AeroVironment(AVAV) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results ITEM 1. FINANCIAL STATEMENTS Presents unaudited condensed consolidated financial statements, including balance sheets, income, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | August 2, 2025 (in thousands) | April 30, 2025 (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Cash and cash equivalents | $685,803 | $40,862 | | Accounts receivable, net | $198,293 | $101,967 | | Unbilled receivables and retentions | $463,870 | $290,009 | | Inventories, net | $232,888 | $144,090 | | Total current assets | $1,639,339 | $606,516 | | Property and equipment, net | $148,807 | $50,704 | | Intangibles, net | $1,118,848 | $48,711 | | Goodwill | $2,539,560 | $256,781 | | Total assets | $5,624,037 | $1,120,567 | | Total current liabilities | $274,930 | $172,161 | | Long-term debt | $725,703 | $30,000 | | Total liabilities and stockholders' equity | $5,624,037 | $1,120,567 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income (loss) over a specific period | Metric | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended July 27, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :----------- | | Revenue | $454,676 | $189,483 | +140% | | Cost of sales | $359,558 | $108,016 | +233% | | Gross margin | $95,118 | $81,467 | +16.7% | | Selling, general and administrative | $131,276 | $33,795 | +288.5% | | Research and development | $33,114 | $24,613 | +34.5% | | (Loss) income from operations | $(69,272) | $23,059 | -400.4% | | Interest expense, net | $(17,415) | $(239) | +7194.9% | | Net (loss) income | $(67,370) | $21,166 | -418.3% | | Basic Net (loss) income per share | $(1.44) | $0.76 | -289.5% | | Diluted Net (loss) income per share | $(1.44) | $0.75 | -292% | Condensed Consolidated Statements of Comprehensive (Loss) Income Presents net income (loss) and other comprehensive income (loss) components for the period | Metric | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended July 27, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Net (loss) income | $(67,370) | $21,166 | | Change in foreign currency translation adjustments | $639 | $538 | | Total comprehensive (loss) income | $(66,731) | $21,704 | Condensed Consolidated Statements of Stockholders' Equity Shows changes in equity accounts, including common stock, additional paid-in capital, and retained earnings | Metric | August 2, 2025 (in thousands) | April 30, 2025 (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Common Stock Shares | 49,932,300 | 28,267,517 | | Common Stock Amount | $6 | $4 | | Additional Paid-In Capital | $4,226,012 | $618,711 | | Retained Earnings | $206,936 | $274,306 | | Accumulated Other Comprehensive Loss | $(5,875) | $(6,514) | | Total Stockholders' Equity | $4,427,079 | $886,507 | - The company issued 17,425,849 shares of common stock for an acquisition, contributing $2.64 billion to total stockholders' equity[19] - Shares issued, net of issuance costs, contributed $966.85 million to additional paid-in capital[19] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities | Metric | Three Months Ended August 2, 2025 (in thousands) | Three Months Ended July 27, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Net cash (used in) provided by operating activities | $(123,726) | $28,351 | | Net cash used in investing activities | $(876,648) | $(6,613) | | Net cash provided by (used in) financing activities | $1,645,443 | $(13,954) | | Net increase in cash and cash equivalents | $644,941 | $7,861 | | Cash and cash equivalents at end of period | $685,803 | $81,162 | - Cash used in investing activities significantly increased due to the BlueHalo acquisition, net of cash acquired, totaling $844.58 million[21] - Financing activities provided substantial cash, primarily from proceeds of common stock issuance ($968.52 million) and convertible debt ($726.94 million)[21] Notes to Condensed Consolidated Financial Statements Provides detailed explanations of the accounting policies, significant transactions, and financial statement line items 1. Organization and Significant Accounting Policies The company reorganized into AxS and SCDE segments following the BlueHalo acquisition - The company reorganized its segments effective May 1, 2025, into Autonomous Systems (AxS) and Space, Cyber, and Directed Energy (SCDE) following the BlueHalo acquisition[23][108] - As of August 2, 2025, the company had approximately $1.07 billion in funded backlog, with 80% expected in fiscal 2026[32] Revenue by Segment (in thousands) | Segment | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :------ | :-------------------------------- | :-------------------------------- | | AxS | $285,324 | $189,483 | | SCDE | $169,352 | — | | Total | $454,676 | $189,483 | Revenue by Customer Category (in thousands) | Customer Category | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | U.S. government | $395,337 | $148,600 | | Non-U.S. government | $59,339 | $40,883 | | Total | $454,676 | $189,483 | 2. Investments The company's investments include available-for-sale equity securities, warrants, and equity method investments Long-term Investments (in thousands) | Investment Type | August 2, 2025 | April 30, 2025 | | :-------------------------------- | :------------- | :------------- | | Equity securities and warrants | $3,905 | $1,204 | | Investments in limited partnership funds | $32,362 | $30,423 | | Total long-term investments | $36,267 | $31,627 | Unrealized Gain (Loss) on Equity Securities (in thousands) | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net gain (loss) recognized | $2,701 | $(321) | | Unrealized gain (loss) recognized on equity securities still held | $2,701 | $(321) | 3. Fair Value Measurements Financial assets measured at fair value are classified into a three-level hierarchy based on input observability Financial Assets Measured at Fair Value (August 2, 2025, in thousands) | Description | Level 1 | Level 2 | Level 3 | Total | | :---------- | :------ | :------ | :------ | :---- | | Equity securities | $3,180 | $— | $— | $3,180 | | Warrants | $— | $725 | $— | $725 | | Total | $3,180 | $725 | $— | $3,905 | 4. Inventories, net Inventories consist of raw materials, work in process, and finished goods, with a reserve for excess and obsolescence Inventories, net (in thousands) | Component | August 2, 2025 | April 30, 2025 | | :-------------------------------- | :------------- | :------------- | | Raw materials | $113,922 | $52,567 | | Work in process | $95,925 | $73,434 | | Finished goods | $61,420 | $46,761 | | Inventories, gross | $271,267 | $172,762 | | Reserve for inventory excess and obsolescence | $(38,379) | $(28,672) | | Inventories, net | $232,888 | $144,090 | 5. Equity Method Investments The company holds equity method investments in limited partnership funds, recognizing its share of net gains - The company recorded $1.79 million in equity method investment income, net of tax, for the three months ended August 2, 2025, compared to $65 thousand for the same period in 2024[58] - The carrying value of equity method investments was $32.36 million at August 2, 2025, an increase from $30.42 million at April 30, 2025[58] - The company has committed to make additional capital contributions of $5.47 million to a second limited partnership fund[57] 6. Warranty Reserves The company accrues an estimate for warranty claims, which saw an increase due to an acquisition during the period Warranty Reserve Activity (in thousands) | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $4,189 | $5,538 | | Balance acquired from acquisition | $2,274 | $— | | Warranty expense | $141 | $(647) | | Warranty costs settled | $(321) | $(651) | | Ending balance | $6,283 | $4,240 | 7. Intangibles, net Intangible assets significantly increased due to the BlueHalo acquisition, primarily in technology and customer relations Components of Intangibles (in thousands) | Component | August 2, 2025 | April 30, 2025 | | :-------------------------- | :------------- | :------------- | | Technology | $497,861 | $101,645 | | Customer relationships | $747,682 | $77,588 | | Backlog | $65,008 | $2,963 | | Intangibles, gross | $1,314,243 | $185,888 | | Less accumulated amortization | $(195,395) | $(137,177) | | Intangibles, net | $1,118,848 | $48,711 | - Amortization expense for the three months ended August 2, 2025, was $58.16 million, a significant increase from $4.77 million in the prior year, primarily due to the BlueHalo acquisition[61] 8. Goodwill Goodwill increased substantially due to the BlueHalo acquisition, allocated to AxS and SCDE segments Changes in Goodwill Balance by Segment (in thousands) | Segment | Balance at April 30, 2025 | Additions to goodwill | Balance at August 2, 2025 | | :------ | :------------------------ | :-------------------- | :------------------------ | | AxS | $256,781 | $914,683 | $1,171,464 | | SCDE | $— | $1,368,096 | $1,368,096 | | Total | $256,781 | $2,282,779 | $2,539,560 | - The additions to goodwill are primarily from the BlueHalo acquisition, which contributed $2.28 billion[62] 9. Debt The company restructured debt, securing and repaying a $700 million term loan and $350 million revolving credit facility - On May 1, 2025, the company entered into a $700 million