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Triumph Group‘20 OVERVIEW
THAT
NEXT
STEP
FOR WARFIGHTERS,
IT’S THE MOMENT
OF TRUTH.
CROUCHED BEHIND A WALL,
HUNKERED DOWN BENEATH
A RIDGELINE,
THEY HAVE NO WAY OF KNOWING
WHAT THAT NEXT STEP WILL BRING.
Is the enemy waiting in ambush?
Are there civilians in need of protection?
THE SUCCESS OF THE MISSION AND THEIR
VERY LIVES RIDE ON THE DECISION
THEY MAKE IN THAT INSTANT.
WITHOUT ACTIONABLE INTELLIGENCE,
THEY ARE ADVANCING INTO THE UNKNOWN.
01
That’s why AeroVironment’s
highly sophisticated, yet
simple-to-operate, tactical
unmanned aircraft systems
and missile systems are
so critical.
BY EXTENDING THE WARFIGHTERS’ REACH BEYOND THE LINE OF SIGHT,
AEROVIRONMENT ENABLES THEM TO CONTROL THE BATTLESPACE.
02
2020 CORPORATE OVERVIEW
THEY CAN LOCATE THE ENEMY, ATTACK WITH PRECISION,
AND WAVE-OFF STRIKES TO MINIMIZE OR EVEN ELIMINATE
COLLATERAL DAMAGE, ALL WITHOUT JEOPARDIZING THEIR SAFETY.
When there is no room for error,
AeroVironment provides warfighters
the actionable intelligence they
need to proceed with certainty.
03
THROUGHOUT ITS 50-YEAR HISTORY, THE PEOPLE OF
AEROVIRONMENT HAVE NEVER ALLOWED THEMSELVES
TO BE CONSTRAINED BY THE PRESENT.
THEY HAVE ALWAYS PRESSED FORWARD INTO THE
FUTURE, VISUALIZING A WORLD BEYOND THE HORIZON.
04
2020 CORPORATE OVERVIEW
05
06
2020 CORPORATE OVERVIEW
Our dedication has taken technological
advancements further and brought the
future to life by pushing the boundaries of
FOUR FUTURE-DEFINING TECHNOLOGIES
ROBOTICS, SENSORS, SOFTWARE
ANALYTICS, AND CONNECTIVITY
AEROVIRONMENT HAS CONCEIVED OF SOLUTIONS
THAT ENABLE OUR CUSTOMERS TO TAKE
THAT NEXT STEP TOWARD THEIR GOALS—AND
TO DO SO SAFELY AND CONFIDENTLY.
07
In making these advances,
we have created a culture
that nurtures collaboration
among team members, customers,
partners, and other stakeholders.
08
2020 CORPORATE OVERVIEW
AT AEROVIRONMENT, THAT NEXT STEP
IS ONE WE TAKE TOGETHER.
09
50 YEARS
10
2020 CORPORATE OVERVIEW
50 YEARSOF ENVISIONING
THE FUTURE
AVINC.COM/50
11
THESE ARE JUST A FEW OF THE AREAS OVER THE PAST 50 YEARS
WHERE AEROVIRONMENT LEAPT AHEAD INTO THE FUTURE
TO DEFINE ENTIRELY NEW CATEGORIES OF SOLUTIONS.
AeroVironment has always
been years ahead of its time,
playing an outsized role
in pioneering innovations
that produce that next step
for our customers today.
IN 1998
We followed up our world-record-holding Solar Challenger
with the Pathfinder Plus, which set its own world record
by reaching higher than 82,000 feet.
IN 1986
AeroVironment’s engineers created the Pointer, a hand-launched,
battery-powered unmanned aircraft equipped with cameras that
streamed live video and data back to its operators.
IN 1981
Our Solar Challenger set the world record for the longest,
highest, farthest solar-powered flight.
12
2020 CORPORATE OVERVIEW
IT IS BECAUSE OF THIS RECORD OF VISIONARY
INNOVATION THAT AEROVIRONMENT HAS
ACHIEVED THE STATURE IT HAS TODAY.
FORTY YEARS AFTER SOLAR CHALLENGER, WE ARE PURSUING AN AUDACIOUS PLAN WITH
SOFTBANK CORP., THE JAPANESE TELECOM OPERATOR, TO DEPLOY A BROADBAND NETWORK
COMPRISING HUNDREDS OF SOLAR-POWERED HIGH-ALTITUDE PSEUDO-SATELLITES (HAPS)
THAT BUILDS ON THESE ACHIEVEMENTS.
IN 2001
Helios, an unmanned solar-powered aircraft, soared to
a record 96,863 feet and made history as the highest
flying non-rocket-powered airplane.
IN 2012, BUILDING UPON THE SUCCESS OF AEROVIRONMENT’S TACTICAL UNMANNED
AIRCRAFT SYSTEMS, SWITCHBLADE® BECAME THE FIRST BACK-PACKABLE LOITERING
MISSILE SYSTEM DEPLOYED TO U.S. FORCES.
THE RAVEN® IS POINTER’S SUCCESSOR, AND TODAY IS AMONG THE MOST WIDELY DEPLOYED
UNMANNED AIRCRAFT SYSTEMS IN THE WORLD, USED IN EVERY BRANCH OF THE
U.S. MILITARY AND THE MILITARY FORCES OF 50 ALLIED GOVERNMENTS.
Our customers know that by partnering with
us, they can proceed with certainty
toward that next step.
AVINC.COM/50
13
MOVING FORWARD IN 2020
AeroVironment’s 50 years of experience with
cutting-edge technology, combined with deep
customer insight, helped define the new
solutions we introduced or developed this year.
At the same time, these breakthroughs
reflect our practice of close collaboration.
01.
02.
01. PUMA™ LE — The classification system the Department of Defense uses to
characterize its unmanned aircraft systems (UAS) fleet is based on the
assumption that capability correlates with size. With the new Puma LE,
AeroVironment upends this relationship, introducing a new system with
Group 2 capabilities in a Group 1 footprint.
VAPOR incorporates more than a decade of aerospace engineering and technical
research and development. Thanks to its expansive modular payload bay and
10 lb. payload capacity, VAPOR can accommodate a variety of integrated sensors
and third-party payloads. VAPOR is that next step for customers wanting to add a
multi-mission vertical take-off and landing (VTOL) aircraft to their fleet.
AeroVironment’s decades of experience and experimentation in hand-launched
UAS enabled our team to pinpoint the dozens of engineering improvements
needed for this category-defying breakthrough. For our military partners, the
Puma LE is that next step in endurance, payload capacity, and range.
02. VAPOR® HELICOPTER UAS — The hallmark of our new VAPOR helicopter
unmanned aircraft system is its versatility. Powered by our proprietary
HeliSynth™ technology, it delivers precision flight performance, exceptional
endurance, and maximum payload flexibility, making it attractive to defense,
commercial, and industrial customers.
03. QUANTIX™ RECON — With Quantix Recon, AeroVironment produced that
next step for our military customers—an intuitive reconnaissance system so
fully automated that even first-time users can successfully operate it. Here
again, AeroVironment’s experience—in this case, in developing its Quantix crop
analysis platform—gave it a head start in meeting customer needs.
This hybrid vertical take-off and landing (VTOL) aircraft switches from vertical
to horizontal flight, calculates its own flight path, captures and georeferences
high-resolution RGB and multispectral images, and downloads them without
any human intervention. No training is required.
14
2020 CORPORATE OVERVIEW
We realize that translating future-defining
technologies into those next-step capabilities
for our customers requires careful
communication and close cooperation.
Each customer has their own distinct vision of
the future. Our goal is to help them realize it.
03 .
04.
05.
An added benefit: In radio frequency silent mode, Quantix is virtually undetectable
and autonomously completes mapping missions, an important feature as
our customers anticipate more complex operations against much more
capable adversaries.
04. NEXT GENERATION HAPS — The first successful test flight of the next
generation high-altitude pseudo-satellite (HAPS) took place in fiscal year
2020, and illustrates the power of AeroVironment’s unwavering focus on the
future. Over four decades, we proceeded with the certainty that our vision
of unmanned, high-altitude solar flight would ultimately yield next-step
applications for our customers. HAPS demonstrates how close we are to
realizing an application that simply hadn’t been invented when we began this
journey—broadband communications from the stratosphere.
HAPSMobile, our joint venture with SoftBank Corp., the Japanese telecom
operator, plans to launch a network of HAPS, each one providing Internet
access across a 200-kilometer area from a position 20 kilometers above the
Earth. HAPSMobile seeks to make it possible for billions of people who lack even
basic wireless communications to connect to the rest of the world.
05. SWITCHBLADE® — AeroVironment designed its Switchblade loitering missile
system to give warfighters the ability to respond instantaneously and precisely
to enemy activity in highly dynamic environments. It enables them to take
that next step, allowing them not only to identify beyond-line-of-sight targets
precisely, but to deliver surgical, lethal effects from distances of up to 10
kilometers. At the same time, Switchblade gives warfighters the option to
abort an attack with its patented wave-off feature, protecting non-combatants,
and minimizing or even eliminating collateral damage.
To meet customers’ needs, AeroVironment has adapted Switchblade to provide
force protection in a variety of different operating environments. It can be
tube-launched from land, sea, or air platforms. Regardless of the theater,
Switchblade’s small visual, thermal, and acoustic signatures make it difficult to
detect, recognize, and track even at very close range.
This powerful combination of features proved compelling for the U.S. Army.
This year, it awarded AeroVironment a contract valued at up to $146 million
over a three-year period for Switchblade systems.
15
STEPPING
BOLDLY INTO
THE FUTURE
16
2020 CORPORATE OVERVIEW
As we look ahead to our next 50 years, that next step into the future
means creating highly autonomous, mission-centered solutions that
operate jointly across multiple domains. Up to this point, AeroVironment
has concentrated primarily on applying its future-defining technologies—
robotics, sensors, software analytics, and connectivity—to enable each
of its individual solutions.
Our next step is to apply these technologies to interconnected systems
whose elements are able to coordinate flexibly, in real time, and take on
complex, multi-domain missions.
17
INTERCONNECTED SYSTEMS
Part of that next step solution supports
militaries as they pivot to address
the requirements of near-peer combat
environments where they lack control of the area.
AN EARLY EXAMPLE IS OUR COLLABORATION WITH KRATOS DEFENSE & SECURITY SYSTEMS
We are working with Kratos to equip their long-range, high-speed attritable UAS with AeroVironment’s loitering missile systems. When delivered in large quantities,
these devices could target and disable enemy systems, thanks to their embedded intelligence, sensors, precision, and integrated system design.
18
2020 CORPORATE OVERVIEW
At the same time,
AeroVironment is taking
that next step beyond
near-space flight.
IN COLLABORATION WITH NASA’S JET PROPULSION LABORATORY ON INGENUITY
AeroVironment collaborated with NASA’s Jet Propulsion Laboratory on Ingenuity, the unmanned helicopter that is part of the Mars Perseverance Rover mission,
scheduled to launch in 2020. For this project, AeroVironment extrapolated from decades of stratospheric flight experience to design, engineer, and create critical
components of an aircraft destined to make the historic first flight in the atmosphere of another celestial body.
19
TO OUR SHAREHOLDERS,
Since assuming the role of Chief Executive Officer four years ago, I have
continually been impressed by the ability of AeroVironment’s team to execute
effectively against our long-term growth strategy. Our people consistently
deliver valuable innovations that support our customers and deliver significant
value for AeroVironment shareholders—and this past year was no different.
ACHIEVING STRATEGIC ALIGNMENT
Our strategy aligns with four fundamental trends that we believe will continue
to shape our end markets and generate increasing demand for our solutions:
We anticipate an increasing dependency on, and demand for, unmanned
robotic system solutions for both defense and commercial applications,
and the expanding capabilities of those solutions, supported by
innovation and advancement of enabling technologies
Continued growth in demand for more actionable intelligence,
precision effects and reliable network communications at the
tactical edge of the battlefield delivered by smaller, distributed
systems deployed in large numbers
Successful military operations against increasingly sophisticated
adversaries will benefit from advanced capabilities in machine vision,
machine-to-machine communication and autonomous operation to
maintain a tactical advantage, lower the risk of harm to civilians and
reduce the cognitive load on system operators
Global implementation of 5G mobile and Internet of Things (IoT)
networks will continue to drive strong demand for bandwidth and
access, particularly in under-served regions around the world, and the
deployment of new connectivity solutions
With strong customer relationships across the United States Department of
Defense and 50 allied nations, tens of thousands of deployed unmanned systems,
a track record of success supporting our customers in the most extreme
operating environments and a leadership position in high-altitude pseudo-satellite
(HAPS) solutions, AeroVironment is well positioned to benefit from these trends.
20
2020 CORPORATE OVERVIEW
DELIVERING EXCELLENT FINANCIAL AND OPERATIONAL RESULTS
We are focused on developing advanced solutions that integrate robotics,
sensors, software analytics and connectivity technologies and on delivering
these capabilities to our customers across defense, homeland security and
commercial markets.
Over the past three years, our strategy has produced free cash flow (cash from
operations minus capex) of $82 million. This strong cash flow contributed to our
solid balance sheet, which held more than $300 million in cash and investments,
and no debt at the end of fiscal year 2020. Our balance sheet gives us the critical
ability to move decisively as we execute our growth strategy.
Thanks to the strength of our operations and commitment from our team, we
have achieved or exceeded our fiscal year revenue and earnings guidance in
each of the past three years. In fiscal year 2020 we delivered a third
consecutive year of profitable, double-digit topline growth with record
revenue, funded backlog, and strong earnings. We expanded our market
presence, grew our capabilities, achieved several critical milestones in
strategic development programs, introduced new solutions to our end
markets, enhanced our operations and safely weathered the onset of the
unprecedented global COVID-19 pandemic.
INVESTING METHODICALLY FOR LONG-TERM SHAREHOLDER VALUE
As we look ahead, our market leadership in tactical unmanned aircraft
systems, tactical missile systems and the emerging category of high-altitude
pseudo-satellites provides us with unique advantages to engage with our
customers, deliver ever more advanced capabilities and grow our business. We
are focused on investing methodically to create a future where AeroVironment
provides more advanced, networked solutions that help our customers
compete and win in more complex operating environments.
As a technology solutions provider, we consistently invest in research and
development that enables us to advance critical development programs
toward market introduction and deliver shareholder value.
Wahid Nawabi, President and Chief Executive Officer
Our strategic research and development investments, coupled with our intense
focus on customer intimacy, positioned us to win a multi-year U.S. Army
contract valued at up to $146 million for Lethal Miniature Aerial Missile
Systems, or LMAMS, with our Switchblade loitering missile system. The first
year of this contract is valued at $76 million, making it the largest LMAMS
award, our largest Switchblade award, and the largest single award in
AeroVironment’s history.
Notably, our investments produced multiple new product introductions and
advancements in strategic development programs during fiscal year 2020. In
October, we introduced Puma LE, which offers Group 2 capabilities in an
economical Group 1 footprint. We have delivered new Puma LE systems to
multiple customers and are actively engaged with several additional
customers who are interested in Puma LE’s compelling performance
capabilities. In April, we unveiled Quantix Recon, which offers fully automated
terrain and infrastructure mapping and radio-silent operation—valuable
capabilities for gaining situational awareness at the battlefield’s edge. We
recorded our first order of Quantix Recon before the end of the fiscal year and
expect growing demand for its differentiated capabilities.
We also successfully advanced the development of multiple new solutions,
which we intend to bring to market in the future. Our larger Switchblade
variant passed critical user evaluations during the fiscal year. This larger
variant is capable of addressing larger targets, delivering more significant
effects on those targets, and flying longer and farther as compared to our
original Switchblade. This game-changing new capability represents a
significant new value creation opportunity for AeroVironment.
Our investments in HAPSMobile, our joint venture with SoftBank Corp.,
continue to advance our next generation solar HAPS unmanned aircraft
system through demonstration and testing toward certification and
commercial operation. We delivered two complete aircraft, successfully
completed initial test flights in fiscal year 2020 and established a base of
operations in New Mexico for the next phase of the flight test program.
Investing in advanced new solutions is critical to our future and creates
economic value today, as evidenced by the growth in contract value of our
HAPS program to more than $160 million.
CHARTING AN EVEN BOLDER FUTURE
The future we are working to enable is one in which intelligent robotic systems
in the air, on the ground and in the water, coupled with advanced innovations in
artificial intelligence (AI) and machine learning, will work collaboratively with
each other and with humans to achieve mission success more quickly, more
safely and more cost effectively than what can be accomplished today. These
robotic systems are being designed to optimize the critical decision making
abilities of human operators while minimizing the number of tasks they must
perform. This future relies on advances in AI, machine learning, autonomy and
other enabling technologies, which our team is already achieving, and on
relationships with best-in-category partners across adjacent markets, which
we are already strengthening.
Our accomplishments this past year in delivering outstanding financial results
and advancing our progress toward our future goals would not have been
possible without our outstanding team. Even in the challenging times in which
we live, our people remain focused on serving our customers with agility,
adapting to a highly uncertain environment and ensuring customers are
successful when using our technologically advanced solutions. We are grateful
for our team and thank every member for their resilience and commitment.
Thank you to our customers who continue to select AeroVironment and rely on
our leading and proven solutions. We remain committed to supporting your
success today and tomorrow and continuing to help you Proceed with Certainty.
Thank you to our shareholders for your confidence in our team, our strategy
and our future. We are excited about the opportunities ahead to extend our
track record of value creation and success.
Wahid Nawabi
President and Chief Executive Officer
21
FINANCIAL HIGHLIGHTS
In thousands except share data
Total Revenue
Net Income from Continuing Operations Attributable to AeroVironment
EPS Attributable to AeroVironment—Diluted
Adjusted EPS Attributable to AeroVironment—Diluted
Total Assets
Total Stockholders’ Equity
Operating Margin
2020
$367,296
41,339
1.72
1.84
584,954
509,901
13%
2019
$314,274
41,912
1.74
1.48
508,844
462,571
13%
2018
$268,424
21,750
0.91
—
473,418
409,033
16%
$375
300
225
150
75
0
$2.00
1.60
1.20
0.80
0.40
0
FY‘16
FY‘17
FY‘18
FY‘19
FY‘20
REVENUE & EPS
Total Revenue ($ in millions)
Revenue (Continuing Operations)
EPS Attributable to AeroVironment—Diluted
Adjusted EPS Attributable to AeroVironment—Diluted
22
2020 CORPORATE OVERVIEW
Amounts prior to 2017 do not reflect impact of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Adjusted Earnings Per Share Attributable to AeroVironment for fiscal year 2019 excludes a $0.26 per share one-time gain from a litigation
settlement, and for fiscal year 2020 excludes $0.04 in acquisition-related expenses and $0.08 in amortization of acquired intangible assets.
SHARE PRICE
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended April 30, 2020
Fiscal Year Ended April 30, 2019
Fiscal Year Ended April 30, 2018
High
Low
High
Low
High
Low
$70.85
63.96
72.70
72.70
$53.00
48.61
57.26
45.00
$ 76.32
121.32
103.46
95.38
$49.69
71.21
63.01
64.05
$40.10
55.75
58.99
58.06
$28.13
36.71
41.53
41.60
100%
80
60
40
20
0
48%
52%
53%
47%
55%
45%
64%
36%
71%
29%
FY‘16
FY‘17
FY‘18
FY‘19
FY‘20
REVENUE MIX BY GEOGRAPHY
Domestic
International
23
CORPORATE SOCIAL RESPONSIBILITY
AT AEROVIRONMENT, OUR
STATED PURPOSE IS TO
SECURE LIVES AND
ADVANCE SUSTAINABILITY
THROUGH TRANSFORMATIVE
INNOVATION.
We do this most obviously in the solutions we create. Our battery-powered
products allow individual warfighters to proceed with certainty through the
most dangerous situations and minimize their impact on the environment while
safeguarding civilian lives. They help farmers to maximize the fertility of their
acreage, and, when the HAPSMobile network of 100% solar-powered UAS is
launched, they will connect billions of people with information that will improve
their quality of life.
Our purpose also guides the way we conduct our business. AeroVironment, as
its name implies, was founded to apply aerospace technology to environmental
challenges. We are committed to conserving natural resources and minimizing
waste through source reduction and recycling. We handle and dispose of the
waste we generate in a safe, environmentally sound manner. We practice energy
efficiency and use renewable energy. And we encourage our business partners
and suppliers to strive for the same high level of environmental performance.
In our interactions with others, we subscribe to similarly high standards of
conduct and ethics. We are committed to the ideals of equality and universal
human dignity. We strive to create a culture that embraces diversity and
inclusion and rejects any form of harassment and discrimination. We
respect the rights of our employees to a safe and healthy workplace and
we’re proud this year to be recognized once more as a Great Place to Work®
company. And we have zero tolerance for any activity that violates
applicable laws, rules, and regulations.
Finally, our purpose shapes our role in our communities. During fiscal year
2020, we supported a series of activities that are a natural fit for our
business, for instance, sponsoring events that promote science, technology,
engineering, and mathematics (STEM) education and that raise funds for
veterans and current service members. As COVID-19 spread, our team
created face shields and donated them to local hospitals. We also worked
closely with NASA’s Jet Propulsion Laboratory to validate designs for a new,
lower-cost ventilator to aid those stricken by the virus. Simply put, at
AeroVironment we are committed to making the world a better place and to
helping humankind take that next step.
24
2020 CORPORATE OVERVIEW
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended April 30, 2020
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-33261
AEROVIRONMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
900 Innovators Way
Simi Valley, CA
(Address of Principal Executive Offices)
95-2705790
(I.R.S. Employer Identification No.)
93065
(Zip Code)
Title of Class
Common Stock, par value $0.0001 per share
Registrant’s telephone number, including area code: (805) 520-8350
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
AVAV
Securities registered pursuant to Section 12(g) of the Act:
None
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ⌧
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. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧
Non-accelerated filer ☐
Accelerated filer ☐
Emerging growth company ☐
Smaller reporting company ☐
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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report. ⌧
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price on the NASDAQ
Global Select Market on October 26, 2019 was approximately $1,221.7 million.
As of June 17, 2020, the issuer had 24,063,602 shares of common stock, par value $0.0001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the conclusion of the registrant’s fiscal year ended April 30, 2020, are incorporated by reference
into Part III of this Form 10-K.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
AEROVIRONMENT, INC.
INDEX TO FORM 10-K
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
1
Page
3
19
42
43
43
43
44
45
46
59
60
106
106
107
109
109
109
109
109
110
Table of Contents
Forward-Looking Statements
PART I
This Annual Report on Form 10-K (“Annual Report”), contains forward-looking statements, which reflect our
current views about future events and financial results. We have made these statements in reliance on the safe harbor
created by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Forward-looking statements include our views on future financial results, financing sources, product development,
capital requirements, market growth and the like, and are generally identified by terms such as “may,” “will,” “should,”
“could,” “targets,” “projects,” “predicts,” “contemplates,” “anticipates,” “believes,” “estimates,” “expects,” “intends,”
“plans” and similar words. Forward-looking statements are merely predictions and therefore inherently subject to
uncertainties and other factors which could cause the actual results to differ materially from the forward-looking statement.
These uncertainties and other factors include, among other things:
● unexpected technical and marketing difficulties inherent in major research and product development efforts;
● availability of U.S. government and allied government funding for defense procurement and research and
development programs;
● our reliance on certain customers, including the U.S. government and HAPSMobile, Inc., for a significant
portion of our revenues;
● the extensive regulatory requirements governing our contracts with the U.S. government and the results of
any audit or investigation of our compliance therewith;
● our ability to remain a market innovator and to create new market opportunities;
● the potential need for changes in our long-term strategy in response to future developments;
● unexpected changes in significant operating expenses, including components and raw materials;
● changes in the supply, demand and/or prices for our products and services;
● increased competition, including from firms that have substantially greater resources than we have and in the
UAS business from lower-cost consumer drone manufacturers who may seek to enhance their systems’
capabilities over time;
● the complexities and uncertainty of obtaining and conducting international business, including export
compliance and other reporting requirements;
● the impact of potential security and cyber threats;
● uncertainty in the customer adoption rate of commercial use unmanned aircraft systems;
● changes in the regulatory environment;
● our ability to successfully integrate businesses we acquire;
● our ability to respond and adapt to unexpected legal, regulatory and government budgetary changes
resulting from the ongoing COVID-19 pandemic, such as shelter-in-place orders, travel restrictions,
social distancing and quarantine policies, boycotts, curtailment of trade, diversion of government
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resources to non-defense priorities, and other business restrictions affecting our ability to manufacture
and sell our products and provide our services;
● unfavorable results in legal proceedings; and
● general economic and business conditions in the United States and elsewhere in the world.
Set forth below in Item 1A, “Risk Factors” are additional significant uncertainties and other factors affecting
forward-looking statements. The reader should understand that the uncertainties and other factors identified in this Annual
Report are not a comprehensive list of all the uncertainties and other factors that may affect forward-looking statements.
We do not undertake any obligation to update or revise any forward-looking statements or the list of uncertainties and other
factors that could affect those statements.
Item 1. Business.
Sale of EES Business Segment
On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of its efficient
energy systems business segment (“the EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) pursuant to an
Asset Purchase Agreement (the “Purchase Agreement”) between Webasto and AeroVironment. As of April 30, 2018, we
determined that the EES Business met the criterion for classification as an asset held for sale and represented a strategic
shift in our operations. Therefore, the assets and liabilities and the results of operations of the EES Business are reported in
this Annual Report as discontinued operations for all periods presented.
The disclosures and references in this Annual Report, including financial data, the description of our business
operations in this Item 1, and risk factors related to our operations included in Item 1A relate to our continuing operations,
unless otherwise specifically noted.
Overview
We design, develop, produce and support a technologically-advanced portfolio of products and services for
government agencies and businesses. We supply unmanned aircraft systems (“UAS”) and related services primarily to
organizations within the U.S. Department of Defense (“DoD”) and to international allied governments, and tactical missile
systems and related services to organizations within the U.S. government. We derive the majority of our revenue from
these business areas and we believe that the markets for these solutions have significant growth potential. Additionally, we
believe that some of the innovative potential products and services in our research and development pipeline will emerge as
new growth platforms in the future, creating additional market opportunities.
Our success with current products and services stems from our investment in research and development and our
ability to invent and deliver advanced solutions, utilizing proprietary and commercially available technologies, to help our
government and commercial customers operate more effectively and efficiently. We develop these highly innovative
solutions by working very closely with our key customers to solve their most important challenges related to our areas of
expertise. Our core technological capabilities, developed through more than 45 years of innovation, include robotics and
robotics systems autonomy; sensor design, development, miniaturization and integration; embedded software and
firmware; miniature, low power wireless digital communications; lightweight aerostructures; high-altitude systems design,
integration and operations; machine vision, machine learning and autonomy; low SWaP (Size, Weight and Power) system
design and integration; manned-unmanned teaming and unmanned-unmanned teaming; power electronics and electric
propulsion systems; efficient electric power conversion, storage systems and high density energy packaging; controls and
systems integration; vertical takeoff and landing flight, fixed wing flight and hybrid aircraft flight; image stabilization and
target tracking; advanced flight control systems; fluid dynamics; human-machine interface development; and integrated
mission solutions for austere environments.
Our business focuses primarily on the design, development, production, marketing, support and operation of
innovative UAS and tactical missile systems that provide situational awareness, remote sensing, multi-band
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communications, force protection and other information and mission effects to increase the safety and effectiveness of our
customers’ operations.
Our Strategy
As a technology solutions provider, our strategy is to grow our business by developing and acquiring innovative,
safe and reliable new solutions that provide customers with valuable capabilities. Delivering these capabilities will enable
us to create new markets or market segments, gain market share and grow as market adoption increases. We believe that by
introducing new solutions that provide customers with compelling value we are able to create new markets or market
segments and then grow our positions within those markets or market segments profitably, instead of entering established,
existing markets and competing directly against large, incumbent competitors that may possess advantages in scope, scale,
resources and relationships.
We intend to grow our business by preserving a leadership position in our core UAS and tactical missile systems
markets, and by creating new solutions that enable us to create and establish leadership positions in new markets. Key
components of this strategy include the following:
Expand the market penetration of existing products and services. Our small UAS and tactical missile
systems enjoy leading positions in their respective markets. We intend to increase the penetration of our small UAS
products and services within the U.S. military, the military forces of allied nations, other government agencies and non-
government organizations, including commercial entities, and to increase the penetration of our tactical missile systems
within the U.S. military and within the military forces of allied nations. We believe that the broad adoption of our small
UAS by the U.S. military will continue to spur demand by allied nations, and that our efforts to pursue new applications are
creating opportunities beyond the early adopter military market.
Deliver innovative new solutions into existing and new markets. Customer-focused innovation is the
primary driver of our growth. We plan to continue pursuing internal and customer-funded research and development to
develop better, more capable products, services and business models, both in response to and in anticipation of emerging
customer needs. In some cases, these innovations result in upgrades to existing offerings, expanding their value among
existing customers and markets. In other cases, these innovations become entirely new solutions that position us to address
new markets, customers and business opportunities. We believe focused research and development investments will allow
us to deliver innovative new products and services that address market needs within and outside of our current target
markets, and enable us to create new opportunities for growth. We view strategic partnerships as a means by which to
further the reach of our innovative solutions through access to new markets, customers and complementary capabilities. We
also consider the acquisition of third-party assets as a potential method to obtain valuable products or technologies that can
enable our growth strategy.
Foster our entrepreneurial culture and continue to attract, develop and retain highly-skilled personnel.
Our company culture encourages innovation and entrepreneurialism, which helps to attract and retain highly-skilled
professionals. We intend to preserve this culture to encourage the development of the innovative, highly technical system
solutions and business models that give us our competitive advantage. Our values of “customer commitment,” “trust and
teamwork,” “innovate and simplify,” and “ownership and results” serve as the foundation of our culture. We believe that
our values help to guide the behavior of our people and serve to maintain a positive work environment that inspires loyalty
among our employees and customers.
Preserve our agility and flexibility. We respond rapidly to evolving markets, solve complicated customer
problems, and strive to deliver new products, services and capabilities quickly, efficiently and affordably relative to
available alternatives. We believe our agility and flexibility help us to strengthen our relationships with customers and
partners. We intend to maintain our agility and flexibility, which we believe to be important sources of differentiation when
we compete against organizations with more extensive resources.
Effectively manage our growth portfolio for long-term value creation. Our production and development
programs and services present numerous investment opportunities that we believe will deliver long-term growth by
providing our customers with valuable new capabilities. We evaluate each opportunity independently and within the
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context of other investment opportunities to determine its relative timing and potential, and thereby its priority. This
process helps us to make informed decisions regarding potential growth capital requirements and supports our allocation of
resources based on relative risks and returns to maximize long-term value creation, which is a key element of our growth
strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest
potential growth opportunities.
Customers
We sell the majority of our UAS and services to organizations within the DoD, including the U.S. Army, Marine
Corps, Special Operations Command, Air Force and Navy, and to allied governments. We sell our tactical missile systems
to organizations within the U.S. government. We also develop High Altitude Pseudo-Satellite (“HAPS”) systems for
HAPSMobile Inc., a commercial joint venture of which we own approximately 7%.
During our fiscal year ended April 30, 2020, we generated approximately 32% of our revenue from the U.S. Army
pursuant to orders placed under contract by the U.S. Army on behalf of itself as well as for several other organizations
within the DoD. Other U.S. government agencies and government subcontractors accounted for 22% of our sales revenue,
and HAPSMobile Inc. accounted for 17% of our sales revenue. Sales revenue to other foreign customers, inclusive of
foreign military sales made through the DoD, commercial and consumer customers accounted for the remaining 29% of
sales revenue during our fiscal year ended April 30, 2020.
Technology, Research and Development
Technological Competence and Intellectual Property
Our company was founded by the late Dr. Paul B. MacCready, the former Chairman of our board of directors and
an internationally renowned innovator who was instrumental in establishing our entrepreneurial and creative culture. This
culture has consistently enabled us to attract and retain highly-motivated, talented employees and has established our
reputation as an innovative leader in the industries in which we compete.
The innovations developed by our company and our founder include, among others: the world’s first effective
human-powered and manned solar-powered airplanes; the first modern passenger electric car, the EV1 prototype for
General Motors; the world’s highest flying airplane in level flight, Helios™, a solar-powered unmanned aircraft system that
reached over 96,000 feet above sea level in 2001; Global Observer, the world’s first liquid hydrogen-fueled unmanned
aircraft system; the Nano Hummingbird™, the world’s first flapping wing unmanned aircraft system capable of precise
hover and omni-directional flight; and Blackwing™, the first submarine-launched unmanned aircraft system deployed by
the U.S. Navy. The Smithsonian Institution possesses seven vehicles developed by our company or our founder in its
permanent collection. Our history of innovation excellence is the result of our talented, creative and skilled employees
whom we encourage to invent and develop innovative new solutions.
A component of our ongoing innovation is a screening process that helps our business managers identify early
market needs, which assists us in making timely investments into critical technologies necessary to develop solutions to
address these needs. Similarly, we manage new product and business concepts through a commercialization process that
balances spending, resources, time and intellectual property considerations against market requirements and potential
returns on investment. Strongly linking our technology and business development activities to customer needs in attractive
growth markets constitutes an important element of this process. Through the process we revisit our customer requirement
assumptions to evaluate continued investment and to help ensure that our products and services deliver high value.
As of April 30, 2020, we had issued and retained 202 U.S. patents, as well as 104 pending U.S. patent
applications; 26 active Patent Cooperation Treaty applications; and numerous foreign patents and pending applications. In
many cases, when appropriate and to preserve confidentiality, we opt to protect our intellectual property through trade
secrets as opposed to filing for patent protection.
The U.S. government has licenses to some of our intellectual property that was specifically developed in
performance of government contracts, and may use or authorize others to use this intellectual property. In some cases we
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fund the development of certain intellectual property to maximize its value and limit its use by potential competitors. While
we consider the development and protection of our intellectual property to be integral to the future success of our business,
at this time we do not believe that a loss or limitation of rights to any particular piece of our intellectual property would
have a material adverse effect on our overall business.
Research, Development and Commercialization Projects
A core component of our business strategy is the focused development and commercialization of innovative
solutions that we believe can become new products or services that enable us to create large new markets or accelerate the
growth of our current products and services. We invest in an active pipeline of these commercialization projects that range
in maturity from technology validation to early market adoption. We cannot predict when, if ever, we will successfully
commercialize these projects, or the exact level of capital expenditures they could require, which could be substantial.
Sales and Marketing
Our marketing strategy is based on developing leadership positions in new markets that we create through the
introduction of innovation solutions that improve customer operational effectiveness and efficiency. Our ability to operate
in an agile, flexible manner helps us achieve first mover advantage and work closely with early customers to achieve the
successful adoption of our solutions. Once we establish a market position we work to maintain our leadership while
seeking to grow our revenue by expanding sales and through continuous innovation and customer support. Our reputation
for innovation is a key component of our brand and has been acknowledged through a variety of awards and recognized in
numerous articles in domestic and international publications. We have many U.S. registered trademarks including those for
AeroVironment, AV, Switchblade, Raven, Wasp, Quantix, and VAPOR, and have several pending applications for
trademark registration.
International Sales
We contract with international sales representatives and team with domestic organizations in a number of foreign
markets and believe that these markets represent growth opportunities for our business. Our international sales, inclusive of
foreign military sales, accounted for approximately 45%, 52% and 47%, of our revenue for the fiscal years ended April 30,
2020, 2019 and 2018, respectively.
Competition
We believe that the principal competitive factors in the markets for our products and services include product
performance; safety; features; acquisition cost; lifetime operating cost, including maintenance and support; ease of use;
rapid integration with existing equipment and processes; quality; reliability; customer support; and brand and reputation.
Manufacturing and Operations
We pursue a lean and efficient production strategy across our business, focusing on rapid prototyping, supply
chain management, final assembly, integration, quality and final acceptance testing. Using concurrent engineering
techniques within an integrated product team structure, we rapidly prototype design concepts and products, while working
to optimize our designs to meet manufacturing requirements, mission capabilities and customer specifications. Within this
framework we develop our products with feedback and input from manufacturing, quality, supply chain management, key
suppliers, logistics personnel and customers. We incorporate this input into product designs in an effort to maximize the
efficiency and quality of our products while minimizing time to market. As a result, we believe that we significantly reduce
the time required to move a product from its design phase to full rate production, while achieving high reliability, quality
and yields.
We outsource certain production activities, such as the fabrication of certain aerostructures, the manufacture and
assembly of electronic printed circuit boards, and payload components to qualified suppliers, with many of whom we have
long-term relationships. This outsourcing enables us to focus on our core expertise of final assembly, system
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integration and test processes for our products, ensuring high levels of quality and reliability. We forge strong relationships
with key suppliers based on their ability to grow with our production needs and support our growth plans. We continue to
expand upon our suppliers’ expertise to improve our existing products and develop new solutions. We rely on both single
and multiple suppliers for certain components and subassemblies. (See “Risk Factors—If critical components or raw
materials used to manufacture our products become scarce or unavailable, then we may incur delays in manufacturing and
delivery of our products, which could damage our business” for more information.) All of our production systems operate
in accordance with our AS9100D registered Quality Management System, which is focused on continuous improvement in
order to increase acceptance rates, reduce lead times and lower cost.
Customer Funded Research and Development
We actively pursue externally funded projects that help us to strengthen our technological capabilities. We submit
bids to large research customers, such as the Defense Advanced Research Projects Agency, the U.S. Air Force, the U.S.
Army and the U.S. Special Operations Command, for projects that we believe have the potential for future procurement. In
some cases commercial enterprises may fund our research and development activities, as with our HAPSMobile Inc.
development program. Providing these services contributes to the development and enhancement of our technical
competencies. In an effort to manage the ability of our key technical personnel to support multiple, high-value research and
development initiatives, we attempt to limit the volume of customer funded research and development projects that we
accept. This process enables us to focus these personnel on projects we believe offer the greatest current and future value to
our business.
Seasonality
Historically our revenue in the second half of our fiscal years has exceeded our revenue in the first half of our
fiscal years. The factors that affect our revenue recognition between accounting periods include the timing of new contract
awards, the availability of U.S. government and international government funding, lead time to manufacture our family of
systems to customer specification, customer acceptance and other regulatory requirements.
Raw Materials and Suppliers
Historically, we have not experienced significant delays in the supply or availability of our key raw materials or
components provided by our suppliers, nor have we experienced a significant price increase for raw materials or
components. We do not presently anticipate any such delays or significant price increases in our fiscal year 2021.
Product Mix
The table below shows our revenue for the periods indicated by major product line:
Fiscal Year Ended
April 30,
Small UAS
TMS
HAPS
Other
2020
2018
2019
61 % 58 % 62 %
17 % 21 % 24 %
17 % 18 % 11 %
5 % 3 % 3 %
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Contract Mix
The table below shows our revenue for the periods indicated by contract type, including both government and
commercial sales:
Fiscal Year Ended
April 30,
Fixed-price contracts
Cost-reimbursable contracts
Time-and-materials contracts
Employees
2020
2018
2019
73 % 71 % 79 %
26 % 28 % 21 %
1 % 1 % — %
As of April 30, 2020, we had 823 full time employees and 5 part time employees, of whom 343 were in research
and development and engineering, 50 were in sales and marketing, 266 were in operations and 169 were general and
administrative personnel. We believe that we have a good relationship with our employees.
Backlog
Consistent with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we define backlog as
remaining unsatisfied performance obligations under firm orders for which work has not been performed. As of April 30,
2020 and 2019, our backlog was approximately $208.1 million and $164.3 million, respectively. We expect that
approximately 96% of our backlog will be recognized as revenue during our fiscal year ending April 30, 2021.
