equity securities investments activity, net | | | — | | | — | | | — |
Stock-based compensation | | | | | | | | | |
Segment adjusted EBITDA | | $ | | | $ | ( | | $ | |
| | | | | | | | | |
| | Three Months Ended August 2, 2025 | |||||||
| | AxS | | SCDE | | Total | |||
Revenue: | | | | | | | | | |
Product sales | | $ | | | $ | | | $ | |
Contract services | | | | | | | | | |
| | | | | | | | | |
Less: | | | | | | | | | |
Cost of sales less intangible amortization and other purchase accounting adjustments | | | | | | | | | |
Intangible amortization included in cost of sales | | | | | | | | | |
SG&A less intangible amortization | | | | | | | | | |
Intangible amortization included in SG&A | | | | | | | | | |
Research and development | | | | | | | | | |
Other expense (income) | | | ( | | | ( | | | ( |
Add: | | | | | | | | | |
Depreciation | | | | | | | | | |
Amortization | | | | | | | | | |
Acquisition-related expenses | | | | | | | | | |
Amortization of cloud computing arrangement implementation | | | | | | | | | |
Equity securities investments activity, net | | | ( | | | ( | | | ( |
Stock-based compensation | | | | | | | | | |
Segment adjusted EBITDA | | $ | | | $ | | | $ | |
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The following table (in thousands) provides a reconciliation from segment adjusted EBITDA to income before income taxes:
| | | | | | |
| | Three Months Ended | ||||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
Segment adjusted EBITDA | | $ | | | $ | |
Depreciation and amortization | | | ( | | | ( |
Acquisition-related expenses | | | ( | | | ( |
Amortization of cloud computing arrangement implementation | | | ( | | | ( |
Stock-based compensation | | | ( | | | ( |
Equity securities investments activity, net | | | — | | | |
Interest expense, net | | | | | | ( |
(Loss) income before income taxes | | $ | ( | | $ | ( |
Identifiable segment assets are summarized in the table below. Corporate assets primarily consist of cash and cash equivalents, prepaid expenses and other current assets, long-term investments, property and equipment, net, operating lease right-of-use assets, deferred income taxes and other assets managed centrally on behalf of the business segments.
| | | | | | | | | | | | |
| | AxS | | SCDE | | Corporate | | Total | ||||
As of August 1, 2026 | | $ | | | $ | | | $ | | | $ | |
As of April 30, 2026 | | $ | | | $ | | | $ | | | $ | |
Capital expenditures are summarized in the table below (in thousands):
| | | | | | | | | | | | |
| | AxS | | SCDE | | Corporate | | Total | ||||
Three Months Ended August 1, 2026 | | $ | | | $ | | | $ | | | $ | |
Three Months Ended August 2, 2025 | | $ | | | $ | | | $ | | | $ | |
18. Subsequent Events
On August 21, 2026, the Company closed on its purchase of its new campus facility in Southern California for $
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and the results of operations as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions. Such forward-looking statements are based on current expectations, estimates and projections about our industry, our management’s beliefs and assumptions made by our management. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2026, as updated by our subsequent filings under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).
Unless required by law, we expressly disclaim any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise.
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Critical Accounting Estimates
The following should be read in conjunction with the critical accounting estimates presented in our Annual Report on Form 10-K for the fiscal year ended April 30, 2026.
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical estimates include those related to revenue recognition, inventory reserves for excess and obsolescence, intangible assets acquired in a business combination, goodwill, and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
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 August 1, 2026 and August 2, 2025, 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 ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”).