Term Loan Facility and a $350 million Revolving Credit Facility for the BlueHalo acquisition[65][67] - In July 2025, the Term A Loan and outstanding Revolving Facility balance were fully repaid using proceeds from common stock and 0% Convertible Senior Notes due 2030[69] Long-term Debt (in thousands) | Debt Type | August 2, 2025 | April 30, 2025 | | :-------------------------------- | :------------- | :------------- | | Revolving credit facility | $— | $30,000 | | Convertible Notes | $747,500 | $— | | Total long-term debt | $747,500 | $30,000 | | Total long-term debt, net of unamortized debt issuance costs | $725,703 | $30,000 | 10. Convertible Notes In July 2025, the company issued $747.5 million in 0% Convertible Senior Notes due 2030, which are unsecured obligations - The company issued $747.5 million aggregate principal amount of 0% Convertible Senior Notes due 2030 in July 2025[71] - The Notes do not bear regular interest and mature on July 15, 2030, unless earlier repurchased, redeemed, or converted[73] - The initial conversion rate is 3.1017 shares of common stock per $1,000 principal amount of Notes, representing an initial conversion price of approximately $322.40 per share[73] 11. Leases Lease costs increased significantly, primarily operating lease costs, with longer weighted average lease terms and higher discount rates Total Lease Costs, Net (in thousands) | Lease Cost Type | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $6,850 | $2,430 | | Short term lease cost | $993 | $155 | | Variable lease cost | $899 | $423 | | Total lease costs, net | $8,742 | $3,008 | - The weighted average remaining lease term increased to 80 months (from 49 months), and the weighted average discount rate increased to 6.8% (from 5.4%) as of August 2, 2025[80] 12. Accumulated Other Comprehensive Loss and Reclassifications Adjustments The accumulated other comprehensive loss decreased slightly due to a positive change in foreign currency translation adjustments Accumulated Other Comprehensive Loss (in thousands) | Metric | August 2, 2025 | April 30, 2025 | | :-------------------------------- | :------------- | :------------- | | Balance | $(5,875) | $(6,514) | | Change in foreign currency translation adjustments | $639 | $538 | | Balance as of period end | $(5,875) | $(5,054) | 13. Customer-Funded Research & Development Revenue from customer-funded R&D activities significantly increased year-over-year - Revenue from customer-funded R&D was approximately $60.85 million for the three months ended August 2, 2025, compared to $18.56 million for the same period in 2024[82] 14. Long-Term Incentive Awards The company granted long-term incentive awards (LTIPs) to key employees, with compensation expenses recognized over vesting periods Compensation Expense for LTIPs (in thousands) | LTIP | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Fiscal 2026 LTIP | $809 | $— | | Fiscal 2025 LTIP | $3,859 | $306 | | Fiscal 2024 LTIP | $3,008 | $1,112 | | Fiscal 2023 LTIP | $— | $865 | - The maximum compensation expense for the performance-based portion of the Fiscal 2026 LTIP is $33.25 million[84] 15. Income Taxes The company recorded an income tax benefit for the quarter, with a higher effective tax rate influenced by net loss and new tax legislation Income Tax (Benefit from) Provision and Effective Tax Rate | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | (Benefit from) provision for income taxes | $(15,169,000) | $1,485,000 | | Effective tax rate | 18.0% | 6.6% | - The One Big Beautiful Bill Act (OBBBA) was enacted in July 2025, eliminating the requirement to capitalize U.S. R&D expenses and is expected to significantly reduce cash tax payments for fiscal year ending April 30, 2026[90][152] 16. Share Issuances In July 2025, the company completed a common stock offering, issuing over 4 million shares and generating significant net proceeds - In July 2025, the company issued 4,057,460 shares of common stock, generating gross proceeds of $1.01 billion and net proceeds of $966.85 million after costs[91] 17. Business Acquisitions On May 1, 2025, the company acquired BlueHalo LLC for approximately $3.48 billion, integrating it into AxS and SCDE segments - On May 1, 2025, the company acquired BlueHalo LLC for merger consideration, net of cash acquired, of $3.48 billion[92][93] - The acquisition resulted in the recognition of $2.28 billion in goodwill and $1.13 billion in intangible assets (technology, customer relationships, backlog)[95][101] BlueHalo Pro Forma Information (Three Months Ended July 27, 2024, in thousands) | Metric | Pro Forma (July 27, 