In addition to our backlog, we had unfunded backlog of $122.0 million and $45.2 million as of April 30, 2020 and
2019, respectively. We define unfunded backlog as the total remaining potential order amounts under cost reimbursable and
fixed price contracts with (i) multiple one-year options, and indefinite delivery, indefinite quantity (“IDIQ contracts”), or
(ii) incremental funding. Unfunded backlog does not obligate the customer to purchase goods or services. There can be no
assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believes that
unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts. Unfunded backlog,
with the exception of the remaining potential value of the FCS domain, does not include the remaining potential value
associated with a U.S. Army IDIQ-type contract for small UAS because values for each of the other domains within the
contract have not been disclosed by the customer, and we cannot be certain that we will secure all task orders issued against
the contract.
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, are renewed, or new contracts are awarded. A portion of our contracts, specifically our IDIQ
contracts, do not obligate the U.S. government to purchase any goods or services. Additionally, all U.S. government
contracts included in backlog, whether or not they are funded, may be terminated at the convenience of the U.S.
government.
Other Information
AeroVironment, Inc. was originally incorporated in California in July 1971 and reincorporated in Delaware in
2006.
Our principal executive offices are located at 900 Innovators Way, Simi Valley, California 93065. Our telephone
number is (805) 520-8350. Our website home page is http://www.avinc.com. We make our website content
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available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by
reference into this Annual Report.
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
proxy statements for our annual stockholders’ meetings, as well as any amendments to those reports, available free of
charge through our website as soon as reasonably practical after we electronically file that material with, or furnish it to,
the Securities and Exchange Commission (“SEC”). You can learn more about us by reviewing our SEC filings. Our SEC
reports can be accessed through the investor relations page of our web site at http://investor.avinc.com. The SEC also
maintains a web site at www.sec.gov that contains our reports, proxy statements and other information regarding us.
Our Business
Our business addresses the increasing economic and security value of distributed, network-centric intelligence,
surveillance and reconnaissance (“ISR”), communications, remote sensing and effects delivery with innovative UAS and
tactical missile system solutions.
Industry Background
Small UAS
The defense market for small UAS has grown significantly since the early 2000s, driven largely by the demands
associated with the global threat environment and resulting procurement by military customers, the early adopters for this
technology. Small UAS now represent an accepted and enduring capability for the military. The U.S. military’s
transformation into a smaller, more agile force that operates via a network of observation, communication and precision
targeting technologies accelerated following the terrorist attacks of September 11, 2001, as it required improved,
distributed observation and targeting of enemy combatants who operate in small groups, often embedded in dense
population centers or dispersed in remote locations, to operate effectively in a counterinsurgency threat environment. We
believe that UAS, which range from large systems, such as Northrop Grumman’s Global Hawk and General Atomics’
Predator, Sky Warrior, Reaper and Gray Eagle, to small systems, such as our Raven, Wasp AE, Puma AE, and VAPOR
serve as integral components of today’s military force. These systems provide critical observation and communications
capabilities serving the increasing demand for actionable intelligence, while reducing risk to individual “warfighters.”
Small UAS can provide real-time observation and communication capabilities to the small units who control them. As
airspace regulations in the U.S. and other nations evolve to accommodate the commercial use of small UAS, significant
growth in the number of entities developing small UAS solutions is taking place.
Tactical Missile Systems
The development of weapons capable of rapid deployment and precision strike that also minimize the risk to
surrounding civilians, property and operators has accelerated due to advances in enabling technologies. Weapons such as
laser-guided missiles, “smart” bombs and GPS-guided artillery shells have dramatically improved the accuracy of strikes
against hostile targets. When ground forces find themselves engaged in a firefight or near a hostile target, their ability to
employ a precision weapon system quickly and easily can mean the difference between mission success and failure. A
rapidly deployable solution could address emerging requirements beyond ground engagements for use in other types of
missions and from a variety of sea, air and land platforms. We believe that embedding a precision lethal payload into a
remotely controlled, man-portable delivery system provides warfighters with a valuable and more cost-effective alternative
to existing munition and missile systems.
High-Altitude Pseudo-Satellite (“HAPS”) UAS
We believe a market opportunity exists for HAPS UAS that can fly for months at a time to provide continuous
remote sensing and communications in an affordable manner over great distances. Existing solutions such as terrestrial
cellular towers, communications satellites and manned and unmanned aircraft address some of the emerging demand for
this capability, but do so at relatively high financial and resource costs. Next generation mobile telephony, referred to as
5G, can use higher frequencies than those currently employed by 4G and LTE networks. These higher frequencies are
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not capable of traveling long distances as compared to the frequencies associated with existing networks. As a result, 5G
deployment requires the installation of a large number of base stations and cellular towers to complement existing
infrastructure, resulting in a significant investment of time, resources and capital. Geosynchronous satellites provide fixed,
continuous communications capabilities to large portions of the globe, but they operate more than 20,000 miles from the
surface of the earth, therefore limiting the bandwidth they can provide, introducing latency in communications signals and
requiring relatively larger, higher power ground stations. Remote sensing satellites typically operate at lower altitudes, but
are unable to maintain geosynchronous positions, meaning they are moving with respect to the surface of the earth,
resulting in a limited presence over specific areas of interest and significant periods of time during which they are not
present over those areas. A new category of constellations consisting of a large number of very small and low earth orbiting
satellites is proposed to provide a lower cost alternative with more ubiquitous coverage for reconnaissance and
communication, but is only beginning to be deployed in meaningful quantities and may not be capable of providing the
uninterrupted service and quality required by commercial mobile carriers. High-altitude balloons carrying communication
payloads are subject to wind direction and speed and, therefore, may not be able to deliver the continuous, uninterrupted
service and connection quality required by commercial mobile carriers but may be suitable for other applications. UAS that
are capable of operating in an affordable manner for extended periods of time over an area of interest without gaps in
availability while carrying a communications or observation payload could help to satisfy this need.
Our Solutions
We supply our UAS products and services to multiple customers within and outside of the United States and our
tactical missile systems products and services to organizations within the U.S. government.
Small UAS Products
Our small UAS, including Raven, Wasp AE, Puma AE, Puma LE, VAPOR and Quantix Recon are designed to
operate reliably at very low altitudes in a wide range of environmental conditions, providing a vantage point from which to
collect and deliver valuable information. Military forces employ our small UAS to deliver ISR and communications,
including real-time tactical reconnaissance, tracking, combat assessment and geographic data, directly to the small tactical
unit or individual operator, thereby increasing flexibility in mission planning and execution. Our small UAS wirelessly
transmit critical live video and other information generated by their payload of electro-optical, infrared or other sensors
directly to a hand-held ground control unit, enabling the operator to view and capture images, during the day or at night, on
the control unit. Our Quantix Recon mapping drone generates a volume of high-resolution data significantly larger than
wireless bandwidth can accommodate, requiring the onboard storage and subsequent transfer of data once the air vehicle
has landed. With the exception of Quantix Recon, our ground control systems allow the operator to control the aircraft by
programming it for GPS-based autonomous navigation using operator-designated way-points, or by manual flight
operation. The ground control systems are designed for durability and ease of use in harsh environments and incorporate a
user-friendly, intuitive user interface. All of our fixed wing small UAS currently in production for military customers
operate from our common ground control system. Our Quantix Recon system plots its own flight path and launches, flies
and lands autonomously to complete its mission. Our VAPOR helicopter UAS currently employs a distinct portable ground
control system.
We designed our small UAS to be transportable by as few as a single person, assembled in minutes and launched
and operated by one or two people, with limited training required. The efficient and reliable electric motors used in all of
our small UAS are powered by modular battery packs that can be replaced quickly, enabling rapid return to flight. We
designed all of our small UAS to be reusable for hundreds of flights under normal operating circumstances and to be
recovered through an autonomous landing feature that enables a controlled descent to a designated location.
In military applications, our small UAS provide forward aerial observation capabilities that enable tactical
commanders to observe, for example, around the next corner, to the next intersection or past a ridgeline in real-time. This
information facilitates faster, safer movement through urban, rural, riverine and mountainous environments and can enable
troops to be proactive based on field intelligence rather than reactive to attack. Moreover, by providing this information,
our systems reduce the risk to warfighters and to the surrounding population by providing the ability to tailor the military
response to the threat. U.S. military personnel regularly use our small UAS, such as Raven, for
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missions such as force protection, combat observation and damage assessment. These reusable systems are easy to
transport, assemble and operate and are relatively quiet when flying at typical altitudes of 300 to 500 feet above ground
level, as a result of our efficient electric propulsion systems. Furthermore, their small size makes them difficult to see from
the ground. In addition, the low cost of our small UAS relative to larger systems and alternatives makes it practical for
customers to deploy these assets in large quantities, directly to warfighters.
In emerging commercial applications, our small UAS enable enterprises to manage valuable assets such as crops,
powerlines and railroad infrastructure, more effectively and safely than previously possible. Our Quantix Mapper and
VAPOR helicopter systems are designed to provide more accurate and timely information to individuals or organizations
for more informed decision-making. Better and more timely information can translate into more efficient activities that
facilitate more efficient use of resources such as maintenance operations.
Our small UAS offering also includes spare equipment, alternative payload modules, batteries, chargers, repair
services and customer support. We provide training by our highly-skilled instructors, who typically possess extensive
military experience, and continuous refurbishment and repair services for our products. By maintaining close contact with
our customers and users in the field, we gather critical feedback on our products and incorporate that information into
ongoing product development and research and development efforts. This approach enables us to improve our solutions in
response to, and in anticipation of, evolving customer needs.
Certain systems within our small UAS portfolio include multiple aircraft, our common and interoperable hand-
held ground control system and an array of spare parts and accessories. Other systems, namely, Puma LE, VAPOR and
Quantix Recon, consist of a single air vehicle, as well as a ground control system, spare parts and accessories. Our current
small UAS portfolio for defense applications consists of the following aircraft:
Small Wingspan /
UAS Rotor DiameterWeight
(lbs.)
(ft.)
Product
Launch and Recovery
Standard
Sensors
Range Flight Time
(mi.)(1) (min.)(1)
Puma LE
Puma AE
Raven
Wasp AE
VAPOR
35
VAPOR
55
Quantix
Recon
15.0
9.2
4.5
3.3
23 Hand or bungee launch and autonomous/manual skid landing (ground or water)
Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared
15 Hand, bungee, or mechanical launch and vertical autonomous landing capable (ground or water)Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared
Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared
4.5 Hand launch and vertical autonomous landing capable
Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared
2.8 Hand launch and vertical autonomous landing capable (ground or water)
5.6
32.0 Vertical take-off and landing
Ability to integrate multiple third party payloads
7.5
55.0 Vertical take-off and landing
Ability to integrate multiple third party payloads
3.2
5.0 Vertical take-off and landing
Dual 18 megapixel high-resolution RGB and multispectral
12
12
6
3
5
5
12
60 -
330
150
90
50
60
60
45
(1) Represents point-to-point minimum customer-mandated specifications for all operating conditions. In optimal
conditions, the performance of our products may significantly exceed these specifications. Our digital data links
(“DDL”) relay can enable operational modes that can extend range significantly.
The ground control system serves as the primary interface between the operator and our small UAS and allows the
operator of each system, with the exception of Quantix Recon, to control the direction, speed and altitude of the aircraft as
well as the orientation of the sensors to view the visual information they produce through real-time, streaming video and
metadata. Our common ground control system interfaces with each of our fixed wing air vehicles, providing a common
user experience. In addition to the thousands of air vehicles delivered to our customers, thousands of ground control
systems are also in our customers’ hands.
Our line of miniature gimbaled sensor payloads provides small UAS operators with enhanced observation and
target tracking functionality. Our DDL is integrated into Puma LE, Puma AE, Raven and Wasp AE systems, enhancing
their capabilities, and ultimately, the utility of our small UAS by enabling more efficient radio spectrum utilization and
communications security. Small UAS incorporating our DDL are optimized for the low-power, low-latency, and
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streaming bandwidth efficiency required for UAS. Additionally, our DDL enables each air vehicle to operate as an Internet-
Protocol addressable hub capable of routing and relaying video, voice and data to and from multiple other nodes on this ad
hoc network. This capability enables beyond line-of-sight operation of our small UAS, further enhancing their value
proposition to our customers.
Tactical Missile Systems Products
Our tactical missile systems consist of tube-launched aircraft that deploy with the push of a button, fly at higher
speeds than our small UAS, and perform either effects delivery or reconnaissance missions. Switchblade, the first of our
tactical missile systems products, can be transported in its launch tube, within a backpack, and deployed within minutes to
defend against lethal threats such as snipers and mortar launchers. With a high level of precision, including a customized
warhead, patented wave-off, loiter and re-engagement capabilities, Switchblade can neutralize a target rapidly and
accurately without causing collateral damage. Furthermore, because it streams live electro-optical and thermal video to its
operator, Switchblade can be called off in the final moments prior to a strike should the situation require, potentially
eliminating damage to non-combatants. Blackwing, a variant of Switchblade, launches from a submerged submarine and
carries extra batteries instead of a warhead, providing longer flight time for reconnaissance operations.
Support Services
In support of our small UAS for defense applications we offer a suite of services that help to ensure the successful
operation of our products by our customers. These services generate incremental revenue for us and provide us with
continuous feedback to understand the performance of our systems, anticipate our customers’ needs and develop additional
customer insights. We believe that this ongoing feedback loop enables us to continue to provide our customers with
innovative solutions that help them succeed. We provide spare parts as well as repair, refurbishment and replacement
services in a manner that seeks to minimize supply chain delays and support our customers whenever and wherever
needed. Our facilities in Simi Valley, CA also serve as primary depots for repairs and spare parts.
We provide comprehensive training services to support all of our small UAS and tactical missile systems for
defense applications. Our highly-skilled instructors typically have extensive military experience. We deploy training teams
throughout the continental United States and overseas to support our customers’ training needs on both production and
development-stage systems.
Customer Funded Research and Development
We provide specialized services in support of customer-funded research and development projects, delivering new
value-added technology solutions to our customers. These types of projects typically involve developing new system
solutions and technology or new capabilities for existing solutions that we introduce as retrofits or upgrades. We recognize
the majority of customer-funded research and development projects as revenue.
Technology, Research and Development
Our primary areas of technological competence represent the sum of numerous technical skills and capabilities
that help to differentiate our approach and product offerings. The following list highlights a number of our key
technological capabilities:
● robotics and robotics systems autonomy technologies;
● sensor design, development, miniaturization and integration;
● embedded software and firmware, analytics processing, database systems, web, desktop and mobile
applications, standards-based interfaces;
● miniature, low power wireless digital communications;
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● lightweight, low speed aerostructures and aerodynamic design;
● high-altitude long-endurance systems design, integration and flight operations
● machine vision, machine learning, advanced auto flight control, auto target recognition, autonomous mission
planning and teaming
● low SWaP (Size, Weight and Power) system design and integration
● manned-unmanned teaming, unmanned-unmanned teaming;
● power electronics and electric propulsion systems;
● efficient electric power conversion, storage systems and high-density energy packaging;
● controls and systems integration;
● vertical takeoff and landing flight, fixed-wing flight and hybrid flight unmanned aircraft systems;
● image stabilization and target tracking;
● advanced flight control systems;
● fluid dynamics;
● human-machine interface development; and
● integrated mission solutions for austere environments.
Two of our UAS and tactical missile systems development initiatives are described below:
Tactical Missile System Variants. We pioneered our first rapidly deployable, high-precision
tactical missile system, named Switchblade, for use by defense ground forces. Switchblade is now
deployed by the U.S. military to provide force protection to its troops overseas in combat operations.
During numerous demonstrations over the course of several years, multiple potential customers requested
modifications to Switchblade to accommodate their specific mission requirements. We performed a
number of successful demonstrations and are now developing several variants of Switchblade for new
customers and applications, including deployment from sea and air vehicles. Blackwing, a submarine-
launched reconnaissance system, represents one of the variants. Another variant is a larger version of
Switchblade that delivers longer endurance, greater range, a larger payload and more significant mission
effects. We believe these new variants have the potential to expand our tactical missile systems
opportunities significantly.
HAPS Unmanned Aircraft Systems. Building on our decades of groundbreaking development
and demonstration of high altitude solar-powered UAS, in fiscal year 2018 we established a joint venture
with SoftBank Corp. to create a global broadband and telecommunications company to demonstrate and
deploy HAPS UAS around the world. As of April 30, 2020, AeroVironment owned a 7% share of
HAPSMobile Inc., while SoftBank Corp. owned a majority 93% share. The joint venture is funding
AeroVironment’s development and demonstration of solar-powered HAPS UAS. AeroVironment
possesses exclusive rights to manufacture and supply the solar HAPS UAS developed by the joint
venture to HAPSMobile Inc., subject to meeting contractual performance criteria. HAPSMobile Inc.
possesses exclusive rights to market the solar HAPS UAS for commercial
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markets globally, while AeroVironment possesses exclusive rights to market the solar HAPS UAS for
non-commercial markets globally, with the exception of Japan.
Sales and Marketing
Our Product Line Management organization translates customer and market requirements into multi-year product
roadmaps that guide our development, engineering and manufacturing plans. We organize our U.S. business development
team members by target market and customer, and we locate team members in close proximity to the customers they
support, where possible. We organize our program managers by product and focus on designing optimal solutions and
contract fulfillment, as well as internalizing feedback from customers and users. By maintaining assigned points of contact
with our customers, we believe that we are able to maintain our relationships, service existing contracts effectively and
gain vital feedback to improve our responsiveness and product offerings.
Manufacturing and Operations
Continued investment in infrastructure has established our manufacturing capability to meet demand with scalable
capacity. We have the manufacturing infrastructure to produce products at rates higher than our historical volumes, support
initial low rate production for new UAS development programs and tactical missile systems and execute initial low-rate
production of large UAS. By drawing upon experienced personnel across various manufacturing industries including
aerospace, automotive and volume commodities, we have instituted lean production systems and leverage our International
Organization for Standardization (“ISO”) certification for Quality Management, integrated supply chain strategy, document
control systems and process control methodologies for production. Presently, we perform small UAS manufacturing at the
85,000 square foot manufacturing facility we established in 2005. Our ISO 9001:2015 + AS9100D certified manufacturing
facilities are designed to accommodate demand of up to 1,000 aircraft per month. ISO 9001:2015 + AS9100D refers to a
set of voluntary standards for quality management systems. The 9001:2015 standards are established by the ISO to govern
quality management systems used worldwide. We are regularly audited and certified to be compliant by a third party,
accredited registrar. Accreditation of SAI Global, our third party registrar, is by the ANSI National Accreditation Board.
These audits performed as part of certification evaluate the effectiveness of companies’ quality management systems and
their compliance with ISO standards. Some companies and government agencies view ISO certification as a positive factor
in supplier assessments.
Competition
The market for defense small UAS continues to evolve in response to changing technologies, shifting customer
needs and expectations and the potential introduction of new products. We believe that a number of established domestic
and international defense contractors have developed or are developing small UAS that continue to compete, or will
compete, directly with our products. Some of these contractors have significantly greater financial and other resources than
we possess. Our current principal small UAS competitors include Elbit Systems Ltd., FLIR Systems, Inc., L3
Technologies, Inc., and Lockheed Martin Corporation. We do not view large UAS such as Northrop Grumman
Corporation’s Global Hawk, General Atomics, Inc.’s Predator and its derivatives, The Boeing Company’s ScanEagle and
Textron Inc.’s Shadow as direct competitors to our small UAS because they perform different missions, do not typically
deliver their information directly to front-line ground forces and are not hand-launched and controlled. However, we cannot
be certain that these platforms will not become direct competitors in the future. Potential competition from consumer-
focused drone manufacturers is emerging as their capabilities increase and their prices remain low relative to existing
defense solutions, which is resulting in some level of military consideration even if such drones do not meet traditional
military performance or security specifications.
The market for HAPS UAS is in an early stage of development. As a result, this category is not well defined and
is characterized by multiple potential solutions. An existing contractor that claims to provide high altitude long endurance
UAS is Northrop Grumman Corporation with its Global Hawk. Several aerospace and defense contractors have pursued
this market opportunity with proposed very long duration UAS, including The Boeing Company, Airbus, Lockheed Martin
Corporation and Northrop Grumman Corporation. Companies pursuing airships (high altitude aircraft that are kept buoyant
by a body of gas that is lighter than air) as a solution for this market include Lockheed Martin Corporation and Northrop
Grumman Corporation. Loon LLC is pursuing the deployment of lighter-than-air high-altitude
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balloons without propulsion to create networks that can provide connectivity. A number of telecommunications, aerospace
and technology companies, including AeroVironment, HAPSMobile Inc. and Loon LLC launched the HAPS Alliance to
promote the benefits of HAPS to the global population. Companies pursuing conventional satellites as a solution for this
market include The Boeing Company, Lockheed Martin Corporation, General Dynamics Corporation, EADS N.V., Ball
Corporation and Northrop Grumman Corporation. Companies pursuing Low Earth Orbit (“LEO”), micro or cubesat
satellite constellations for global communication and remote sensing include Amazon, OneWeb, SpaceX and The Boeing
Company. Companies owning and operating terrestrial cellular tower networks include American Tower Corporation,
Crown Castle International Corp. and SBA Communications Corporation.
The market for tactical missile systems is in an early stage of development, but it is evolving rapidly. Competitors
in this market include Textron Inc., Raytheon Technologies and Lockheed Martin Corporation.
The market for commercial UAS products and services is in an early stage of development, but is evolving
rapidly, generating a great deal of interest as government regulations evolve to accommodate commercial UAS operations
in the National Airspace System and in the airspace systems of other countries. Given the breadth of applications and the
diversity of industries that could benefit from UAS technology, a growing number of potential competitors in this market
include consumer drone manufacturers such as Dà-Jiāng Innovation, who seek to enhance their systems’ capabilities over
time; other small UAS manufacturers, including large aerospace companies such as Lockheed Martin Corporation, and
drone and aerial surveying and mapping service providers such as PrecisionHawk, Sentera and SlantRange; ground-based
surveying and mapping service providers; satellite imagery providers; and specialty system manufacturers, software as a
service and other service providers aiming to address specific market segments. The emerging non-military market is
attracting numerous additional competitors and significant venture capital funding given perceived lower barriers to entry
and a much more fragmented marketplace as compared to the military market. Potential additional competitors include
start-up companies providing low cost solutions.
We believe that the principal competitive factors in the markets for our UAS products and services include
product performance, features, acquisition cost, lifetime operating cost, including maintenance and support, ease of use,
integration with existing equipment and processes, quality, reliability, customer support, brand and reputation.
Regulation
Due to the fact that we contract with the DoD and other agencies of the U.S. government, we are subject to
extensive federal regulations, including the Federal Acquisition Regulations, Defense Federal Acquisitions Regulations,
Truth in Negotiations Act, Foreign Corrupt Practices Act, False Claims Act and the regulations promulgated under the
DoD Industrial Security Manual, which establishes the security guidelines for classified programs and facilities as well as
individual security clearances. The federal government audits and reviews our performance on contracts, pricing practices,
cost structure, and compliance with applicable laws, regulations and standards. Like most government contractors, our
contracts are audited and reviewed on a continual basis by federal agencies, including the Defense Contract Management
Agency (“DCMA”) and the Defense Contract Audit Agency (“DCAA”).
Certain of these regulations impose substantial penalties for violations, including suspension or debarment from
government contracting or subcontracting for a period of time. We monitor all of our contracts and contractual efforts to
minimize the possibility of any violation of these regulations.
In addition, we are subject to industry-specific regulations due to the nature of the products and services we
provide. For example, certain aspects of our business are subject to further regulation by additional U.S. government
authorities, including (i) the Federal Aviation Administration (“FAA”), which regulates airspace for all air vehicles in the
U.S. National Airspace System, (ii) the National Telecommunications and Information Administration and the Federal
Communications Commission, which regulate the wireless communications upon which our UAS depend in the United
States and (iii) the Defense Trade Controls of the U.S. Department of State that administers the International Traffic in
Arms Regulations, which regulate the export of controlled technical data, defense articles and defense services.
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On June 21, 2016 the FAA released its final rules that allow routine use of certain small UAS in the U.S. National
Airspace System. The FAA rules, which went into effect in August 2016, provide safety rules for small UAS (under 55
pounds) conducting non-recreational operations. The rules limit flights to visual-line-of-sight daylight operation, unless the
UAS has anti-collision lights in which case twilight operation is permitted. The final rule also addresses height and speed
restrictions, operator certification, optional use of a visual observer, aircraft registration and marking and operational limits,
including prohibiting flights over unprotected people on the ground who are not directly participating in the operation of
the UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operating
licenses for their drones as per the Part 107 specifications. These regulations continue to evolve to accommodate the
integration of UAS into the national airspace system for commercial applications, including HAPS UAS.
In December 2019, the FAA proposed rules requiring the remote identification of UAS. Remote identification,
which provides for a UAS in flight to provide identification that can be received by other parties, is designed to enhance
safety and security by allowing the FAA and other agencies to identify a UAS that appears to be flying unsafely or in an
area in which flight is not permitted. The public comment period for the proposed rules expired on March 2, 2020.
Additionally, in February 2020, the FAA issued a public request for comment on its proposed policy for the creation of a
new type certification of certain UAS as a special class of aircraft under FAA regulations. Currently the Part 107 Rules
allow for the operation of small UAS without the need for FAA airworthiness certification as long as the UAS meets
certain specified criteria and certain flight rules are followed; larger UAS and operations of small UAS outside the scope of
the Part 107 Rules require a waiver from the FAA. The FAA’s proposed policy proposes a new special class of UAS for
which airworthiness certification can be obtained, however, the proposed policy only applies to the procedures for the type
certification of the new class of UAS, not the criteria that will be needed for the UAS or the flight operations to be
followed to operate. Further rulemaking by the FAA is anticipated regarding the particular criteria for the airworthiness
certification standards under the new special class proposed by the new policy. The comment period for the FAA’s
proposed policy expired on March 4, 2020.
While it is currently anticipated that the enactment of remote identification and a new airworthiness certification
process for a newly created special class of UAS will help formalize the process for manufacturing and obtaining
airworthiness certification for UAS within the newly created class and accelerate the development of commercial UAS in
the U.S., it is uncertain whether the FAA’s actions, if any, will have such effects. Additionally, it is unclear when, if ever,
the FAA will implement final rules regarding remote UAS identification and whether they will differ from the proposed
rules. It is also unclear when, if at all, the FAA will create a new class of UAS and what the final rules regarding the
certification of such UAS will look like. We cannot be certain as to how our business will be affected by the FAA’s
proposals until the final rules for such matters are issued by the FAA.
Furthermore, our non-U.S. operations are subject to the laws and regulations of foreign jurisdictions, which may
include regulations that are more stringent than those imposed by the U.S. government on our U.S. operations.
Government Contracting Process
We sell the significant majority of our small UAS and tactical missile system products and services as the prime
contractor under contracts with the U.S. government. Certain important aspects of our government contracts are described
below.
Bidding Process
Most of our current government contracts were awarded through a competitive bidding process. The U.S.
government awards competitive-bid contracts based on proposal evaluation criteria established by the procuring agency.
Competitive-bid contracts are awarded after a formal bid and proposal competition among providers. Interested contractors
prepare a bid and proposal in response to the agency’s request for proposal or request for information. A bid and proposal
is usually prepared in a short time period in response to a deadline and requires the extensive involvement of numerous
technical and administrative personnel. Following award, competitive-bid contracts may be challenged by unsuccessful
bidders.
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Funding
The funding of U.S. government programs is subject to congressional appropriations. Although multi-year
contracts may be authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year
basis, even though a program may continue for many years. Consequently, programs are often only partially funded
initially, and additional funds are committed only as Congress makes further appropriations.
The U.S. military funds its contracts for our full-rate production UAS either through operational need statements
or as programs of record. Operational need statements require allocations of discretionary spending or reallocations of
funding from other government programs. Funding for our production of initial Raven system deliveries, for example, was
provided through operational need statements. We define a program of record as a program which, after undergoing
extensive DoD review and product testing, is included in the five-year government budget cycle, meaning that funding is
allocated for purchases under these contracts during the five-year cycle, absent affirmative action by the customer or
Congress to change the budgeted amount. Despite being included in the five-year budget cycle, funding for these programs
is subject to annual approval.
Material Government Contract Provisions
All contracts with the U.S. government contain provisions, and are subject to laws and regulations, that give the
government rights and remedies not typically found in commercial contracts, including rights that allow the government to:
● terminate existing contracts for convenience, in whole or in part, when it is in the interest of the government
to do so;
● terminate contracts for default upon the occurrence of certain enumerated events;
● unilaterally modify contracts with regard to certain performance requirements;
● cancel multi-year contracts and related orders, if funds for contract performance for any subsequent year
become unavailable;
● potentially obtain rights in, or ownership to, intellectual property associated with products and systems
developed or delivered by a contractor as a result of its performance of the contract;
● adjust contract costs and fees on the basis of audits completed by its agencies;
● suspend or debar a contractor from doing business with the U.S. government; and
● control or prohibit the export of certain items.
Generally, government contracts are subject to oversight audits by government representatives. Compensation, if
any, in the event of a termination for default is limited to payment for work completed at the time of termination. In the
event of a termination for convenience, the contractor may receive the contract price for completed work, as well as its
costs of performance of terminated work including an allowance for profit and reasonable termination settlement costs.
Government Contract Categories
There are three primary types of government contracts in our industry, each of which involves a different payment
methodology and level of risk related to the cost of performance. These basic types of contracts are typically referred to as
fixed-price contracts, cost reimbursable contracts, including cost-plus-fixed fee, cost-plus-award fee, and cost-plus-
incentive fee, and time-and-materials contracts.
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In some cases, depending on the urgency of the project and the complexity of the contract negotiation, we will
enter into a Letter Contract prior to finalizing the terms of a definitive fixed-price, cost reimbursable or time-and-materials
definitive contract. A Letter Contract is a written preliminary contractual instrument that provides limited initial funding
and authorizes us to begin immediately manufacturing supplies or performing services while negotiating the definitive
terms of the procurement.
Fixed-Price. These contracts are not subject to adjustment by reason of costs incurred in the
performance of the contract. With this type of contract, we assume the risk that we will not be able to
perform at a cost below the fixed-price, except for costs incurred because of contract changes ordered by
the customer. Upon the U.S. government’s termination of a fixed-price contract, generally we would be
entitled to payment for items delivered to and accepted by the U.S. government and, if the termination is
at the U.S. government’s convenience, for payment of fair compensation for work performed plus the
costs of settling and paying claims by any terminated subcontractors, other settlement expenses and a
reasonable allowance for profit on the costs incurred.
Cost Reimbursable. Cost reimbursable contracts include cost-plus-fixed fee contracts, cost-
plus-award fee contracts and cost-plus-incentive fee contracts, each of which are described below. Under
each type of contract, we assume the risk that we may not be able to recover costs if they are not
allowable under the contract terms or applicable regulations, or if the costs exceed the contract funding.
● Cost-plus-fixed fee contracts are cost reimbursable contracts that provide for payment of a
negotiated fee that is fixed at the inception of the contract. This fixed fee does not vary
with actual cost of the contract, but may be adjusted as a result of changes in the work to be
performed under the contract. This contract type poses less risk of loss than a fixed-price
contract, but our ability to win future contracts from the procuring agency may be
adversely affected if we fail to perform within the maximum cost set forth in the contract.
● A cost-plus-award fee contract is a cost reimbursable contract that provides for a fee
consisting of a base amount, which may be zero, fixed at inception of the contract and an
award amount, based upon the government’s satisfaction with the performance under the
contract. With this type of contract, we assume the risk that we may not receive the award
fee, or only a portion of it, if we do not perform satisfactorily.
● A cost-plus-incentive fee contract is a cost reimbursable contract that provides for an
initially negotiated fee to be adjusted later by a formula based on the relationship of total
allowable costs to total target costs.
We typically experience lower profit margins and lower risk under cost reimbursable contracts
than under fixed-price contracts. Upon the termination of a cost reimbursable contract, generally we
would be entitled to reimbursement of our allowable costs and, if the termination is at the U.S.
government’s convenience, a total fee proportionate to the percentage of work completed under the
contract.
Time-and-Materials. Under a time-and-materials contract, our compensation is based on a
fixed hourly rate established for specified labor or skill categories. We are paid at the established hourly
rates for the hours we expend performing the work specified in the contract. Labor costs, overhead,
general and administrative costs and profit are included in the fixed hourly rate. Materials,
subcontractors, travel and other direct costs are reimbursed at actual costs plus an amount for material
handling. We make critical pricing assumptions and decisions when developing and proposing time-and-
materials labor rates. We risk reduced profitability if our actual costs exceed the costs incorporated into
the fixed hourly labor rate. One variation of a standard time-and-materials contract is
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a time-and-materials, award fee contract. Under this type of contract, a positive or negative incentive can
be earned based on achievement against specific performance metrics.
Indefinite Delivery Indefinite Quantity Contract Form
The U.S. government frequently uses IDIQ contracts and IDIQ-type contract forms, such as cost reimbursable and
fixed price contracts with multiple one-year options, to obtain fixed-price, cost reimbursable and time-and-materials
contractual commitments to provide products or services over a period of time pursuant to established general terms and
conditions. At the time of the award of an IDIQ contract or IDIQ-type contract, the U.S. government generally commits to
purchase only a minimal amount of products or services from the contractor to whom such contract is awarded.
After award of an IDIQ contract the U.S. government may issue task or delivery orders for specific services or
products it needs. The competitive process to obtain task orders under an award contract is limited to the pre-selected
contractors. If an IDIQ contract has a single prime contractor, then the award of task orders is limited to that contractor. If
the contract has multiple prime contractors, then the award of the task order is competitively determined among only those
prime contractors.
IDIQ and IDIQ-type contracts typically have multi-year terms and unfunded ceiling amounts that enable, but do
not commit, the U.S. government to purchase substantial amounts of products and services from one or more contractors.
Item 1A. Risk Factors.
General Business Risks
We rely heavily on sales to certain customers, including the U.S. government, particularly to agencies of the Department
of Defense, and HAPSMobile, Inc.
Historically, we have derived a significant portion of our total sales and our small UAS and tactical missile
systems sales from the U.S. government and its agencies. Additionally, more recently, we have derived a significant portion
of our revenue from contracts with HAPSMobile, Inc. Sales to the U.S. government, either as a prime contractor or
subcontractor and inclusive of foreign military sales, represented approximately 61% of our revenue for the fiscal year
ended April 30, 2020. The DoD, our principal U.S. government customer, accounted for approximately 51% of our revenue
for the fiscal year ended April 30, 2020. We believe that the success and growth of our business for the foreseeable future
will continue to depend to a significant degree on our ability to win government contracts, in particular from the DoD.
Many of our government customers are subject to budgetary constraints and our continued performance under these
contracts, or award of additional contracts from these agencies, could be jeopardized by spending reductions, including
constraints on government spending imposed by the Balanced Budget Act of 2019 and its subsequent amendments, or
budget cutbacks at these agencies. The funding of U.S. government programs is uncertain and dependent on continued
congressional appropriations and administrative allotment of funds based on an annual budgeting process. We cannot
assure you that current levels of congressional funding for our products and services will continue and that our business
will not decline. Additionally, if annual budget appropriations or continuing resolutions are not enacted timely, we could
face U.S. government shutdowns, which could adversely impact our programs and contracts with the U.S. government, our
ability to receive timely payment from U.S. government entities and our ability to timely obtain export licenses for our
products to fulfill contracts with our international customers.
The U.S. military funds our contracts primarily through operational needs statements, and to a lesser extent,
through programs of record, which provides us with less visibility and certainty on future funding allocations for our
contracts. Furthermore, all of our contracts with the U.S. government are terminable by the U.S. government at will. A
significant decline in government expenditures generally, or with respect to programs for which we provide products, could
adversely affect our business and prospects. Our operating results may also be negatively impacted by other developments
that affect these government programs generally, including the following:
● changes in government programs that are related to our products and services;
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● adoption of new laws or regulations relating to government contracting or changes to existing laws or
regulations;
● changes in political or public support for security and defense programs;
● delays or changes in the government appropriations and budget process;
● uncertainties associated with the current global threat environment and other geo-political matters; and
● delays in the payment of our invoices by government payment offices.
These developments and other factors could cause governmental agencies to reduce their purchases under existing
contracts, to exercise their rights to terminate contracts at-will or to abstain from renewing contracts, any of which would
cause our revenue to decline and could otherwise harm our business, financial condition and results of operations.
In fiscal year 2020, HAPSMobile accounted for 17% of our total revenue. Our Design and Development
Agreement with HAPSMobile allows HAPSMobile to terminate the contract at its convenience for any reason. The
termination of this contract or the loss of revenues from programs with HAPSMobile, could cause our revenue to decline
and materially adversely affect our results of operations.
Military transformation and changes in overseas operational levels may affect future procurement priorities and
existing programs, which could limit demand for our UAS.
Over the last decade, operational activity in Afghanistan and Iraq led to adoption and an increase in demand for
our small UAS. More recently, the U.S. military has reduced its presence and operational activity in Afghanistan and Iraq,
reducing demand for certain of our small UAS products from prior levels. We cannot predict whether the reduction in
overseas operational levels will continue, how future procurement priorities related to defense transformation will be
impacted or how changes in the threat environment will impact opportunities for our small UAS business in terms of
existing, additional or replacement programs. If defense transformation or overseas operations cease or slow down, then
our business, financial condition and results of operations could be impacted negatively.
We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.
Our UAS are sold in new and rapidly evolving markets. The commercial UAS market is in the early stages of
customer adoption. The market for HAPS UAS is also in an early stage of development. Accordingly, our business and
future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our products
will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving
markets could impact our ability to do the following:
● generate sufficient revenue to maintain profitability;
● acquire and maintain market share;
● achieve or manage growth in our operations;
● develop and renew contracts;
● attract and retain additional engineers and other highly-qualified personnel;
● successfully develop and commercially market new products;
● adapt to new or changing policies and spending priorities of governments and government agencies; and
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● access additional capital when required and on reasonable terms.
If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of
operations and financial condition would be materially harmed.
We face competition from other firms, many of which have substantially greater resources.
The defense industry is highly competitive and generally characterized by intense competition to win contracts.
Our current principal small UAS competitors include Elbit Systems Ltd., FLIR Systems, Inc., L3 Technologies, Inc. and
Lockheed Martin Corporation. We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk,
General Atomics, Inc.’s Predator and related products, The Boeing Company’s ScanEagle and Textron Inc.’s Shadow as
direct competitors because they perform different missions, do not typically deliver their information directly to front-line
ground forces, and are not hand launched and controlled. However, we cannot be certain that these platforms will not
become direct competitors in the future. Potential competition from consumer-focused drone manufacturers is emerging as
their capabilities increase and their prices remain low relative to existing defense solutions, which is resulting in some level
of military consideration even if such drones do not meet traditional military performance or security specifications. The
HAPS UAS market is in an early stage of development and our HAPS UAS faces competition from several aerospace and
defense contractors and internet technology companies pursuing the high altitude long endurance UAS market for global
communication and remote sensing, including The Boeing Company, Airbus, Lockheed Martin Corporation and Northrop
Grumman Corporation, and competition from companies pursuing alternative solutions for this market such as Lockheed
Martin Corporation and Northrop Grumman Corporation with airships (high altitude aircraft that are kept buoyant by a
body of gas that is lighter than air) and companies pursuing conventional satellites and LEO micro or cubesat satellite
constellations. Our tactical missile systems business faces competition from competitors including Textron Inc., Raytheon
Technologies and Lockheed Martin Corporation.
Some of these firms have substantially greater financial, management, research and marketing resources than we
have. Our UAS services business also faces competition from smaller businesses that can provide training and logistics
services for multiple UAS platforms, including our small UAS.