For the three months ended August 1, 2026 and August 2, 2025, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):
| | | | | | | |
| | Three Months Ended |
| ||||
| | August 1, | | August 2, |
| ||
| | 2026 | | 2025 |
| ||
| | | | | | | |
Gross favorable adjustments | | $ | 8,230 | | $ | 2,316 | |
Gross unfavorable adjustments | |
| (11,460) | |
| (6,459) | |
Net (unfavorable) favorable adjustments | | $ | (3,230) | | $ | (4,143) | |
For the three months ended August 1, 2026, favorable cumulative catch-up adjustments of $8.2 million were primarily due to cost adjustments on 7 contracts. During the three months ended August 1, 2026, we revised our estimates of the total expected costs to complete a Space and Directed Energy contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $2.3 million. For the same period, unfavorable cumulative catch-up adjustments of $(11.5) million were primarily related to higher than expected costs on 34 contracts, which individually were not material.
For the three months ended August 2, 2025, favorable cumulative catch-up adjustments of $2.3 million were primarily due to cost adjustments on 13 contracts, which individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $6.5 million were primarily related to higher than expected costs on 13 contracts, which individually were not material.
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Goodwill
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. We test goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.
Our evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. For the impairment test, we first assess qualitative factors, macroeconomic conditions, industry and market considerations, triggering events, cost factors, and overall financial performance, to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, we may bypass the qualitative assessment for some or all of our reporting units and apply the quantitative impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). For the quantitative impairment test, we estimate the fair value by weighting the results from the income approach and the market approach. These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business.
In January 2026, a stop-work order was received on the Company’s Other Transaction Agreement for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program. We concluded that the stop-work order represented a trigger event that indicated the carrying value of the Space reporting unit exceeded its fair value. As a result, we updated our estimates of the long-term cash flows of the Space reporting unit to reflect the reduced revenue associated with the stop-work order as well as an increase in expected research and development and capital investments to achieve product commercialization, which is expected to result in expanded opportunities and improve long term product margins. The changes in estimates resulted in the recognition of a goodwill impairment charge of approximately $240 million in the Space reporting unit. Due to the trigger event, we also performed a recoverability test on the long-lived assets, inclusive of the intangibles, of the Space reporting unit for impairment in accordance with ASC 360 during the fiscal year ended April 30, 2026. The undiscounted cash flows exceeded the carrying value and no impairment was recorded. As of August 1, 2026, we have not identified any events or circumstances since the prior year’s annual impairment test that could trigger an impairment review.
The Space reporting unit, included in the SCDE reportable segment, is considered to have an increased risk of failing future quantitative goodwill impairment tests as an impairment was recorded during the quarter ended January 31, 2026. The Company’s annual impairment test for the fiscal year ending April 30, 2027 will be performed during the fourth quarter of fiscal year 2027.
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.
Fiscal Periods
Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday. Our 2027 fiscal year ends on April 30, 2027 and our fiscal quarters end on August 1, 2026, October 31, 2026 and January 30, 2027, respectively.
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Results of Operations
The following tables set forth our results of operations for the periods indicated (in thousands):
Three Months Ended August 1, 2026 Compared to Three Months Ended August 2, 2025
| | | | | | | |
| | Three Months Ended |
| ||||
| | August 1, | | August 2, |
| ||
| | 2026 | | 2025 |
| ||
| | | | | | | |
Revenue | | $ | 480,490 | | $ | 454,676 | |
Cost of sales | |
| 355,891 | |
| 359,558 | |
Gross margin | |
| 124,599 | |