2024) | | :-------------------------------- | :------------------------ | | Revenue | $378,924 | | Net loss attributable to AeroVironment, Inc. | $(88,402) | 18. Pension The company maintains a small foreign-based defined benefit pension plan, acquired through Telerob, currently in a funded status Funded Status of Pension Plan (April 30, 2025, in thousands) | Metric | Amount | | :-------------------------- | :----- | | Projected benefit obligation | $(3,335) | | Fair value of plan assets | $3,817 | | Funded status of the plan | $482 | Net Periodic Benefit Cost (in thousands) | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net periodic benefit cost | $31 | $28 | 19. Segments The company operates two reportable segments, AxS and SCDE, using segment adjusted EBITDA as the primary profitability measure Segment Revenue and Adjusted EBITDA (Three Months Ended August 2, 2025, in thousands) | Segment | Revenue | Segment adjusted EBITDA | | :------ | :------ | :---------------------- | | AxS | $285,324 | $52,760 | | SCDE | $169,352 | $3,796 | | Total | $454,676 | $56,556 | Segment Revenue and Adjusted EBITDA (Three Months Ended July 27, 2024, in thousands) | Segment | Revenue | Segment adjusted EBITDA | | :------ | :------ | :---------------------- | | AxS | $189,483 | $37,178 | | SCDE | $— | $— | | Total | $189,483 | $37,178 | Capital Expenditures by Segment (in thousands) | Segment | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------- | :-------------------------------- | :-------------------------------- | | AxS | $15,178 | $4,573 | | SCDE | $16,437 | $— | | Corporate | $453 | $857 | | Total | $32,068 | $5,430 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, condition, critical accounting estimates, results, backlog, liquidity, and cash flow Critical Accounting Estimates Management discusses critical accounting estimates for revenue, inventory, intangibles, goodwill, and income taxes, noting potential differences Net (Unfavorable) Favorable Adjustments to Revenue (in thousands) | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Gross favorable adjustments | $2,316 | $812 | | Gross unfavorable adjustments | $(6,459) | $(285) | | Net (unfavorable) favorable adjustments | $(4,143) | $527 | - A goodwill impairment charge of $18.40 million was recognized for the Unmanned Ground Vehicles (UGV) reporting unit due to decreased forecasted results[123] Results of Operations Revenue grew 140% driven by the BlueHalo acquisition and Switchblade demand, but increased costs led to a net loss Key Financial Results (Three Months Ended August 2, 2025 vs. July 27, 2024, in thousands) | Metric | August 2, 2025 | July 27, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :------------ | :--------- | :--------- | | Revenue | $454,676 | $189,483 | $265,193 | 140% | | Cost of sales | $359,558 | $108,016 | $251,542 | 233% | | Gross margin | $95,118 | $81,467 | $13,651 | 16.7% | | Selling, general and administrative | $131,276 | $33,795 | $97,481 | 288.5% | | Research and development | $33,114 | $24,613 | $8,501 | 34.5% | | (Loss) income from operations | $(69,272) | $23,059 | $(92,331) | -400.4% | | Net (loss) income | $(67,370) | $21,166 | $(88,536) | -418.3% | - The increase in revenue was primarily due to $123.70 million in product revenue and $111.50 million in service revenue from the BlueHalo acquisition[126][127] - Cost of sales increased significantly due to BlueHalo product lines ($83.00 million), intangible amortization ($29.00 million), and a mix shift to lower margin products ($17.00 million)[128] Autonomous Systems (AxS) The AxS segment experienced substantial revenue growth, driven by the BlueHalo acquisition and Switchblade demand, increasing adjusted EBITDA AxS Segment Performance (in thousands) | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | $285,324 | $189,483 | $95,841 | 51% | | Segment adjusted EBITDA | $52,760 | $37,178 | $15,582 | 42% | - AxS product revenue increased by $81.20 million, with $50.90 million from BlueHalo and $30.30 million from legacy AV products due to increased Switchblade demand[136] Space, Cyber and Directed Energy (SCDE) The SCDE segment, newly formed from the BlueHalo acquisition, generated significant revenue and adjusted EBITDA in its first quarter SCDE Segment Performance (in thousands) | Metric | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $169,352 | $— | | Segment adjusted EBITDA | $3,796 | $— | - The SCDE segment's revenue and adjusted EBITDA are entirely attributable to business units obtained in the BlueHalo acquisition on May 1, 2025[138][139] Backlog The company's funded backlog increased significantly, and it maintains