Our competitors may be able to provide customers with different or greater capabilities or benefits than we can
provide in areas such as technical qualifications, past contract performance, geographic presence, price and the availability
of key professional personnel, including those with security clearances. Furthermore, many of our competitors may be able
to utilize their substantially greater resources and economies of scale to develop competing products and technologies,
manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away our
employees by offering more lucrative compensation packages. Small business competitors may be able to offer more cost
competitive solutions, due to their lower overhead costs, and take advantage of small business incentive and set-aside
programs for which we are ineligible. The market for small UAS and services is expanding, and competition intensifying
as additional competitors enter the market and current competitors expand their product lines. In order to secure contracts
successfully when competing with larger, well-financed companies, we may be forced to agree to contractual terms that
provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. In
addition, larger diversified competitors serving as prime contractors may be able to supply underlying products and
services from affiliated entities, which would prevent us from competing for subcontracting opportunities on these
contracts. Our failure to compete effectively with respect to any of these or other factors could have a material adverse
effect on our business, prospects, financial condition or operating results.
If the UAS, tactical missile systems, and commercial UAS markets do not experience significant growth, if we cannot
expand our customer base or if our products do not achieve broad acceptance, then we may not be able to achieve our
anticipated level of growth.
We cannot accurately predict the future growth rates or sizes of the markets for our products. Demand for our
products may not increase, or may decrease, either generally or in specific markets, for particular types of products or
during particular time periods. We believe the market for commercial UAS is nascent. Moreover, there are only a limited
number of major programs under which the U.S. military, our primary customer, is currently funding the development or
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purchase of our UAS and tactical missile systems. Although we have expanded our UAS customer base to include foreign
governments, and domestic non-military agencies, we cannot assure you that our continued efforts to further increase our
sales to these customers will be successful. The expansion of the UAS, tactical missile systems, and commercial UAS
markets in general, and the market for our products in particular, depends on a number of factors, including the following:
● customer satisfaction with these types of systems as solutions;
● the cost, performance and reliability of our products and products offered by our competitors;
● customer perceptions regarding the effectiveness and value of these types of systems;
● limitations on our ability to market our UAS and tactical missile systems products and services outside the
United States due to U.S. government regulations;
● obtaining timely regulatory approvals, including, with respect to our small UAS business, access to airspace
and wireless spectrum; and
● marketing efforts and publicity regarding these types of systems.
Even if UAS, tactical missile systems, and commercial UAS gain wide market acceptance, our products may not
adequately address market requirements and may not continue to gain market acceptance. If these types of systems
generally, or our products specifically, do not gain wide market acceptance, then we may not be able to achieve our
anticipated level of growth and our revenue and results of operations would decline.
Our international business poses potentially greater risks than our domestic business.
We derived approximately 45% of our revenue from international sales, including U.S. government foreign
military sales in which an end user is a foreign government, during the fiscal year ended April 30, 2020 compared to 52%
for the fiscal year ended April 30, 2019. We expect to continue to derive a significant portion of our revenue from
international sales. Our international revenue and operations are subject to a number of material risks, including the
following:
● the unavailability of, or difficulties in obtaining any, necessary U.S. governmental authorizations for the
export of our products to certain foreign jurisdictions;
● regulatory requirements that may adversely affect our ability to operate in foreign jurisdictions, sell certain
products or repatriate profits to the United States;
● the complexity and necessity of using foreign representatives and consultants;
● the complexities of operating a business in an international location through a subsidiary or joint venture
structure that may include foreign business partners, subcontractors and suppliers;
● the complexity of shipping our products internationally through multiple jurisdictions with varying legal
requirements;
● difficulties in enforcing agreements and collecting receivables through foreign legal systems and other
relevant legal issues, including fewer legal protections for intellectual property;
● potential fluctuations in foreign economies and in the value of foreign currencies and interest rates;
● potential preferences by prospective customers to purchase from local (non-U.S.) sources;
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● general economic and political conditions in the markets in which we operate;
● laws or regulations relating to non-U.S. military contracts that favor purchases from non-U.S. manufacturers
over U.S. manufacturers;
● the imposition of tariffs, embargoes, export controls and other trade restrictions; and
● different and changing legal and regulatory requirements, including those pertaining to anti-corruption, anti-
boycott, data protection and privacy, employment law, intellectual property and contracts in the jurisdictions
in which we currently operate or may operate in the future.
Negative developments in any of these areas in one or more countries could result in a reduction in demand for
our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting
receivables and a higher cost of doing business, any of which could negatively impact our business, financial condition or
results of operations. While we have adopted policies and procedures to facilitate compliance with laws and regulations
applicable to our international sales, our failure, or the failure by our employees or others working on our behalf, to comply
with such laws and regulations may result in administrative, civil or criminal liabilities, including fines, suspension or
debarment from government contracts or suspension of our export privileges. Moreover, our sales, including sales to
customers outside the United States, substantially all are denominated in U.S. dollars, and downward fluctuations in the
value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which
could harm our business.
We could be prohibited from shipping our products to certain countries if we are unable to obtain U.S. government
authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our
business. In addition, failure to comply with export laws could result in fines, export restrictions and other sanctions
and penalties.
We must comply with U.S. and other laws regulating the export of our products. In some cases, explicit
authorization from the relevant U.S. government authorities is needed to export our products. The export regulations and
the governing policies applicable to our business are subject to change. We cannot provide assurance that such export
authorizations will be available for our products in the future. Compliance with these laws has not significantly limited our
operations or our sales in the recent past, but could significantly limit them in the future. We maintain an export
compliance program but there are risks that our compliance controls may be ineffective. In November 2019, we entered
into a consent agreement (the “Consent Agreement”) with the U.S. Department of State’s Directorate of Defense Trade
Controls Office of Defense Trade Controls Compliance to resolve various alleged violations of the Armed Export Control
Act and the International Traffic in Arms Regulations (“ITAR”) that occurred between June 2014 and December 2016. The
Consent Agreement has a two-year term and provides for, among other things: (i) a civil penalty of $1,000,000 payable in
installments, $500,000 of which is suspended on the condition that such amount is used for future remedial compliance
costs over the term of the Consent Agreement and/or credited against prior compliance enhancement costs already
expended by us; (ii) the appointment of an external Special Compliance Officer for a minimum of one year to oversee our
compliance with the Consent Agreement and ITAR; and (iii) one external audit of our compliance with the Consent
Agreement and ITAR. We expect that the $500,000 suspension amount will be satisfied by our past and future compliance
program remediation efforts. Our failure to comply with the terms of the Consent Agreement or export laws and
regulations in general can subject us to additional fines, penalties and sanctions, including suspension of export privileges,
which could have a material adverse impact on our business, operations and financial condition and limit or prevent us
from being able to sell our products in certain international jurisdictions.
If we are unable to manage the increasing complexity of our business or achieve or manage our expected growth, our
business could be adversely affected.
The complexity of our business has increased significantly over the last several years. We have expanded the
number of product lines being pursued, shifting from primarily a U.S. government focused business to a business that
includes substantial international product sales and added commercial services and formed a joint venture with SoftBank
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Corp. to develop HAPS UAS. We also acquired Pulse Aerospace, LLC, a Kansas-based developer of UAS capable of
vertical take-off and landing (VTOL), in June 2019. These have increased complexity and our expected growth has placed,
and will continue to place, a strain on our management and our administrative, operational and financial infrastructure. We
anticipate further growth of headcount and facilities will be required to address expansion in our product offerings and the
geographic scope of our customer base. However, if we are unsuccessful in our efforts, our business could decline. Our
success will depend in part upon the ability of our senior management to manage our increased complexity and expected
growth effectively. To do so, we must continue to hire, train, manage and integrate a significant number of qualified
managers and engineers. If our new employees perform poorly, or if we are unsuccessful in hiring, training, managing and
integrating these new employees, or retaining these or our existing employees, then our business may experience declines.
To support our expected growth, we must continue to improve our operational, financial and management
information systems. If we are unable to manage our growth while maintaining our quality of service, or if new systems
that we implement to assist in managing our growth do not produce the expected benefits, then our business, prospects,
financial condition or operating results could be adversely affected.
Any efforts to expand our offerings beyond our current markets may not succeed, which could negatively impact our
operating results.
Until recently, we have focused on selling our small UAS to the U.S. military. We have, however, expanded our
small UAS sales into other government and commercial markets, including the launch of VAPOR helicopter unmanned
aircraft system, and formed a joint venture with SoftBank Corp. to develop HAPS UAS for global communication and
remote sensing applications. Our efforts to expand our product offerings beyond our traditional markets may divert
management resources from existing operations and require us to commit significant financial resources to unproven
businesses that may not generate additional sales, either of which could significantly impair our operating results.
The markets in which we compete are characterized by rapid technological change, which requires us to develop new
products and product enhancements, and could render our existing products obsolete.
Continuing technological changes in the market for our products could make our products less competitive or
obsolete, either generally or for particular applications. Our future success will depend upon our ability to develop and
introduce a variety of new capabilities and enhancements to our existing product offerings, as well as introduce a variety of
new product offerings, to address the changing needs of the markets in which we offer our products. Delays in introducing
new products and enhancements, the failure to choose correctly among technical alternatives or the failure to offer
innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our
competitors’ products.
If we are unable to devote adequate resources to develop new products or cannot otherwise successfully develop
new products or enhancements that meet customer requirements on a timely basis, our products could lose market share,
our revenue and profits could decline, and we could experience operating losses.
We expect to incur substantial research and development costs and devote significant resources to identifying and
commercializing new products and services, which could significantly reduce our profitability and may never result in
revenue to us.
Our future growth depends on penetrating new markets, adapting existing products to new applications, and
introducing new products and services that achieve market acceptance. We plan to incur substantial research and
development costs as part of our efforts to design, develop and commercialize new products and services and enhance
existing products. We spent $46.5 million, or 13% of our revenue, in our fiscal year ended April 30, 2020 on internal
research and development activities. We believe that there are significant investment opportunities in a number of business
areas. Because we account for internal research and development as an operating expense, these expenditures will
adversely affect our earnings in the future. Further, our research and development programs may not produce
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successful results, and our new products and services may not achieve market acceptance, create additional revenue or
become profitable, which could materially harm our business, prospects, financial results and liquidity.
Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on
the use of small UAS in response to public privacy concerns, may prevent us from expanding the sales of our small UAS
to non-military customers in the United States.
The regulation of small UAS for commercial use in the United States is undergoing substantial change and the
ultimate treatment is uncertain. In 2006, the FAA issued a clarification of its existing policies stating that, in order to
engage in commercial use of small UAS in the U.S. National Airspace System, a public operator must obtain a COA from
the FAA, or fly in restricted airspace. The FAA’s COA approval process requires that the public operator certify the
airworthiness of the aircraft for its intended purpose, that a collision with another aircraft or other airspace user is
extremely improbable, that the small unmanned aircraft system complies with appropriate cloud and terrain clearances and
that the operator or spotter of the small unmanned aircraft system is generally within one half-mile laterally and 400 feet
vertically of the small unmanned aircraft system while in operation. Furthermore, the FAA’s clarification of existing policy
stated that the rules for radio-controlled hobby aircraft do not apply to public or commercial use of small UAS.
On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various
deadlines for the FAA to allow expanded use of small UAS for both public and commercial applications. On June 21, 2016,
the FAA released its final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National
Airspace System pursuant to the act (the “Part 107 Rules”). The Part 107 Rules, which became effective in August 2016,
provided safety regulations for small UAS conducting non-recreational operations and contain various limitations and
restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and
prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS.
Additionally, in December 2019 and January 2020, the FAA proposed rules regarding remote UAS identification and a new
policy regarding the airworthiness certification of a newly created special class of UAS. It is unclear when, if ever, the
FAA will implement any final rules regarding remote UAS identification and whether such final rules will differ from the
proposed rules or when, if ever, the FAA will create a new class of UAS and what the final rules regarding the certification
of such new class of UAS will state. We cannot assure you that the Part 107 Rules, or any final rules enacted in furtherance
on the FAA’s recently announced proposals, will result in the expanded use of our small UAS by law enforcement or other
non-military government agencies or commercial entities and we may not be able to expand our sales of small UAS
beyond our military customers, which could harm our business prospects.
In addition, there exists public concern regarding the privacy implications of U.S. commercial and law
enforcement use of small UAS. This concern has included calls to develop explicit written policies and procedures
establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy
advocates to these concerns will not delay or restrict the adoption of small UAS by non-military customers.
Our products and services are complex and could have unknown defects or errors, which may give rise to claims against
us, diminish our brand or divert our resources from other purposes.
Our UAS rely on complex avionics, sensors, user-friendly interfaces and tightly-integrated, electromechanical
designs to accomplish their missions. Despite testing, our products have contained defects and errors and may in the future
contain defects, errors or performance problems when first introduced, when new versions or enhancements are released,
or even after these products have been used by our customers for a period of time. These problems could result in
expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or
enhancements, significant increases in our service and maintenance costs, exposure to liability for damages, damaged
customer relationships and harm to our reputation, any of which could materially harm our results of operations and ability
to achieve market acceptance. In addition, increased development and warranty costs could be substantial and could reduce
our operating margins.
The existence of any defects, errors, or failures in our products or the misuse of our products could also lead to
product liability claims or lawsuits against us. A defect, error or failure in one of our UAS could result in injury, death or
property damage and significantly damage our reputation and support for our UAS in general. We anticipate this risk
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will grow as our UAS begin to be used in U.S. domestic airspace and urban areas. We also remain liable for warranty and
product liability claims for our EV charging systems and power cycling and test systems sold by us prior to our sale of our
efficient energy systems business segment (our “EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) in June
2018 as contemplated by the purchase and sale agreement between the parties, which products have the potential to cause
injury, death or property damage in the event that they are misused, malfunction or fail to operate properly due to unknown
defects or errors.
Although we maintain insurance policies, we cannot provide assurance that this insurance will be adequate to
protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will
be available in the future at economical prices or at all. A successful product liability claim could result in substantial cost
to us. Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert
management’s attention and resources, which could have a negative impact on our business, financial condition and results
of operations.
If critical components or raw materials used to manufacture our products or used in our development programs become
scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our
development programs, which could damage our business.
We obtain hardware components, various subsystems and systems from a limited group of suppliers, some of
which are sole source suppliers. We do not have long-term agreements with any of these suppliers that obligate them to
continue to sell components, subsystems, systems or products to us. Our reliance on these suppliers involves significant
risks and uncertainties, including whether our suppliers will provide an adequate supply of required components,
subsystems, or systems of sufficient quality, will increase prices for the components, subsystems or systems and will
perform their obligations on a timely basis.
In addition, certain raw materials and components used in the manufacture of our products and in our
development programs are periodically subject to supply shortages, and our business is subject to the risk of price increases
and periodic delays in delivery. Particularly, the market for electronic components is experiencing increased demand,
creating substantial uncertainty regarding our suppliers’ continued production of key components for our products. If we
are unable to obtain components from third party suppliers in the quantities and of the quality that we require, on a timely
basis and at acceptable prices, then we may not be able to timely complete development programs or deliver our products
on a timely or cost effective basis to our customers, which could cause customers to terminate their contracts with us,
increase our costs and seriously harm our business, results of operations and financial condition. Moreover, if any of our
suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials or components,
then we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to
redesign our products to accommodate components from different suppliers. We may experience significant delays in
manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to
establish alternative sources of supply if we lose any of these sources or are required to redesign our products. We cannot
predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if
at all. In particular, governmental measures responsive to the global COVID-19 pandemic have disrupted manufacturing
and some supply chains, including our supply chain, which has had, and is expected to continue to have, a significant
impact, both direct and indirect, on businesses and commerce worldwide. Although we have not yet seen significant delays
from our suppliers and we keep stock of all our raw materials and other product components with long lead times to assist
in the event that our supply chain is disrupted, if the COVID-19 outbreak continues and results in a prolonged period of
commercial and/or governmental restrictions, this may impact our ability to obtain certain raw materials and certain
components used in the manufacture of our products and in our development programs.
Our earnings and profit margins may decrease based on the mix of our contracts and programs and other factors
related to our contracts.
In general, we perform our production work under fixed-price contracts and our repair and customer-funded
research and development work under cost-plus-fee contracts. Under fixed-price contracts, we perform services under a
contract at a stipulated price. Under cost-plus-fee contracts, which are subject to a contract ceiling amount, we are
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reimbursed for allowable costs and paid a fee, which may be fixed or performance based. We typically experience lower
profit margins under cost-plus-fee contracts than under fixed-price contracts, though fixed-price contracts involve higher
risks. In general, if the volume of services we perform under cost-plus-fee contracts increases relative to the volume of
services we perform under fixed-price contracts, we expect that our operating margin will decline. In addition, our earnings
and margins may decrease depending on the costs we incur in contract performance, our achievement of other contract
performance objectives and the stage of our performance at which our right to receive fees, particularly under incentive and
award fee contracts, is finally determined.
We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our
future financial results.
Contract accounting requires judgments relative to assessing risks, including risks associated with estimating
contract transaction prices and costs, assumptions for schedule and technical issues, customer-directed delays and
reductions in scheduled deliveries, and unfavorable resolutions of claims and contractual matters. Due to the size and
nature of many of our contracts, the estimation of total costs at completion is complicated and subject to many variables.
For example, we must make assumptions regarding the length of time to complete the contract because costs also include
expected increases in wages and prices for materials; and consider incentives or penalties related to performance on
contracts and include them in the variable consideration to the extent that it is probable that a significant reversal in the
amount of cumulative revenue recognized will not occur when the related uncertainty is resolved. Because of the
significance of the judgments and estimation processes described above, it is likely that materially different amounts could
be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying
assumptions, circumstances or estimates may adversely affect our future results of operations and financial condition.
Cost overruns on our contracts could subject us to losses, decrease our operating margins and adversely affect our
future business.
Fixed-price contracts (including both government and commercial contracts) represented approximately 73% of
our revenue for the fiscal year ended April 30, 2020. If we fail to anticipate technical problems, estimate costs accurately or
control costs during our performance of fixed-price contracts, then we may incur losses on these contracts because we
absorb any costs in excess of the fixed price. Under cost-plus-fee contracts, if costs exceed the contract ceiling or are not
allowable under the provisions of the contract or applicable regulations, then we may not be able to obtain reimbursement
for all such costs. Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain
expenses. Because many of our contracts involve advanced designs and innovative technologies, we may experience
unforeseen technological difficulties and cost overruns. Under each type of contract, if we are unable to control the costs
we incur in performing under the contract, then our financial condition and results of operations could be materially
adversely affected. Cost overruns also may adversely affect our ability to sustain existing programs and obtain future
contract awards.
Our senior management and key employees are important to our customer relationships and overall business.
We believe that our success depends in part on the continued contributions of our senior management and key
employees. We rely on our executive officers, senior management and key employees to generate business and execute
programs successfully. In addition, the relationships and reputation that members of our management team and key
employees have established and maintain with government defense personnel contribute to our ability to maintain good
customer relations and to identify new business opportunities. We do not have employment agreements with any of our
executive officers or key employees, and these individuals could terminate their employment with us at any time. The loss
of any of our executive officers, members of our senior management team or key employees could significantly delay or
prevent the achievement of our business objectives and could materially harm our business and customer relationships and
impair our ability to identify and secure new contracts and otherwise manage our business.
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We must recruit and retain highly-skilled employees to succeed in our competitive business.
We depend on our ability to recruit and retain employees who have advanced engineering and technical services
skills and who work well with our customers. These employees are in great demand and are likely to remain a limited
resource in the foreseeable future. If we are unable to recruit and retain a sufficient number of these employees, then our
ability to maintain our competitiveness and grow our business could be negatively affected. In addition, because of the
highly technical nature of our products, the loss of any significant number of our existing engineering personnel could have
a material adverse effect on our business and operating results. Moreover, some of our U.S. government contracts contain
provisions requiring us to staff a program with certain personnel the customer considers key to our successful performance
under the contract. In the event we are unable to provide these key personnel or acceptable substitutes, the customer may
terminate the contract.
Our business may be dependent upon our employees obtaining and maintaining required security clearances, as well as
our ability to obtain security clearances for the facilities in which we perform sensitive government work.
Certain of our U.S. government contracts require our employees to maintain various levels of security clearances,
and we are required to maintain certain facility security clearances complying with DoD requirements. The DoD has strict
security clearance requirements for personnel who work on classified programs. Obtaining and maintaining security
clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already
hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our
employees who hold security clearances are unable to maintain the clearances or terminate employment with us, then a
customer requiring classified work could terminate the contract or decide not to renew it upon its expiration. In addition,
we expect that many of the contracts on which we will bid will require us to demonstrate our ability to obtain facility
security clearances and employ personnel with specified types of security clearances. To the extent we are not able to
obtain facility security clearances or engage employees with the required security clearances for a particular contract, we
may not be able to bid on or win new contracts, or effectively rebid on expiring contracts.
Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from
increasing manufacturing quantities of our products. Failing to achieve such reductions in manufacturing costs and
projected economies of scale could materially adversely affect our business.
We have limited experience manufacturing small UAS and tactical missile systems in high volume. We do not
know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes that will
enable us to manufacture (or contract for the manufacture of) these products in commercial quantities while meeting the
volume, speed, quality, price, engineering, design and production standards required to successfully market our products.
Our failure to develop such manufacturing processes and capabilities in locations that can efficiently service our markets
could have a material adverse effect on our business, financial condition, results of operations and prospects. Our future
profitability is, in part, dependent upon achieving increased savings from volume purchases of raw materials and
component parts, achieving acceptable manufacturing yield and capitalizing on machinery efficiencies. We expect our
suppliers to experience a sharp increase in demand for their products. As a result, we may not have reliable access to
supplies that we require or be able to purchase such materials or components at cost effective prices. There is no assurance
that we will ever be in a position to realize any material, labor and machinery cost reductions associated with higher
purchasing power and higher production levels. Failure to achieve these cost reductions could adversely impact our
business and financial results.
We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels
may result in product recalls or supply imbalances that could harm our business.
We maintain a variety of parts and components in inventory to allow us to customize our UAS products for
specific customer requirements, which parts are subject to obsolescence and expiration. Due to the long-lead time for
obtaining certain UAS product components and the manufacturing cycles, we need to make forecasts of demand and
commit significant resources towards manufacturing our products. As such, we are subject to significant risks in managing
the inventory needs of our business during the year, including estimating the appropriate demand for our products. Should
orders and market conditions differ significantly from our estimates, our future results of operations
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could be materially adversely affected. In the future, we may be required to record write-downs of finished products and
materials on-hand and/or additional charges for excess purchase commitments as a result of future changes in our sales
forecasts or customer orders.
Due to the volatile and flammable nature of certain components of our products and equipment, fires or explosions may
disrupt our business or cause significant injuries, which could adversely affect our financial results.
The development and manufacture of certain of our products involves the handling of a variety of explosive and
flammable materials as well as high power equipment. From time to time, these activities may result in incidents that could
cause us to temporarily shut down or otherwise disrupt some manufacturing processes, causing production delays and
resulting in liability for workplace injuries and/or fatalities. We have safety and loss prevention programs that require
detailed reviews of process changes and new operations, along with routine safety audits of operations involving explosive
materials, to mitigate such incidents, as well as a variety of insurance policies, however our insurance coverage may be
inadequate to cover all claims and losses related to such incidents. We may experience such incidents in the future, which
could result in production delays or otherwise have a material adverse effect on our business and financial condition.
The operation of UAS in urban environments may be subject to risks, such as accidental collisions and transmission
interference, which may limit demand for our UAS in such environments and harm our business and operating results.
Urban environments may present certain challenges to the operators of UAS. UAS may accidentally collide with
other aircraft, persons or property, which could result in injury, death or property damage and significantly damage the
reputation of and support for UAS in general. As the usage of UAS has increased, particularly by military customers, the
danger of such collisions has increased. Furthermore, the incorporation of our DDL technology into our small UAS has
increased the number of vehicles which can operate simultaneously in a given area and with this increase has come an
increase in the risk of accidental collision. In addition, obstructions to effective transmissions in urban environments, such
as large buildings, may limit the ability of the operator to utilize the aircraft for its intended purpose. The risks or
limitations of operating UAS in urban environments may limit their value in such environments, which may limit demand
for our UAS and consequently materially harm our business and operating results.
As a manufacturer of commercial UAS, we are subject to various government regulations and may be subject to
additional regulations in the future, violation of which could subject us to sanctions or otherwise harm our business.
As a manufacturer of consumer products, we are subject to significant government regulations, including, in the
United States, those issued under the Consumer Products Safety Act, as well as those issued under product safety and
consumer protection statutes in our international markets. Failure to comply with any applicable product safety or
consumer protection regulation could result in sanctions that could have a negative impact on our business, financial
condition and results of operations.
Governments and regulatory agencies in the markets where we manufacture and sell products may enact
additional regulations relating to product safety and consumer protection in the future, and may also increase the penalties
for failure to comply with product safety and consumer protection regulations. In addition, one or more of our customers
might require changes in our products, such as the non-use of certain materials, in the future. Complying with any such
additional regulations or requirements could impose increased costs on our business. Similarly, increased penalties for non-
compliance could subject us to greater expenses in the event any of our products were found to not comply with such
regulations. Such increased costs or penalties could harm our business.
We could be the subject of future product liability suits or product recalls, which could harm our business.
We may be subject to involuntary product recalls or may voluntarily conduct a product recall. The costs associated
with any future product recalls could be significant. In addition, any product recall, regardless of direct costs of the recall,
may harm consumer perceptions of our products and have a negative impact on our future revenues and results of
operations. Subject to a determination of the appropriateness of any recall, we remain responsible for the non-
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warranty costs from the recall of completed products we manufactured, sold or serviced prior to closing of the sale of
substantially all of the assets and related liabilities of our EES Business to Webasto, pursuant to an Asset Purchase
Agreement (the “Purchase Agreement”). In particular, on August 24, 2018, Webasto filed a recall report with the National
Highway Traffic Safety Administration (“NHTSA”) that named us as a brand of the affected equipment. To the extent we
are obligated under the terms of the Purchase Agreement with Webasto or as a result of the lawsuit filed by Webasto
against us seeking costs related to the recall or pursuant to applicable law for all or any portion of the costs incurred in
connection with such recall, or any other such recall, our results of operations may be negatively affected.
In addition to government regulation, products that have been or may be developed by us may expose us to
potential liability from personal injury or property damage claims by the users of such products. There can be no assurance
that a claim will not be brought against us in the future, regardless of merit. While we maintain insurance coverage for
product liability claims, our insurance may be inadequate to cover any such claims. Any successful claim could
significantly harm our business, financial condition and results of operations.
We are subject to pending legal proceedings that may disrupt our business, cause us to incur substantial costs, expose us
to significant legal liabilities and could have a material adverse impact on our financial performance.
We are subject to various legal proceedings and claims, including a lawsuit filed by Webasto alleging several
claims against us arising out of or related to our sale of our EES Business to Webasto in June 2018 and the NHTSA recall.
Additional lawsuits may arise in the future. Occasionally we are also involved in governmental inquiries and
investigations and administrative and regulatory proceedings. Our activities relating to defending and responding to any
such proceedings may result in substantial legal expenses, may disrupt our sales and marketing or other business activities,
including our relationships with our customers, suppliers, employees and other third parties, and divert management’s and
our employees’ attention from our day-to-day operations, which may have an adverse impact on our financial performance.
The results of any such proceedings are unpredictable. We record accruals for liabilities where we believe a loss is
probable and reasonably estimable, however, our actual losses may differ significantly from our estimates. An adverse or
unfavorable resolution of any proceedings against us could have a material impact on our financial position, cash flows and
results of operations.
Our quarterly operating results may vary widely.
Our quarterly revenue, cash flow and operating results have and may continue to fluctuate significantly in the
future due to a number of factors, including the following:
● fluctuations in revenue derived from government contracts, including cost-plus-fee contracts and contracts
with a performance-based fee structure;
● the size and timing of orders from military and other governmental agencies, including increased purchase
requests from government customers for equipment and materials in connection with the U.S. government’s
fiscal year end, which may affect our quarterly operating results;
● the mix of products that we sell in the period;
● fluctuations in customer demand for some of our products or services;
● unanticipated costs incurred in the introduction of new products;
● fluctuations in the adoption of our products in new markets;
● our ability to win additional contracts from existing customers or other contracts from new customers;
● cancellations, delays or contract amendments by our U.S. governmental agency and foreign government
customers;
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● changes in policy or budgetary measures that adversely affect our U.S. governmental agency and foreign
government customers;
● the cost of complying with various regulatory requirements applicable to our business and the potential
penalties or sanctions that could be imposed for non-compliance; and
● our ability to obtain the necessary export licenses for sales of our products and services to international
customers.
Changes in the volume of products and services provided under existing contracts and the number of contracts
commenced, completed or terminated during any quarter may cause significant variations in our cash flow from operations
because a relatively large amount of our expenses are fixed. We incur significant operating expenses during the start-up and
early stages of large contracts and typically do not receive corresponding payments in that same quarter. We may also incur
significant or unanticipated expenses when contracts expire or are terminated or are not renewed. In addition, payments
due to us from government agencies may be delayed due to billing cycles or as a result of failures of governmental budgets
to gain congressional and presidential approval in a timely manner.
Shortfalls in available external research and development funding could adversely affect us.
We depend on our research and development activities to develop the core technologies used in our UAS products
and for the development of our future products. A portion of our research and development activities depends on funding
by commercial companies and the U.S. government. U.S. government and commercial spending levels can be impacted by
a number of variables, including general economic conditions, specific companies’ financial performance and competition
for U.S. government funding with other U.S. government-sponsored programs in the budget formulation and appropriation
processes. To the extent that these external sources of funding are reduced or eliminated, company funding for research and
development could be reduced. Any reductions in available research and development funding could harm our business,
financial condition and operating results.
Our work for the U.S. government and international governments may expose us to security risks.
As a U.S. government contractor, we face various security threats, including cyber security attacks on our
information technology infrastructure, attempts to gain access to our proprietary, financial, banking or classified
information as well as threats to the physical security of our facilities and employees. Although we utilize various
procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls
will be sufficient to prevent disruptions, the unauthorized release of confidential technical, financial or banking information
or corruption of data. Accordingly, any significant operational delays, or any destruction, manipulation or improper use of
our data, information systems or networks could adversely affect our financial results and damage the reputation for our
products and services. The occurrence of some of these risks may be increased due to the increase in remote working by
our employees, suppliers, contractors and other third parties due to the COVID-19 pandemic. Due to the ever developing
nature of such risks, the impact of any potential incident cannot be predicted. Previous cyber-attacks directed at us have not
materially impacted our business or financial results, but the impact of future incidents cannot be predicted due to the
evolving nature and complexity of cyber-attacks. If we or our partners are subject to data security breaches, we may have a
loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of
which could materially and adversely affect our business and financial results. Additionally, expenses resulting from cyber
security attacks and other security risks may not be fully insured or otherwise mitigated, which could harm our financial
results.
In addition, we work in international locations where there are high security risks, which could result in harm to
our employees and contractors or substantial costs. Some of our services are performed in or adjacent to high-risk
locations, such as Iraq and Afghanistan, where the country or location is experiencing political, social or economic issues,
or war or civil unrest. In those locations where we have employees or operations, we may incur substantial costs to
maintain the safety of our personnel. Despite these precautions, the safety of our personnel in these locations may continue
to be at risk, and we may in the future be negatively impacted by the loss of employees and contractors, which could harm
our business and operating results.
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We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
We operate in emerging and rapidly evolving markets, which makes our prospects difficult to evaluate. It is
possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our
future capital needs. If this occurs, then we may need additional financing to pursue our business strategies, including to:
● hire additional engineers and other personnel;
● develop new or enhance existing products;
● enhance our operating infrastructure;
● fund working capital requirements;
● acquire complementary businesses or technologies; or
● otherwise respond to competitive pressures.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on
terms favorable to us, or at all. Our former line of credit contained, and future debt financing may contain, covenants or
other provisions that limit our operational or financial flexibility. In addition, certain of our customers require that we
obtain letters of credit to support our obligations under some of our contracts.
Our cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our portfolio
investments and in interest rates.
Our assets include a significant amount of cash and investments. We adhere to an investment policy set by our
Board of Directors which aims to preserve our financial assets, maintain adequate liquidity and maximize returns. We
believe that our cash is held in institutions whose credit risk is minimal and that the value and liquidity of our deposits are
accurately reflected in our consolidated financial statements as of April 30, 2020. We currently invest the majority of our
cash in U.S. government securities, U.S. government agency securities, municipal bonds and high-grade corporate bonds,
the performance of which are subject to additional market risks related to their respective issuers. Nearly all of our cash
and bank deposits are not insured by the Federal Deposit Insurance Corporation. Therefore, our cash and any bank deposits
that we now hold or may acquire in the future may be subject to risks, including the risk of loss or of reduced value or
liquidity. In the future, should we determine that there is a decline in value of any of our portfolio securities which is not
temporary in nature, this would result in a loss being recognized in our consolidated statements of income.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition
and stock price.
Global credit and financial markets have experienced extreme disruptions in recent years, including severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in
unemployment rates and uncertainty about economic stability. There can be no assurance that renewed deterioration in
credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be
adversely affected by any economic downturn, volatile business environment or continued unpredictable and unstable
market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt
or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely
manner and on favorable terms could have a material adverse effect on our growth strategy, financial
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performance and stock price and could require us to delay or abandon implementing business initiatives. These events and
the continuing market upheavals could adversely affect our business in a number of ways, including:
Potential Deferment of Purchases and Orders by Customers: Uncertainty about current and future global
economic conditions may cause governments, including the U.S. government, which is our largest customer, consumers
and businesses to modify, defer or cancel purchases in response to tighter credit, decreased cash availability and declining
consumer confidence. Accordingly, future demand for our products could differ materially from our current expectations.
Additionally, if customers are not successful in generating sufficient revenue or are precluded from securing financing,
they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. Any inability of current
and/or potential customers to pay us for our products may adversely affect our earnings and cash flow.
Negative Impact from Increased Financial Pressures on Key Suppliers: Our ability to meet customers’ demands
depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our
suppliers. Certain of our hardware components and various subsystems are available only from a limited group of
suppliers. If certain key suppliers were to become capacity constrained or insolvent as a result of a market downturn, then
we may have to find new suppliers. We may experience significant delays in manufacturing and shipping our products to
customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we
lose any of these sources or are required to redesign our products. We cannot predict if we will be able to obtain
replacement components within the time frames that we require at an affordable cost, if at all. In addition, credit constraints
of key suppliers could result in accelerated payment of accounts payable by us, impacting our cash flow.
Customers’ Inability to Obtain Financing to Make Purchases from Us and/or Maintain Their Business: Some of
our customers may require substantial financing in order to fund their operations and make purchases from us. The
inability of these customers to obtain sufficient credit to finance purchases of our products, or otherwise meet their
payment obligations to us could adversely impact our financial condition and results of operations. In addition, if a market
downturn results in insolvencies for our customers, it could adversely impact our financial condition and results of
operations.
Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder
value and impair our financial results.
In June 2019, we consummated the acquisition of Pulse Aerospace, LLC, a Kansas based developer of VTOL
UAS. We intend to consider additional acquisitions that could add to our customer base, technological capabilities or
system offerings. Acquisitions, including the acquisition of Pulse Aerospace, involve numerous risks, any of which could
harm our business, including the following:
● difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel
of the target company and realizing the anticipated synergies of the combined businesses;
● difficulties in supporting and transitioning customers, if any, of the target company;
● diversion of financial and management resources from existing operations;
● the price we pay or other resources that we devote may exceed the value we realize, or the value we could
have realized if we had allocated the purchase price or other resources to another opportunity;
● risks of entering new markets in which we have limited or no experience;
● potential loss of key employees, customers and strategic alliances from either our current business or the
target company’s business;
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● assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target
company’s products or its regulatory compliance; and
● inability to generate sufficient revenue to offset acquisition costs.
Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to
potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuing
equity, or securities convertible into equity, then our existing stockholders may be diluted, which could lower the market
price of our common stock. If we finance acquisitions through debt, then such future debt financing may contain covenants
or other provisions that limit our operational or financial flexibility.
If we fail to properly evaluate acquisitions or investments, then we may not achieve the anticipated benefits of any
such acquisitions, and we may incur costs in excess of what we anticipate. The failure to successfully evaluate and execute
acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial
results.
Environmental laws and regulations and unforeseen costs could impact our future earnings.
The manufacture and sale of our products in certain states and countries may subject us to environmental and
other regulations. For example, we obtain a significant number of our electronics components from companies located in
East Asia, where environmental rules may be less stringent than in the United States. Over time, the countries where these
companies are located may adopt more stringent environmental regulations, resulting in an increase in our manufacturing
costs. Given the increasing focus on environmental compliance by regulators and the general public, any incidence of non-
compliance could result in damage to our reputation beyond the fines and other sanctions that could be imposed.
Furthermore, certain environmental laws, including the U.S. Comprehensive, Environmental Response, Compensation and
Liability Act of 1980, impose strict, joint and several liability on current and previous owners or operators of real property
for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources. These
laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such
hazardous substances. These environmental laws also assess liability on persons who arrange for hazardous substances to
be sent to disposal or treatment facilities when such facilities are later found to be contaminated. Such persons can be
responsible for cleanup costs even if they never owned or operated the contaminated facility. Although we have never been
named a responsible party at a contaminated site, we could be named a potentially responsible party in the future. We
cannot assure you that such existing laws or future laws will not have a material adverse effect on our future earnings or
results of operations.
Our business is subject to federal, state and international laws regarding data protection, privacy, and information
security, as well as confidentiality obligations under various agreements, and our actual or perceived failure to comply
with such obligations could damage our reputation, expose us to litigation risk and adversely affect our business and
operating results.
In connection with our business, we receive, collect, process and retain certain sensitive and confidential customer
information. As a result, we are subject to increasingly rigorous federal, state and international laws regarding privacy and
data protection. Personal privacy, data protection and information security are significant issues in the United States and the
other jurisdictions where we offer our products and services. The regulatory framework for privacy and security issues
worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Our handling of data is subject to
a variety of laws and regulations, including regulation by various government agencies, including the United States Federal
Trade Commission (“FTC”) and various state, local and foreign bodies and agencies. We also execute confidentiality
agreements with various parties under which we are required to protect their confidential information.
The United States federal and various state and foreign governments have adopted or proposed limitations on the
collection, distribution, use and storage of personal information of individuals, including end-customers and employees. In
the United States, the FTC and many state attorneys general are applying federal and state consumer protection laws to the
online collection, use and dissemination of data. Additionally, many foreign countries and
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governmental bodies, and other jurisdictions in which we operate or conduct our business, have laws and regulations
concerning the collection and use of personal information obtained from their residents or by businesses operating within
their jurisdiction. These laws and regulations often are more restrictive than those in the United States. Such laws and
regulations may require companies to implement new privacy and security policies, permit individuals to access, correct
and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect
their personal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes.
We also expect that there will continue to be new proposed laws, regulations and industry standards concerning
privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we
cannot yet determine the impact of such future laws, regulations and standards may have on our business. For example, the
California Consumer Privacy Act, which became effective in 2020, provides new data privacy rights for consumers and
new operational requirements for companies. Additionally, we expect that existing laws, regulations and standards may be
interpreted differently in the future. There remains significant uncertainty surrounding the regulatory framework for the
future of personal data transfers from the European Union to the United States with regulations such as the recently
adopted General Data Protection Regulation (“GDPR”), which imposes more stringent E.U. data protection requirements,
provides an enforcement authority, and imposes large penalties for noncompliance. Future laws, regulations, standards and
other obligations, including the adoption of the GDPR, as well as changes in the interpretation of existing laws, regulations,
standards and other obligations could impair our ability to collect, use or disclose information relating to individuals, which
could decrease demand for our products, require us to restrict our business operations, increase our costs and impair our
ability to maintain and grow our customer base and increase our revenue.