| 95,118 | |
Selling, general and administrative | |
| 111,508 | |
| 131,276 | |
Research and development | | | 23,962 | | | 33,114 | |
Loss from operations | |
| (10,871) | |
| (69,272) | |
Other income (loss): | | | | | | | |
Interest income (expense), net | |
| 4,136 | |
| (17,415) | |
Other (expense) income, net | |
| (595) | |
| 2,361 | |
Loss before income taxes | | | (7,330) | | | (84,326) | |
Benefit from income taxes | | | (397) | | | (15,169) | |
Equity method investment income, net of tax | | | 1,867 | | | 1,787 | |
Net loss | | $ | (5,066) | | $ | (67,370) | |
| | | | | | | | | |
| | Three Months Ended August 1, 2026 | |||||||
| | AxS | | SCDE | | Total | |||
Revenue | | $ | 345,969 | | $ | 134,521 | | $ | 480,490 |
| | | | | | | | | |
Segment adjusted EBITDA | | $ | 62,285 | | $ | (8,896) | | $ | 53,389 |
| | | | | | | | | |
| | Three Months Ended August 2, 2025 | |||||||
| | AxS | | SCDE | | Total | |||
Revenue | | $ | 285,324 | | $ | 169,352 | | $ | 454,676 |
| | | | | | | | | |
Segment adjusted EBITDA | | $ | 52,760 | | $ | 3,796 | | $ | 56,556 |
Revenue. Revenue for the three months ended August 1, 2026 was $480.5 million, as compared to $454.7 million for the three months ended August 2, 2025, representing an increase of $25.8 million, or 6%. The increase in revenue was due to an increase in product revenue of $15.5 million and an increase in service revenue of $10.3 million. The increase in product revenue was driven by an increase in UAS products of $39.1 million due to an increase in the global demand for UAS products, partially offset by a decrease in Space and Directed Energy product sales of $18.1 million primarily related to the termination of the SCAR program in the prior year and a decrease in Precision Strike and Defense Systems (“PSDS”) of $6.8 million. The decrease in PSDS was driven by decrease of $56.9 million of Switchblade product revenue due to order delays, partially offset by revenue from the ESAero acquisition of $41.8 million and increased demand for defense systems of $18.5 million. The increase in service revenue was primarily driven by increases in AxS service customer funded R&D services of $34.1 million, partially offset by decreases to Cyber and Mission Solutions (“CMS”) service revenue of $18.3 million driven by reduced scope on certain contracts.
Cost of Sales. Cost of sales for the three months ended August 1, 2026 was $355.9 million, as compared to $359.6 million for the three months ended August 2, 2025, representing a decrease of $3.7 million, or 1%. The decrease in cost of sales was a result of a decrease in product cost of sales of $17.1 million, partially offset by an increase in service cost of sales of $13.4 million. The decrease in product cost of sales was primarily due to a shift in mix of product sales of approximately $28 million, partially offset by approximately $11 million due to the increase in product revenue. The increase in service costs of sales was primarily due to an increase of approximately $9 million due to the increase in sales volume and approximately $4 million due to shift in mix of services provided. Cost of sales for the three months ended
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August 1, 2026 included $18.6 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $37.4 million for the three months ended August 2, 2025. As a percentage of revenue, cost of sales decreased from 79% to 74% primarily due to decreased amortization and other non-cash purchase accounting expenses, resulting in gross margin increasing from 21% to 26%.
Gross Margin. Gross margin is equal to revenue minus cost of sales.
Selling, General and Administrative. SG&A expense for the three months ended August 1, 2026 was $111.5 million, or 23% of revenue, as compared to SG&A expense of $131.3 million, or 29% of revenue, for the three months ended August 2, 2025. The decrease in SG&A expense was primarily due to a decrease of $17.4 million of intangible amortization expense and a decrease of $22.5 million in acquisition related expenses resulting from the prior year acquisition of BlueHalo, partially offset by an increase of approximately $9 million of employee related expenses related to increases in headcount and an increase of $4.4 million of bad debt expense.
Research and Development. R&D expense for the three months ended August 1, 2026 was $24.0 million, or 5% of revenue, as compared to R&D expense of $33.1 million, or 7% of revenue, for the three months ended August 2, 2025. The decrease was primarily related to timing of planned expenditures. R&D expense is expected to continue to be 7% to 9% of revenue for fiscal year ended April 30, 2027.