a substantial unfunded backlog, which does not guarantee future orders - Funded backlog was approximately $1.07 billion as of August 2, 2025, up from $726.60 million as of April 30, 2025[141] - Unfunded backlog stood at $3.09 billion as of August 2, 2025, representing potential future orders under various contract types[142] Liquidity and Capital Resources The company enhanced liquidity via stock and convertible notes offerings, repaying acquisition debt, and expects sufficient capital for future needs - In July 2025, the company completed a Common Stock Offering and a Notes Offering, generating aggregate net proceeds of approximately $1.70 billion[145] - Approximately $965.30 million of the proceeds were used to repay indebtedness under the Term Loan Facility and Revolving Credit Facility[145] - As of August 2, 2025, approximately $338.10 million was available under the Revolving Facility[146] Cash Flows Operating cash flows shifted to net use, investing activities increased due to BlueHalo acquisition, and financing activities provided substantial cash Cash Flow Data (in thousands) | Activity | Three Months Ended August 2, 2025 | Three Months Ended July 27, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(123,726) | $28,351 | | Net cash used in investing activities | $(876,648) | $(6,613) | | Net cash provided by (used in) financing activities | $1,645,443 | $(13,954) | - The increase in net cash used in operating activities was primarily due to changes in operating assets and liabilities ($157.80 million decrease) and a decrease in net income ($88.50 million)[153] - Net cash used in investing activities increased by $870.00 million, mainly due to the $844.60 million cash consideration for the BlueHalo acquisition[154] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk assessment is largely unchanged, but the issuance of 0% Convertible Senior Notes in July 2025 impacts interest rate risk - The issuance of $747.50 million of 0% Convertible Senior Notes in July 2025, used to repay other indebtedness, impacts the company's interest rate risk profile[157] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls were effective as of August 2, 2025, excluding BlueHalo, which had identified three material weaknesses - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of August 2, 2025[161] - Management's evaluation of disclosure controls and procedures excludes BlueHalo's controls, which are being integrated[161] - BlueHalo identified three material weaknesses prior to acquisition: ineffective IT general controls, an ineffective control environment, and ineffective monitoring activities[163][164] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures ITEM 1. LEGAL PROCEEDINGS The company is involved in class action and PAGA complaints, with an agreement in principle to settle reached in June 2025 - A class action complaint and a PAGA complaint were filed by former employees alleging California Labor Code violations[170][172] - An agreement in principle to settle all claims in the class action and PAGA complaints was reached on June 11, 2025, subject to court approval[171] ITEM 1A. RISK FACTORS Updated risk factors highlight increased indebtedness, cash flow limitations, and risks related to government budgets and contract funding - Total indebtedness of approximately $725.00 million from the Notes could limit cash flow, restrict additional financing, and dilute existing stockholders' interests upon conversion[175][177][179] - A decline in U.S. and other government budgets, changes in spending priorities, or delays in contract awards could significantly and adversely affect future revenue[181] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report during the period ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the period ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company ITEM 5. OTHER INFORMATION EVP and CFO Kevin McDonnell adopted a Rule 10b5-1 trading plan for the sale of 4,296 shares of common stock - Kevin McDonnell, EVP and CFO, adopted a Rule 10b5-1 Trading Plan for the sale of 4,296 shares of common stock, with a term of approximately 8 months[185] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Form 10-Q, including corporate governance, debt agreements, and certifications - Key exhibits include the Indenture for the Convertible Notes, the Fourth Amendment to Credit Agreement, and certifications from the CEO and CFO[188] SIGNATURES The report is duly signed by the company's Chairman, CEO, CFO, and Chief Accounting Officer - The report is signed by Wahid Nawabi (CEO), Kevin P. McDonnell (CFO), and Brian C. Shackley (CAO)[192]