Although we are working to comply with those federal, state and foreign laws and regulations, industry standards,
contractual obligations and other legal obligations that apply to us, such laws, regulations, standards and obligations are
evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may
conflict with one another, other requirements or legal obligations, our practices or the features of our products. As such, we
cannot assure ongoing compliance with all such laws or regulations, industry standards, contractual obligations and other
legal obligations, and our efforts to do so may cause us to incur significant costs or require changes to our business
practices, which could adversely affect our business and operating results. Any failure or perceived failure by us to comply
with federal, state or foreign laws or regulations, industry standards, contractual obligations or other legal obligations, or
any actual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition, release or
transfer of personal information or other data, may result in governmental enforcement actions and prosecutions, private
litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an
adverse effect on our reputation and business. Any inability to adequately address privacy and security concerns, even if
unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal
obligations could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our
business and operating results.
Compliance with the SEC’s conflict minerals regulations may increase our costs and adversely impact the supply-chain
for our UAS products.
In August 2012, the SEC adopted disclosure rules regarding a company’s use of conflict minerals in its products
with substantial supply chain verification requirements in the event that the conflict minerals come from, or could have
come from, the Democratic Republic of the Congo or adjoining countries. These rules and verification requirements have
imposed additional costs on us and on our suppliers, including costs related to determining the source of conflict minerals
used in our products, which may adversely affect our results of operations. We are dependent on information supplied by
our first tier suppliers in conducting due diligence into the origins of conflict minerals in our products and in complying
with our SEC reporting obligations. To the extent that information we receive from our suppliers is inaccurate or
inadequate, we may not be able to determine whether our products are conflict mineral-free. We may face challenges in
satisfying our customers who may require that our products be certified as conflict mineral-free, which could place us at a
competitive disadvantage and could harm our business. These regulations could also have the effect of limiting the pool of
suppliers from which we source items containing conflict minerals, and we may be unable to obtain conflict-free minerals
at competitive prices, if at all, which could increase our costs and adversely affect our results of operations.
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Our business and operations are subject to the risks of earthquakes and other natural catastrophic events.
Our corporate headquarters, research and development and manufacturing operations are located in Southern
California, a region known for seismic activity and wild fires. A significant natural disaster, such as an earthquake, fire or
other catastrophic event, could severely affect our ability to conduct normal business operations, and as a result, our future
operating results could be materially and adversely affected.
We face various risks related to the COVID-19 novel coronavirus pandemic and similar public health crises which may
adversely impact our business.
In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus
2), or coronavirus, which causes coronavirus disease, or COVID-19, was reported to have surfaced in Wuhan, China, and
has reached multiple other regions and countries, including the United States and, more specifically, Southern California,
where our primary operations are located. The coronavirus pandemic is evolving, and to date has led to the implementation
of various responses, including government-imposed stay-at-home orders and quarantines, travel restrictions and other
public health safety measures. Although our operations have mostly continued uninterrupted during the COVID-19
outbreak, adoption of work from home protocols, social distancing measures in the workplace and other responsive actions
have required certain changes to our operations. If the current COVID-19 outbreak continues and results in a prolonged
period of travel and other similar logistics restrictions, this may reduce our and our customers’ capabilities to travel,
domestically and internationally, which may impact our ability to perform certain contracts, develop and renew contracts,
or market our products, or could otherwise disrupt portions of our business and have a material adverse effect on our results
of operations.
Global health concerns, such as coronavirus, could result in social, economic and labor instability in the countries
in which we or the third parties with whom we engage operate. It is not currently possible to ascertain the overall impact of
the COVID-19 outbreak, if any, on our business. The extent to which COVID-19 impacts on our business, financial
condition and results of operations and those of our third party partners will depend on future developments as to the
geographic presence of COVID-19 and government and healthcare responses to such spread including the duration of the
outbreak, new information that may emerge concerning the severity of the coronavirus and the actions to contain the
coronavirus or treat its impact, among others, which are presently highly uncertain. We cannot presently predict the scope
and severity of any potential business disruptions, but if we or any of the third parties with whom we engage, including
suppliers and other third parties with whom we conduct business, were to experience prolonged shutdowns or other
business disruptions, including a slowdown in the effectiveness of our workforce due to illness or otherwise, our ability to
conduct our business in the manner presently planned could be materially and negatively impacted. The COVID-19
outbreak could also cause delays or limits in the ability of our customers to make timely payments and contract awards to
us. Additionally, our government customers may have more limited resources available to purchase our products due to
deteriorating economic conditions or due to the diversion of resources to other budget priorities, including efforts to
address the COVID-19 pandemic. The future progression of the COVID-19 outbreak and its resulting effects on our
business, financial condition and results of operations are uncertain and are continuing to be assessed.
We self-insure a portion of our health insurance program which may expose us to unexpected costs and negatively
affect our results of operations.
We are self-insured for employee medical claims, subject to individual and aggregate stop loss insurance policies.
We estimate a liability for claims filed and incurred but not reported based upon recent claims experience and an analysis
of the average period of time between the occurrence of a claim and the time it is reported to and paid by us. However,
unanticipated changes in assumptions and management estimates underlying our recorded liabilities for medical claims
could result in materially different amounts of expense than expected under our health insurance program, which could
have an adverse material impact on our financial condition and results of operations.
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Risks Related to Our U.S. Government Contracts
We are subject to extensive government regulation, and our failure to comply with applicable regulations could subject
us to penalties that may restrict our ability to conduct our business.
As a contractor to the U.S. government, we are subject to and must comply with various government regulations
that impact our revenue, operating costs, profit margins and the internal organization and operation of our business. The
most significant regulations and regulatory authorities affecting our business include the following:
● the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate
the formation and administration of, and performance under, U.S. government contracts;
● the Truth in Negotiations Act, which requires certification and disclosure of all factual cost and pricing data
in connection with contract negotiations;
● the False Claims Act and the False Statements Act, which impose penalties for payments made on the basis
of false facts provided to the government and on the basis of false statements made to the government,
respectively;
● the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to a
foreign official to help obtain, retain or direct business, or obtain any unfair advantage;
● the National Telecommunications and Information Administration and the Federal Communications
Commission, which regulate the wireless spectrum allocations upon which UAS depend for operation and
data transmission in the United States;
● the Federal Aviation Administration, which regulates the use of airspace for all aircraft, including UAS
operation in the United States;
● the International Traffic in Arms Regulations, which regulate the export of controlled technical data, defense
articles and defense services and restrict from which countries we may purchase materials and services used
in the production of certain of our products; and
● laws, regulations and executive orders restricting the use and dissemination of information classified for
national security purposes or determined to be “controlled unclassified information” and the exportation of
certain products and technical data.
Also, we need special security clearances and regulatory approvals to continue working on certain of our projects
with the U.S. government. Classified programs generally will require that we comply with various executive orders, federal
laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect
and share information, and may require our employees and facilities to obtain government security clearances. Our failure
to comply with applicable regulations, rules and approvals; changes in the government’s interpretation of such regulations,
rules and approvals as have been and are applied to our contracts, proposals or business or misconduct by any of our
employees could result in the imposition of fines and penalties, the loss of security clearances, a decrease in profitability,
the loss of our government contracts or our suspension or debarment from contracting with the U.S. government generally,
any of which could harm our business, financial condition and results of operations. We are also subject to certain
regulations of comparable government agencies in other countries, and our failure to comply with these non-U.S.
regulations could also harm our business, financial condition or results of operations.
Our business could be adversely affected by a negative audit or investigation by the U.S. government.
U.S. government agencies, primarily the DCAA and the DCMA, routinely audit and investigate government
contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with
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applicable laws, regulations and standards. These agencies also may review the adequacy of, and a contractor’s compliance
with, its internal control systems and policies, including the contractor’s purchasing, quality, accounting, property,
estimating, compensation and management information systems.
Like most government contractors, our contracts are audited and reviewed on a continual basis by the DCMA and
the DCAA. The indirect costs we incur in performing government contracts have been audited or have been subject to audit
on an annual basis. The audit of our 2010 incurred cost claim was settled in April 2016 without payment of any
consideration. Our incurred cost claims for fiscal years 2011 through 2014 were accepted as submitted during the fiscal
year ended April 30, 2017. Our 2016 and 2017 rates claims were accepted without audit during the fiscal year ended April
30, 2019 without payment of any consideration. During the fiscal year ended April 30, 2020, the Company settled rates for
its incurred cost claims with the DCAA for fiscal year 2015 for an amount not significant. At April 30, 2020 we had no
reserve for open incurred cost claim audits. In addition, non-audit reviews or investigations by the government may still be
conducted on all of our government contracts.
Any costs found to be improperly allocated to a specific cost reimbursement contract will not be reimbursed,
while such costs already reimbursed must be refunded. If an audit or investigation of our business were to uncover
improper or illegal activities, then we could be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, suspension of payments, fines and suspension or debarment from doing business with
the U.S. government. We could experience serious harm to our reputation if allegations of impropriety or illegal acts were
made against us, even if the allegations were inaccurate. In addition, responding to governmental audits or investigations
may involve significant expense and divert management attention. If any of the foregoing were to occur, our financial
condition and operating results could be materially adversely affected.
Moreover, if any of our administrative processes and business systems are found not to comply with the applicable
requirements, we may be subjected to increased government scrutiny or required to obtain additional governmental
approvals that could delay or otherwise adversely affect our ability to compete for or perform contracts. In December 2015,
DCMA concluded that our purchasing system was not approved. In an April 2016 follow-up review the DCMA approved
our purchasing system. The purchasing systems was reviewed and approved again in January 2019. An unfavorable
outcome to such an audit or investigation by the DCAA, U.S. Department of Justice (“DOJ”), or other government agency,
could materially adversely affect our competitive position, affect our ability to obtain new government business, and obtain
the maximum price for our products and services, and result in a substantial reduction of our revenues.
If we were suspended or debarred from contracting with the federal government generally, or any specific agency,
if our reputation or relationship with government agencies were impaired, or if the government otherwise ceased doing
business with us or significantly decreased the amount of business it does with us, our revenue and operating results could
be materially harmed. For example, in February 2010, we were notified by the DOJ that it had initiated a civil investigation
into our cost charging practices with respect to government contracts. We resolved these claims with the DOJ in October
2013. Under the settlement agreement, we reimbursed the government for an amount erroneously charged to the
government in our fiscal 2006 incurred cost claim submittal.
Some of our contracts with the U.S. government allow it to use inventions developed under the contracts and to disclose
technical data to third parties, which could harm our ability to compete.
Some of our contracts allow the U.S. government to use, royalty-free, or have others use, inventions developed
under those contracts on behalf of the government. Some of the contracts allow the federal government to disclose
technical data without constraining the recipient on how that data is used. The ability of third parties to use patents and
technical data for government purposes creates the possibility that the government could attempt to establish alternative
suppliers or to negotiate with us to reduce our prices. The potential that the government may release some of the technical
data without constraint creates the possibility that third parties may be able to use this data to compete with us, which could
have a material adverse effect on our business, results of operations or financial condition.
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U.S. government contracts are generally not fully funded at inception and contain certain provisions that may be
unfavorable to us, which could prevent us from realizing our contract backlog and materially harm our business and
results of operations.
U.S. government contracts typically involve long lead times for design and development, and are subject to
significant changes in contract scheduling. Congress generally appropriates funds on a fiscal year basis even though a
program may continue for several years. Consequently, programs are often only partially funded initially, and additional
funds are committed only as Congress makes further appropriations. The termination or reduction of funding for a
government program would result in a loss of anticipated future revenue attributable to that program.
The actual receipt of revenue on awards included in backlog may never occur or may change because a program
schedule could change or the program could be canceled, or a contract could be reduced, modified or terminated early.
In addition, U.S. government contracts generally contain provisions permitting termination, in whole or in part, at
the government’s convenience or for contractor default. Since a substantial majority of our revenue is dependent on the
procurement, performance and payment under our U.S. government contracts, the termination of one or more critical
government contracts could have a negative impact on our results of operations and financial condition. Termination
arising out of our default could result in damage to our reputation, expose us to liability and have a material adverse effect
on our ability to re-compete for future contracts and orders. Moreover, several of our contracts with the U.S. government
do not contain a limitation of liability provision, creating a risk of responsibility for indirect, incidental damages and
consequential damages. These provisions could cause substantial liability for us, especially given the use to which our
products may be put.
U.S. government contracts are subject to a competitive bidding process that can consume significant resources without
generating any revenue.
U.S. government contracts are frequently awarded only after formal, protracted competitive bidding processes
and, in many cases, unsuccessful bidders for U.S. government contracts are provided the opportunity to protest contract
awards through various agency, administrative and judicial channels. We derive significant revenue from U.S. government
contracts that were awarded through a competitive bidding process. Much of the UAS business that we expect to seek in
the foreseeable future likely will be awarded through competitive bidding. Competitive bidding presents a number of risks,
including the following:
● the need to bid on programs in advance of the completion of their design, which may result in unforeseen
technological difficulties and cost overruns;
● the substantial cost and managerial time and effort that must be spent to prepare bids and proposals for
contracts that may not be awarded to us;
● the need to estimate accurately the resources and cost structure that will be required to service any contract
we are awarded; and
● the expense and delay that may arise if our competitors protest or challenge contract awards made to us
pursuant to competitive bidding, and the risk that any such protest or challenge could result in the delay of
our contract performance, the distraction of management, the resubmission of bids on modified
specifications, or in termination, reduction or modification of the awarded contract.
We may not be provided the opportunity to bid on contracts that are held by other companies and are scheduled to
expire if the government extends the existing contract. If we are unable to win particular contracts that are awarded through
a competitive bidding process, then we may not be able to operate for a number of years in the market for goods and
services that are provided under those contracts. If we are unable to win new contract awards over any extended period
consistently, then our business and prospects will be adversely affected.
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We are subject to procurement rules and regulations, which increase our performance and compliance costs under our
U.S. government contracts.
We must comply with, and are affected by, laws and regulations relating to the formation, administration and
performance of U.S. government contracts. These laws and regulations, among other things, require certification and
disclosure of all cost and pricing data in connection with contract negotiation, define allowable and unallowable costs and
otherwise govern our right to reimbursement under certain cost-based U.S. government contracts, and restrict the use and
dissemination of classified information and the exportation of certain products and technical data. These requirements,
although customary in U.S. government contracts, increase our performance and compliance costs. These costs might
increase in the future, reducing our margins, which could have a negative effect on our financial condition. Although we
believe we have procedures in place to comply with these regulations and requirements, the regulations and requirements
are complex and change frequently. Our or our agents’ failure to comply with these regulations and requirements under
certain circumstances could lead to suspension or debarment from U.S. government contracting or subcontracting for a
period of time and could have a negative effect on our reputation and ability to receive other U.S. government contract
awards in the future.
Risks Related to Our Intellectual Property
If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietary
rights, our business, financial condition and results of operations could be materially harmed.
Our success depends, in large part, on our ability to protect our intellectual property and other proprietary rights.
We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license
agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. However, a
significant portion of our technology is not patented, and we may be unable or may not seek to obtain patent protection for
this technology. In addition, the U.S. government has licenses under certain of our patents and certain other intellectual
property that are developed or used in performance of government contracts, and it may use or authorize others to use such
patents and intellectual property for government and other purposes. Moreover, existing U.S. legal standards relating to the
validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide
us with any competitive advantages, and our rights may be challenged by third parties. The laws of countries other than the
United States may be even less protective of our intellectual property rights. Accordingly, despite our efforts, we may be
unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining
access to our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our
products or otherwise obtain and use our intellectual property. Moreover, many of our employees have access to our trade
secrets and other intellectual property. If one or more of these employees leave our employment to work for one of our
competitors, then they may disseminate this proprietary information, which may as a result damage our competitive
position. If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations
or financial condition could be materially harmed. From time to time, we have initiated lawsuits to protect our intellectual
property and other proprietary rights. Pursuing these claims is time consuming and expensive and could adversely impact
our results of operations.
In addition, affirmatively defending our intellectual property rights and investigating whether any of our products
or services violate the rights of others may entail significant expense. Our intellectual property rights may be challenged by
others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our
intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of
others, then the proceedings could result in significant expense to us and divert the attention and efforts of our management
and technical employees, even if we prevail.
We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time-
consuming and limit our ability to use certain technologies in the future.
We may become subject to claims that our technologies infringe upon the intellectual property or other proprietary
rights of third parties. Defending against, or otherwise addressing, any such claims, whether they are with or without merit,
could be time-consuming and expensive, and could divert our management’s attention away from the
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execution of our business plan. Moreover, any settlement or adverse judgment resulting from these claims could require us
to pay substantial amounts or obtain a license to continue to use the disputed technology, or otherwise restrict or prohibit
our use of the technology. We cannot assure you that we would be able to: obtain from the third party asserting the claim a
license on commercially reasonable terms, if at all; develop alternative technology on a timely basis, if at all; or obtain a
license to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, our
affected product. An adverse determination also could prevent us from offering our products to others. Infringement claims
asserted against us may have a material adverse effect on our business, results of operations or financial condition.
Risks Relating to Securities Markets and Investment in Our Stock
The price of our common stock may fluctuate significantly.
The market prices for securities of emerging technology companies have historically been highly volatile, and the
market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. The market price of our common stock may fluctuate significantly in response to a
number of factors, most of which we cannot control, including the following:
● U.S. government spending levels, both generally and by our particular customers;
● the volume of operational activity by the U.S. military;
● delays in the payment of our invoices by government payment offices, resulting in potentially reduced
earnings during a particular fiscal quarter;
● announcements of new products or technologies, commercial relationships or other events relating to us or
our industry or our competitors;
● failure of any of our key products to gain market acceptance;
● variations in our quarterly operating results;
● perceptions of the prospects for the markets in which we compete;
● changes in general economic conditions;
● changes in securities analysts’ estimates of our financial performance;
● regulatory developments in the United States and foreign countries;
● fluctuations in stock market prices and trading volumes of similar companies;
● news about the markets in which we compete or regarding our competitors;
● terrorist acts or military action related to international conflicts, wars or otherwise;
● sales of large blocks of our common stock, including sales by our executive officers, directors and significant
stockholders; and
● additions or departures of key personnel.
In addition, the equity markets in general, and NASDAQ in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies.
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Further, the market prices of securities of emerging technology companies have been particularly volatile. These broad
market and industry factors may affect the market price of our common stock adversely, regardless of our operating
performance. In the past, following periods of volatility in the market price of a company’s securities, securities class
action litigation often has been instituted against that company. This type of litigation, if instituted against us, could result
in substantial costs and a diversion of management’s attention and resources.
Our management, whose interests may not be aligned with yours, is able to exert significant influence over all matters
requiring stockholder approval.
As of June 17, 2020, our directors, executive officers and their affiliates collectively beneficially owned 2,315,570
shares, or approximately 10%, of our total outstanding shares of common stock. Accordingly, our directors and executive
officers as a group may be able to exert significant influence over matters requiring stockholder approval, including the
election of directors. The interests of our directors and executive officers may not be fully aligned with yours. Although
there is no agreement among our directors and executive officers with respect to the voting of their shares, this
concentration of ownership may delay, defer or even prevent a change in control of our company, and make transactions
more difficult or impossible without the support of all or some of our directors and executive officers. These transactions
might include proxy contests, tender offers, mergers or other purchases of common stock that could give you the
opportunity to realize a premium over the then-prevailing market price for shares of our common stock.
Delaware law and anti-takeover provisions in our organizational documents may discourage our acquisition by a third
party, which could make it more difficult to acquire us and limit your ability to sell your shares at a premium.
Our certificate of incorporation and bylaws contain certain provisions that reduce the probability of a change of
control or acquisition of our company, even if such a transaction would be beneficial to our stockholders. These provisions
include, but are not limited to:
● the ability of our board of directors to issue preferred stock in one or more series of with such rights,
obligations and preferences as the board may determine, without further vote or action by our stockholders;
● advanced notice procedures for stockholders to nominate candidates for election to the board of directors and
for stockholders to submit proposals for consideration at a meeting of stockholders;
● the absence of cumulative voting rights for our stockholders;
● the classification of our board of directors, which effectively prevents stockholders from electing a majority
of the directors at any one annual meeting of stockholders;
● the limitation that directors may be removed only for cause by the affirmative vote of the holders of 662/3%
of the total voting power of all of our outstanding securities entitled to vote in the election of directors, voting
together as a single class; and
● restrictions on the ability of our stockholders to call a special meeting of stockholders.
We are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions,
prohibits “business combinations” between a publicly-held Delaware corporation and an “interested stockholder,” which is
generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting
stock for a three-year period following the date that such stockholder became an interested stockholder. This statute, as
well as the provisions in our organizational documents, could have the effect of delaying, deterring or preventing certain
potential acquisitions or a change in control of us.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
All of our facilities are leased. Our corporate headquarters are located in Simi Valley, California where we lease
approximately 85,000 square feet under an agreement expiring in May 2025. We also lease a total of 194,000 square feet of
space in Simi Valley, California, which lease expires in 2022, and approximately 150,000 square feet of space in Moorpark,
California, which lease expires in 2023, used to design, engineer, test and manufacture UAS. We also lease other facilities
in Alabama, Kansas, Massachusetts and Virginia that are used for administration, research and development, logistics,
testing and manufacturing. We believe that our facilities are in good condition and are adequate and suitable to meet our
needs for the foreseeable future.
Item 3. Legal Proceedings.
On February 22, 2019, Webasto filed a lawsuit, which was subsequently amended on April 5, 2019, against us in
Delaware Superior Court, arising from the sale of the EES Business to Webasto in June 2018. The lawsuit generally alleges
several claims against us for breach of contract, indemnity, declaratory judgment, and fraud and misrepresentation,
including allegations regarding inaccuracy of certain diligence disclosures, failure to provide certain consents to contract
assignments and related to the previously announced recall. Webasto seeks to recover the costs of the recall and other
damages totaling over $100 million in addition to attorneys’ fees, costs, and punitive damages. Additionally, Webasto is
seeking a declaratory judgment that we did not meet the requirements to receive the additional $6.5 million of the purchase
price which was held back at the closing of the transaction (the “Holdback Amount”). On August 16, 2019, we filed our
answer to Webasto’s complaint and a counterclaim against Webasto seeking payment of the Holdback Amount and
declaratory relief regarding Webasto’s cancellation of an assigned contract. As to the Webasto lawsuit, our initial
evaluation is that many of the allegations are meritless and that we lack sufficient information to fully analyze other
allegations at this time. Discovery in this lawsuit has begun and is ongoing and, as of June 17, 2020, a trial has been set for
July 14, 2021. At present, the parties remain in the written phase of discovery. Due to nationwide court closures and
restrictions resulting from the global COVID-19 pandemic, however, we expect to seek and obtain a trial continuance to
account for pandemic-related delays, and therefore anticipate a new trial date in 2022. We continue to mount a vigorous
defense.
On August 14, 2019, Benchmark Electronics, Inc. (“Benchmark”), the company that assembled the products
subject to the recall, served a demand for arbitration to AeroVironment and Webasto pursuant to its contracts with
AeroVironment and Webasto, respectively. In December 2019, Benchmark dismissed, without prejudice, all claims against
us in the demand for arbitration. The recall remains a significant part of our pending litigation with Webasto.
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.
Item 4. Mine Safety Disclosure.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities.
Common Stock
On June 17, 2020, the closing sales price of our common stock as reported on the NASDAQ Global Select Market
where it trades under the symbol AVAV was $69.42 per share. As of June 17, 2020, there were 68 holders of record of our
common stock.
Dividends
To date we have retained all earnings for use in the operation and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at
the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial
condition, capital requirements, capital allocation policy, expected return on invested capital, contractual restrictions and
such other factors as our board of directors deems relevant.
Stock Price Performance Graph
The following graph shows a comparison of cumulative returns on our common stock, based on the market price
of the common stock, with the cumulative total returns of companies in the Russell 2000 Index and the SPADE Defense
Index.
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The following table shows the value of $100 invested on April 30, 2015 in AeroVironment, Inc., the Russell 2000
Index and the SPADE Defense Index.
Performance Graph Table ($)
April 30,
April 30 April 30,
April 30,
April 30 April 30,
2015
2016
2017
2018
2019
2020
AeroVironment, Inc.
Stock
Russell 2000 Index
SPADE Defense Index
100
100
100
113
93
100
112
115
124
213
128
156
268
130
172
235
107
150
The stock price performance shown on the graph above is not necessarily indicative of future price performance.
Factual material was obtained from sources believed to be reliable, but we are not responsible for any errors or omissions
contained therein. No portions of this graph shall be deemed incorporated by reference into any filing under the Securities
Act or the Exchange Act through any general statement incorporating by reference in its entirety the report in which this
graph appears, except to the extent that we specifically incorporate this graph or a portion of it by reference. In addition,
this graph shall not be deemed filed under either the Securities Act or the Exchange Act.
Issuer Purchases of Equity Securities
On September 24, 2015, we announced that on September 23, 2015 our Board of Directors authorized a share
repurchase program (the “Share Repurchase Program”), pursuant to which we may repurchase up to $25 million of our
common stock from time to time, in amounts and at prices we deem appropriate, subject to market conditions and other
considerations. Share repurchases may be executed through open market transactions or negotiated purchases and may be
made under a Rule 10b5-1 plan. There is no expiration date for the program. The Share Repurchase Program does not
obligate us to acquire any particular amount of common stock and may be suspended at any time by our Board of
Directors. We did not repurchase any shares during the fiscal year ended April 30, 2020. As of April 30, 2020,
approximately $21.2 million remained authorized for future repurchases under this program.
Item 6. Selected Consolidated Financial Data.
The following selected financial data should be read in conjunction with our consolidated financial statements.
The information set forth below is not necessarily indicative of results of future operations, and should be read in
conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary
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Data” of this Annual Report in order to understand fully factors that may affect the comparability of the financial data
presented below.
Consolidated Income Statement Data:
Revenue
Net income from continuing operations attributable
to AeroVironment, Inc.
Earnings per common share from continuing
operations attributable to AeroVironment, Inc.:
Basic
Diluted
Weighted average common shares outstanding
(basic):
Weighted average common shares outstanding
(diluted):
Balance Sheet Data
Total assets
Capital lease obligations, current portion
Capital lease obligations, net of current portion
Other long-term obligations
2020
Year Ended April 30,
2017(1)
2018(1)
2019(1)
(In thousands, except per share data)
2016(1)(2)
$ 367,296
$ 314,274
$ 268,424
$ 233,105
$ 233,738
$ 41,339
$ 41,912
$ 21,750
$ 17,701
$ 15,393
$
$
1.74
1.72
$
$
1.77
1.74
$
$
0.93
0.91
$
$
0.77
0.76
$
$
0.67
0.67
23,806
23,663
23,471
23,059
22,936
24,088
24,072
23,814
23,308
23,153
$ 584,954
$
$
$
8,100
— $
— $
$
$ 508,844
$ 433,831
$ 473,418
288
161
$
— $
161
2,083
$
2,274
— $
— $
$
1,403
$ 410,393
390
$
449
$
2,339
$
(1) Amounts prior to 2020 do not reflect impact of our prospective adoption of ASU No. 2016-02, Leases (Topic 842)
(2) Amounts prior to 2017 do not reflect impact of the adoption of ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The following discussion of our financial condition and results of operations should be read in conjunction with
our “Selected Consolidated Financial Data” and our consolidated financial statements and notes thereto included herein as
Item 8. This discussion contains forward-looking statements. Refer to “Forward-Looking Statements” on page 2 and “Risk
Factors” beginning on page 19, for a discussion of the uncertainties, risks and assumptions associated with these
statements.
On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of our former EES
Business to Webasto pursuant to the Purchase Agreement between Webasto and us. We determined that the EES Business
met the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategic shift in our
operations. Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this Annual
Report as discontinued operations for all periods presented.
Overview
We design, develop, produce, and support a technologically-advanced portfolio of products and services for
government agencies and businesses. We supply unmanned aircraft systems (“UAS”) and related services primarily to
organizations within the U.S. Department of Defense (“DoD”) and to international allied governments, and tactical
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missile systems and related services to organizations within the U.S. government. We derive the majority of our revenue
from these business areas and we believe that the markets for these solutions have significant growth potential.
Additionally, we believe that some of the innovative potential products and services in our research and development
pipeline will emerge as new growth platforms in the future, creating additional market opportunities.
The success we have achieved with our current products and services stems from our investment in research and
development and our ability to invent and deliver advanced solutions, utilizing our proprietary technologies, to help our
government and commercial customers operate more effectively and efficiently. We develop these highly innovative
solutions by working very closely with our key customers and solving their most important challenges related to our areas
of expertise. Our core technological capabilities, developed through nearly 50 years of innovation, include robotics and
robotics systems autonomy; sensor design, development, miniaturization and integration; embedded software and
firmware; miniature, low power wireless digital communications; lightweight aerostructures; high-altitude systems design,
integration and operations; machine vision, machine learning and autonomy; low SWaP (Size, Weight and Power) system
design and integration; manned-unmanned teaming, unmanned-unmanned teaming; power electronics and electric
propulsion systems; efficient electric power conversion, storage systems and high density energy packaging; controls and
systems integration; vertical takeoff and landing flight, fixed wing flight and hybrid aircraft flight; image stabilization and
target tracking; advanced flight control systems; fluid dynamics; human-machine interface development; and integrated
mission solutions for austere environments.
Our business focuses primarily on the design, development, production, marketing, support and operation of
innovative UAS and tactical missile systems and the delivery of UAS-related services that provide situational awareness,
remote sensing, multi-band communications, force protection and other information and mission effects to increase the
safety and effectiveness of our customers’ operations.
Due to the COVID-19 pandemic, there are currently limitations on international travel which may limit our ability
to obtain international orders and perform training and other services for our customers. If these travel limitations continue
for an extended period of time, we may experience delays in obtaining additional international orders.
Revenue
We generate our revenue primarily from the sale, support and operation of our small UAS and tactical missile
systems. Support for our small UAS and tactical missile systems customers includes training, spare parts, product repair,
product replacement, and the customer-contracted operation of our small UAS by our personnel. We refer to these support
activities, in conjunction with customer-funded research and development (“R&D”), as our services operation. We derive
most of our small UAS revenue from fixed-price and cost-plus-fee contracts with the U.S. government and allied foreign
governments.
Cost of Sales
Cost of sales consists of direct costs and allocated indirect costs. Direct costs include labor, materials, travel,
subcontracts and other costs directly related to the execution of a specific contract. Indirect costs include overhead
expenses, fringe benefits, amortization of intangibles and other costs that are not directly charged to a specific contract.
Gross Margin
Gross margin is equal to revenue minus cost of sales. We use gross margin as a financial metric to help us
understand trends in our direct costs and allocated indirect costs when compared to the revenue we generate.
Selling, General and Administrative
Our selling, general and administrative expenses (“SG&A”), include salaries and other expenses related to selling,
marketing and proposal activities, and other administrative costs. Some SG&A expenses relate to marketing and business
development activities that support both ongoing business areas as well as new and emerging market areas. These activities
can be directly associated with developing requirements for and applications of capabilities created in
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our R&D activities. SG&A is an important financial metric that we analyze to help us evaluate the contribution of our
selling, marketing and proposal activities to revenue generation.
Research and Development Expense
R&D is an integral part of our business model. We normally conduct significant internally funded R&D. Our
R&D activities focus specifically on creating capabilities that support our existing product portfolio as well as new
solutions.
Other Income and Expenses
Other income and expenses includes a one-time gain from a litigation settlement, income from transition services
performed on behalf of the buyer of the discontinued EES Business, interest income, interest expense, and amortization of
capital lease payments.
Income Tax Expense
Our effective tax rates are lower than the statutory rates primarily due to R&D tax credits and the foreign derived
intangible income tax deduction (“FDII”). Our effective tax rate for the fiscal year ended April 30, 2018 was also impacted
by the Tax Cut and Jobs Act of 2017.
Equity Method Investment Loss, Net of Tax
Equity method investment loss, net of tax, includes equity method gain or loss related to the HAPSMobile Inc.
joint venture we formed in December 2017 with SoftBank Corp and our investment in a limited partnership fund for which
we have concluded we have influence for holding more than a minor interest.
Loss from Discontinued Operations, Net of Tax
On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of our former EES
Business to Webasto pursuant to the Purchase Agreement between Webasto and us. We determined that the EES Business
met the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategic shift in our
operations. Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this Annual
Report as discontinued operations for all periods presented.
Net Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests includes the 15% interest in the income or losses of our Turkish
joint venture, Altoy.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted
in the United States. When we prepare these 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.
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We believe the following critical accounting estimates affect our more significant judgments and estimates used in
preparing our consolidated financial statements. Please see Note 1 to our consolidated financial statements, which are
included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Organization and
Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the
periods presented in the consolidated financial statements.
Revenue Recognition
Significant management judgments and estimates must be made and used in connection with the recognition of
revenue in any accounting period. Material differences in the amount of revenue in any given period may result if these
judgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of the
business or market conditions. Management judgments and estimates have been applied consistently and have been reliable
historically. We believe that there are two key factors which impact the reliability of management’s estimates. The first of
those key factors is that the terms of our contracts are typically less than six months. The short-term nature of such
contracts reduces the risk that material changes in accounting estimates will occur on the basis of market conditions or
other factors. The second key factor is that we have hundreds of contracts in any given accounting period, which reduces
the risk that any one change in an accounting estimate on one or several contracts would have a material impact on our
consolidated financial statements.
The substantial majority of our revenue is generated pursuant to written contractual arrangements to design,
develop, manufacture and/or modify complex products, and to provide related engineering, technical and other services
according to customer specifications. These contracts may be fixed price, cost-reimbursable, or time and materials. We
account for all revenue contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC
606”). A performance obligation is a promise in a contract to transfer distinct goods or services to a customer, and it is the
unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue
is recognized when each performance obligation under the terms of a contract is satisfied. For contracts with multiple
performance obligations, we allocate the contract’s transaction price to each performance obligation using observable
standalone selling prices for similar products and services. When the standalone selling price is not directly observable, we
use our best estimate of the standalone selling price of each distinct good or service in the contract using the cost plus
reasonable margin approach.
Our performance obligations are satisfied over time or at a point in time. Revenue for tactical missile systems
product deliveries and Customer-Funded R&D contracts is recognized over time as costs are incurred. Contract services
revenue is composed of revenue recognized on contracts for the provision of services, including repairs and maintenance,
training, engineering design, development and prototyping activities, and technical support services. Contract services
revenue is recognized over time as services are rendered. Typically, revenue is recognized over time using an input
measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Training services
are recognized over time using an output method based on days of training completed. For performance obligations
satisfied over time, revenue is generally recognized using costs incurred to date relative to total estimated costs at
completion to measure progress. Incurred costs represent work performed, which correspond with, and thereby best depict,
transfer of control to the customer. Contract costs include labor, materials, subcontractors’ costs, other direct costs, and
indirect costs applicable on government and commercial contracts.
For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is
recognized at the point in time in which each performance obligation is fully satisfied. Our small UAS product sales
revenue is composed of revenue recognized on contracts for the delivery of small UAS systems and spare parts. Revenue is
recognized at the point in time when control transfers to the customer, which generally occurs when title and risk of loss
have passed to the customer.
We review cost performance and estimates to complete at least quarterly and in many cases more frequently.
Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are
often required as work progresses under a contract, as experience is gained and as more information is obtained, even
though the scope of work required under the contract may not change, or if contract modifications occur. The impact of
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revisions in the estimated costs to complete for contracts using the over time method are recognized on a cumulative catch-
up basis in the period in which the revisions are made. During the fiscal years ended April 30, 2020, 2019 and 2018,
changes in accounting estimates on contracts recognized using the over time method are presented below. Amounts
representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or
contract modification in accordance with ASC 606. Incentives or penalties and awards applicable to performance on
contracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to
assess anticipated contract performance.
For the years ended April 30, 2020, 2019 and 2018, favorable and unfavorable cumulative catch-up adjustments
included in revenue were as follows (in thousands):
Gross favorable adjustments
Gross unfavorable adjustments
Net adjustments
Year Ended April 30,
2020
2019
2018
$ 2,181
(2,019)
$ 1,190
(1,308)
$ 1,643
(2,310)
$
162
$
(118) $
(667)
For the year ended April 30, 2020, favorable cumulative catch-up adjustments of $2.2 million were primarily due
to final cost adjustments on 13 contracts. During the year ended April 30, 2020, we revised our estimates of the total
expected costs to complete a design and development agreement. The aggregate impact of these adjustments in contract
estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase
to revenue of approximately $1.1 million. For the same period, unfavorable cumulative catch-up adjustments of
$2.0 million were primarily related to higher than expected costs on seven contracts. During the year ended April 30, 2020,
we revised our estimates of the total expected costs to complete a tactical missile systems contract. The aggregate impact of
these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in
previous periods was a decrease to revenue of approximately $1.4 million.
For the year ended April 30, 2019, favorable cumulative catch up adjustments of $1.2 million were primarily due
to final cost adjustments on nine contracts, which individually were not material. For the same period, unfavorable
cumulative catch up adjustments of $1.3 million were primarily related to higher than expected costs on 14 contracts,
which individually were not material.
For the year ended April 30, 2018, favorable cumulative catch up adjustments of $1.6 million were primarily due
to final cost adjustments on nine contracts, which individually were not material. For the same period, unfavorable
cumulative catch up adjustments of $2.3 million were primarily related to higher than expected costs on six contracts.
During the year ended April 30, 2018, we revised our estimates of the total expected costs to complete a tactical missile
systems variant contract. The aggregate impact of these adjustments in contract estimates on revenue related to
performance obligations satisfied or partially satisfied in previous periods was a decrease to revenue of approximately $1.3
million.
Inventories Reserves for Excess and Obsolescence
Our policy for valuation of inventory, including the determination of obsolete or excess inventory, requires us to
perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, an
estimate of future demand for products within specific time horizons, valuation of existing inventory, as well as product
lifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow-moving
items. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated net realizable value based on assumptions about future demand and market
conditions and record to cost of sales. We may be required to record additional inventory write-downs if actual market
conditions are less favorable than those projected by our management.
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Intangible Assets – Acquired in Business Combinations
We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business
combination and allocate the purchase price of each acquired business to our respective net tangible and intangible assets.
Acquired intangible assets include: technology, in-process research and development, customer relationships, trademarks
and tradenames, and non-compete agreements. We use valuation techniques to value these intangibles assets, with the
primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various
assumptions and estimates including projected revenue, gross margins, operating costs, growth rates, useful lives and
discount rates. Intangible assets are amortized over their estimated useful lives using the straight-line method which
approximates the pattern in which the economic benefits are consumed.
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 the Company’s 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 the Company’s use of the acquired assets or the strategy for the Company’s overall business,
significant negative industry or economic trends or significant underperformance relative to projected future results of
operations.
Income Taxes
We are required to estimate our income taxes, which includes estimating our current income taxes as well as
measuring the temporary differences resulting from different treatment of items for tax and accounting purposes. We
currently have significant deferred assets, which are subject to periodic recoverability assessments. Realizing our deferred
tax assets principally depends on our achieving projected future taxable income. We may change our judgments regarding
future profitability due to future market conditions and other factors, which may result in recording a valuation allowance
against those deferred tax assets.
We have various foreign subsidiaries to conduct or support our business outside the United States. We do not
provide for U.S. income taxes on undistributed earnings for our foreign subsidiaries as management expects the foreign
earnings will be indefinitely reinvested in such foreign jurisdictions.
Fiscal Periods
Our fiscal year ends on April 30. 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.
Results of Operations
The following table sets forth certain historical consolidated income statement data expressed in dollars (in
thousands) and as a percentage of revenue for the periods indicated. Certain amounts may not sum due to rounding.