Interest Income (Expense), net. Interest income, net for the three months ended August 1, 2026 was $4.1 million compared to interest expense, net of $17.4 million for the three months ended August 2, 2025. The increase in interest income was due to a combination of higher cash and investment balances and lower interest bearing debt balances. The decrease in interest expense related to the Fourth Amendment Term Loan Facility and Revolver Facility obtained on May 1, 2025 in conjunction with the BlueHalo acquisition and the unamortized debt issuance costs allocated to the Fourth Amendment Term Loan Facility of $6.7 million, which were expensed upon repayment of the Fourth Amendment Term Loan Facility in July using the proceeds from the Notes and common stock issuances in July 2025.
Other (Expense) Income, net. Other expense, net, for the three months ended August 1, 2026 was $0.6 million as compared to other income, net of $2.4 million for the three months ended August 2, 2025. The decrease in other income, net was driven by unrealized gains in equity security investments for the three months ended August 2, 2025. The equity security investments were subsequently sold during the fiscal year ended April 30, 2026.
Benefit from Income Taxes. Our effective income tax rate was 5.4% for the three months ended August 1, 2026, as compared to 18.0% for the three months ended August 2, 2025. The change in our effective income tax rate was primarily attributable to a reduction in loss before income taxes and an increase in Section 162(m) limitation on executive compensation, partially offset by an increase in federal R&D credits. The effective income tax rate for the three months ended August 1, 2026, was primarily attributable to the current quarter loss before income taxes relative to the projected full year income before income taxes, state valuation allowances, Section 162(m) limitation on executive compensation, partially offset by federal R&D credits.
Equity Method Investment Income, net of Tax. Equity method investment income, net of tax for the three months ended August 1, 2026 was $1.9 million as compared $1.8 million for the three months ended August 2, 2025.
Autonomous Systems
| | | | | | |
| | Three Months Ended | ||||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
Revenue | | $ | 345,969 | | $ | 285,324 |
| | | | | | |
Segment adjusted EBITDA | | $ | 62,285 | | $ | 52,760 |
AxS Revenue. AxS revenue for the three months ended August 1, 2026 was $346.0 million, compared to $285.3 million for the three months ended August 2, 2025, representing an increase of $60.7 million, or 21%. The increase in revenue
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was due to an increase in product revenue of $33.2 million and an increase in service revenue of $27.5 million. The increase in product revenue was driven by an increase in UAS products of $39.1 million due to an increase in the global demand for UAS products, partially offset by a decrease in PSDS of $6.8 million. The decrease in PSDS was driven by decrease of $56.9 million of Switchblade product revenue due to order delays, partially offset by revenue from the ESAero acquisition of $41.8 million and increased demand for defense systems of $18.5 million. The increase in service revenue was primarily driven by increases in AxS customer funded R&D services of $34.1 million.
AxS Segment Adjusted EBITDA. AxS segment adjusted EBITDA for the three months August 1, 2026 was $62.3 million, as compared to $52.8 million for the three months ended August 2, 2025, representing an increase of $9.5 million, or 18%. The increase in AxS segment adjusted EBITDA was primarily due to an increase in revenue of $60.7 million and a decrease in R&D of $7.6 million, partially offset by an increase in cost of sales of $25.2 million and a decrease in adjusted EBITDA add backs of $34.6 million for depreciation, amortization, cloud computing related amortization, stock-based compensation, and acquisition related expenses. The increase in cost of sales was primarily due to an increase of approximately $37 million due to the increase in sales volume, approximately $1 million due to mix shift to a higher proportion of services, partially offset by a decrease of approximately $13 million in intangible amortization expense.
Space, Cyber and Directed Energy
| | | | | | |
| | Three Months Ended | ||||
| | August 1, | | August 2, | ||
| | 2026 | | 2025 | ||
Revenue | | $ | 134,521 | | $ | 169,352 |
| | | | | | |
Segment adjusted EBITDA | | $ | (8,896) | | $ | 3,796 |
SCDE Revenue. SCDE Revenue for the three months ended August 1, 2026 was $134.5 million, as compared to $169.4 million for the three months ended August 2, 2025, representing a decrease of $34.9 million, or 21%. The decrease in revenue was due to a decrease in product revenue of $17.6 million and a decrease in service revenue of $17.3 million. The decrease in product revenue was driven by a decrease in Space and Directed Energy product sales of $18.1 million primarily due to the termination of the SCAR program in the prior year. The decrease in service revenue was driven by a decrease to CMS service revenue of $18.3 million driven by reduced scope on certain contracts.
SCDE Segment Adjusted EBITDA. SCDE segment adjusted EBITDA for the three months August 1, 2026 was $(8.9) million, as compared to $3.8 million for the three months ended August 2, 2025, representing a decrease of $12.7 million, or 334%. The decrease in SCDE segment adjusted EBITDA was primarily due to a decrease in revenue of $34.9 million and a decrease in adjusted EBITDA add backs of $26.6 million for depreciation, amortization, cloud computing related amortization, stock-based compensation, and acquisition related expenses, partially offset by a decrease in cost of sales of $28.7 million, a decrease in SG&A of $19.0 million and a decrease in R&D of $1.6 million. The decrease in cost of sales was primarily due to a decrease of approximately $30 million due to the decrease in sales volume and approximately $5 million decrease in intangible amortization expense, partially offset by approximately $7 million due to mix shift to a higher proportion of lower margin services.
Backlog
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 August 1, 2026, our funded backlog was approximately $1,457.8 million, as compared to $1,183.0 million as of April 30, 2026.
In addition to our funded backlog, we also had unfunded backlog of $1,366.5 million as of August 1, 2026. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining value of awarded Cost Plus and FFP contracts with 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, or at all.
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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. 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.
Liquidity and Capital Resources
In May 2025, in connection with the consummation of the BlueHalo acquisition, the Company entered into the Fourth Amendment to Credit Agreement with BofA NA, the administrative agent and the swingline lender, JPM, U.S. Bank, and Citibank. The Amended Credit Agreement provides for an aggregate $700.0 million term loan and an aggregate $350.0 million revolving credit facility. Upon effectiveness of the Amended Credit Agreement, we drew $225.0 million from the amended Revolving Facility and the full $700.0 million of the Fourth Amendment Term Loan Facility. The proceeds from the Fourth Amendment Term Loan Facility and the Revolving Facility were used to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs. In June 2025, we drew an additional $10.0 million under the Revolving Facility.
In July 2025, we issued 4,057,460 shares of common stock at a public offering price of $248.00 per share and issued $747,500,000 aggregate principal amount of 0% convertible senior notes due 2030. The aggregate net proceeds from the Common Stock Offering and the Notes Offering, after deducting underwriting discounts and debt and equity issuance costs, was approximately $1.70 billion. The Company used approximately $965.3 million of the net proceeds from the Common Stock Offering and the Notes Offering to repay indebtedness under the Fourth Amendment Term Loan Facility and outstanding borrowings under the Revolving Facility. The remainder can and has been used for general corporate purposes, including to increase manufacturing capacity.
Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $13.0 million as of August 1, 2026. As of August 1, 2026, approximately $337.0 million was available under the Revolving Facility. 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 €9.0 million ($10.5 million) available for issuing letters of credit of which €2.2 million ($2.6 million) was outstanding as of August 1, 2026.
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. The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers. We believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure requirements, and future obligations related to the acquisition during the next twelve months. There can be no assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or draw on our Credit Facilities. We 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.
The Company is party to receivables purchase agreement with Citibank, N.A., with an aggregate capacity of $100 million. As of August 1, 2026, no receivables have been sold, proceeds collected, or purchase discount fees incurred.
Our primary recurring 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 acquisitions 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 Facilities are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Amended Credit Agreement. In addition, we may also
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need to seek additional equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services or technologies.