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Revenue
Cost of sales
Gross margin
Selling, general and administrative
Research and development
Income from continuing operations
Interest income, net
Other income (expense), net
Income from continuing operations before income
taxes
Income tax expense
Equity method investment loss, net of tax
Net income from continuing operations
(Loss) gain on sale of business, net of tax
Loss from discontinued operations, net of tax
Net income
Net loss attributable to noncontrolling interest
Fiscal Year Ended April 30,
2020
2019
2018
$ 367,296
214,194
100 %$ 314,274
58 % 185,871
100 %$ 268,424
59 % 160,739
100 %
60 %
153,102
59,490
46,477
47,135
4,828
707
52,670
5,848
(5,487)
41,335
(265)
—
41,070
4
42 % 128,403
60,343
16 %
34,234
13 %
13 %
1 %
— %
33,826
4,672
11,980
50,478
14 %
2 %
4,641
(1)% (3,944)
11 % 41,893
— % 8,490
— % (2,964)
11 % 47,419
— %
19
11 %$ 47,438
41 % 107,685
50,826
19 %
26,433
11 %
11 %
1 %
4 %
30,426
2,240
(49)
32,617
16 %
1 %
9,800
(1)% (1,283)
13 % 21,534
3 %
—
(1)% (3,887)
15 % 17,647
— %
216
15 %$ 17,863
40 %
19 %
10 %
11 %
1 %
— %
12 %
4 %
— %
8 %
— %
(1)%
7 %
— %
7 %
Net income attributable to AeroVironment, Inc.
$ 41,074
Fiscal Year Ended April 30, 2020 Compared to Fiscal Year Ended April 30, 2019
Revenue. Revenue for the fiscal year ended April 30, 2020 was $367.3 million, as compared to $314.3 million for
the fiscal year ended April 30, 2019, representing an increase of $53.0 million, or 17%. The increase in revenue was due to
an increase in product revenue of $44.7 million and an increase in service revenue of $8.3 million. The increase in product
revenue was primarily due to an increase in product deliveries of small UAS to customers within the U.S. government and
an increase in tactical missile systems revenue from customers within the U.S. government, partially offset by a slight
decrease in product deliveries of small UAS to international customers. The increase in product deliveries of small UAS
included product deliveries of our VAPOR helicopter unmanned aircraft system associated with our acquisition of Pulse
Aerospace in June 2019. The increase in service revenue was primarily due to an increase in customer-funded R&D work
primarily associated with our design and development agreement with HAPSMobile, development efforts for customers
within the U.S. government, an increase in other engineering services, and an increase in sustainment activities in support
of tactical missile system product deliveries, partially offset by a decrease in customer-funded R&D work associated with
tactical missile systems and tactical missile system variants.
Cost of Sales. Cost of sales for the fiscal year ended April 30, 2020 was $214.2 million, as compared to $185.9
million for the fiscal year ended April 30, 2019, representing an increase of $28.3 million, or 15%. The increase in cost of
sales was a result of an increase in product cost of sales of $25.6 million and an increase in service costs of sales of $2.7
million. The increase in product costs was primarily due to the increase in product deliveries and an increase of $2.5
million in intangible asset amortization expense associated with our acquisition of Pulse Aerospace in June 2019. The
increase in service costs of sales was primarily due to the increase in service revenue, partially offset by a favorable service
mix. As a percentage of revenue, cost of sales decreased from 59% to 58%, primarily due to an increase in the proportion
of product sales to total revenue and a favorable service mix, partially offset by acquired intangible asset amortization
expense.
Gross Margin. Gross margin for the fiscal year ended April 30, 2020 was $153.1 million, as compared to $128.4
million for the fiscal year ended April 30, 2019, representing an increase of $24.7 million, or 19%. The increase in gross
margin was primarily due to an increase in product margins of $19.0 million and an increase in service margins of $5.7
million. The increase in product margins was primarily due to the increase in product deliveries, partially offset
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by an increase of $2.5 million in intangible asset amortization expense associated with our acquisition of Pulse Aerospace
in June 2019. The increase in services margins was primarily due to the increase in services revenue and a favorable
service mix. As a percentage of revenue, gross margin increased from 41% to 42%, primarily due to an increase in the
proportion of product sales to total revenue and a favorable service mix, partially offset by acquired intangible asset
amortization expense. As a percentage of revenue, product gross margin for fiscal 2020 decreased by nearly 70 basis points
to 46%. We anticipate product margin in fiscal year 2021 to continue to decline primarily due to an unfavorable product
mix.
Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2020 was $59.5 million,
or 16% of revenue, compared to SG&A expense of $60.3 million, or 19% of revenue, for the fiscal year ended April 30,
2019. The decrease in SG&A expense was primarily due to a $4.4 million impairment charge related to the long-lived
assets of our commercial Quantix product during the fiscal year ended April 30, 2019, a decrease in corporate development
expenses primarily related to the sale of our EES Business and a decrease in costs incurred related to the transition services
agreement with Webasto, partially offset by an increase in employee-related expenses and an increase in commission
expenses associated with an increase in the number of international small UAS contracts under which we utilized sales
agents.
Research and Development. R&D expense for the fiscal year ended April 30, 2020 was $46.5 million, or 13% of
revenue, compared to R&D expense of $34.2 million, or 11% of revenue, for the fiscal year ended April 30, 2019. R&D
expense increased primarily due to increased development activities for certain strategic initiatives.
Interest Income, net. Interest income, net for the fiscal year ended April 30, 2020 was $4.8 million, compared to
$4.7 million for the fiscal year ended April 30, 2019. The increase in interest income was primarily due to an increase in
the average interest rates earned on our investments portfolio, partially offset by a decrease in our investments balances.
Due to the significant decline in market interest rates combined with a shift in our investment composition towards U.S.
government and U.S. government agency securities during the fourth quarter of fiscal year 2020, we anticipate interest
income earned on our investments portfolio to decrease in future periods.
Other Income (Expense), net. Other income, net for the fiscal year ended April 30, 2020 was $0.7 million, as
compared to other income, net of $12.0 million for the fiscal year ended April 30, 2019. The decrease in other income, net
was primarily due to a one-time litigation settlement during the fiscal year ended April 30, 2019 and a decrease in income
earned under a transition services agreement with Webasto, the buyer of our former EES Business.
Income Taxes. Our effective income tax rate was 11.1% for the fiscal year ended April 30, 2020, as compared to
9.2% for the fiscal year ended April 30, 2019. The increase in our effective tax rate was primarily due to decrease in excess
tax benefits from the vesting of employee equity awards and a lower proportion of R&D expense which qualifies for R&D
tax credits.
Equity method investment loss, net of tax. Equity method investment loss, net of tax for the fiscal year ended
April 30, 2020 was $5.5 million, as compared to equity method investment loss, net of $3.9 million for the fiscal year
ended April 30, 2019. The increase was primarily due to the equity method loss associated with our investment in the
HAPSMobile joint venture formed in December 2017.
(Loss) gain on sale of business, net of tax. Loss on sale of business, net of tax for the fiscal year ended April 30,
2020 was $0.3 million, as compared to gain on sale of business, net of tax of $8.5 million for the fiscal year ended April
30, 2019. The gain on sale of business, net of tax for the prior year period resulted from the sale of our former EES
Business during the fiscal year ended April 30, 2019. We recorded an adjustment related to a settled working capital
dispute during the fiscal year ended April 30, 2020.
Loss from discontinued operations, net of tax. Loss from discontinued operations, net of tax for the fiscal year
ended April 30, 2020 was $0, as compared to $3.0 million for the fiscal year ended April 30, 2019. The loss from
discontinued operations, net of tax for the prior year period related to the results of our EES Business prior to the sale.
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Fiscal Year Ended April 30, 2019 Compared to Fiscal Year Ended April 30, 2018
Revenue. Revenue for the fiscal year ended April 30, 2019 was $314.3 million, as compared to $268.4 million for
the fiscal year ended April 30, 2018, representing an increase of $45.9 million, or 17%. The increase in revenue was due to
an increase in service revenue of $25.5 million and an increase in product deliveries of $20.4 million. The increase in
service revenue was primarily due to an increase in customer-funded R&D work of $23.9 million predominantly associated
with our design and development agreement with HAPSMobile, partially offset by a decrease in tactical missile systems
and tactical missile system variant programs, and an increase in sustainment activities in support of tactical missile system
product deliveries. The increase in product deliveries was primarily due to an increase in product deliveries of small UAS
to international customers and to customers within the U.S. government and an increase in tactical missile systems revenue
from customers within the U.S. government.
Cost of Sales. Cost of sales for the fiscal year ended April 30, 2019 was $185.9 million, as compared to $160.7
million for the fiscal year ended April 30, 2018, representing an increase of $25.1 million, or 16%. The increase in cost of
sales was a result of an increase in service costs of sales of $21.0 million and an increase in product cost of sales of $4.1
million. The increase in service costs of sales was primarily due to the increase in service revenue. The increase in product
costs was primarily due to the increase in product deliveries and an increase in inventory reserve charges largely related to
our commercial Quantix product. As a percentage of revenue, cost of sales decreased from 60% to 59%, primarily due to a
favorable product mix, partially offset by an increase in inventory reserve charges and an unfavorable service mix.
Gross Margin. Gross margin for the fiscal year ended April 30, 2019 was $128.4 million, as compared to $107.7
million for the fiscal year ended April 30, 2018, representing an increase of $20.7 million, or 19%. The increase in gross
margin was primarily due to an increase in product margins of $16.3 million and an increase in service margins of $4.4
million. The increase in product margins was primarily due to the increase in product deliveries, partially offset by an
increase in inventory reserve charges largely related to our commercial Quantix product. The increase in services margins
was primarily due to the increase in customer-funded R&D revenue. As a percentage of revenue, gross margin increased
from 40% to 41%, primarily due to a favorable product mix, partially offset by an increase in inventory reserve charges and
an unfavorable service mix.
Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2019 was $60.3 million,
or 19% of revenue, compared to SG&A expense of $50.8 million, or 19% of revenue, for the fiscal year ended April 30,
2018. The increase in SG&A expense was primarily due to an impairment charge related to the long-lived assets of our
commercial Quantix product, an increase in corporate development expenses primarily related to the sale of our EES
Business, an increase in costs incurred related to the transition services agreement with Webasto, and an increase in
employee-related expenses, partially offset by a decrease in legal expenses, a decrease in amortization expense, and a
decrease in bad debt expense.
Research and Development. R&D expense for the fiscal year ended April 30, 2019 was $34.2 million, or 11% of
revenue, compared to R&D expense of $26.4 million, or 10% of revenue, for the fiscal year ended April 30, 2018. R&D
expense increased primarily due to increased development activities for certain strategic initiatives.
Interest Income, net. Interest income, net for the fiscal year ended April 30, 2019 was $4.7 million, compared to
$2.2 million for the fiscal year ended April 30, 2018. The increase in interest income was primarily due to an increase in
the average interest rates earned on our investments portfolio.
Other Income (Expense), net. Other income, net for the fiscal year ended April 30, 2019 was $12.0 million, as
compared to other expense, net of $49,000 for the fiscal year ended April 30, 2018. The increase in other income, net was
primarily due to a litigation settlement and income earned under a transition services agreement with Webasto, the buyer of
our former EES Business.
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Income Taxes. Our effective income tax rate was 9.2% for the fiscal year ended April 30, 2019, as compared to
30.0% for the fiscal year ended April 30, 2018. The provision for income taxes for the fiscal year ended 2018 included the
impact of the Tax Cut and Jobs Act of 2017, inclusive of a reduction in the blended fiscal year 2018 federal statutory tax
rate from 35% to 30.4% and a $3.3 million one-time expense resulting from the remeasurement of our deferred tax assets
and liabilities.
Equity method investment loss, net of tax. Equity method investment loss, net of tax for the fiscal year ended
April 30, 2019 was $3.9 million, as compared to equity method investment loss, net of $1.3 million for the fiscal year
ended April 30, 2018. The increase was due to the equity method loss associated with our investment in the HAPSMobile
joint venture formed in December 2017 and our increase to 10% ownership in March 2019 which was diluted to
approximately 5% during the first fiscal quarter of fiscal year 2020.
Gain on sale of business, net of tax. Gain on sale of business, net of tax for the fiscal year ended April 30, 2019
was $8.5 million, as compared to $0 for the fiscal year ended April 30, 2018. The gain on sale of business, net of tax, for
the fiscal year ended April 30, 2019 resulted from the sale of our former EES Business.
Loss from discontinued operations, net of tax. Loss from discontinued operations, net of tax for the fiscal year
ended April 30, 2019 was $3.0 million, as compared to a loss from discontinued operations, net of tax of $3.9 million for
the fiscal year ended April 30, 2018. The loss from discontinued operations, net of tax related to the results of our EES
Business.
Liquidity and Capital Resources
We currently have no material cash commitments, except for normal recurring trade payables, accrued expenses
and ongoing research and development costs, all of which we anticipate funding through our existing working capital and
funds provided by operating activities. 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 and debt service
requirements, if any, 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 obtain additional financing. We anticipate that existing sources of
liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.
Our primary liquidity needs are for financing working capital, investing in capital expenditures, supporting
product development efforts, introducing new products and enhancing existing products, and marketing acceptance and
adoption of our products and services. 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 short-term borrowing are insufficient to fund our future activities, we may need to
raise additional funds through public or private equity or debt financing. In addition, we may also need to seek additional
equity funding or debt financing if we become a party to any agreement or letter of intent for potential investments in, or
acquisitions of, businesses, services or technologies.
Our working capital requirements vary by contract type. On cost-plus-fee programs, we typically bill our incurred
costs and fees monthly as work progresses, and therefore working capital investment is minimal. On fixed-price contracts,
we typically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the
lead time from contract award until contract deliveries begin.
To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources. However,
the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on
future developments, could impact our capital resources and liquidity in the future. During the three months ended April
30, 2020, in consideration of the impact of the COVID-19 pandemic, we made the strategic decision to sell a significant
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portion of our corporate and municipal held-to-maturity securities and invested the proceeds in cash and cash equivalents
and U.S. government and U.S. government agency securities.
During the fiscal year ended April 30, 2020, we made certain commitments outside of the ordinary course of
business, none of which were material either alone or in the aggregate, including capital contributions totaling $5.0 million
to a limited partnership fund. Under the terms of the limited partnership agreement, we have committed to make additional
capital contributions of $5.0 million to the fund.
Cash Flows
The following table provides our cash flow data from continuing operations for the periods ended:
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash (used in) provided by financing activities
Fiscal Year Ended April 30,
2020
2019
2018
(In thousands)
$ 69,832
$ 26,946
$ 25,097
$ (6,397)
$ 11,546
$ 59,167
$ (1,830) $ (1,184) $ 2,020
Cash Provided by Operating Activities. Net cash provided by operating activities for the fiscal year ended
April 30, 2020 decreased by $1.8 million to $25.1 million, compared to net cash provided by operating activities of
$26.9 million for the fiscal year ended April 30, 2019. This decrease in net cash provided by operating activities was
primarily due to a decrease in the cash provided as a result of changes in operating assets and liabilities of $2.5 million
largely resulting from decreases in accounts receivable due to year over year timing differences, partially offset by
increases in inventory primarily due to year over year timing differences in purchases to support anticipated product
deliveries, increases in unbilled retentions and receivables due to year over year timing differences in revenue and related
billings, and decreases in accounts payable due to year over year timing differences, partially offset by an increase in non-
cash expenses of $1.3 million primarily due to an increase in depreciation and amortization and loss from equity method
investments.
Net cash provided by operating activities for the fiscal year ended April 30, 2019 decreased by $42.9 million to
$26.9 million, compared to net cash provided by operating activities of $69.8 million for the fiscal year ended April 30,
2018. This decrease in net cash provided by operating activities was primarily due to a decrease in the cash provided as a
result of changes in operating assets and liabilities of $70.9 million largely resulting from increases in unbilled retentions
and receivables due to year over year timing differences in revenue and related billings and increases in inventory primarily
due to year over year timing differences in purchases to support anticipated product deliveries, partially offset by an
increase in non-cash expenses of $7.7 million primarily due to an increase in the equity method loss associated with the our
HAPS JV, partially offset by a decrease in amortization of held-to-maturity investments, and an increase in net income
from continuing operations of $20.4 million.
Cash Provided by (Used in) Investing Activities. Net cash provided by investing activities increased by
$47.6 million to $59.2 million for the fiscal year ended April 30, 2020, compared to net cash provided by investing
activities of $11.5 million for the fiscal year ended April 30, 2019. The increase in net cash provided by investing activities
was primarily due to higher net redemptions of available-for-sale investments of $92.0 million and held-to-maturity
investments of $15.4 million, partially offset by the proceeds received from the sale of the EES Business in the amount of
$32.0 million in the first quarter of fiscal 2019, and the cash used to purchase Pulse Aerospace, LLC during fiscal 2020, in
the amount of $18.6 million. During the fiscal years ended April 30, 2020 and 2019, we used cash to purchase property and
equipment totaling $11.2 million and $8.9 million, respectively.
Net cash provided by investing activities increased by $17.9 million to $11.5 million for the fiscal year ended
April 30, 2019, compared to net cash used in investing activities of $6.4 million for the fiscal year ended April 30, 2018.
The increase in net cash provided by investing activities was primarily due to the proceeds from the sale of the EES
Business of $32.0 million in fiscal 2019, partially offset by higher net purchases of held-to-maturity investments of
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$12.2 million. During the fiscal years ended April 30, 2019 and 2018, we used cash to purchase property and equipment
totaling $8.9 million and $9.6 million, respectively.
Cash (Used in) Provided by Financing Activities. Net cash used in financing activities increased by $0.6 million
to $1.8 million for the fiscal year ended April 30, 2020, compared to net cash used in financing activities of $1.2 million
for the fiscal year ended April 30, 2019. The increase in net cash used by financing activities was primarily due to the
payment of contingent consideration of $0.9 million related to the purchase of Pulse Aerospace, LLC.
Net cash used in financing activities increased by $3.2 million to $1.2 million for the fiscal year ended April 30,
2019, compared to net cash provided by financing activities of $2.0 million for the fiscal year ended April 30, 2018. The
increase was primarily due to a decrease in the cash provided from the exercise of employee stock options of $2.6 million.
Contractual Obligations
The following table describes our commitments to settle contractual obligations as of April 30, 2020:
Payments Due By Period (2)
Less Than
1 Year
Total
1 to 3 Years
3 to 5 Years
More Than
5 Years
Operating lease obligations
Purchase obligations(1)
Total
$ 11,420
45,911
$ 4,222
45,911
(In thousands)
$ 6,081
$ 1,117
$
—
—
$ 57,331
$ 50,133
$ 6,081
$ 1,117
$
—
—
—
(1) Consists of all cancelable and non-cancelable purchase orders as of April 30, 2020.
(2) Not included in the table above is an additional capital contribution of $5.0 million committed under the terms of a
limited partnership agreement.
Off-Balance Sheet Arrangements
As of April 30, 2020, we had no off-balance sheet arrangements, as defined in Item 303(a)(4) of the SEC’s
Regulation S-K.
Inflation
Our operations have not been, and we do not expect them to be, materially affected by inflation. Historically, we
have been successful in adjusting prices to our customers to reflect changes in our material and labor costs.
Recently Adopted Accounting Standards
Effective May 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), along
with several additional clarification ASU’s issued during 2018 (“New Lease Standard”). This New Lease Standard requires
the lessee to recognize the assets and liabilities for the rights and obligations created by leases. We elected to adopt the
New Lease Standard using the modified retrospective transition approach through a cumulative-effect adjustment to the
opening balance of retained earnings in the period of adoption. As such we did not recast comparative consolidated
financial statements. We also elected the package of practical expedients which allows us to not reassess existing or expired
contracts for existence of a lease, lease classification, or amortization of previously capitalized initial direct leasing cost.
Additionally, we elected the short-term lease exception to not record right-of-use assets and lease liabilities for leases with
a term less than 12 months and the practical expedient to not separate lease and non-lease components for property.
Adoption of the New Lease Standard resulted in the recording of lease assets and lease liabilities on the consolidated
balance sheet with no cumulative impact to retained earnings and did not have a material
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impact on the consolidated statement of cash flows. Refer to Note 11—Leases for additional information required as part of
the adoption of the New Lease Standard.
In July 2018, the FASB issued ASU 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09
provides technical corrections, clarifications and other improvements across a variety of accounting topics. Among the
clarifications, ASU 2018-09 clarifies that an entity should recognize excess tax benefits in the period in which the amount
of the deduction is determined. This includes deductions that are taken on the entity’s return in a different period from
when the event that gives rise to the tax deduction occurs and the uncertainty about whether the entity will receive a tax
deduction and the amount of the tax deduction is resolved. Certain amendments were applicable immediately while others
provide transition guidance and are effective in our first quarter of fiscal year 2020. We adopted ASU 2018-09 on May 1,
2019 using the modified retrospective method. The adoption of ASU 2018-09 resulted in a cumulative adjustment to
increase retained earnings by $665,000 at May 1, 2019.
New Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic
326). This ASU, and several related amendments the FASB has issued to provide additional supplemental guidance on
certain aspects of the original pronouncement, is intended to replace the incurred loss impairment methodology under
GAAP with a methodology that reflects using a forward-looking expected credit loss model for accounts receivables, loans,
and other financial instruments, and requires consideration of a broader range of reasonable and supportable information to
determine credit loss estimates. The guidance is effective for fiscal years beginning after December 15, 2019 and the
interim periods therein, with early adoption permitted. We plan to adopt the guidance effective May 1, 2020 using the
modified retrospective approach. We do not believe the guidance will have a material impact on our allowance for doubtful
accounts for accounts receivable. We are still evaluating the potential impact on its consolidated financial statements for
remaining financial instruments within the scope of this guidance, primarily the debt securities in our investment portfolio.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement (Topic 820). This ASU removes or modifies current disclosures while adding
certain new disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2019 and
interim periods therein, with early adoption permitted for the removed or modified disclosures. The removed and modified
disclosures can be adopted retrospectively, and the added disclosures should be adopted prospectively. We are evaluating
the potential impact of this adoption on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement That Is a Service Contract (Topic 350-40). This ASU allows for capitalization of
implementation costs associated with certain cloud computing arrangements. The guidance is effective for fiscal years
beginning after December 15, 2019 and interim periods therein, with early adoption permitted. We are evaluating the
potential impact of this adoption on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).
This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.
The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods therein, with early
adoption permitted. The adoption method is dependent on the specific amendment included in this update as certain
amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified
retrospective, and prospective adoption. We are evaluating the potential impact of this adoption on its consolidated
financial statements.
In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, and
Topic 815 (Topic 321, Topic 323, and Topic 815). This ASU clarifies accounting certain topics impacted by Topic 321
Investments—Equity Securities. These topics include measuring equity securities using the measurement alternative, how
the measurement alternative should be applied to equity method accounting, and certain forward contracts and purchased
options which would be accounted for under the equity method of accounting upon settlement or exercise. The guidance is
effective for fiscal years beginning after December 15, 2020 and interim periods therein,
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with early adoption permitted. The amendments should be adopted prospectively. We are evaluating the potential impact of
this adoption on its consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
It is our policy not to enter into interest rate derivative financial instruments. We do not currently have any
significant interest rate exposure.
Foreign Currency Exchange Rate Risk
Since a significant part of our sales and expenses are denominated in U.S. dollars, we have not experienced
significant foreign exchange gains or losses to date. We currently do not engage in forward contracts or other derivatives in
foreign currencies to limit our exposure on non-U.S. dollar transactions.
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Item 8. Financial Statements and Supplementary Data.
AeroVironment, Inc.
Audited Consolidated Financial Statements
Index to Consolidated Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at April 30, 2020 and 2019
Consolidated Statements of Income for the Years Ended April 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the Years Ended April 30, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the Years Ended April 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended April 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Quarterly Results of Operations (Unaudited)
Financial Statement Schedule: Schedule II—Valuation and Qualifying Accounts
Supplementary Data
Page
61
65
66
67
68
69
70
104
105
All other schedules are omitted because they are not applicable, not required or the information required is
included in the Consolidated Financial Statements, including the notes thereto.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of AeroVironment, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of AeroVironment, Inc. and subsidiaries (the "Company")
as of April 30, 2020, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash
flows, for the year ended April 30, 2020, and the related notes and schedule listed in the Index at Item 15 (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of April 30, 2020, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of April 30, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated June 23, 2020, expressed an unqualified opinion on the Company's internal
control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company adopted Accounting Standards Update No. 2016-02,
Leases (Topic 842), and all related amendments to Accounting Standard Codification 842, Leases, on May 1, 2019.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
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Revenue Recognition - Refer to Note 1 to the financial statements
Critical Audit Matter Description
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 the customers. The Company’s performance obligations under these contractual agreements are satisfied over time or at
a point in time. Performance obligations are satisfied over time if the customer receives the benefits as the Company
performs, if the customer controls the asset as it is being developed or produced, or if the product being produced for the
customer has no alternative use and the Company has a contractual right to payment for the Company’s costs incurred to
date plus a reasonable margin. For performance obligations satisfied over time, revenue is generally recognized using costs
incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work
performed, which correspond with, and thereby best depict, transfer of control to the customer. Contract costs include
labor, materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial
contracts. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to
each performance obligation using its observable standalone selling price for products and services. When the standalone
selling price is not directly observable, the Company uses its best estimate of the standalone selling price of each distinct
good or service in the contract using the cost-plus reasonable margin approach. As of April 30, 2020, revenue was $367.3
million, of which 42% relates to contracts recognized over time.
We identified the assumptions related to estimating total costs and profit to be a critical audit matter given the inherent
judgement involved in estimating the total costs including labor, materials, subcontractors’ costs, other direct costs and
indirect costs. Auditing such estimates of total costs and profit required extensive audit effort and high degree of auditor
judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to
recognize revenue for certain performance obligations accounted for over time included the following, among others:
● We tested the effectiveness of controls for over time revenue, including management’s controls over the estimates
of total costs and profit for performance obligations.
● We tested the amount of over time revenue recorded by developing an expectation for the amount based on
historical profit as a percentage of costs incurred and comparing our expectation to the amount recorded by
management.
● We selected a sample of contracts with customers and performed the following:
o Compared the transaction price to the consideration expected to be received based on current rights and
obligations under the contracts and any modifications that were agreed upon with the customers.
o Tested the accuracy and completeness of the costs incurred to date for the performance obligation.
o Evaluated the estimates of total cost and profit for the performance obligation by:
◾ Observing the work sites and inspecting the progress to completion.
◾ Evaluating management’s ability to achieve the estimates of total costs and profit by performing
corroborating inquiries with the Company’s project managers and engineers, and comparing the
estimates to management’s work plans, engineering specifications, and supplier contracts.
◾ Comparing management’s estimates for the selected contracts to costs and profits of similar
performance obligations, when applicable.
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● We evaluated management’s ability to estimate total costs and profits accurately by comparing actual costs and
profits to management’s historical estimates for performance obligations that have been fulfilled.
Business Acquisitions – Refer to Note 19 to the financial statements
Critical Audit Matter Description
On June 10, 2019, the Company purchased 100% of the issued and outstanding member units of Pulse pursuant to the
terms of the Pulse Purchase Agreement for $21.88 million. The Company accounted for the acquisition under the
acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their respective fair values, including technology of $14.95 million, in-process
R&D of $0.55 million and goodwill of $6.34 million. Management estimated the fair value of the intangible assets using a
discounted cash flow analysis, which was based on the Company’s best estimate 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. Determining the fair value of the intangible assets acquired requires
significant judgment, including the amount and timing of expected future cash flows and the selected discount rate.
We identified the assumptions related to estimating the amount and timing of expected future cash flows and discount rate
to be a critical audit matter given the inherent judgment involved in estimating these amounts. Performing audit procedures
to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an
increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures applied to the amount and timing of expected future cash flows and the selection of the discount rates
for intangibles included the following, among others:
● We tested the effectiveness of controls over the valuation of intangibles, including management’s controls over
the amount and timing of expected future cash flows and the selection of discount rates.
● We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to
historical results, certain peer companies, third-party industry forecasts, and internal communications to
management and board of directors.
● With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology
and (2) the discount rates utilized, including testing the source information underlying the determination of the
discount rates, testing the mathematical accuracy of the calculation, and developing a range of independent
estimates and comparing those to the discount rates selected by management.
● We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of
the audit.
/s/ Deloitte & Touche LLP
Los Angeles, California
June 23, 2020
We have served as the Company’s auditor since fiscal 2020.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AeroVironment, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of AeroVironment, Inc. and subsidiaries (the Company) as
of April 30, 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash
flows for each of the two years in the period ended April 30, 2019, and the related notes and financial statement schedule
listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30,
2019, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2019, in
conformity with U.S. generally accepted accounting principles.
Adoption of ASU No. 2014-09
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for
revenue from contracts with customers in fiscal year 2019 due to the adoption of ASU No. 2014-09, Revenue from
Contracts with Customers.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 1999 to 2019.
Los Angeles, California
June 25, 2019
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AEROVIRONMENT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
Assets
Current assets:
Cash and cash equivalents
Held-to-maturity short-term investments
Available-for-sale short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,190 at April 30, 2020 and $1,041 at April 30, 2019
Unbilled receivables and retentions (inclusive of related party unbilled receivables of $15,779 at April 30, 2020 and
$9,028 at April 30, 2019)
Inventories
Prepaid expenses and other current assets
Income taxes receivable
Total current assets
Held-to-maturity long-term investments
Available-for-sale long-term investments
Property and equipment, net
Operating lease right-of-use assets
Deferred income taxes
Intangibles, net
Goodwill
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Wages and related accruals
Customer advances
Current operating lease liabilities
Income taxes payable
Other current liabilities
Total current liabilities
Deferred rent
Non-current operating lease liabilities
Other non-current liabilities
Deferred tax liability
Liability for uncertain tax positions
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value:
April 30,
2020
2019
$
$
$
$
$
$
255,142
—
47,507
73,660
75,837
45,535
6,246
—
503,927
—
15,030
21,694
8,793
4,928
13,637
6,340
10,605
584,954
19,859
23,972
7,899
3,380
1,065
10,778
66,953
—
6,833
250
—
1,017
172,708
150,487
—
31,051
53,047
54,056
7,418
821
469,588
9,386
—
16,905
—
6,685
459
—
5,821
508,844
15,972
18,507
2,962
—
—
7,425
44,866
1,173
—
150
29
51
Authorized shares—10,000,000; none issued or outstanding at April 30, 2020 and April 30, 2019
—
—
Common stock, $0.0001 par value:
Authorized shares—100,000,000
Issued and outstanding shares—24,063,639 shares at April 30, 2020 and 23,946,293 shares at April 30, 2019
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total AeroVironment, Inc. stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and stockholders’ equity
2
181,481
328
328,090
509,901
—
509,901
584,954
$
$
2
176,216
2
286,351
462,571
4
462,575
508,844
See accompanying notes to consolidated financial statements.
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AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share data)
Revenue:
Product sales
Contract services (inclusive of related party revenue of $60,864, $55,407 and
$29,594 for the years ended April 30, 2020, 2019, and 2018, respectively)
Cost of sales:
Product sales
Contract services
Gross margin:
Product sales
Contract services
Selling, general and administrative
Research and development
Income from continuing operations
Other income:
Interest income, net
Other income (expense), net
Income from continuing operations before income taxes
Provision for income taxes
Equity method investment loss, net of tax
Net income from continuing operations
Discontinued operations:
(Loss) gain on sale of business, net of tax (benefit) expense of $(76) and $2,444
for the year ended April 30, 2020 and April 30, 2019, respectively
Loss from discontinued operations, net of tax
Net (loss) income from discontinued operations
Net income
Net loss attributable to noncontrolling interest
Net income attributable to AeroVironment, Inc.
Net income (loss) per share attributable to AeroVironment, Inc.—Basic
Continuing operations
Discontinued operations
Net income per share attributable to AeroVironment, Inc.—Basic
Net income (loss) per share attributable to AeroVironment, Inc.—Diluted
Continuing operations
Discontinued operations
Net income per share attributable to AeroVironment, Inc.—Diluted
Weighted-average shares outstanding:
$
$
$
$
$
Year Ended April 30,
2020
2019
2018
$
256,758
$
212,089
$
191,712
110,538
367,296
139,131
75,063
214,194
117,627
35,475
153,102
59,490
46,477
47,135
4,828
707
52,670
5,848
(5,487)
41,335
(265)
—
(265)
41,070
4
41,074
1.74
(0.01)
1.73
1.72
(0.01)
1.71
$
$
$
$
$
102,185
314,274
113,489
72,382
185,871
98,600
29,803
128,403
60,343
34,234
33,826
4,672
11,980
50,478
4,641
(3,944)
41,893
8,490
(2,964)
5,526
47,419
19
47,438
1.77
0.23
2.00
1.74
0.23
1.97
$
$
$
$
$
76,712
268,424
109,393
51,346
160,739
82,319
25,366
107,685
50,826
26,433
30,426
2,240
(49)
32,617
9,800
(1,283)
21,534
—
(3,887)
(3,887)
17,647
216
17,863
0.93
(0.17)
0.76
0.91
(0.16)
0.75
Basic
Diluted
23,806,208
24,088,167
23,663,410
24,071,713
23,471,241
23,813,772
See accompanying notes to consolidated financial statements.
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AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income:
Change in foreign currency translation adjustments
Unrealized gain on investments, net of deferred tax expense of $14, $51 and
$25 for the fiscal years ended 2020, 2019 and 2018, respectively
Total comprehensive income
Net loss attributable to noncontrolling interest
Year Ended April 30,
2020
$ 41,070
2019
$ 47,419
2018
$ 17,647
276
(34)
50
41,396
4
57
47,442
19
36
70
17,753
216
Comprehensive income attributable to AeroVironment, Inc.
$ 41,400
$ 47,461
$ 17,969
See accompanying notes to consolidated financial statements.
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AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands except share data)
Additional
Other
Total
Non-
Accumulated
Common Stock
Paid-In
Retained
Comprehensive AeroVironment, Inc. Controlling
Shares
Amount Capital
Earnings (Loss) Income
Equity
Interest
Total
Balance at April 30, 2017
Net income (loss)
Unrealized gain on investments
Foreign currency translation
Stock options exercised
Restricted stock awards
Restricted stock awards forfeited
Tax withholding payment related to net
share settlement of equity awards
Reclassification from share-based
liability compensation to equity
Stock-based compensation
Balance at April 30, 2018
Net income (loss)
Unrealized gain on investments
Foreign currency translation
Stock options exercised
Restricted stock awards
Restricted stock awards forfeited
Tax withholding payment related to net
share settlement of equity awards
Stock-based compensation
221,050
17,863
23,630,419
2
162,150
— —
— —
— —
—
—
—
153,211
140,787
(6,834)
—
—
—
2,705
—
—
(8,847)
—
(397)
—
—
— —
384
5,297
23,908,736
2
170,139
— —
— —
— —
—
—
—
12,725
57,476
(18,023)
—
—
—
71
—
—
(14,621)
—
— —
(1,094)
7,100
Balance at April 30, 2019
23,946,293
2
176,216
Adoption of ASU 2018-09
Net income (loss)
Unrealized gain on investments
Foreign currency translation
Stock options exercised
Restricted stock awards
Restricted stock awards forfeited
Tax withholding payment related to net
share settlement of equity awards
Stock based compensation
— —
— —
— —
— —
—
—
—
16,189
131,991
(12,541)
—
—
—
—
100
—
—
(18,293)
—
— —
(1,062)
6,227
—
—
—
—
—
—
—
—
238,913
47,438
—
—
—
—
—
—
—
286,351
665
41,074
—
—
—
—
—
—
—
(127)
—
70
36
—
—
—
—
—
—
(21)
—
57
(34)
—
—
—
—
—
2
—
—
50
276
—
—
—
—
—
383,075
17,863
70
36
2,705
—
—
239
(216)
383,314
17,647
70
36
2,705
—
—
—
—
—
—
—
(397)
—
(397)
384
5,297
409,033
47,438
57
(34)
71
—
—
(1,094)
7,100
462,571
665
41,074
50
276
100
—
—
—
—
384
5,297
23
(19)
—
—
—
—
—
409,056
47,419
57
(34)
71
—
—
—
—
4
—
(4)
—
—
—
—
—
(1,094)
7,100
462,575
665
41,070
50
276
100
—
—
(1,062)
6,227
—
—
(1,062)
6,227
Balance at April 30, 2020
24,063,639
$
2
$ 181,481
$ 328,090
$
328 $
509,901 $
— $ 509,901
See accompanying notes to consolidated financial statements.
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AEROVIRONMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net income
Loss (gain) on sale of business, net of tax
Loss from discontinued operations, net of tax
Net income from continuing operations
Adjustments to reconcile net income from continuing operations to cash provided by operating activities from continuing operations:
Depreciation and amortization
Losses from equity method investments
Realized gain from sale of available-for-sale investments
Impairment of long-lived assets
Provision for doubtful accounts
Impairment of intangible assets and goodwill
Other non-cash gain, net
Non-cash lease expense
Loss (gain) on foreign currency transactions
Deferred income taxes
Stock-based compensation
(Gain) loss on sale of property and equipment
Amortization of debt securities
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Unbilled receivables and retentions
Inventories
Income tax receivable
Prepaid expenses and other assets
Accounts payable
Other liabilities
Net cash provided by operating activities of continuing operations
Investing activities
Acquisition of property and equipment
Equity method investments
Business acquisition, net of cash acquired
Proceeds from sale of business
Proceeds from sale of property and equipment
Redemptions of held-to-maturity investments
Purchases of held-to-maturity investments
Redemptions of available-for-sale investments
Purchases of available-for-sale investments
Net cash provided by (used in) investing activities from continuing operations
Financing activities
Principal payments of capital lease obligations
Payment of contingent consideration
Tax withholding payment related to net settlement of equity awards
Exercise of stock options
Net cash (used in) provided by financing activities from continuing operations
Discontinued operations
Operating activities of discontinued operations
Investing activities of discontinued operations
Net cash used in discontinued operations
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Supplemental disclosures of cash flow information
Cash paid, net during the period for:
Income taxes
Non-cash activities
Unrealized gain on investments, net of deferred tax expense of $14, $51 and $25 for the fiscal years ended 2020, 2019 and 2018, respectively
Reclassification from share-based liability compensation to equity
Change in foreign currency translation adjustments
Acquisitions of property and equipment included in accounts payable
Year Ended April 30,
2020
2019
2018
$
$
$
$
$
$
$
41,070
265
—
41,335
9,888
5,487
(180)
—
388
—
(703)
4,574
1
3,419
6,227
(71)
(1,423)
(42,869)
(22,790)
8,855
821
831
3,127
8,180
25,097
(11,220)
(14,498)
(18,641)
—
81
185,917
(176,757)
200,892
(106,607)
59,167
—
(868)
(1,062)
100
(1,830)
—
—
—
82,434
172,708
255,142
532
50
—
276
1,425
$
$
$
$
$
$
$
47,419
(8,490)
2,964
41,893
7,669
3,944
—
4,398
(39)
—
—
—
38
4,792
6,985
76
(1,506)
25,821
(36,175)
(16,631)
(821)
(2,401)
(7,054)
(4,043)
26,946
(8,896)
(7,598)
—
31,994
—
260,918
(267,122)
2,250
—
11,546
(161)
—
(1,094)
71
(1,184)
(7,686)
(431)
(8,117)
29,191
143,517
172,708
6,780
57
—
(34)
810
$
$
$
$
$
$
$
17,647
—
3,887
21,534
5,982
1,283
—
255
977
1,021
—
—
(87)
2,853
4,956
20
1,424
11,070
2,253
1,192
—
139
5,736
9,224
69,832
(9,563)
(3,267)
—
—
—
227,663
(221,680)
450
—
(6,397)
(288)
—
(397)
2,705
2,020
(623)
(1,219)
(1,842)
63,613
79,904
143,517
1,813
70
384
36
379
See accompanying notes to consolidated financial statements.