Our working capital requirements vary by contract type. On Cost Plus and T&M contracts, we typically bill our incurred costs and fees monthly as work progresses, and therefore working capital investment is minimal. On FFP 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. Certain contracts have negotiated progress payments, which facilitates billing and collection as work is completed.
In August 2026, we closed on our purchase of a new campus facility in Southern California for $29.3 million.
Cash Flows
The following table provides our cash flow data for the three months ended August 1, 2026 and January 25, 2025 (in thousands):
| | | | | | | |
| | Three Months Ended | | ||||
| | August 1, | | August 2, | | ||
| | 2026 | | 2025 |
| ||
| | (Unaudited) | | ||||
Net cash provided by (used in) operating activities | | $ | 13,496 | | $ | (123,726) | |
Net cash used in investing activities | | $ | (108,236) | | $ | (876,648) | |
Net cash (used in) provided by financing activities | | $ | (4,089) | | $ | 1,645,443 | |
Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities for the three months ended August 1, 2026 increased by $137.2 million to $13.5 million, as compared to $(123.7) million for the three months ended August 2, 2025. The increase in net cash used in operating activities was primarily due to an increase in cash as a result of changes in operating assets and liabilities of $112.7 million, largely related to decreases in accounts receivable and increases in accounts payable, partially offset by increases in unbilled receivables and retentions due to year over year timing differences. The increase in cash provided by operating activities was also driven by a decrease in net loss of $62.3 million, partially offset by a decrease in depreciation and amortization of $34.2 million.
Cash Used in Investing Activities. Net cash used in investing activities decreased by $768.4 million to $(108.2) million for the three months ended August 1, 2026, as compared to $(876.6) million for the three months ended August 2, 2025. The decrease in net cash used in investing activities was primarily due to the cash consideration for the acquisition of BlueHalo, net of cash acquired of $844.6 million in the prior year, partially offset by the net purchase of available-for-sale securities of $58.8 million.
Cash (Used in) Provided by Financing Activities. Net cash used in financing activities decreased by $1,649.5 million to $(4.1) million for the three months ended August 1, 2026, as compared to net cash provided by financing activities of $1,645.4 million for the three months ended August 2, 2025. The decrease in net cash provided by financing activities was primarily due to proceeds from issuance of common shares of $968.5 million, net of underwriter costs and proceeds from the issuance of Notes of $726.9 million, net of underwriter costs in the prior year. Part of the proceeds were used to repay the outstanding balances of the Fourth Amendment Term Loan Facility and Revolving Facility drawn in conjunction with the acquisition of BlueHalo.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, and foreign currency exchange rates. For a discussion of market risks as of April 30, 2026, refer to Item 7A in our 2026 annual report on Form 10-K. During the three months ended August 1, 2026, there were no material changes or developments that would materially alter the market risk assessment performed as of April 30, 2026, except as discussed below.
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Interest Rate Risk
In July 2025, we issued $747.5 million of Notes. The Notes have a zero percent coupon rate. We used the proceeds from the Notes Offering as well as the Common Stock Offering to repay indebtedness under our Fourth Amendment Term Loan Facility and outstanding borrowings under the Revolving Facility. The Revolving Facility has no current outstanding balance.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this assessment, and in light of the material weaknesses identified in our internal control over financial reporting as disclosed in our Form 10-K for the fiscal year ended April 30, 2026, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of August 1, 2026, due to the material weaknesses in internal control over financial reporting described below.
Notwithstanding the material weaknesses described below, management has concluded that the financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with U.S. GAAP.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We identified a material weakness in controls over the financial close and reporting process as a result of the BlueHalo acquisition. BlueHalo did not design and maintain effective information technology (“IT”) general controls for certain information systems that are relevant to information used the preparation of BlueHalo’s financial reporting that is included in the consolidated financial statements of AeroVironment. Specifically, BlueHalo did not design and maintain user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel. As a result, the automated controls and IT dependent manual business process controls that rely upon BlueHalo’s financial reporting information from the affected applications were deemed not effective.
In addition, we determined that the error resulting in the restatement of our unaudited condensed consolidated financial statements for the quarter ended January 31, 2026 in the Amendment No. 1 on Form 10-Q/A, filed with the SEC on June 22, 2026, originated from a material weakness. The material weakness relates to the design of controls over the preparation and review of our goodwill impairment analysis. Specifically, we did not have a properly designed control requiring preparation and review of a reconciliation of goodwill by reporting unit.
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Remediation Plan
As of the date of this report, management’s remediation efforts are ongoing, and management has committed to a remediation plan to address the material weaknesses noted above. The remediation plan includes, but is not limited to, the following activities which have been performed or are in process:
| ● | With respect to the material weakness related to information technology general controls over BlueHalo’s financial reporting, we have designed and implemented enhancements to user access and program change management controls, including restricting administrator-level access, performing periodic user access reviews, and formalizing change management and data modification processes through documented and approved workflows. |
| ● | With respect to the material weakness related to design of controls over the preparation and review of our goodwill impairment analysis, we have implemented a control over the preparation and review of a quarterly reconciliation of goodwill by reporting unit. |
Remedial controls must operate for a sufficient period of time for a definitive conclusion, through testing, that the deficiencies have been remediated and, as such, management can give no assurance that the measures it has undertaken have remediated the material weaknesses that it has identified or that additional material weakness will not arise in the future. Management will continue to monitor the effectiveness of these and other processes, procedures, and controls and will make any further changes that management determines to be appropriate.
Changes in Internal Control over Financial Reporting
Except for the ongoing remediation activities related to the material weaknesses described above, there were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended August 1, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Securities Class Actions and Related Derivative Actions
On May 26, 2026, a securities class action complaint was filed in the U.S. District Court for the Eastern District of Virginia by Eric Norrell naming AeroVironment; Wahid Nawabi, our President and CEO; Kevin McDonnell, our former Executive Vice President and Chief Financial Officer; and Mary Clum, President of our Space, Cyber & Directed Energy segment, as defendants. See Norell v. AeroVironment, Inc., No. 1:26-cv-01429 (E.D. Va.). The complaint asserts violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, claiming that the defendants made false and materially misleading statements regarding our work for the U.S. Space Force’s SCAR program. The plaintiff seeks to represent a proposed class of all persons who purchased or otherwise acquired our common stock during the period June 25, 2025 through March 10, 2026. The complaint seeks a jury trial and unspecified compensatory damages, interest, and attorneys’ fees and other costs.
On July 17, 2026, a second securities class action complaint was filed in the U.S. District Court for the District of Delaware by the City Pension Fund for Firefighters and Police officers in the City of Miami Beach naming AeroVironment, Mr. Nawabi, Mr. McDonnell, and Ms. Clum as defendants. See City Pension Fund for Firefighters and Police officers in the City of Miami Beach v. AeroVironment, Inc., No. 1:26-cv-00875 (D. Del). The complaint asserts violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, arising from substantially the same factual allegations that form the basis of the Norell class action complaint described above. The plaintiff seeks to represent a proposed class of all persons who purchased or otherwise acquired our common stock during the period June 24, 2025 through June 18, 2026, inclusive. The complaint seeks a jury trial and unspecified compensatory damages, interest, and attorneys’ fees and other costs.
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On July 27, 2026, a purported stockholder of the company, Keith Rogers, filed a derivative action in the U.S. District Court of the Eastern District of Virginia on behalf of AeroVironment against Mr. Nawabi, Mr. McDonnell, Ms. Clum and members of our Board of Directors who were serving as of April 30, 2026, and AeroVironment as a nominal defendant. The derivative action alleges various claims, including breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of Section 14(a) of the Exchange Act, as well as violations of Section 10(b) and 21D of the Exchange Act arising from substantially the same factual allegations that form the basis of the securities class action lawsuits described above. The action seeks monetary relief in favor of the company from the defendants, as well as various equitable relief requests and plaintiff’s costs and expenses of the litigation.