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AEROVIRONMENT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
AeroVironment, Inc., a Delaware corporation, is engaged in the design, development, production, marketing,
support and operation of unmanned aircraft systems (“UAS”) for various industries and governmental agencies.
Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of AeroVironment, Inc. and its wholly-
owned subsidiaries: Pulse Aerospace, LLC (“Pulse”) and AeroVironment, Inc. (Afghanistan), as well as the Company’s
Turkish joint venture, Altoy Savunma Sanayi ve Havacilik Anonim Sirketi (“Altoy”) (collectively referred to herein as the
“Company”).
In February 2018, the Company dissolved AeroVironment GmbH, the results of which were not material to the
consolidated financial statements. In February 2019, the Company dissolved AeroVironment International PTE. LTD., the
results of which were not material to the consolidated financial statements. In October 2019, the Company dissolved its
wholly-owned subsidiary, Skytower, Inc., the results of which were not material to the consolidated financial statements.
On June 29, 2018, the Company completed the sale of substantially all of the assets and related liabilities of its
efficient energy systems business segment (the “EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) pursuant
to an Asset Purchase Agreement (the “Purchase Agreement”) between Webasto and the Company. The Company
determined that the EES Business met the criteria for classification as an asset held for sale at April 30, 2018 and
represented a strategic shift in the Company’s operations. Therefore, the assets and liabilities and the results of operations
of the EES Business are reported as discontinued operations for all periods presented. Refer to Note 2—Discontinued
Operations for further details.
On June 10, 2019, the Company purchased 100% of the issued and outstanding member units of Pulse Aerospace,
LLC (“Pulse”) pursuant to the terms of a Unit Purchase Agreement (the “Pulse Purchase Agreement”). The assets,
liabilities and operating results of Pulse have been included in the Company’s consolidated financial statements. Refer to
Note 19—Business Acquisitions for further details.
Investments in Companies Accounted for Using the Equity or Cost Method
Investments in other non-consolidated entities are accounted for using the equity method or cost basis depending
upon the level of ownership and/or the Company’s ability to exercise significant influence over the operating and financial
policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically
to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. When
net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is
reduced to zero and additional losses are not provided for as the Company is not obligated to provide additional capital.
The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income
and the Company’s share of that net income exceeds the share of net losses not recognized during the period the equity
method was suspended.
When an investment accounted for using the equity method issues its own shares, the subsequent reduction in the
Company’s proportionate interest in the investee is reflected in equity as an adjustment to paid-in-capital. The
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Company evaluates its investments in companies accounted for by the equity or cost method for impairment when there is
evidence or indicators that a decrease in value may be other than temporary.
In December of 2017, the Company and SoftBank Corp. (“SoftBank”) formed a joint venture, HAPSMobile Inc.
(“HAPSMobile”). As the Company has the ability to exercise significant influence over the operating and financial policies
of HAPSMobile, the Company’s investment is accounted as an equity method investment. The Company has presented its
proportion of HAPSMobile’s net loss in equity method investment loss, net of tax in the consolidated statement of
operations. The carrying value of the investment in HAPSMobile was recorded in other assets, long-term. Refer to Note 8 –
Equity Method Investments for further details.
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. The Company accounts for
investments in limited partnerships as equity method investments as the Company is deemed to have influence when it
holds more than a minor interest. Refer to Note 8 – Equity Method Investments for further details.
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 research and development
(“R&D”), on a consolidated basis for the Company’s continuing operations. Accordingly, the Company operates its
business as a single reportable segment.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles
in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and 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. Significant estimates made by
management include, but are not limited to, valuation of: inventory, available-for-sale securities, acquired intangibles,
goodwill, deferred tax assets and liabilities, useful lives of property, plant and equipment, medical and dental liabilities,
warranty liabilities, long-term incentive plan liabilities and estimates of anticipated contract costs and transaction price
utilized in the revenue recognition process. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, the
Company’s existing intangible assets have been reclassified from other assets to intangibles, net on the consolidated
balance sheet for all periods presented.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the time
of purchase to be cash equivalents. The Company’s cash equivalents are comprised of money market funds, certificates of
deposit of major financial institutions, and U.S. Treasury bills.
Investments
The Company’s investments are accounted for as held-to-maturity reported at amortized cost and available-for-
sale reported at fair value.
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Unrealized gains and losses 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. Premium and discount on investments are amortized and accreted using the
interest method and charged or credited to investment income.
Management determines the appropriate classification of securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. On a
quarterly basis, the Company considers available quantitative and qualitative evidence in evaluating potential impairment
of its investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general
market conditions, the duration and extent to which the fair value is less than cost, and its intent and ability to hold the
investment to maturity. The Company also considers potential adverse conditions related to the financial health of the
issuer based on rating agency actions. Once a decline in fair value is determined to be other-than-temporary, an impairment
charge is recorded in earnings and a new cost basis in the investment is established.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, unbilled receivables, retentions and accounts
payable approximate cost due to the short period of time to maturity.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of
cash, cash equivalents, municipal bonds, U.S. government securities, U.S. government-guaranteed agency securities, U.S.
government sponsored agency debt securities, highly rated commercial paper, highly rated corporate bonds, and accounts
receivable. The Company currently invests the majority of its cash in municipal bonds, U.S. government securities, U.S.
government-guaranteed agency securities, U.S. government sponsored agency debt securities and highly rated corporate
bonds. The Company’s revenue and accounts receivable are with a limited number of corporations and governmental
entities. In the aggregate, 61%, 58% and 58% of the Company’s revenue came from agencies of the U.S. government for
the years ended April 30, 2020, 2019 and 2018, respectively. These agencies accounted for 62% and 26% of the accounts
receivable balances at April 30, 2020 and 2019, respectively. One such agency, the U.S. Army, accounted for 32%, 28%
and 19% of the Company’s consolidated revenue for the years ended April 30, 2020, 2019 and 2018, respectively. The
Company performs ongoing credit evaluations of its commercial customers and maintains an allowance for potential losses.
Accounts Receivable, Unbilled Receivables and Retentions
Accounts receivable represents primarily U.S. government and allied foreign governments, and to a lesser extent
commercial receivables, net of allowances for doubtful accounts. Unbilled receivables represent costs in excess of billings
on incomplete contracts and, where applicable, accrued profit related to government long-term contracts on which revenue
has been recognized, but for which the customer has not yet been billed. Unbilled receivables are considered contract
assets.
Retentions represent amounts withheld by customers until contract completion. At April 30, 2020 and 2019, the
retention balances were $717,000 and $1,102,000, respectively. The Company determines the allowance for doubtful
accounts based on historical customer experience and other currently available evidence. When a specific account is
deemed uncollectible, the account is written off against the allowance. The allowance for doubtful accounts reflects the
Company’s best estimate of probable losses inherent in the accounts receivable balance; such losses have historically been
within management’s expectations. An account is deemed past due based on contractual terms rather than on how recently
payments have been received.
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Inventories
Inventories are stated at the lower of cost (using the weighted average costing method) or net realizable value.
Inventory write-offs and write-down provisions are provided to cover risks arising from slow-moving items or
technological obsolescence and for market prices lower than cost. The Company periodically evaluates the quantities on
hand relative to current and historical selling prices and historical and projected sales volume. Based on this evaluation,
provisions are made to write inventory down to its net realizable value.
Long-Lived Assets
Property and equipment are carried at cost. Depreciation of property and equipment, including amortization of
leasehold improvements, are provided using the straight-line method over the following estimated useful lives:
Machinery and equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
2 - 7
2 - 5
3 - 7
years
years
years
Lesser of useful life or term of lease
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments to
property and equipment are capitalized at cost. When the Company disposes of assets, the applicable costs and accumulated
depreciation and amortization thereon are removed from the accounts and any resulting gain or loss is included in selling,
general and administrative (“SG&A”) expense in the period incurred.
The Company reviews the recoverability of its long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon,
among other things, assumptions about expected future operating performance, and may differ from actual cash flows. If
the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets
will be written down to the estimated fair value in the period in which the determination is made. During the three months
ended April 30, 2019, the Company recorded an impairment loss of $4,398,000 related to the long-lived assets of its
commercial UAS Quantix solution. Refer to Note 7 – Property and equipment, net.
Intangibles Assets — Acquired in Business Combinations
The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as
a business combination and allocates the purchase price of the acquired business to the respective net tangible and
intangible assets. Acquired intangible assets include technology, in-process research and development, customer
relationships, trademarks and tradenames, and non-compete agreements. The Company determines the appropriate useful
life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible
assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern in
which the economic benefits are consumed. The estimated useful life for the Company’s intangible assets are as follows:
Technology
Licenses
Customer relationships
In-process research and development
Non-compete agreements
6
3
3 - 5
3
Contractual term
years
years
years
years
The Company monitors conditions related to these assets to determine whether events and circumstances warrant a
revision to the remaining amortization period. The Company tests its intangible assets with finite lives for potential
impairment whenever management concludes events or changes in circumstances indicate that the carrying
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amount may not be recoverable. The original estimate of an asset's useful life and the impact of an event or circumstance
on either an asset's useful life or carrying value involve significant judgment.
Goodwill
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets.
Goodwill is tested for impairment annually during the fourth quarter of the Company’s 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 the Company’s use of the acquired assets or the strategy for the Company’s overall business,
significant negative industry or economic trends or significant underperformance relative to projected future results of
operations.
Product Warranty
The Company accrues an estimate of its exposure to warranty claims based upon both current and historical
product sales data and warranty costs incurred. Product warranty reserves are recorded in other current liabilities.
Accrued Sales Commissions
As of April 30, 2020 and 2019, the Company accrued sales commissions in other current liabilities of $2,842,000
and $1,301,000, respectively.
Self-Insurance Liability
The Company is self-insured for employee medical claims, subject to individual and aggregate stop loss policies.
The Company estimates a liability for claims filed and incurred but not reported based upon recent claims experience and
an analysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by the
Company. As of April 30, 2020 and 2019, the Company estimated and recorded a self-insurance liability in wages and
related accruals of approximately $753,000 and $965,000, respectively.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences between the financial statement
and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The provision
for income taxes reflects the taxes to be paid for the period and the change during the period in the deferred income tax
assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount of future
tax benefit that is more likely than not to be realized. For uncertain tax positions, the Company determines whether it is
“more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before
any part of the benefit can be recorded in the financial statements. For those tax positions where it is “not more likely than
not” that a tax benefit will be sustained, no tax benefit is recognized. Where applicable, associated interest and penalties are
also recorded.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant
changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to
21% effective for tax years beginning after December 31, 2017, repeal of the corporate alternative minimum tax, repeal of
the deduction for domestic production activities, and limitation on the deductibility of certain executive compensation.
In accordance with U.S. GAAP as determined by ASC 740, Income Taxes, the Company is required to record the
effects of tax law changes in the period enacted. The Company remeasured its existing deferred tax assets and liabilities at
the rate the Company expects to be in effect when those deferred taxes will be realized and recorded a one-time deferred
tax expense of approximately $3,300,000 during the year ended April 30, 2018.
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On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES
Act) in an effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to
the COVID-19 pandemic, some of the more significant provisions are not expected to impact the Company’s financial
statements including the removal of certain limitations on utilization of net operating losses, increasing the loss carryback
period for certain losses to five years, and increasing the ability to deduct interest expense. The Company does expect to
benefit in the future, however, from the technical correction made to the previously enacted Tax Cuts and Jobs Act in
relation to tax depreciation of qualified improvement property.
Customer Advances and Amounts in Excess of Cost Incurred
The Company receives advances, performance-based payments and progress payments from customers that may
exceed costs incurred on certain contracts, including contracts with agencies of the U.S. government resulting in contract
liabilities. These advances are classified as advances from customers and will be offset against billings.
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 the customers. These contracts may be firm fixed price (“FFP”), cost plus fixed fee (“CPFF”), or time
and materials (“T&M”). The Company considers all such contracts to be within the scope of ASC Topic 606, Revenue from
Contracts with Customers (“ASC 606”).
Performance Obligations
A performance obligation is a promise in a contract to transfer distinct goods or services to a customer, and it is
the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and
revenue is recognized when each performance obligation under the terms of a contract is satisfied. Revenue is measured at
the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. For
contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each
performance obligation using its observable standalone selling price for products and services. When the standalone selling
price is not directly observable, the Company uses its best estimate of the standalone selling price of each distinct good or
service in the contract using the cost plus reasonable margin approach. This approach estimates the Company’s expected
costs of satisfying the performance obligation and then adds an appropriate margin for that distinct good or service.
Contract modifications are routine in the performance of the Company’s contracts. In most instances, contract
modifications are for additional goods and/or services that are distinct and, therefore, accounted for as new contracts.
The Company’s performance obligations are satisfied over time, which accounted for 42% of revenue during our
fiscal year ended April 30, 2020, or at a point in time, 58%. Performance obligations are satisfied over time if the customer
receives the benefits as the Company performs, if the customer controls the asset as it is being developed or produced, or if
the product being produced for the customer has no alternative use and the Company has a contractual right to payment for
the Company’s costs incurred to date plus a reasonable margin. The contractual right to payment is generally supported by
termination for convenience clauses that allow the customer to unilaterally terminate the contract for convenience, pay the
Company for costs incurred plus a reasonable profit, and take control of any work in process. Revenue for tactical missile
systems (“TMS”) product deliveries and Customer-Funded R&D contracts is recognized over time as costs are incurred.
Contract services revenue is composed of revenue recognized on contracts for the provision of services, including repairs
and maintenance, training, engineering design, development and prototyping activities, and technical support services.
Contract services revenue is recognized over time as services are rendered. Typically, revenue is recognized over time
using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.
Training services are recognized over time using an output method based on days of training completed.
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For performance obligations satisfied over time, revenue is generally recognized using costs incurred to date
relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which
correspond with, and thereby best depict, transfer of control to the customer. Contract costs include labor, materials,
subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts.
For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue is
recognized at the point in time in which each performance obligation is fully satisfied. The Company’s small UAS product
sales revenue is composed of revenue recognized on contracts for the delivery of small UAS systems and spare parts.
Revenue is recognized at the point in time when control transfers to the customer, which generally occurs when title and
risk of loss have passed to the customer.
On April 30, 2020, the Company had approximately $208,063,000 of remaining performance obligations under
contracts with its customers, which the Company also refers to as backlog. The Company currently expects to recognize
approximately 96% of the remaining performance obligations as revenue in fiscal 2021, an additional 4% in fiscal 2022,
and the balance thereafter.
The Company collects sales, value add, and other taxes concurrent with revenue producing activities, which are
excluded from revenue when they are both imposed on a specific transaction and collected from a customer.
Contract Estimates
Accounting for contracts and programs primarily with a duration of less than six months involves the use of
various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the total
expected costs to complete the contract and recognizes revenue based on the percentage of costs incurred at period end.
Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to
measure progress toward satisfying the Company’s performance obligations. Incurred costs represent work performed,
which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor,
materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts.
Contract estimates are based on various assumptions to project the outcome of future events that may span several
years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost
and availability of materials, the performance of subcontractors, and the availability and timing of funding from the
customer.
The nature of the Company’s contracts gives rise to several types of variable consideration, including penalty fees
and incentive awards generally for late delivery and early delivery, respectively. The Company generally estimates such
variable consideration as the most likely amount. In addition, the Company includes the estimated variable consideration to
the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when
the related uncertainty is resolved. These estimates are based on historical award experience, anticipated performance and
the Company’s best judgment at the time. Because of the certainty in estimating these amounts, they are included in the
transaction price of the Company’s contracts and the associated remaining performance obligations.
As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts,
the Company regularly reviews and updates its contract-related estimates. Changes in cumulative revenue estimates, due to
changes in the estimated transaction price or cost estimates, are recorded using a cumulative catch-up adjustment in the
period identified for contracts with performance obligations recognized over time. If at any time the estimate of contract
profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter it is
identified.
The impact of adjustments in contract estimates on the Company’s operating earnings can be reflected in either
operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates on revenue related to
performance obligations satisfied or partially satisfied in previous periods was not significant for the years ended April
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30, 2020, 2019 or 2018. During the year ended April 30, 2020, the Company revised its estimates of the total expected
costs to complete a TMS contract and a contract associated with a design and development agreement. The aggregate
impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially
satisfied in previous periods was a decrease of approximately $1,403,000 and an increase of approximately $1,099,000,
respectively. No adjustment on any one contract was material to the Company’s consolidated financial statements for the
years ended April 30, 2019. During the year ended April 30, 2018, the Company revised its estimates of the total expected
costs to complete a TMS variant contract. The aggregate impact of these adjustments in contract estimates on revenue
related to performance obligations satisfied or partially satisfied in previous periods was a decrease of approximately
$1,255,000.
Revenue by Category
The following tables present the Company’s revenue disaggregated by major product line, contract type, customer
category and geographic location (in thousands):
Revenue by major product line/program
Small UAS
TMS
HAPS
Other
Total revenue
Revenue by contract type
FFP
CPFF
T&M
Total revenue
Year Ended April 30,
2020
$ 225,888
63,781
60,864
16,763
2019
$ 183,157
65,087
55,407
10,623
2018
$ 167,534
63,406
29,593
7,891
$ 367,296
$ 314,274
$ 268,424
Year Ended April 30,
2020
$ 269,917
94,176
3,203
2019
$ 224,090
89,485
699
2018
$ 212,976
55,203
245
$ 367,296
$ 314,274
$ 268,424
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. CPFF 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.
Revenue by customer category
U.S. government:
Non-U.S. government
Total revenue
Revenue by geographic location
Domestic
International
Total revenue
Year Ended April 30,
2020
$ 225,341
141,955
2019
$ 182,586
131,688
2018
$ 156,996
111,428
$ 367,296
$ 314,274
$ 268,424
Year Ended April 30,
2020
$ 201,046
166,250
2019
$ 151,124
163,150
2018
$ 142,158
126,266
$ 367,296
$ 314,274
$ 268,424
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Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled
receivables, and customer advances and deposits on the consolidated balance sheet. In the Company’s services contracts,
amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which
is generally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to revenue
recognition, resulting in contract assets recorded in unbilled receivables and retentions on the consolidated balance sheet.
However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting
in contract liabilities recorded in customer advances on the consolidated balance sheet. Contract liabilities are not a
significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used
to ensure the customer meets contractual requirements. These assets and liabilities are reported on the consolidated balance
sheet on a contract-by-contract basis at the end of each reporting period. For the Company’s product revenue, the Company
generally receives cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting
in billed accounts receivable. Changes in the contract asset and liability balances during the years ended April 30, 2020 or
2019 were not materially impacted by any other factors. For the Company’s contracts, there are no significant gaps between
the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of
consideration.
Revenue recognized for the years ended April 30, 2020, 2019, and 2018 that was included in contract liability
balances at the beginning of each year were $1,670,000, $1,587,000 and $977,000, respectively.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as
expense over the requisite service period, which is generally the vesting period of the respective award. No compensation
cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited.
Long-Term Incentive Awards
For long-term incentive awards outstanding as of April 30, 2020, the awards include time-based awards which
vest equally over three years and performance-based awards which vest based on the achievement of a target payout
established at the beginning of each performance period. The actual payout at the end of the performance period is
calculated based upon the Company’s achievement of such targets. Payouts are made in shares of restricted stock which
become immediately vested upon issuance.
At each reporting period, the Company reassesses the probability of achieving the performance targets. 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 those
changes will be recorded in the period estimates are revised.
Research and Development
Internally funded research and development costs (“IRAD”), sponsored by the Company relate to both U.S.
government products and services and those for commercial and foreign customers. IRAD costs for the Company are
recoverable and allocable under government contracts in accordance with U.S. government procurement regulations.
Customer-funded research and development costs are incurred pursuant to contracts (revenue arrangements) to
perform research and development activities according to customer specifications. These costs are direct contract costs and
are expensed to cost of sales when the corresponding revenue is recognized, which is generally as the research and
development services are performed. Revenue from customer-funded research and development was approximately
$80,934,000, $76,407,000 and $52,489,000 for the years ended April 30, 2020, 2019 and 2018, respectively. The related
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cost of sales for customer-funded research and development totaled approximately $56,440,000, $54,824,000 and
$36,855,000 for the years ended April 30, 2020, 2019 and 2018, respectively.
In January 2017, the Company executed a cost sharing Other Transaction Agreement type contract funded by the
US Federal Government to perform certain system design, development and functional testing activities specific to a new
prototype UAS on a best-efforts basis. Costs of $21,933,000 will be reimbursed to the Company as the activities are
performed, while the Company is responsible for funding a minimum of $11,225,000. The term of the agreement is through
December 2020. The Company has determined that the contract meets the criteria of ASC 912-730-05 Contractors –
Federal Government and, therefore, all reimbursements are recorded as an offset to research and development expense in
the consolidated statements of income. Reimbursements under the contract were $8,102,000, $5,936,000 and $4,188,000
for the fiscal years ended April 30, 2020, 2019 and 2018, respectively.
Lease Accounting
The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), along with several
additional clarification ASU’s issued during 2018 (“New Lease Standard”) effective May 1, 2019. The New Lease Standard
requires the lessee to recognize the assets and liabilities for the rights and obligations created by leases. At contract
inception the Company determines whether the contract is, or contains, a lease and whether the lease should be classified as
an operating or a financing lease. Operating leases are recorded in operating lease right-of-use assets, current operating
lease liabilities and non-current operating lease liabilities.
The Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present
value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental
borrowing rate based on the information available at commencement date to determine the present value of future payments
and the appropriate lease classification. The Company defines the initial lease term to include renewal options determined
to be reasonably certain. The Company’s leases have remaining lease terms of less than one year to six years, some of
which may include options to extend the lease for up to 10 years, and some of which may include options to terminate the
lease after two years. None of the Company’s options to extend or terminate are reasonably certain of being exercised, and
are therefore not included in the Company’s determination of lease assets and liabilities. For operating leases, the Company
recognizes lease expense for these leases on a straight-line basis over the lease term.
Many of the Company’s real estate lease agreements contain incentives for tenant improvements, rent holidays, or
rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement
owned by the lessee, the Company generally records incentive as a reduction to fixed lease payments thereby reducing rent
expense. For rent holidays and rent escalation clauses during the lease term, the Company records rental expense on a
straight-line basis over the term of the lease. For these lease incentives, the Company uses the date of initial possession as
the commencement date, which is generally when the Company is given the right of access to the space and begins to make
improvements in preparation for intended use.
The Company does not have any finance leases. The Company does not have any material restrictions or
covenants in its lease agreements, sale-leaseback transactions, land easements or residual value guarantees.
In determining the inputs to the incremental borrowing rate calculation, the Company makes judgments about the
value of the leased asset, its credit rating and the lease term including the probability of its exercising options to extend or
terminate the underlying lease. Additionally, the Company makes judgments around contractual asset substitution rights in
determining whether a contract contains a lease.
Prior to adoption of the New Lease Standard, the Company accounted for its leases and subsequent amendments
as operating leases or capital leases for financial reporting purposes. Certain operating leases contained rent escalation
clauses, which were recorded on a straight-line basis over the initial term of the lease with the difference between the rent
paid and the straight-line rent recorded as a deferred rent liability. Lease incentives received from landlords were recorded
as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction to rent expense.
Deferred rent liabilities were approximately $1,173,000 and $1,536,000 as of April 30, 2019 and 2018, respectively.
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Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses included in SG&A expenses were
approximately $934,000, $897,000 and $526,000 for the years ended April 30, 2020, 2019 and 2018, respectively.
Foreign Currency Transactions
Foreign currency transaction gains and losses are charged or credited to earnings as incurred. For the fiscal years
ended April 30, 2020, 2019 and 2018, foreign currency transaction gains and losses that are included in other income
(expense) in the accompanying statements of income were $(1,000), $(38,000), and $87,000, respectively.
Earnings Per Share
Basic earnings per share are computed using the weighted-average number of common shares outstanding and
excludes any anti-dilutive effects of options, restricted stock and restricted stock units. The dilutive effect of potential
common shares outstanding is included in diluted earnings per share.
The reconciliation of diluted to basic shares is as follows:
Year Ended April 30,
2020
2019
2018
Continuing operations attributable to AeroVironment, Inc.
Discontinued operations, net of tax
Net income attributable to AeroVironment, Inc.
$ 41,339,000
(265,000)
$ 41,912,000
5,526,000
$ 21,750,000
(3,887,000)
$ 41,074,000
$ 47,438,000
$ 17,863,000
Denominator for basic earnings per share:
Weighted average common shares
Dilutive effect of employee stock options, restricted stock and
restricted stock units
Denominator for diluted earnings per share
23,806,208
23,663,410
23,471,241
281,959
408,303
342,531
24,088,167
24,071,713
23,813,772
During the years ended April 30, 2020, 2019 and 2018, certain options, shares of restricted stock and restricted
stock units were not included in the computation of diluted earnings per share because their inclusion would have been
anti-dilutive. The number of options, restricted stock and restricted stock units which met this anti-dilutive criterion was
approximately 3,000, 18,000 and 22,000 for the years ended April 30, 2020, 2019 and 2018, respectively.
Recently Adopted Accounting Standards
Effective May 1, 2019, the Company adopted the New Lease Standard. This New Lease Standard requires the
lessee to recognize the assets and liabilities for the rights and obligations created by leases. The Company elected to adopt
the New Lease Standard using the modified retrospective transition approach through a cumulative-effect adjustment to the
opening balance of retained earnings in the period of adoption. As such the Company did not recast comparative
consolidated financial statements. The Company also elected the package of practical expedients which allows the
Company to not reassess existing or expired contracts for existence of a lease, lease classification, or amortization of
previously capitalized initial direct leasing cost. Additionally, the Company elected the short-term lease exception to not
record right-of-use assets and lease liabilities for leases with a term less than 12 months and the practical expedient to not
separate lease and non-lease components for property. Adoption of the New Lease Standard resulted in the recording of
lease assets and lease liabilities on the consolidated balance sheet with no cumulative impact to retained earnings and did
not have a material impact on the consolidated statement of cash flows. Refer to Note 10—Leases for additional
information required as part of the adoption of the New Lease Standard.
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In July 2018, the FASB issued ASU 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09
provides technical corrections, clarifications and other improvements across a variety of accounting topics. Among the
clarifications, ASU 2018-09 clarifies that an entity should recognize excess tax benefits in the period in which the amount
of the deduction is determined. This includes deductions that are taken on the entity’s return in a different period from
when the event that gives rise to the tax deduction occurs and the uncertainty about whether the entity will receive a tax
deduction and the amount of the tax deduction is resolved. Certain amendments were applicable immediately while others
provide transition guidance and are effective in the Company’s first quarter of fiscal year 2020. The Company adopted
ASU 2018-09 on May 1, 2019 using the modified retrospective method. The adoption of ASU 2018-09 resulted in a
cumulative adjustment to increase retained earnings by $665,000 at May 1, 2019.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic
326). This ASU, and several related amendments the FASB has issued to provide additional supplemental guidance on
certain aspects of the original pronouncement, is intended to replace the incurred loss impairment methodology under
GAAP with a methodology that reflects using a forward-looking expected credit loss model for accounts receivables, loans,
and other financial instruments, and requires consideration of a broader range of reasonable and supportable information to
determine credit loss estimates. The guidance is effective for fiscal years beginning after December 15, 2019 and the
interim periods therein, with early adoption permitted. The Company plans to adopt the guidance effective May 1, 2020
using the modified retrospective approach. The Company does not believe the guidance will have a material impact the
Company’s allowance for doubtful accounts for accounts receivable. The Company is still evaluating the potential impact
on its consolidated financial statements for remaining financial instruments within the scope of this guidance, primarily the
debt securities in the Company’s investment portfolio.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement (Topic 820). This ASU removes or modifies current disclosures while adding
certain new disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2019 and
interim periods therein, with early adoption permitted for the removed or modified disclosures. The removed and modified
disclosures can be adopted retrospectively, and the added disclosures should be adopted prospectively. The Company is
evaluating the potential impact of this adoption on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement That Is a Service Contract (Topic 350-40). This ASU allows for capitalization of
implementation costs associated with certain cloud computing arrangements. The guidance is effective for fiscal years
beginning after December 15, 2019 and interim periods therein, with early adoption permitted. The Company plans to
adopt the guidance effective May 1, 2020 using the prospective approach. The Company is evaluating the potential impact
of this adoption on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).
This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.
The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods therein, with early
adoption permitted. The adoption method is dependent on the specific amendment included in this update as certain
amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified
retrospective, and prospective adoption. The Company is evaluating the potential impact of this adoption on its
consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, and
Topic 815 (Topic 321, Topic 323, and Topic 815). This ASU clarifies accounting certain topics impacted by Topic 321
Investments—Equity Securities. These topics include measuring equity securities using the measurement alternative, how
the measurement alternative should be applied to equity method accounting, and certain forward contracts and purchased
options which would be accounted for under the equity method of accounting upon settlement or exercise. The guidance is
effective for fiscal years beginning after December 15, 2020 and interim periods therein, with early adoption permitted. The
amendments should be adopted prospectively. The Company is evaluating the potential impact of this adoption on its
consolidated financial statements.
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2. Discontinued Operations
On June 29, 2018, the Company completed the sale of the EES Business to Webasto. In accordance with the terms
of the Purchase Agreement, as amended by a side letter agreement executed at the closing, the Company received cash
consideration of $31,994,000 upon closing, which resulted in a gain of $11,420,000 and has been recorded in gain on sale
of business, net of tax in the consolidated statements of income. During the year ended April 30, 2019, the Company
recorded a reduction to the gain resulting from a working capital adjustment of $486,000. During the year ended April 30,
2020, the Company and Webasto engaged an independent accounting firm to resolve a working capital dispute with a
maximum exposure of $922,000 pursuant to the terms of the Purchase Agreement. In June 2020, the independent
accounting firm determined the final adjustment to the working capital dispute to be $341,000 which has been recorded net
of tax as discontinued operations in the consolidated statements of income.
The Company is entitled to receive additional cash consideration of $6,500,000 (the “Holdback”) upon tendering
consents to assignment of two remaining customer contracts to Webasto. The Holdback was not recorded in the Company’s
consolidated financial statements as the amount was not realized or realizable as of April 30, 2020. The Company’s
satisfaction of the requirements for the payment of the Holdback is currently in dispute.
On February 22, 2019, Webasto filed a lawsuit alleging several claims against the Company for breach of contract,
indemnity, and bad faith, including allegations regarding inaccuracy of certain diligence disclosures, failure to provide
certain consents to contract assignments and related to a previously announced product recall. Webasto seeks to recover the
costs of the recall and other damages totaling a minimum of $6,500,000 in addition to attorneys’ fees, costs, and punitive
damages. On August 16, 2019, the Company filed a counterclaim against Webasto seeking payment of the Holdback and
declaratory relief regarding Webasto’s cancellation of an assigned contract. The Company believes that the allegations are
generally meritless and is mounting a vigorous defense.
During the three months ended October 27, 2018, Webasto filed a recall report with the National Highway Traffic
Safety Administration that named certain of the Company’s EES products as subject to the recall. The Company is
continuing to assess the facts giving rise to the recall. Under the terms of the Purchase Agreement, the Company may be
responsible for certain costs of such recall of named products the Company manufactured, sold or serviced prior to the
closing of the sale of the EES Business. On August 14, 2019, Benchmark Electronics, Inc. (“Benchmark”), the company
that assembled the products subject to the recall, served a demand for arbitration to the Company and Webasto, and a third-
party part supplier pursuant to its contracts with the Company and Webasto, respectively. The Company filed a responsive
pleading in the Benchmark arbitration on October 29, 2019, consisting of a general denial, affirmative defenses, and a
reservation of the right to file counter-claims at a later date. Webasto challenged the validity of the Benchmark arbitration
by filing an action in New York Superior Court. In December 2019, Webasto and Benchmark reached a settlement of their
disputed claims. Benchmark withdrew its Notice of Arbitration against Webasto and the Company, but reserved its right to
pursue indemnity claims against suppliers. The recall remains a significant part of the Webasto lawsuit.
Concurrent with the execution of the Purchase Agreement, the Company entered into a transition services
agreement (the “TSA”) to provide certain general and administrative services to Webasto for a defined period. Income from
performing services under the TSA was $551,000 and $2,758,000 and has been recorded in other income, net in the
consolidated statements of income for the fiscal years ended April 30, 2020 and 2019, respectively.
The Company determined that the EES Business met the criteria for classification as an asset held for sale as of
April 30, 2018 and represents a strategic shift in the Company’s operations. Therefore, the results of operations of the
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EES Business are reported as discontinued operations for all periods presented. The table below presents the statements of
income data for the EES Business (in thousands).
Net sales
Cost of sales
Gross margin
Selling, general and administrative
Research and development
Other income, net
Loss from discontinued operations before income taxes
Benefit for income taxes
Net loss from discontinued operations
(Loss) gain on sale of business, net of tax (benefit) expense of $(76) and $2,444
for the year ended April 30, 2020 and April 30, 2019, respectively
Net (loss) income from discontinued operations
Year Ended April 30,
2020
2019
2018
$
$
$
— $
—
—
—
—
—
—
—
4,256 $
5,097
(841)
1,515
1,072
1
(3,427)
(463)
— $
(2,964) $
38,411
33,384
5,027
7,825
3,526
(27)
(6,351)
(2,464)
(3,887)
(265)
8,490
—
(265) $
5,526 $
(3,887)
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3. Investments
Investments consist of the following:
Short-term investments:
Held-to-maturity securities:
Municipal securities
U.S. government securities
Corporate bonds
Total held-to-maturity investments
Available-for-sale securities:
Municipal securities
U.S. government securities
Corporate bonds
Total available-for-sale investments
Total short-term investments
Long-term investments:
Held-to-maturity securities:
U.S. government securities
Corporate bonds
Total held-to-maturity investments
Available-for-sale securities:
Municipal securities
U.S. government securities
Total available-for-sale investments
Equity method investments
Investment in limited partnership fund
Total equity method investments
Total long-term investments
Held-To-Maturity Securities
April 30,
2020
2019
(In thousands)
$
— $
—
—
—
5,332
63,205
81,950
150,487
5,244
33,771
8,492
47,507
—
—
—
—
$
47,507
$
150,487
$
— $
—
—
7,404
1,982
9,386
1,592
8,996
10,588
4,442
4,442
—
—
—
—
—
$
15,030
$
9,386
As of April 30, 2019, the balance of held-to-maturity securities consisted of state and local government municipal
securities, U.S. government securities, U.S. government agency securities, and corporate bonds. Interest earned from these
investments is recorded in interest income. During the three months ended April 30, 2020, in consideration of the impact of
the COVID-19 pandemic, the Company made the strategic decision to sell a significant portion of its corporate and
municipal held-to-maturity securities and invested the proceeds in cash and cash equivalents and U.S. government and U.S.
government agency securities. As such the investments were transferred from held-to-maturity classification to available-
for-sale classification. Prior to the three months ended April 30, 2020, the Company had the intent and ability to hold its
investments classified as held-to-maturity to their maturity dates. The net carrying
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amount and net unrealized gains of held to maturity securities transferred to available-for-sale securities or cash equivalents
at the time of transfer are as follows (in thousands):
Municipal securities
U.S. government securities
Corporate bonds
Certificate of deposits
Total held-to-maturity investments
Carrying
Amount
Net
Unrealized
Gains
$
$
23,706
41,465
85,679
1,017
151,867
$
$
34
38
73
5
150
The Company held no held-to maturity securities at April 30, 2020. The amortized cost, gross unrealized losses,
and estimated fair value of the held-to-maturity securities as of April 30, 2019 are as follows (in thousands):
Municipal securities
U.S. government securities
Corporate bonds
Total held-to-maturity investments
Available-For-Sale Securities
Amortized
Cost
$
$
5,332
70,609
83,932
159,873
$
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
2
78
20
100
$
$
(1)
(52)
(5)
(58)
$
$
Fair
Value
5,333
70,635
83,947
159,915
As of April 30, 2020, the balance of available-for-sale securities consisted of state and local government municipal
securities, U.S. government securities, U.S. government agency securities, and investment grade corporate bonds. Interest
earned from these investments is recorded in interest income. Realized gains on sales of these investments on the basis of
specific identification is recorded in interest income.
The Company held no available-for-sale securities at April 30, 2019. The following table is a summary of the
activity related to the available-for-sale investments recorded in short-term and long-term investments (in thousands):
Municipal securities
U.S. government securities
Corporate bonds
Total held-to-maturity investments
Amortized
Cost
$
$
6,807
42,730
8,495
58,032
$
$
April 30, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
29
41
—
70
$
$
— $
(4)
(3)
(7)
$
Fair
Value
6,836
42,767
8,492
58,095
The amortized cost and fair value of the Company’s available-for-sale securities by contractual maturity at
April 30, 2020, are as follows:
Due within one year
Due after one year through five years
Total
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Cost
$ 47,457
10,575
Fair Value
$ 47,507
10,588
$ 58,032
$ 58,095
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Auction Rate Securities
As of April 30, 2018, the balance of available-for-sale auction rate securities consisted of two investment grade
auction rate municipal bonds with maturities ranging from 1 to 16 years. These investments have characteristics similar to
short term investments. During the three months ended July 28, 2018, the remaining investment grade auction rate
municipal bonds were redeemed at par value.
4. 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:
● Level 1—Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in
active markets that are accessible as of the measurement date.
● Level 2—Inputs to the valuation include quoted prices in either markets that are not active, or in active
markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are
derived principally from or corroborated by observable market data.
● Level 3—Inputs to the valuation that are unobservable inputs for the asset or liability.
The Company’s financial assets measured at fair value on a recurring basis at April 30, 2020, were as follows (in
thousands):
Fair Value Measurement Using
Description
Available-for-sale securities
Total
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
— $ 58,095
— $ 58,095
Significant
unobservable
inputs
(Level 3)
Total
$
$
— $ 58,095
— $ 58,095
$
$
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The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on
a recurring basis that used significant unobservable inputs (Level 3) (in thousands):
Description
Balance at May 1, 2019
Business acquisition
Transfers to Level 3
Total (gains) losses (realized or unrealized)
Included in product cost of sales
Included in selling, general and administrative
Included in research and development
Included in other comprehensive income
Settlements
Balance at April 30, 2020
The amount of total (gains) or losses for the period included in
earnings attributable to the change in unrealized gains or losses relating to
assets or liabilities still held at April 30, 2020
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
$
$
$
—
1,703
—
1,147
(703)
353
—
(2,500)
—
—
Pursuant to the Pulse Purchase Agreement, the sellers may have received up to a maximum of $5,000,000 in
additional cash consideration (“contingent consideration”), if specific research and development milestones were achieved
by December 10, 2021 and the continued employment of specific key employees. The contingent consideration was valued
using a probability weighted discounted cash flow model. The analysis considered, among other items, contractual terms of
the Pulse Purchase Agreement, the Company’s discount rate, the timing of expected future cash flows and the probability
that the milestones required for payment of the contingent consideration will be achieved. See Note 19—Business
Acquisitions. During the fiscal year ended April 30, 2020, one of the research and development milestones was achieved,
and the requirements for the payout of remaining contingent consideration were concluded to not have been met. As a
result, the Company recorded a gain of $832,000, which was recorded in selling, general, and administrative expense in the
consolidated statements of income. On February 26, 2020, $2,500,000 of contingent consideration was paid to the sellers
for the achieved milestone, and the remaining $2,500,000 will not be paid.
5. Inventories, net
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Inventories, gross
Reserve for inventory excess and obsolescence
Inventories, net
April 30,
2020
$ 15,988
10,340
29,439
2019
$ 16,792
19,162
25,926
55,767
(10,232)
61,880
(7,824)
$ 45,535
$ 54,056
During the fiscal year ended April 30, 2020, the Company recorded inventory reserve charges of approximately
$2,600,000 to impair the remaining net book value of the Company’s Quantix commercial UAS solution. For the fiscal
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years ended April 30, 2020, 2019 and 2018, the Company recorded inventory reserve charges of $5,377,000, $5,054,000
and $2,758,000, respectively.