A second derivative action was filed against the Company on July 30, 2026 in the U.S. District Court of the Eastern District of Virginia by another purported stockholder, Brandon Jackson, against the same defendants as in the Rogers derivative action described above. This derivative action alleges breaches of fiduciary duties and violations of Section 14(a) of the Exchange Act arising from substantially the same factual allegations that form the basis of the securities class action lawsuits described above.
The Company intends to vigorously defend the securities class actions and derivative lawsuits.
Labor & Employment Class Action and PAGA Action
On August 9, 2021, a former employee filed a class action complaint against AeroVironment in California Superior Court in Los Angeles, California alleging various claims pursuant to the California Labor Code related to wages, meal breaks, overtime, unreimbursed business expenses and other recordkeeping matters. The complaint seeks a jury trial and payment of various alleged unpaid wages, penalties, interest and attorneys’ fees in unspecified amounts. We filed our answer on December 16, 2021. The parties participated in a mediation session on May 8, 2025, but did not reach a resolution during the session.
On March 29, 2024, a former employee filed a complaint against AeroVironment in the Ventura County Superior Court in California, alleging violations of the California Labor Code related to wages, meal breaks, overtime, unreimbursed business expenses and other recordkeeping matters and seeking penalties recoverable under California Labor Code section 2698, et. seq., Private Attorney General Act of 2004 (“PAGA”) and all other remedies available under PAGA. The complaint seeks civil penalties on behalf of the plaintiff and similarly situations persons pursuant to PAGA. We filed our answer on June 20, 2024. The parties stipulated to stay this PAGA case ahead of the mediation in the class action matter listed in the immediately preceding paragraph above.
On June 11, 2025, the parties reached an agreement in principle to settle all claims in the class action complaint and PAGA complaint pursuant to a mediator’s proposal made on such a date by the mediator from the May 8, 2025 class action mediation session. A court must approve the terms of the settlement before we will pay any amounts pursuant to the settlement. The estimated settlement was accrued in our consolidated statements of income(loss) for the year ended April 30, 2025. We are currently working with the plaintiff to seek preliminary approval of the settlement.
We are subject to lawsuits, government investigations, audits and other legal proceedings from time to time in the ordinary course of our business. It is not possible to predict the outcome of any legal proceeding with any certainty. The outcome or costs we incur in connection with a legal proceeding could adversely impact our operating results and financial position.
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ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2026. Please refer to that section for disclosures regarding the risks and uncertainties related to our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Trading Plan
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ITEM 6. EXHIBITS
Exhibit | | Description |
3.1 | | Amended and Restated Certificate of Incorporation of AeroVironment, Inc. (incorporated by reference herein to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2024) |
3.2 | | Sixth Amended and Restated Bylaws of AeroVironment, Inc., amended as of November 20, 2025. (incorporated by reference herein to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 25, 2025) |
4.1 | | Indenture, dated as of July 3, 2025, between AeroVironment, Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2025) |
4.2 | | First Supplemental Indenture, dated as of July 3, 2025, between AeroVironment, Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2025) |
31.1* | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
31.2* | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. |
32# | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | | XBRL Instance Document – The instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101 |
* Filed herewith.
# The information in Exhibit 32 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including this report), unless the Company specifically incorporates the foregoing information into those documents by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ||
Date: September 9, 2026 | | AEROVIRONMENT, INC. |
| | |
| By: | /s/ Wahid Nawabi |
| | Wahid Nawabi |
| | Chairman, President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | /s/ Sean T. Woodward |
| | Sean T. Woodward |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
| | /s/ Brian C. Shackley |
| | Brian C. Shackley |
| | Senior Vice President and Chief Accounting Officer |
| | (Principal Accounting Officer) |
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