6. Intangibles
Intangibles are included in other assets on the balance sheet. The components of intangibles are as follows (in
thousands):
Technology
Licenses
Customer relationships
In-process research and development
Non-compete agreements
Trademarks and tradenames
Other
Intangibles, gross
Less accumulated amortization
Intangibles, net
April 30,
2020
$ 14,950
1,006
873
550
320
68
3
April 30,
2019
$
-
1,006
733
-
-
28
3
17,770
(4,133)
1,770
(1,311)
$ 13,637
$
459
The Company tests identifiable intangible assets and goodwill for impairment in the fourth quarter of each fiscal
year unless there are interim indicators that suggest that it is more likely than not that either the identifiable intangible
assets or goodwill may be impaired. Due to the political situation within Turkey and the increased uncertainty in the
relations between the U.S. and Turkey during the fiscal year ended April 30, 2018, the Company significantly lowered its
cash flow expectations for its Altoy operations. As a result of the decline in the Company’s cash flow forecast, the
Company performed an interim assessment of impairment of Altoy’s long-lived assets, excluding goodwill during the three
months ended October 28, 2017. Based on the analysis, the Company determined that the fair value of Altoy had declined
below its carrying value, excluding goodwill. As a result, the Company performed an additional analysis to determine the
amount of the impairment loss and recorded an impairment loss totaling $899,000 during the three months ended October
28, 2017, which is included in selling, general and administrative expense on the consolidated statements of income. The
fair value of the Altoy asset group was determined based on a discounted cash flow model reflective of the revised cash
flow estimates.
The weighted average amortization period at April 30, 2020 and 2019 was four years and one year, respectively.
Amortization expense for the years ended April 30, 2020, 2019 and 2018 was $2,822,000, $357,000 and $296,000,
respectively.
Technology, in-process research and development, customer relationships, trademarks and tradenames, and non-
compete agreements were recognized in conjunction with the Company’s acquisition of Pulse on June 10, 2019. Refer to
Note 19 - Business Combinations for further details.
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Estimated amortization expense for the next five years is as follows (in thousands):
2021
2022
2023
2024
2025
7. Property and Equipment, net
Property and equipment, net consist of the following:
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Computer equipment and software
Construction in process
Property and equipment, gross
Less accumulated depreciation and amortization
Property and equipment, net
$
Year ending
April 30,
2,792
2,829
2,688
2,629
2,492
$ 13,430
April 30,
2020
2019
(In thousands)
$ 16,387
46,519
3,031
33,242
2,508
$ 12,324
40,432
2,145
35,056
2,411
101,687
(79,993)
92,368
(75,463)
$ 21,694
$ 16,905
During the three months ended April 30, 2019, the Company determined that the continued less than forecasted
sales of its Quantix commercial UAS solution, which launched during the fourth quarter of fiscal year 2018, was an
indicator that the long-lived assets of this asset group may not be recoverable. As a result, the company performed an
analysis and concluded that the projected undiscounted cash flows were less than the carrying value of the asset group
(Step 1). As a result, the Company performed additional analysis to determine the amount of the impairment loss (Step 2)
and recorded an impairment loss totaling $4,398,000 related to the long-lived assets of the commercial UAS Quantix
solution, which is included in selling, general and administrative expense on the consolidated statements of income. The
fair value of the asset group was determined based on a discounted cash flow model reflective of the Company’s revised
cash flow estimates.
Depreciation expense for the years ended April 30, 2020, 2019 and 2018 was $7,066,000, $7,311,000 and
$5,676,000, respectively.
8. Investments in Companies Accounted for Using the Equity Method
In December of 2017, the Company and SoftBank formed a joint venture, HAPSMobile, which is a Japanese
corporation. As of April 30, 2020, the Company’s ownership stake in HAPSMobile was approximately 7%, with the
remaining 93% held by SoftBank. In connection with the formation of the joint venture on December 27, 2017, the
Company initially purchased shares of HAPSMobile representing a 5% ownership interest in exchange for an investment of
210,000,000 yen ($1,860,000). The Company subsequently purchased additional shares of HAPSMobile in order to
maintain a 5% ownership stake in the joint venture. The first such purchase occurred on April 17, 2018, at which time the
Company invested 150,000,000 yen ($1,407,000) for the purchase of additional shares of HAPSMobile. On January 29,
2019, the Company invested an additional 209,500,000 yen ($1,926,000) to maintain its 5% ownership stake. On
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February 9, 2019, the Company elected to purchase 632,800,000 yen ($5,671,000) of additional shares of HAPSMobile to
increase the Company’s ownership in the joint venture from 5% to 10%, and on May 10, 2019, the Company purchased
500,000,000 yen ($4,569,000) of additional shares of HAPSMobile to maintain its 10% ownership stake. The Company’s
ownership percentage was subsequently diluted from 10% to approximately 5%. On December 4, 2019, the Company
purchased 540,050,000 yen ($4,982,000) of additional shares of HAPSMobile to increase its ownership stake to
approximately 7%.
As the Company has the ability to exercise significant influence over the operating and financial policies of
HAPSMobile pursuant to the applicable Joint Venture Agreement and related organizational documents, the Company’s
investment is accounted for as an equity method investment. At April 30, 2020, 2019 and 2018, the Company recorded its
ownership percentage of the net loss of HAPSMobile, or $4,982,000, $3,944,000 and $1,283,000, respectively, in equity
method investment loss, net of tax in the consolidated statements of income. At April 30, 2020 and 2019, the carrying value
of the investment in HAPSMobile of $10,455,000 and $5,612,000, respectively, was recorded in other assets, long-term.
Investment in Limited Partnership Fund
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 has committed to make additional capital contributions of $5.0 million to the fund.
The Company accounts for investments in limited partnerships as equity method investments as the Company is deemed to
have influence when it holds more than a minor interest. At April 30, 2020, the Company recorded its ownership
percentage of the net loss of the limited partnership, or $394,000, in equity method investment loss, net of deferred taxes of
$111,000 in the consolidated statements of income. At April 30, 2020, the carrying value of the investment in the limited
partnership of $4,442,000, was recorded in available-for-sale long-term investments.
Summarized financial information of the equity method investments are as follows:
Current assets
Noncurrent assets
Current liabilities
Revenues
Gross loss
Realized and unrealized losses on investments
Net loss
90
April 30,
2020
2019
(In thousands)
$ 67,387
$ 31,746
170,602
—
72,505
11,757
Year Ended April 30,
2020
2019
2018
$
25
(1,331)
(7,028)
(85,818)
(In thousands)
$
— $
—
—
(63,107)
—
—
—
(25,666)
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9. Warranty Reserves
Warranty reserve activity is summarized as follows:
Beginning balance
Warranty expense
Changes in estimates related to pre-existing warranties
Warranty costs settled
Ending balance
April 30,
2020
2019
(In thousands)
$ 1,704
2,258
(189)
(1,758)
$ 2,090
211
491
(1,088)
$ 2,015
$ 1,704
During the fiscal year ended April 30, 2019, the Company revised its estimates based on the results of additional
engineering studies and recorded incremental warranty reserve charges totaling $491,000 related to the estimated costs to
repair a component of certain small UAS that were delivered in prior periods. During the fiscal year ended April 30, 2020,
the Company revised its estimates based on the results of additional engineering studies to $302,000. As April 30, 2020 and
2019, the Company had no remaining warranty reserve related to the estimated costs to repair the impacted UAS and
$251,000, respectively. As of April 30, 2020 and 2019, the Company incurred total costs related to this warranty of
$288,000 and $240,000, respectively.
10. Employee Savings Plan
The Company has an employee 401(k) savings plan covering all eligible employees. The Company expensed
approximately $4,744,000, $3,961,000 and $2,953,000 in contributions to the plan for the years ended April 30, 2020, 2019
and 2018, respectively.
11. Leases
The Company leases certain buildings, land and equipment. Under the New Lease Standard, at contract inception
the Company determines whether the contract is, or contains, a lease and whether the lease should be classified as an
operating or a financing lease. Operating leases are recorded in operating lease right-of-use assets, current operating lease
liabilities and non-current operating lease liabilities.
The Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present
value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental
borrowing rate based on the information available at commencement date to determine the present value of future payments
and the appropriate lease classification. The Company defines the initial lease term to include renewal options determined
to be reasonably certain. The Company’s leases have remaining lease terms of less than one year to six years, some of
which may include options to extend the lease for up to 10 years, and some of which may include options to terminate the
lease after two years. None of the Company’s options to extend or terminate are reasonably certain of being exercised, and
are therefore not included in the Company’s determination of lease assets and liabilities. For operating leases, the Company
recognizes lease expense for these leases on a straight-line basis over the lease term.
Many of the Company’s real estate lease agreements contain incentives for tenant improvements, rent holidays, or
rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement
owned by the lessee, the Company generally records incentive as a reduction to fixed lease payments thereby reducing rent
expense. For rent holidays and rent escalation clauses during the lease term, the Company records rental expense on a
straight-line basis over the term of the lease. For these lease incentives, the Company uses the date of initial possession as
the commencement date, which is generally when the Company is given the right of access to the space and begins to make
improvements in preparation for intended use.
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Table of Contents
The Company does not have any finance leases. The Company does not have any material restrictions or
covenants in its lease agreements, sale-leaseback transactions, land easements or residual value guarantees.
In determining the inputs to the incremental borrowing rate calculation, the Company makes judgments about the
value of the leased asset, its credit rating and the lease term including the probability of its exercising options to extend or
terminate the underlying lease. Additionally, the Company makes judgments around contractual asset substitution rights in
determining whether a contract contains a lease.
The components of lease costs recorded in cost of sales for product sales and contract services and selling, general
and administrative (“SG&A”) expense were as follows (in thousands):
Operating lease cost
Short term lease cost
Variable lease cost
Sublease income
Total lease costs, net
Supplemental lease information were as follows:
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 April 30, 2020 were as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total present value of operating lease liabilities
92
Year Ended
April 30,
2020
$
$
4,574
500
987
(287)
5,774
Year Ended
April 30,
2020
(In thousands)
$
$
3,897
13,022
34 months
3.7%
$
4,222
3,910
2,171
1,055
62
—
11,420
(1,207)
$
10,213
Table of Contents
Maturities of operating lease liabilities as of April 30, 2019 were as follows:
2020
2021
2022
2023
2024
Thereafter
Total lease payments
$
5,298
3,527
2,723
1,554
953
—
$
14,055
Rental expense under operating leases was approximately $4,609,000 and $4,011,000 for the years ended April
30, 2019 and 2018, respectively.
12. Stock-Based Compensation
For the years ended April 30, 2020, 2019 and 2018, the Company recorded stock-based compensation expense of
approximately $6,227,000, $6,985,000 and $4,956,000, respectively.
On January 14, 2007, the stockholders of the Company approved the 2006 Equity Incentive Plan (“2006 Plan”)
effective January 21, 2007, for officers, directors, key employees and consultants. On September 29, 2011, the stockholders
of the Company approved an amendment and restatement of the 2006 Plan (“Restated 2006 Plan”). Under the Restated
2006 Plan, incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation right awards,
performance share awards, performance stock unit awards, dividend equivalents awards, stock payment awards, deferred
stock awards, restricted stock unit awards, other stock-based awards, performance bonus awards or performance-based
awards may be granted at the discretion of the compensation committee, which consists of outside directors. A maximum
of 4,884,157 shares of stock may be issued pursuant to awards under the Restated 2006 Plan. The maximum number of
shares of common stock with respect to one or more awards that may be granted to any one participant during any twelve
month period is 2,000,000. A maximum of $5,000,000 may be paid in cash to any one participant as a performance-based
award during any twelve month period. The exercise price for any incentive stock option shall not be less than 100% of the
fair market value on the date of grant. Vesting of awards is established at the time of grant.
The Company had an equity incentive plan (“2002 Plan”) for officers, directors and key employees. Under the
2002 Plan, incentive stock options or nonqualified stock options were granted, as determined by the administrator at the
time of grant. Stock purchase rights were also granted under the 2002 Plan. Options under the 2002 Plan were granted at
their fair market value (as determined by the board of directors). The options became exercisable at various times over a
five-year period from the grant date. The 2002 Plan was terminated on the effective date of the 2006 Plan. Awards
outstanding under the 2002 Plan remain outstanding and exercisable; no additional awards may be made under the 2002
Plan.
The Company had a 1992 nonqualified stock option plan (“1992 Plan”) for certain officers and key employees.
Options under the 1992 Plan were granted at their fair market value (as determined by the board of directors) at the date of
grant and became exercisable at various times over a five-year period from the grant date. The 1992 Plan expired in August
2002.
No options were granted during the fiscal years ended April 30, 2020, 2019 and 2018. The fair value of stock
options granted previously was estimated at the grant date using the Black-Scholes option pricing model. Assumptions
included in the Black-Scholes option pricing model included the expected term of stock options, the expected volatility, the
risk free interest rate, and the expected dividend yield. The expected term of stock options represents the weighted average
period the Company expects the stock options to remain outstanding, based on the Company’s historical exercise and post-
vesting cancellation experience and the remaining contractual life of its outstanding options. The expected volatility is
based on historical volatility for the Company’s stock. The risk free interest rate is based on the
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implied yield on a U.S. Treasury zero-coupon bond with a remaining term that approximates the expected term of the
option. The expected dividend yield of zero reflects that the Company has not paid any cash dividends since inception and
does not anticipate paying cash dividends in the foreseeable future.
Information related to the stock option plans at April 30, 2020, 2019 and 2018, and for the years then ended is as
follows:
Outstanding at April 30, 2017
Options granted
Options exercised
Options canceled
Restated 2006 Plan
2002 Plan
1992 Plan
Weighted
Average
Exercise
Price
24.93
Shares
446,624
(107,598)
— —
23.80
— —
Weighted
Average
Exercise
Price
Shares
— —
— —
— —
— —
Weighted
Average
Exercise
Price
0.59
Shares
43,415
(25,113)
— —
0.59
— —
Outstanding at April 30, 2018
339,026
25.29
— —
18,302
0.59
Options granted
Options exercised
Options canceled
(2,000)
— —
32.19
— —
— —
— —
— —
(4,000)
— —
0.59
— —
Outstanding at April 30, 2019
337,026
25.25
— —
14,302
0.59
Options granted
Options exercised
Options canceled
Outstanding at April 30, 2020
Options exercisable at April 30, 2020
(3,000)
— —
31.15
— —
334,026
318,026
25.19
$ 25.12
— —
— —
— —
— —
— $ —
(13,189)
— —
0.59
— —
1,113
1,113
0.59
$ 0.59
The total intrinsic value of all options exercised during the years ended April 30, 2020, 2019 and 2018 was
approximately $833,000, $371,000, and $2,407,000, respectively. The intrinsic value of all options outstanding at April 30,
2020 and 2019 was $11,779,000 and $15,569,000, respectively. The intrinsic value of all exercisable options at April 30,
2020 and 2019 was $11,242,000 and $13,950,000, respectively.
A summary of the status of the Company’s non-vested stock options as of April 30, 2020 and the year then ended
is as follows:
Weighted
Average
Grant Date
Non-vested Options
Non-vested at April 30, 2019
Options
39,510
Granted
Expired
Canceled
Vested
Non-vested at April 30, 2020
16,000
$ 10.16
94
Fair Value
$ 10.90
—
—
—
11.40
—
—
—
(23,510)
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As of April 30, 2020, there was approximately $7,670,000 of total unrecognized compensation cost related to non-
vested share-based compensation awards granted under the equity plans. That cost is expected to be recognized over an
approximately two-year period or a weighted average period of approximately 2.5 years.
No options were granted during the fiscal years ended April 30, 2020, 2019 and 2018. The total fair value of
shares vesting during the years ended April 30, 2020, 2019 and 2018 was $4,900,000, $4,756,000 and $3,328,000,
respectively.
Proceeds from all option exercises under all stock option plans for the years ended April 30, 2020, 2019 and 2018
were approximately $101,000, $67,000 and $2,576,000, respectively. The tax benefit realized from stock-based
compensation was $0 during the years ended April 30, 2020, 2019 and 2018, respectively.
The following tabulation summarizes certain information concerning outstanding and exercisable options at
April 30, 2020:
Range of Exercise Prices
$
0.59 -
19.17 -
26.25 -
27.00 -
28.00 -
29.27 -
$
0.59 -
19.16
26.24
26.99
27.99
29.26
31.27
31.27
As of
April 30,
2020
55,113
58,500
80,000
50,000
50,000
41,526
335,139
Options Outstanding
Weighted
Average
Remaining
Contractual
Life In
Years
Weighted
Average
Exercise
Price
2.93
2.86
5.15
3.56
1.83
3.94
3.50
$
$
17.90
20.54
26.70
27.27
28.72
31.13
25.11
Options Exercisable
Weighted
Average
Exercise
Price
$
As of
April 30,
2020
55,113
58,500
64,000
50,000
50,000
41,526
319,139
$
17.90
20.54
26.70
27.27
28.72
31.13
25.03
The remaining weighted average contractual life of exercisable options at April 30, 2020 was 3.42 years.
Information related to the Company’s restricted stock awards at April 30, 2020 and for the year then ended is as
follows:
Unvested stock at April 30, 2019
Stock granted
Stock vested
Stock canceled
Unvested stock at April 30, 2020
13. Long-Term Incentive Awards
Restated 2006 Plan
Weighted
Average
Grant Date
Fair Value
43.35
$
52.71
34.03
47.86
Shares
226,159
131,991
(143,962)
(12,541)
201,647
$
55.84
During the three months ended July 27, 2019, the Company granted awards under its amended and restated 2006
Equity Incentive Plan (the “Restated 2006 Plan”) to key employees (“Fiscal 2020 LTIP”). Awards under the Fiscal 2020
LTIP consist of: (i) time-based restricted stock awards, which vest in equal tranches in July 2020, July 2021 and
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July 2022, and (ii) performance-based restricted stock units (“PRSUs”), which vest based on the Company’s achievement
of revenue and operating income targets for the three-year period ending April 30, 2022. At the award date, target
achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the
PRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50%
for each such metric and maximum achievement levels for which such awards would vest at 200% for each such metric
were also established. The actual payout for the PRSUs at the end of the performance period will be calculated based upon
the Company’s achievement of the established revenue and operating income targets for the performance period. Settlement
of the PRSUs will be made in fully-vested shares of common stock. During the fiscal year ended April 30, 2020, the
Company recorded $649,000 of compensation expense related to the Fiscal 2020 LTIP. At April 30, 2020, the maximum
compensation expense that may be recorded for the performance-based portion of the Fiscal 2020 LTIP is $4,263,000.
During the three months ended July 28, 2018, the Company granted awards under the Restated 2006 Plan to key
employees (“Fiscal 2019 LTIP”). Awards under the Fiscal 2019 LTIP consist of: (i) time-based restricted stock awards
which vest in equal tranches in July 2019, July 2020 and July 2021, and (ii) PRSUs which vest based on the Company’s
achievement of revenue and operating income targets for the three-year period ending April 30, 2021. At the award date,
target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the
PRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50%
for each such metric and maximum achievement levels for which such awards would vest at 200% for each such metric
were also established. The actual payout for the PRSUs at the end of the performance period will be calculated based upon
the Company’s achievement of the established revenue and operating income targets for the performance period. Settlement
of the PRSUs will be made in fully vested shares of common stock. During the fiscal years ended April 30, 2020 and 2019,
the Company recorded $386,000 and $572,000 of compensation expense related to the Fiscal 2019 LTIP, respectively. At
April 30, 2020, the maximum compensation expense that may be recorded for the performance-based portion of the Fiscal
2019 LTIP is $2,478,000.
During the three months ended July 29, 2017, the Company granted awards under the Restated 2006 Plan to key
employees (“Fiscal 2018 LTIP”). Awards under the Fiscal 2018 LTIP consist of: (i) time-based restricted stock awards
which vest in equal tranches in July 2018, July 2019 and July 2020, and (ii) PRSUs which vest based on the Company’s
achievement of revenue and operating income targets for the three-year period ending April 30, 2020. At the award date,
target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels the
PRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50%
for each such metric and maximum achievement levels for which such awards would vest at 200% for each such metric
were also established. The actual payout for the PRSUs at the end of the performance period will be calculated based upon
the Company’s achievement of the established revenue and operating income targets for the performance period. Settlement
of the PRSUs will be made in fully vested shares of common stock. During the fiscal years ended April 30, 2020, 2019 and
2018, the Company recorded $193,000, $588,000 and $269,000 of compensation expense related to the Fiscal 2018 LTIP,
respectively. During the first quarter of fiscal 2021, the Company expects to issue a total of 27,356 fully-vested shares of
common stock to settle the Fiscal 2018 LTIP.
During the three months ended July 29, 2017, the Company also granted awards under the Restated 2006 Plan to
key employees (“Fiscal 2017 LTIP”). Awards under the Fiscal 2017 LTIP consist of: (i) time-based restricted stock awards,
which vested in equal tranches in July 2017, July 2018 and July 2019, and (ii) PRSUs, which vested based on the
Company’s achievement of revenue and operating income targets for the three-year period ending April 30, 2019. During
the three months ended July 27, 2019, the Company issued a total of 14,814 fully-vested shares of common stock to settle
the PRSUs in the Fiscal 2017 LTIP. No compensation expense was recorded during fiscal year ended April 30, 2020 for the
Fiscal 2017 LTIP.
At April 30, 2020 and 2019, the Company recorded cumulative stock-based compensation expense from these
long-term incentive awards of $2,657,000 and $1,889,000, respectively. At each reporting period, the Company reassesses
the probability of achieving the performance targets. 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 those changes will be recorded in the period estimates are revised.
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Table of Contents
14. Income Taxes
The components of income before income taxes are as follows (in thousands):
Year Ended April 30,
Domestic
Foreign
2020
2019
$ 52,730 $ 50,644 $ 32,651
(34)
(166)
(60)
2018
Income from continuing operations before income taxes
52,670
50,478
32,617
Equity method investment loss
Total income from continuing operations before income taxes
(5,487)
(3,944)
(1,283)
$ 47,183 $ 46,534 $ 31,334
The Company expects any foreign earnings to be reinvested in such foreign jurisdictions and, therefore, no
deferred tax liabilities for U.S. income taxes on undistributed earnings are recorded. The foreign subsidiaries do not have
any undistributed earnings.
A reconciliation of income tax expense computed using the U.S. federal statutory rates to actual income tax
expense (benefit) is as follows:
Year Ended April 30,
U.S. federal statutory income tax rate
State and local income taxes, net of federal benefit
R&D and other tax credits
Valuation allowance
Foreign rate differential
Return to provision adjustments
Permanent items
Foreign derived intangible income
Excess benefit of equity awards
Tax Act
Other
Effective income tax rate
97
2019 2018
2020
21.0 % 21.0 %
(2.1)
(6.8)
3.4
—
0.1
0.7
(3.9)
(1.5)
—
0.2
11.1 %
(2.2)
(8.1)
3.7
—
(0.3)
0.8
(3.7)
(3.1)
—
1.1
9.2 %
30.4 %
(2.2)
(7.0)
4.9
0.1
(0.1)
(2.7)
—
(4.4)
10.4
0.6
30.0 %
Table of Contents
The components of the provision (benefit) for income taxes are as follows (in thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Year Ended April 30,
2020
2019
2018
$
$ 3,005
390
—
$ 1,953
228
—
3,395
2,181
2,063
421
(31)
1,945
551
(36)
2,453
2,460
6,010
900
—
6,910
3,272
(330)
(52)
2,890
Total income tax expense
$ 5,848
$ 4,641
$
9,800
Significant components of the Company’s deferred income tax assets and liabilities are as follows (in thousands):
Deferred income tax assets:
Accrued expenses
Stock based compensation
Allowances, reserves, and other
Outside basis difference
Unrealized loss on securities
Net operating loss and credit carry-forwards
Intangibles basis
Lease liability
Total deferred income tax assets
Deferred income tax liabilities:
Fixed asset basis
Revenue recognition
Right-of-use asset
Total deferred income tax liabilities
Valuation allowance
Net deferred tax assets
April 30,
2020
2019
$
3,337
2,259
1,784
2,264
9
12,832
605
2,282
$
3,559
1,647
1,579
1,150
—
13,208
125
—
25,372
21,268
(1,218)
(3,112)
(1,965)
(6,295)
(425)
(2,909)
—
(3,334)
(14,149)
(11,278)
$
4,928
$
6,656
At April 30, 2020 and 2019 the Company recorded a valuation allowance of $14,149,000 and $11,278,000,
respectively, against state R&D credits as the Company is currently generating more tax credits than it will utilize in future
years and against the outside basis difference in an equity method investee. The valuation allowance increased by
$2,871,000 and $2,710,000 for April 30, 2020 and April 30, 2019, respectively.
At April 30, 2020 the Company had state credit carryforwards of $26,694,000 that do not expire and federal tax
credit carryforwards of $2,729,000 that expire in 2040.
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At April 30, 2020, the Company had a state and foreign net operating loss carryforward of approximately $10,000
and $660,000, respectively. The state net operating loss carryforwards carry forward indefinitely. $320,000 of the foreign
loss carryforwards expire in fiscal 2021.
At April 30, 2020 and 2019, the Company had approximately $14,347,000 and $12,593,000, respectively, of
unrecognized tax benefits all of which would impact the Company’s effective tax rate if recognized. The Company
estimates that $53,600 of its unrecognized tax benefits will decrease in the next twelve months due to statute of limitation
expiration.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the
years ended April 30, 2020 and 2019 (in thousands):
April 30,
Balance as of May 1
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Decreases related to lapsing of statute of limitations
Balance as of April 30
2020
$ 12,593
62
—
1,971
(279)
2019
$ 11,170
216
—
1,756
(549)
$ 14,347
$ 12,593
The Company records interest and penalties on uncertain tax positions to income tax expense. As of April 30,
2020 and 2019, the Company had accrued approximately $21,000 and $18,000, respectively, of interest and penalties
related to uncertain tax positions. The Company is currently under audit by various state jurisdictions. The 2016 to 2018 tax
years remain open to examination by the IRS for federal income taxes. The tax years 2009 to 2011 and 2015 to 2018
remain open for major state taxing jurisdictions.
During the fiscal year ended April 30, 2020, the Company recorded a reversal of a $279,000 reserve for uncertain
tax positions due to the lapse of prior year statue.
On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to the Internal
Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax
years beginning after December 31, 2017, repeal of the corporate alternative minimum tax, repeal of the deduction for
domestic production activities, a deduction for certain Foreign Derived Intangible Income (“FDII”), and limitation on the
deductibility of certain executive compensation.
In accordance with ASC 740, Income Taxes, the Company is required to record the effects of tax law changes in
the period enacted. As the Company has an April 30 fiscal year end, its U.S. federal corporate income tax rate was blended
in fiscal 2018, resulting in a statutory federal rate of approximately 30.4% (8 months at 35% and 4 months at 21%), and
21% for subsequent fiscal years. The Company remeasured its existing deferred tax assets and liabilities at the rate the
Company expected to be in effect when those deferred taxes will be realized and recorded a one-time deferred tax expense
of approximately $3,300,000 during the fiscal year ended April 30, 2018.
The Company followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provided
additional clarification regarding the application of ASC Topic 740 in situations where the Company does not have the
necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income
tax effects of the Tax Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement
period beginning in the reporting period that includes the Act’s enactment date and ending when the Company has
obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no
circumstances should the measurement period extend beyond one year from the enactment date.
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The measurement period under SAB 118 closed during the year ended April 30, 2019. The Company has finalized
its accounting for the impact of the Tax Act during and reached the following conclusions on the previous provisional
estimates.
The Company has concluded it will be eligible to claim the FDII deduction and has reflected a rate benefit in the
provision for income taxes. The Company expects the IRS will be issuing additional guidance that could ultimately impact
the size of the benefit. In addition, the Company has concluded that its foreign subsidiaries are in a cumulative earnings and
profits deficit and, therefore, has confirmed that it will not have an income tax payable as a result of the one-time deemed
repatriation tax.
15. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows (in thousands):
Available-for-Sale
Securities
Foreign Currency
Translation Adjustments
Total Accumulated
Other
Comprehensive
Loss
Total accumulated other comprehensive loss balance as of April 30,
2019
Changes in foreign currency translation adjustments
Unrealized gains, net of $14 of taxes
Total accumulated other comprehensive loss balance as of April 30,
2020
$
$
— $
—
50
50
$
$
2
276
—
278
$
2
276
50
328
16. Changes in Accounting Estimates
During the years ended April 30, 2020, 2019 and 2018, the Company revised its estimates at completion of
various contracts recognized using the over time method, which resulted in cumulative catch up adjustments during the
year in which the change in estimate occurred. The change in estimate was a result of the Company changing the total costs
required to complete the contracts due to having more accurate cost information as work progressed in subsequent periods
on the various contracts. During the year ended April 30, 2020, the Company revised its estimates of the total expected
costs to complete a TMS contract and a contract associated with a design and development agreement. The aggregate
impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially
satisfied in previous periods was a decrease of approximately $1,403,000 and an increase of approximately $1,099,000,
respectively. The changes in estimates resulted in cumulative catch-up adjustments to revenue for the years ended April 30,
2019 were not material. During the year ended April 30, 2018, the Company revised its estimates of the total expected costs
to complete a TMS variant contract. The aggregate impact of these adjustments in contract estimates on revenue related to
performance obligations satisfied or partially satisfied in previous periods was a decrease of approximately $1,255,000.
17. Related Party Transactions
Pursuant to a consulting agreement, the Company paid a board member approximately $59,000, $55,000 and
$48,000 for fiscal years ended April 30, 2020, 2019 and 2018, respectively, for consulting services independent of his
board service.
Concurrent with the formation of HAPSMobile, the Company executed a Design and Development Agreement
(the “DDA”) with HAPSMobile. Under the DDA and related efforts, the Company will use its best efforts, up to a
maximum value of $166,108,000, to design and build prototype solar powered high altitude aircraft and ground control
stations for HAPSMobile and conduct low altitude and high altitude flight tests of the prototype aircraft.
The Company recorded revenue under the DDA and preliminary design agreements between the Company and
SoftBank of $60,864,000, $55,407,000 and $29,594,000 for the fiscal years ended April 30, 2020, 2019 and 2018,
respectively. At April 30, 2020 and 2019, the Company had unbilled related party receivables from HAPSMobile of
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$15,779,000 and $9,028,000 recorded in unbilled receivables and retentions on the consolidated balance sheet, respectively.
As of April 30, 2020, the Company owned approximately a 7% stake. Refer to Note 8 – Equity Method Investments for
further details.
18. Commitments and Contingencies
Commitments
The Company’s operations are conducted in leased facilities. Refer to Note 11—Leases for additional information.
Contingencies
The Company is subject to legal proceedings and claims which arise out of the ordinary course of its business.
Although adverse decisions or settlements may occur, the Company, in consultation with legal counsel, believes that the
final disposition of such matters will not have a material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
At April 30, 2020 and 2019, the Company had outstanding letters of credit totaling $2,716,000 and $7,079,000,
respectively.
Contract Cost Audits
Payments to the Company on government cost reimbursable 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 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
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 actual rates unless collectability is not reasonably assured. During the fiscal year ended April 30,
2017, the Company settled rates for its incurred cost claims with the DCAA for fiscal years 2011 through 2014 without
payment of any consideration. During the fiscal year ended April 30, 2019, the Company settled rates for its incurred cost
claims with the DCAA for fiscal years 2016 and 2017 without payment of any consideration. During the fiscal year ended
April 30, 2020, the Company settled rates for its incurred cost claims with the DCAA for fiscal year 2015 for an amount
not significant. At April 30, 2020 and 2019, the Company had no reserve and $93,000 reserved for open incurred cost
claim audits, respectively.
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19. Business Acquisitions
On June 10, 2019, the Company purchased 100% of the issued and outstanding member units of Pulse pursuant to
the terms of the Pulse Purchase Agreement. The Company’s acquisition of Pulse’s helicopter UAS product family
strengthens AeroVironment’s leading family of fixed-wing small unmanned aircraft systems and increases the mission
capabilities of AeroVironment’s family of systems.
Pursuant to the Pulse Purchase Agreement, at closing, the Company paid $20,650,000 in cash, less closing
indebtedness and transaction costs as defined in the Pulse Purchase Agreement, less a $250,000 retention to cover any post-
closing indemnification claims, and less a $1,250,000 holdback amount, with the retention and holdback to be released to
the member unit holders of Pulse, less any amounts paid or reserved, 18 months after the closing of the transactions in
accordance with the terms of the Pulse Purchase Agreement. The closing cash consideration included the payoff of the
outstanding indebtedness of Pulse as of the closing date. The Company financed the acquisition entirely from available
cash on hand.
In addition to the consideration paid at closing, the acquisition of Pulse includes contingent consideration
arrangements that require additional consideration to be paid by the Company to the sellers of Pulse if two specified
research and development milestones are achieved by December 10, 2021 and the continued employment of specified
employees. Amounts are payable upon the achievement of the milestones. The range of the undiscounted amounts the
Company could pay under each of the contingent consideration agreements is zero or $2,500,000 ($5,000,000 in total if
both milestones are achieved and specific key employees continued employment). The fair value of the contingent
consideration recognized on the acquisition date of $1,703,000 was estimated by applying the income approach. That
measure is based on significant Level 3 inputs not observable in the market. Key assumptions include (1) a discount rate of
4.5% and (2) the probability that each of the milestones will be achieved.
During the year ended April 30, 2020, one of the research and development milestones was achieved, and the
requirements for the payout of remaining contingent consideration were concluded to not have been met. As a result, the
Company recorded a gain of $832,000 which was recorded in selling, general, and administrative expense in the
consolidated statements of income. On February 26, 2020, $2,500,000 of contingent consideration was paid to the sellers
for the achieved milestone.
The following table summarizes the provisional allocation of the purchase price over the estimated fair value of
the assets and liabilities assumed in the acquisition of Pulse (in thousands):
Technology
Goodwill
In-process R&D
Inventory
Non-compete agreements
Other assets, net of liabilities assumed
Total net identified assets acquired
Fair value of consideration:
Cash
Holdback
Retention
Contingent consideration
Total
102
June 10,
2019
$ 14,950
6,340
550
334
320
(614)
$ 21,880
$ 18,677
1,250
250
1,703
$ 21,880
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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 intangibles
assets was determined using a discounted cash flow analysis, which were based on the Company’s best estimate 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 Pulse and expected future customers in the helicopter UAS market.
For tax purposes the acquisition was treated as an asset purchase and the goodwill is deductible ratably over a period of
fifteen years.
Supplemental Pro Forma Information (unaudited)
Pulse revenue for the year ended April 30, 2020 since acquisition on June 10, 2019 was $6,607,000. Other than
the aforementioned revenue and intangible asset amortization expense of $2,461,000 for the year ended April 30, 2020
since the acquisition on June 10, 2019, the Pulse financial results were not significant. The following unaudited pro forma
summary presents consolidated information of the Company as if the business acquisition had occurred on May 1, 2018 (in
thousands):
Revenue
Net income attributable to AeroVironment, Inc.
Year Ended
April 30,
April 30,
2020
367,523
41,481
$
$
2019
316,878
43,204
$
$
The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business
acquisition included in the reported pro forma revenue and earnings.
These pro forma amounts have been calculated by applying the Company’s accounting policies, assuming
transaction costs had been incurred during the three months ended July 28, 2018, reflecting the additional amortization that
would have been charged assuming the fair value adjustments to intangible assets had been applied from May 1, 2018 with
the consequential tax effects, and including the results of Pulse prior to acquisition.
The Company did not incur significant acquisition-related expenses for the year ended April 30, 2020. These
expenses are included in selling, general and administrative, research and development, and product cost of sales on the
Company’s consolidated income statement.
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 acquisitions been
consolidated in the tables above as of May 1, 2018, nor are they indicative of results of operations that may occur in the
future.
20. Geographic Information
Sales to non-U.S. customers, including U.S. government foreign military sales in which an end user is a foreign
government, accounted for 45%, 52% and 47% of revenue for each of the fiscal years ended April 30, 2020, 2019 and
2018, respectively.
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21. Quarterly Results of Operations (Unaudited)
The following tables present selected unaudited consolidated financial data for each of the eight quarters in the
two-year period ended April 30, 2020. In the Company’s opinion, this unaudited information has been prepared on the
same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments)
necessary for a fair statement of the financial information for the period presented. The Company’s fiscal year ends on
April 30. Due to the fixed year end date of April 30, the first and fourth quarters each consist of approximately 13 weeks.
The second and third quarters each consist of exactly 13 weeks. The first three quarters end on a Saturday.
Three Months Ended
July 27,
2019
October 26,
2019
January 25,
2020
April 30,
2020
(In thousands except per share data)
Year ended April 30, 2020
Revenue
Gross margin
Net income attributable to AeroVironment, Inc. from continuing
operations
Net income per share attributable to AeroVironment, Inc. from
continuing operations—basic(3)
Net income per share attributable to AeroVironment, Inc. from
continuing operations—diluted(3)
$ 86,911
$ 41,272
$ 17,110
$
$
0.72
0.71
$
$
$
$
$
83,271
35,166
7,501
0.32
0.31
$
$
$
$
$
61,891
23,496
(1,008)
(0.04)
(0.04)
Three Months Ended
July 30,
2018
October 29,
2018
January 28,
2019
(In thousands except per share data)
Year ended April 30, 2019
Revenue
Gross margin
Net (loss) income attributable to AeroVironment, Inc. from
continuing operations
Net (loss) income per share attributable to AeroVironment, Inc.
from continuing operations—basic(3)
Net (loss) income per share attributable to AeroVironment, Inc.
from continuing operations—diluted(3)
$ 78,043
$ 32,589
$
$
72,979
28,399
$ 20,337 (1) $
7,047
$
$
0.86 (1) $
0.30
0.85 (1) $
0.29
$
$
$
$
$
75,322
30,392
8,431
0.35
0.35
$ 135,223
$
$
$
$
$
$
$
$
$
53,168
17,736
0.74
0.73
April 30,
2019
87,930
37,023
6,097 (2)
0.26
0.26
(1) Includes a one-time gain from a litigation settlement of $0.26 per basic and diluted share from continuing operations
attributable to AeroVironment recorded to “Other income (expense), net” in the consolidated statement of operations.
(2) Includes an impairment loss of $4.4 million related to the long-lived assets of the Company’s commercial UAS
Quantix solution, recorded to selling, general and administrative expense in the consolidated statement of operations.
(3) Earnings per share is computed independently for each of the quarters presented. The sum of the quarterly earnings per
share may not equal the total earnings per share computed for the year due to rounding.
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SUPPLEMENTARY DATA
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Description
Allowance for doubtful accounts for the year ended April 30:
2018
2019
2020
Warranty reserve for the year ended April 30:
2018
2019
2020
Reserve for inventory excess and obsolescence for the year
ended April 30:
2018
2019
2020
Reserve for self-insured medical claims for the year ended
April 30:
2018
2019
2020
Additions
Balance at Charged to Charged to
Beginning Costs and
Expenses
of Period
Other
Accounts
Deductions
Balance at
End of
Period
(In thousands)
$
104
$ 1,080
$ 1,041
$
$
$
976
198
219
$ — $
$ — $
$ — $
— $
(237) $
(70) $
1,080
1,041
1,190
$ 1,947
$ 2,090
$ 1,704
$ 1,884
$
702
$ 2,069
$ — $ (1,741) $
$ — $ (1,088) $
$ — $ (1,758) $
2,090
1,704
2,015
$ 2,756
$ 3,953
$ 7,824
$ 2,758
$ 5,054
$ 5,377
$ — $ (1,561) $
3,953
7,824
$ — $ (1,183) $
$ — $ (2,969) $ 10,232
$ 1,133
$ 1,003
944
$
$ 9,100
$ 10,808
$ 13,031
$ — $ (9,230) $
$ — $ (10,867) $
$ — $ (13,222) $
1,003
944
753
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures 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 only provide 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 have carried out an evaluation, under
the supervision and with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by
this report, our disclosure controls and procedures were effective and were operating at a reasonable level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act
as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected
by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the
Company; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Under the supervision and with the participation of management, including our principal executive and financial
officers, we assessed our internal control over financial reporting as of April 30, 2020, based on criteria for effective
internal control over financial reporting established in Internal Control—Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO”). Based on this assessment,
management concluded that the Company maintained effective internal control over financial reporting as of April 30,
2020 based on the specified criteria.
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The effectiveness of our internal control over financial reporting as of April 30, 2020 has been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
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 Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter
ended April 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
None.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of AeroVironment, Inc. and subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of AeroVironment, Inc. and subsidiaries (the “Company”) as
of April 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of April 30, 2020, based on criteria established
in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended April 30, 2020, of the Company and
our report dated June 23, 2020, expressed an unqualified opinion on those financial statements and included an explanatory
paragraph regarding the Company’s adoption of a new accounting standard.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s
report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Los Angeles, California
June 23, 2020
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Item 10. Directors, Executive Officers, and Corporate Governance.
PART III
Certain information required by Item 401 and Item 405 of Regulation S-K will be included in the definitive proxy
statement for our 2020 Annual Meeting of Stockholders, which will be filed no later than 120 days after April 30, 2020,
and that information is incorporated by reference herein.
Codes of Ethics
We have adopted a Code of Business Conduct and Ethics (“Code of Conduct”). The Code of Conduct is posted on
our website, http://investor.avinc.com. We intend to disclose on our website any amendments to, or waivers of, the Code of
Conduct covering our Chief Executive Officer, Chief Financial Officer and/or Controller promptly following the date of
such amendments or waivers. A copy of the Code of Conduct may be obtained upon request, without charge, by contacting
our Secretary at (805) 520-8350 or by writing to us at AeroVironment, Inc., Attn: Secretary, 900 Innovators Way, Simi
Valley, California 93065. The information contained on or connected to our website is not incorporated by reference into
this Annual Report and should not be considered part of this or any reported filed with the SEC.
No family relationships exist among any of our executive officers or directors.
There have been no material changes to the procedures by which security holders may recommend nominees to
our board of directors.
The information required by Item 407(d)(4) and (5) of Regulation S-K will be included in the definitive proxy
statement for our 2020 Annual Meeting of Stockholders, and that information is incorporated by reference herein.
Item 11. Executive Compensation.
The information required by Item 402 and Item 407(e)(4) and (5) of Regulation S-K will be included in the
definitive proxy statement for our 2020 Annual Meeting of Stockholders, and that information is incorporated by reference
herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 201(d) and Item 403 of Regulation S-K will be included in the definitive proxy
statement for our 2020 Annual Meeting of Stockholders, and that information is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 and Item 407(a) of Regulation S-K will be included in the definitive proxy
statement for our 2020 Annual Meeting of Stockholders, and that information is incorporated by reference herein.
Item 14. Principal Accounting Fees and Services.
The information required by Item 14 of Form 10-K will be included in the definitive proxy statement for our 2020
Annual Meeting of Stockholders, and that information is incorporated by reference herein.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following are filed as part of this Annual Report:
1. Financial Statements
The following consolidated financial statements are included in Item 8:
● Report of Independent Registered Public Accounting Firm
● Consolidated Balance Sheets at April 30, 2020 and 2019
● Consolidated Statements of Income for the Years Ended April 30, 2020, 2019 and 2018
● Consolidated Statements of Comprehensive Income for the Years Ended April 30, 2020, 2019 and 2018
● Consolidated Statements of Stockholders’ Equity for the Years Ended April 30, 2020, 2019 and 2018
● Consolidated Statements of Cash Flows for the Years Ended April 30, 2020, 2019 and 2018
● Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following Schedule is included in Item 8:
● Schedule II—Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not present, or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the consolidated
financial statements or the Notes thereto.
3. Exhibits
See Item 15(b) of this report below.
(b)
Exhibits
Exhibit
Number
3.1(1)
3.3 (2)
4.1(3)
4.2
10.1#(4)
10.2#(3)
10.3#(3)
10.4#(3)
10.5#(3)
10.6#(3)
10.7#(3)
Exhibit
Amended and Restated Certificate of Incorporation of AeroVironment, Inc.
Third Amended and Restated Bylaws of AeroVironment, Inc.
Form of AeroVironment, Inc.’s Common Stock Certificate
Description of Registrant’s Securities
Form of Director and Executive Officer Indemnification Agreement
AeroVironment, Inc. Nonqualified Stock Option Plan
Form of Nonqualified Stock Option Agreement pursuant to the AeroVironment, Inc. Nonqualified Stock
Option Plan
AeroVironment, Inc. Directors’ Nonqualified Stock Option Plan
Form of Directors’ Nonqualified Stock Option Agreement pursuant to the AeroVironment, Inc. Directors’
Nonqualified Stock Option Plan
AeroVironment, Inc. 2002 Equity Incentive Plan
Form of AeroVironment, Inc. 2002 Equity Incentive Plan Stock Option Agreement
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Exhibit
Number
10.8#(3)
10.9#(5)
10.10#(6)
10.11#(3)
10.12#(3)
10.13#(7)
10.14#(17)
10.15#(17)
10.16#(17)
10.17#(17)
10.18(8)
10.19(6)
10.20(9)
10.21(9)
10.22(10)
10.23(10)
10.24(10)
10.25(11)
10.26(21)
Exhibit
AeroVironment, Inc. 2006 Equity Incentive Plan
AeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated effective September 29, 2011
AeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated effective September 30, 2016
Form of Stock Option Agreement pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Performance Based Bonus Award pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Long-Term Compensation Award Grant Notice and Long-Term Compensation Award Agreement
pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (Severance Plan
Participants) pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (Non-Severance Plan
Participants) pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (Non-Management
Directors) pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Form of Performance Restricted Stock Unit Award Grant Notice and Performance Restricted Stock Unit
Award Agreement pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan
Standard Industrial/Commercial Single-Tenant Lease, dated February 12, 2007, between
AeroVironment, Inc. and OMP Industrial Moreland, LLC, for the property located at 85 Moreland Road,
Simi Valley, California, including the addendum thereto
First Amendment to Lease Agreement dated October 10, 2011 and Second Amendment to Lease Agreement
dated June 2, 2017 by and between AeroVironment, Inc. and Simi Valley-NCR, LLC for the property
located at 85 Moreland Road, Simi Valley, California
Standard Industrial/Commercial Single-Tenant Lease, dated March 3, 2008, between AeroVironment, Inc.
and Hillside Associates III, LLC, for the property located at 900 Enchanted Way, Simi Valley, California,
including the addendum thereto
Standard Industrial/Commercial Single-Tenant Lease, dated April 21, 2008, between AeroVironment, Inc.
and Hillside Associates II, LLC, for the property located at 994 Flower Glen Street, Simi Valley, California,
including the addendum thereto
First Amendment to Lease Agreement (900 Enchanted Way, Simi Valley, CA 93065) dated as of
December 1, 2013, by and between the Company and Hillside III LLC, and related agreements
First Amendment to Lease Agreement (994 Flower Glen Street, Simi Valley, CA 93065) dated as of
December 1, 2013, by and between the Company and Hillside II LLC, and related agreements
Lease Agreement (996 Flower Glen Street, Simi Valley, CA 93065) dated as of December 1, 2013, by and
between the Company and Hillside II LLC, and related agreements
Standard Multi-Tenant Office Lease — Gross, dated September 24, 2015, between AeroVironment, Inc. and
Monrovia Technology Campus LLC for property at 800 Royal Oaks Dr. Monrovia, California, including
addendums thereto
Lease dated March 28, 2018 between AeroVironment, Inc. and Princeton Avenue Holdings, LLC for
property located at 14501 Princeton Avenue, Moorpark, California, including addendums thereto
Retiree Medical Plan
10.27#(3)
10.28†(12) Award Contract, dated March 1, 2011, between AeroVironment, Inc. and United States Army Contracting
Command
10.29†(13) Contract modification P00015 dated September 5, 2013 under the base contract with the US Army
Contracting Command—Redstone Arsenal (Missile) dated August 30, 2012
10.30†(14) Contract modification P00074 dated September 27, 2016 under the base contract with the US Army
10.31(15)
10.32(4)
10.33(4)
Contracting Command — Redstone Arsenal (Missile) dated August 30, 2012
Form of Director Letter Agreement by and between AeroVironment, Inc. and each non-employee director
Consulting Agreement by and between AeroVironment, Inc. and Charles R. Holland executed as of March
7, 2016
Task Order #FY16-001 to Consulting Agreement by and between AeroVironment, Inc. and Charles R.
Holland executed as of March 7, 2016
111
Table of Contents
Exhibit
Number
10.34
10.35†(16)
Exhibit
Amendment No. 1 dated November 28, 2016, Amendment No. 2 dated June 7, 2017, Amendment No. 3
dated April 23, 2018, Amendment No. 4 dated April 30, 2019, Amendment No. 5 dated December 2, 2019,
and Amendment No. 6 dated May 29, 2020 to Standard Consulting Agreement and corresponding Task
Orders by and between AeroVironment, Inc. and Charles R. Holland
Joint Venture Agreement by and between AeroVironment, Inc. and SoftBank Corp. dated as of December 1,
2017
10.36†(16) Design and Development Agreement by and between AeroVironment, Inc. and HAPSMobile, Inc. dated as
10.37†(16)
of December 27, 2017
Intellectual Property License Agreement by and among AeroVironment, Inc., SoftBank Corp. and
HAPSMobile, Inc. dated as of December 27, 2017
10.38ǂ(17) Amendment No.1 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of March 30, 2018
10.39ǂ(17) Amendment No.2 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of June 25, 2018
10.40ǂ(17) Amendment No.3 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of August 28, 2018
10.41ǂ(17) Amendment No.4 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of December 5, 2018
10.42ǂ(17) Amendment No.5 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of March 19, 2019
10.43ǂ(17) Amendment No.6 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of March 29, 2019
10.44ǂ(17) Amendment No.7 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of April 24, 2019
10.45ǂ(18) Amendment No. 8 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of June 20, 2019
10.46ǂ(19) Amendment No. 9 to the Design and Development Agreement by and between AeroVironment, Inc. and
10.47ǂ
10.48ǂ
10.51(20)
10.49(17)
10.50(17)
HAPSMobile, Inc. dated as of December 2, 2019
Amendment No. 10 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of February 25, 2020
Amendment No. 11 to the Design and Development Agreement by and between AeroVironment, Inc. and
HAPSMobile, Inc. dated as of April 30, 2020
Amendment No. 1 to the Joint Venture Agreement by and between AeroVironment, Inc. and Softbank Corp.
dated as of November 29, 2018
Amendment No. 2 to the Joint Venture Agreement by and between AeroVironment, Inc. and Softbank Corp.
dated as of February 8, 2019
Asset Purchase Agreement by and between Webasto Charging Systems, Inc. and AeroVironment, Inc. dated
as of June 1, 2018
Side Letter Agreement by and between Webasto Charging Systems, Inc. and AeroVironment, Inc. dated as
of June 29, 2018
First Amendment to Lease dated October 26, 2018 between AeroVironment, Inc. and Princeton Avenue
Holdings, LLC for property located at 14501 Princeton Avenue, Moorpark, California
10.54#(23) AeroVironment, Inc. Executive Severance Plan and Summary Description, effective January 1, 2019
10.55#(24)
Special Consulting Agreement by and between AeroVironment, Inc. and Kirk Flittie dated as of July 13,
2019
Special Consulting Agreement by and between AeroVironment, Inc. and Teresa Covington dated as of
October 18, 2019
10.56#(25)
10.53(22)
10.52(21)
10.57#(19) Offer Letter to Kevin McDonnell executed January 13, 2020
10.58
21.1
23.1
Second Amendment to Lease Agreement dated as of May 13, 2020, by and between the Company and
Hillside III LLC
Subsidiaries of AeroVironment, Inc.
Consent of Deloitte & Touche LLP, independent registered public accounting firm
112
Table of Contents
23.2
24.1
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Consent of Ernst & Young LLP, independent registered public accounting firm
Power of Attorney (incorporated by reference to the signature page of this Annual Report)
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed March 9,
2007 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed July 1, 2015
(File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Registration Statement on Form S-1 (File
No. 333-137658).
Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10 K filed on June 29,
2016 (File No. 001 33261).
Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed on October 5, 2011
(File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed June 28,
2017 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8-K filed July 28, 2010
(File No. 001-33261).
Incorporated by reference herein to the exhibits on the Company’s Annual Report on Form 10-K filed June 29,
2007 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed June 26,
2008 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed March 5,
2014 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed December
9, 2015 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed on June 21,
2011 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed
November 27, 2013 (File No. 001-33261).
113
Table of Contents
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10 Q filed December
7, 2016 (File No. 001 33261).
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed March 9,
2016 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed March 7,
2018 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed on June 26,
2019 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed September
5, 2019 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed March 4,
2020 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed September
6, 2018 (File No. 001-33261).
The representations and warranties contained in the Asset Purchase Agreement were made for the purposes of
allocating contractual risk between the parties and not as a means of establishing facts and are qualified by
information in disclosure schedules that the parties exchanged in connection with the signing of the Asset
Purchase Agreement. Moreover, the representations and warranties were made only as of the date of execution of
the Asset Purchase Agreement and information concerning the subject matter of the representations and
warranties may change after the date of the Asset Purchase Agreement. Only parties to the Asset Purchase
Agreement have a right to enforce the agreement. Accordingly, security holders should not rely on the
representations and warranties in the Asset Purchase Agreement.
All schedules (or similar attachments) have been omitted from this filing pursuant to Item 601 of Regulation S-K.
The Company will furnish copies of any schedules to the Securities and Exchange Commission upon request.
Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed September
6, 2018 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed November
30, 2018 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed March 7,
2018 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8-K filed on July 27,
2019 (File No. 001-33261).
Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8-K/A filed October
22, 2019 (File No. 001-33261).
†
Confidential treatment has been granted for portions of this exhibit.
114
Table of Contents
ǂ
#
Pursuant to Item 601(b)(2) of Regulation S-K, certain immaterial provisions of the agreement that would likely
cause competitive harm to the Company if publicly disclosed have been redacted or omitted.
Indicates management contract or compensatory plan.
(c)
Not applicable.
115
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: June 23, 2020
AEROVIRONMENT, INC.
/s/ WAHID NAWABI
By:Wahid Nawabi
Its: Chief Executive Officer and President
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby
constitutes and appoints Wahid Nawabi and Kevin P. McDonnell, each of them acting individually, as his attorney-in-fact,
each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys- in-fact, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming our signatures as they may be
signed by our said attorney-in-fact and any and all amendments to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
/s/ WAHID NAWABI
Wahid Nawabi
/s/ KEVIN P. MCDONNELL
Kevin P. McDonnell
/s/ TIMOTHY E. CONVER
Timothy E. Conver
/s/ EDWARD R. MULLER
Edward R. Muller
/s/ ARNOLD L. FISHMAN
Arnold L. Fishman
/s/ STEPHEN F. PAGE
Stephen F. Page
/s/ CHARLES R. HOLLAND
Charles R. Holland
/s/ CATHARINE MERIGOLD
Catharine Merigold
/s/ CHARLES THOMAS BURBAGE
Charles Thomas Burbage
Title
President, Chief
Executive Officer and Director
(Principal Executive Officer)
Senior Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
Chairman
Director
Director
Director
Director
Director
Director
116
Date
June 23, 2020
June 23, 2020
June 23, 2020
June 23, 2020
June 23, 2020
June 23, 2020
June 23, 2020
June 23, 2020
June 23, 2020
Table of Contents
117
Exhibit 4.2
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
As of April 30, 2020, AeroVironment, Inc. (“we”, “our”, or the “Company”), has one class of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended: our common stock, $0.0001 par value per share
(“Common Stock”).
Description of Common Stock
The following description of our Common Stock is a summary and does not purport to be complete. It is subject
and qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation, as amended
(“Certificate of Incorporation”), our Third Amended and Restated Bylaws, as amended (“Bylaws”), which are filed as
exhibits to this Annual Report on Form 10-K of which this Exhibit 4.1 is a part and incorporated herein by reference, and
the applicable provisions of the Delaware Corporation Law (the “DGCL”). We encourage you to read the Certificate of
Incorporation, the Bylaws, and the applicable provisions of the DGCL for additional information.
Authorized Shares
Under our Certificate of Incorporation, we are authorized to issue 100,000,000 shares of Common Stock and
10,000,000 shares of undesignated preferred stock, $0.0001 par value per share (“Preferred Stock”). The outstanding shares
of our Common Stock are fully paid and nonassessable.
Voting Rights
Holders of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders, including the election of directors, and do not have cumulative voting rights.
Dividend Rights
Subject to preferences that may be applicable to any then-outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably those dividends, if any, as may be declared by our board of directors out of legally available
funds.
Liquidation Rights
Upon our liquidation, dissolution or winding up, the holders of Common Stock will be entitled to share ratably in
the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities of
the Company, subject to the prior rights of any Preferred Stock then outstanding.
Other Rights and Preferences
Holders of Common Stock have no preemptive or conversion rights or other subscription rights and there are no
redemption or sinking funds provisions applicable to the Common Stock.
Certain Anti-Takeover Provisions of Delaware Law, Our Certificate of Incorporation and Our Bylaws
Some provisions of the DGCL and our Certificate of Incorporation and Bylaws, contain provisions that could
make certain transactions more difficult, including an acquisition of us by means of a tender offer, an acquisition of us by
means of a proxy contest or otherwise, or the removal of any of our incumbent officers and directors.
These provisions, which are summarized below, are expected to discourage coercive takeover practices and
inadequate takeover bids. These provisions also are designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of
their terms.
Undesignated Preferred Stock. Our board of directors, without further action by our stockholders, may issue up to
10,000,000 shares of undesignated Preferred Stock in one or more series, in each case, in such number and with such
voting or other rights, preferences, or privileges as are established by our board of directors with respect thereto, including
those superior to our Common Stock, that could impede the success of any attempt to change the control of the Company.
These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or
management of the Company.
Stockholder Meetings. Our Certificate of Incorporation and Bylaws provide that a special meeting of stockholders
may be called only by our chairman of the board or president, or by the president or secretary at the request in writing by a
majority of our board of directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals. Our Bylaws establish advance
notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other
than nominations made by or at the direction of our board of directors or a committee of our board of directors.
Elimination of Stockholder Action by Written Consent. Our Certificate of Incorporation eliminates the right of
stockholders to act by written consent without a meeting.
Election and Removal of Directors. Our board of directors is divided into three classes. The directors in each
class serve for a three-year term, one class being elected each year by our stockholders. This system of electing and
removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain
control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.
Additionally, no director (other than any directors to be elected by one or more series of Preferred Stock with respect to
which our board of directors designates otherwise) may be removed from office by the stockholders except for cause and,
in addition to any other vote required by law, upon the affirmative vote of not less than 66⅔% of the total voting power of
all outstanding Company securities then entitled to vote generally in the election of directors, voting together as a single
class.
Amendments to Certificate of Incorporation and Bylaws. The affirmative vote of holders of at least 66⅔% of the
outstanding voting stock of the Company, voting together as a single class, is required to amend certain portions of the
Certificate of Incorporation, including the portions regarding our classified board structure and the removal of directors for
cause by our stockholders. Our board of directors may amend or repeal our Bylaws without any further action by our
stockholders. Our stockholders may amend or repeal the Bylaws with, in addition to any other vote required by law, the
affirmative vote of the holders of not less than 66⅔% of the total voting power of all outstanding Company securities then
entitled to vote generally in the election of directors, voting together as a single class.
Delaware Anti-Takeover Statute. We are subject to the provisions of Section 203 of the DGCL. Subject to certain
exceptions, Section 203 prohibits persons deemed “interested stockholders” from engaging, under certain circumstances, in
a “business combination” with a publicly held Delaware corporation for three years following the date these persons
become interested stockholders, unless:
● prior to the date of the transaction, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an interested stockholder;
● upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction
commenced, calculated in accordance with the provisions of Section 203 of the DGCL; or
● on or subsequent to the date of the transaction, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66⅔% of the outstanding voting stock which is not owned by the interested stockholder.
Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years
prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally,
a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not
approved in advance by our board of directors. We also anticipate that Section 203 of the DGCL may also discourage
attempts that might result in a premium over the market price for the shares of capital stock held by stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, located at
6201 15th Avenue, New York, NY 11219.
Exchange Listing
Our Common Stock is traded on The Nasdaq Global Select Market under the trading symbol “AVAV.”
AMENDMENT NO. 01 TO
STANDARD CONSULTING AGREEMENT
Exhibit 10.34
AeroVironment, Inc., (“AV” or “Party”) and General Charles R. Holland, USAF, Retired (“Consultant" or "Party"), collectively
referred to as the “Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 01,
2016 ("Agreement"), which provides for the Consultant to render certain specified Services to AV during the Term of the
Agreement. The Parties have agreed to amend the Agreement as follows:
1. First paragraph of the Agreement is modified to update AV's corporate address and also update Consultant's address.
The amended first paragraph reads as follows: “THIS AGREEMENT is executed and made effective as of January 01,
2016 (the “Effective Date”) between AeroVironment, Inc., a Delaware corporation, and its subsidiaries, with offices at
800 Royal Oaks Drive, Suite 210, Monrovia, CA 91016-6347 (hereinafter referred to as "AV" or Party) and General
Charles R. Holland, USAF, Retired, with offices at , Phone: , E-mail: mailto:
(hereinafter referred to as “consultant" or “Party"). AV and the Consultant will be collectively referred to as “the
Parties.”
2. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to June 30, 2017. The amended
Section 2 reads as follows: "Services will be performed between the Effective Date and June 30, 2017 ("Expiration
Date''). This Agreement may be extended for additional periods by mutual written agreement between the Parties prior
to the Expiration Date of the initial term or any extension thereof. If the Parties do not execute such a written agreement,
this Agreement will expire and automatically terminate as of the Expiration Date.”
3. Section 19, "Notice,'' of the Agreement is modified to update AV’s corporate address and also update Consultant’s
address. The amended Section 19 reads as follows: “Any notice between the parties hereto required or permitted to be
given under this Agreement shall be sufficient if in writing and sent by registered or certified mail, postage prepaid, or
other express delivery service, to the respective addresses set forth below or at such other address as either of the
parties may from time to time designate in accordance with the provisions of this Section 19.
AeroVironment:
John Burkholder
Senior Counsel
800 Royal Oaks Drive, Suite 210
Monrovia, CA 91016-6347
Telephone: +626-357-9983 ext 4588
Facsimile: +626-359-1894
E-Mail: burkholder@avinc.com
Consultant:
General Charles R. Holland, USAF Retired
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and
effect. If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment,
the terms of this current Amendment shall control.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of January 01, 2017
AEROVIRONMENT, INC.
Signature: /s/ Wahid Nawabi
Printed Name: Wahid Nawabi
Title: President and CEO
Date: 11/23/2016
CONSULTANT:
General Charles R. Holland, USAF, Retired
Signature: /s/ Charles R. Holland
Printed Name: Charles R. Holland
Title: Consultant
Date: 11/24/16
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
STANDARD CONSULTING AGREEMENT
Effective Date: January 1, 2016
Consultant: General Charles R. Holland, USAF, Retired
TASK ORDER # FY17-001
Project No. 9000.6435.0100.000
A. Effort and/or Services to be provided by Consultant:
Consultant will provide marketing support for unmanned air vehicle systems. This includes:
1. Scheduling meetings with key executives from the U.S. Department of Defense.
2. On-going consulting services on AV capture activities.
3. Facilitate and provide assistance scheduling meetings with key participants at various industry
conferences.
4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager.
In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permitted to
disclose any export-controlled data or furnish any defense services to non-US persons, unless authorized in
advance by the US Department of State or Department of Commerce. The Consultant is not permitted to access
any US or other government classified information in the course of performance of work under this Task Order
and Consulting Agreement, unless the following actions have occurred: (1) AV Security Officer has approved
such access in advance; (2) the Parties have executed the “Consultant Certificate Regarding Access to and
Handling of Classified Information” (Attachment E to the Consulting Agreement); and (3) and the Consultant has
completed all necessary training.
B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is:
Wahid Nawabi
C. Target Performance Period: January 1, 2017 through June 30, 2017
D. Rates:
Authorized Days: As required and authorized by AV Task Manager
Rate: $4,000.00 per day
Monthly Retainer: $4,000.00
Total Not To Exceed Cost: $24,000.00 (excluding expenses)
E. Expenses:
Maximum authorized expenses: AV will reimburse Consultant for any AV related business travel expenses
(transportation, lodging, meals, etc.) during “Target Performance Period” defined under Section C above,
provided all travel expenses are pre-approved in writing by the AV Task Manager.
Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travel
procedures; receipts shall accompany invoices of $25 or more. No labor or expense costs above those
amounts shown here are to be incurred without the prior written approval of the AV Task Manager.
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
F. SUBMITTING INVOICES: This practice will support efficient processing and payment.
1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No.
and include the name of the AV Task Manager on all invoices.
2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,
each invoice should also be accompanied by a progress statement.
3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail to
acp@avinc.com, and also reference the correct Task Order Number and your organization’s name in the
subject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,
CA 91107.
AeroVironment, Inc.
General Charles R. Holland, USAF, Retired
/s/ Wahid Nawabi
Signature
Wahid Nawabi
Name (Print)
President and CEO
Title
11/23/2016
Date
/s/ Charles R. Holland
Signature
Charles R. Holland
Name (Print)
Consultant
Title
11/24/16
Date
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
AMENDMENT NO. 02 TO
STANDARD CONSULTING AGREEMENT
AeroVironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the
“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016
(“Agreement”), which provides for the Consultant to render certain specified services to AV during the Term of the
Agreement. The Parties have agreed to amend the Agreement as follows:
1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to April 30, 2018. The amended
Section 2 reads as follows: “Services will be performed between the Effective Date and April 30, 2018 (“Expiration
Date”). This Agreement may be extended for additional periods by mutual written agreement between the Parties prior
to the Expiration Date of the initial term or any extension thereof. If the Parties do not execute such a written agreement,
this Agreement will expire and automatically terminate as of the Expiration Date.”
All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and
effect. If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment,
the terms of this current Amendment shall control.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of July 1, 2017
AEROVIRONMENT, INC.
Signature: /s/ Wahid Nawabi
Printed Name: Wahid Nawabi
Title: President and CEO
Date: 6/7/2017
CONSULTANT:
General Charles R. Holland, USAF, Retired
Signature: /s/ Charles R. Holland
Printed Name: Charles R. Holland
Title: Consultant
Date: 6/7/17
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
STANDARD CONSULTING AGREEMENT
Effective Date: January 1, 2016
Consultant: General Charles R. Holland, USAF, Retired
TASK ORDER # FY18-001
Project No. 0100.COR
A. Effort and/or Services to be provided by Consultant:
Consultant will provide marketing support for unmanned air vehicle systems. This includes:
1. Scheduling meetings with key executives from the U.S. Department of Defense.
2. On-going consulting services on AV capture activities.
3. Facilitate and provide assistance scheduling meetings with key participants at various industry
conferences.
4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager.
In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permitted to
disclose any export-controlled data or furnish any defense services to non-US persons, unless authorized in
advance by the US Department of State or Department of Commerce. The Consultant is not permitted to access
any US or other government classified information in the course of performance of work under this Task Order
and Consulting Agreement, unless the following actions have occurred: (1) AV Security Officer has approved
such access in advance; (2) the Parties have executed the “Consultant Certificate Regarding Access to and
Handling of Classified Information” (Attachment E to the Consulting Agreement); and (3) and the Consultant has
completed all necessary training.
B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is:
Wahid Nawabi
C. Target Performance Period: July 1, 2017 through April 30, 2018
D. Rates:
Authorized Days: As required and authorized by AV Task Manager
Rate: $4,000.00 per day
Monthly Retainer: $4,000.00
Total Not To Exceed Cost: $24,000.00 (excluding expenses)
E. Expenses:
Maximum authorized expenses: AV will reimburse Consultant for any AV related business travel expenses
(transportation, lodging, meals, etc.) during “Target Performance Period” defined under Section C above,
provided all travel expenses are pre-approved in writing by the AV Task Manager.
Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travel
procedures; receipts shall accompany invoices of $25 or more. No labor or expense costs above those
amounts shown here are to be incurred without the prior written approval of the AV Task Manager.
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
F. SUBMITTING INVOICES: This practice will support efficient processing and payment.
1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No.
and include the name of the AV Task Manager on all invoices.
2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,
each invoice should also be accompanied by a progress statement.
3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail to
acp@avinc.com, and also reference the correct Task Order Number and your organization’s name in the
subject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,
CA 91107.
AeroVironment, Inc.
General Charles R. Holland, USAF, Retired
/s/ Wahid Nawabi
Signature
President and CEO
Title
6/6/2017
Date
/s/ Charles R. Holland
Signature
6/5/17
Date
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
AMENDMENT NO. 03 TO
STANDARD CONSULTING AGREEMENT
Aerovironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the
“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016
(“Agreement”), which provides for the Consultant to render certain specified services to AV during the Term of the
Agreement. The Parties have agreed to amend the Agreement as follows:
1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to April 30, 2019. The amended
Section 2 reads as follows: “Services will be performed between the Effective Date and April 30, 2019 (“Expiration
Date”). This Agreement may be extended for additional periods by mutual written agreement between the Parties prior
to the Expiration Date of the initial term or any extension thereof. If the Parties do not execute such a written
agreement, this Agreement will expire and automatically terminate as of the Expiration Date.”
All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and
effect. If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment,
the terms of this current Amendment shall control.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of May 1, 2018.
AEROVIRONMENT, INC.
Signature:
/s/ Wahid Nawabi
Printed Name: Wahid Nawabi
Title:
Date:
President and CEO
4/23/2018
CONSULTANT:
General Charles R. Holland, USAF, Retired
Signature:
/s/ Charles R. Holland
Printed Name: Charles R. Holland
Date:
4/23/2018
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
STANDARD CONSULTING AGREEMENT
Effective Date: January 1, 2016
Consultant: General Charles R. Holland
TASK ORDER # FY19-001
Project No.0100 COR
A. Effort and/or Services to be provided by Consultant:
Consultant will assist with the following services:
Consultant will provide marketing support for unmanned air vehicle systems. This includes:
1. Scheduling meetings with key executives from the U.S. Department of Defense.
2. On-going consulting services on AV capture activities.
3. Facilitate and provide assistance scheduling meetings with key participants at various industry
conferences.
4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager.
In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permitted to
disclose any export-controlled data or furnish any defense services to non-US persons, unless authorized in
advance by the US Department of State or Department of Commerce. The Consultant is not permitted to access
any US or other government classified information in the course of performance of work under this Task Order
and Consulting Agreement, unless the following actions have occurred: (1) AV Security Officer has approved
such access in advance; (2) the Parties have executed the “Consultant Certificate Regarding Access to and
Handling of Classified Information” (Attachment E to the Consulting Agreement); and (3) and the Consultant has
completed all necessary training.
B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is:
Wahid Nawabi
C. Target Performance Period: May 1, 2018 through April 30, 2019
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
F. Rates:
Authorized Days: As required and authorized by AV Task Manager
Monthly Retainer: $4,000.00
Total Not To Exceed Cost: $48,000.00 (plus any expenses incurred as approved by Task Manager)
E. Expenses:
Maximum authorized expenses: None
AV will reimburse Consultant for any AV related business travel expenses (transportation, lodging, meals,
etc.) during “Target Performance Period” defined under Section C above, provided all travel expenses are
pre-approved in writing by the AV Task Manager.
Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travel
procedures; receipts shall accompany invoices of $25 or more.
No labor or expense costs above those amounts shown here are to be incurred without the prior written
approval of the AV Task Manager.
F. SUBMITTING INVOICES: This practice will support efficient processing and payment.
1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No.
and include the name of the AV Task Manager on all invoices.
2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,
each invoice should also be accompanied by a progress statement.
3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail to
acp@avinc.com, and also reference the correct Task Order Number and your organization’s name in the
subject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,
CA 91107.
AEROVIRONMENT, INC.
Charles R. Holland, USAF Retired
/s/ Wahid Nawabi
Signature
Wahid Nawabi
Name (Print)
President and CEO
Title
4/23/2018
Date
/s/ Charles R. Holland
Signature
Charles R. Holland
Name (Print)
4/23/2018
Date
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
AMENDMENT NO. 04 TO
STANDARD CONSULTING AGREEMENT
Aerovironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the
“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016
(“Agreement”), which provides for the Consultant to render certain specified services to AV during the Term of the
Agreement. The Parties have agreed to amend the Agreement as follows:
1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to April 30, 2020. The amended
Section 2 reads as follows: “Services will be performed between the Effective Date and April 30, 2020
(“Expiration Date”). This Agreement may be extended for additional periods by mutual written agreement between
the Parties prior to the Expiration Date of the initial term or any extension thereof. If the Parties do not execute such
a written agreement, this Agreement will expire and automatically terminate as of the Expiration Date.”
All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and
effect. If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment,
the terms of this current Amendment shall control.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of May 1, 2019.
AEROVIRONMENT, INC.
Signature: /s/ Wahid Nawabi
Printed Name: Wahid Nawabi
Title: President and CEO
Date: 4/30/2019
CONSULTANT:
GENERAL CHARLES R. HOLLAND, USAF, RETIRED
Signature: /s/ Charles R. Holland
Printed Name: Charles R. Holland
Date:4/30/2019
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
STANDARD CONSULTING AGREEMENT
Effective Date: January 1, 2016
Consultant: Charles R. Holland
TASK ORDER # FY20-001
Project and/or Charge No.0100 COR
D. Effort and/or Services to be provided by Consultant:
Consultant will assist with the following services:
Consultant will provide marketing support for unmanned air vehicle systems. This includes:
1. Scheduling meetings with key executives from the U.S. Department of Defense.
2. On-going consulting services on AV capture activities.
3. Facilitate and provide assistance scheduling meetings with key participants at various industry
conferences.
4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager.
In performance of the work under this Task Order and Consultant Agreement, the Consultant is not
permitted to disclose any export-controlled data or furnish any defense services to non-US persons, unless
authorized in advance by the US Department of State or Department of Commerce. The Consultant is not
permitted to access any US or other government classified information in the course of performance of work
under this Task Order and Consulting Agreement, unless the following actions have occurred: (1) AV
Security Officer has approved such access in advance; (2) the Parties have executed the “Consultant
Certificate Regarding Access to and Handling of Classified Information” (Attachment E to the Consulting
Agreement); and (3) and the Consultant has completed all necessary training.
E. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is:
Wahid Nawabi
F. Target Performance Period: May 1, 2019 through December 1, 2019
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
G. Rates:
Authorized Days: As required and authorized by AV Task Manager
Monthly Retainer: $4,000.00
Total Not To Exceed Cost: $48,000.00 (plus any expenses incurred as approved by Task Manager)
H. Expenses:
Maximum authorized expenses: None
AV will reimburse Consultant for any AV related business travel expenses (transportation, lodging, meals,
etc.) during “Target Performance Period” defined under Section C above, provided all travel expenses are
pre-approved in writing by the AV Task Manager.
Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travel
procedures; receipts shall accompany invoices of $25 or more.
No labor or expense costs above those amounts shown here are to be incurred without the prior written
approval of the AV Task Manager.
I. SUBMITTING INVOICES: This practice will support efficient processing and payment.
1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No.
and include the name of the AV Task Manager on all invoices.
2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,
each invoice should also be accompanied by a progress statement.
3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail to
acp@avinc.com, and also reference the correct Task Order Number and your organization’s name in the
subject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,
CA 91107.
AeroVironment, Inc.
Charles R. Holland, USAF Retired
/s/ Wahid Nawabi
Signature
Wahid Nawabi
Name (Print)
President and CEO
Title
4/30/2019
Date
/s/ Charles R. Holland
Signature
Charles R. Holland
Name (Print)
4/30/2019
Date
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
AMENDMENT NO. 05 TO
STANDARD CONSULTING AGREEMENT
Aerovironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the
“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016
(“Agreement”), which provides for the Consultant to render certain specified services to AV during the Term of the
Agreement. The Parties have agreed to amend the Agreement as follows:
1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to June 1, 2020. The amended
Section 2 reads as follows: “Services will be performed between the Effective Date and June 1, 2020 (“Expiration
Date”). This Agreement may be extended for additional periods by mutual written agreement between the Parties
prior to the Expiration Date of the initial term or any extension thereof. If the Parties do not execute such a written
agreement, this Agreement will expire and automatically terminate as of the Expiration Date.”
All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and
effect. If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment,
the terms of this current Amendment shall control.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of December 1, 2019.
AEROVIRONMENT, INC.
Signature: /s/ Wahid Nawabi
Printed Name: Wahid Nawabi
Title: President and CEO
Date: 12/2/2019
CONSULTANT:
GENERAL CHARLES R. HOLLAND, USAF, RETIRED
Signature: /s/ Charles R. Holland
Printed Name: Charles R. Holland
Date:12/2/2019
AEROVIRONMENT PROPRIETARY INFORMATION
Page 3
STANDARD CONSULTING AGREEMENT
Effective Date: January 1, 2016
Consultant: Charles R. Holland
TASK ORDER # FY20-001
Revision #01
Project and/or Charge No.0100 COR
Changes from previous version of Task Order FY20-001 are noted with additions in underlined text and deletions
with strike-out text and reflect the following:
Extend Period of Performance to June 1, 2020
A. Effort and/or Services to be provided by Consultant:
Consultant will assist with the following services:
Consultant will provide marketing support for unmanned air vehicle systems. This includes:
1. Scheduling meetings with key executives from the U.S. Department of Defense.
2. On-going consulting services on AV capture activities.
3. Facilitate and provide assistance scheduling meetings with key participants at various industry
conferences.
4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager.
In performance of the work under this Task Order and Consultant Agreement, the Consultant is not
permitted to disclose any export-controlled data or furnish any defense services to non-US persons, unless
authorized in advance by the US Department of State or Department of Commerce. The Consultant is not
permitted to access any US or other government classified information in the course of performance of work
under this Task Order and Consulting Agreement, unless the following actions have occurred: (1) AV
Security Officer has approved such access in advance; (2) the Parties have executed the “Consultant
Certificate Regarding Access to and Handling of Classified Information” (Attachment E to the Consulting
Agreement); and (3) and the Consultant has completed all necessary training.
B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is:
Wahid Nawabi
C. Target Performance Period: May 1, 2019 through December 1, 2019 June 1, 2020
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
D. Rates:
Authorized Days: As required and authorized by AV Task Manager
Monthly Retainer: $4,000.00
Total Not To Exceed Cost: $48,000.00 (plus any expenses incurred as approved by Task Manager)
E. Expenses:
Maximum authorized expenses: None
AV will reimburse Consultant for any AV related business travel expenses (transportation, lodging, meals,
etc.) during “Target Performance Period” defined under Section C above, provided all travel expenses are
pre-approved in writing by the AV Task Manager.
Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travel
procedures; receipts shall accompany invoices of $25 or more.
No labor or expense costs above those amounts shown here are to be incurred without the prior written
approval of the AV Task Manager.
F. SUBMITTING INVOICES: This practice will support efficient processing and payment.
1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No.
and include the name of the AV Task Manager on all invoices.
2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,
each invoice should also be accompanied by a progress statement.
3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail to
acp@avinc.com, and also reference the correct Task Order Number and your organization’s name in the
subject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,
CA 91107.
AeroVironment, Inc.
Charles R. Holland, USAF Retired
/s/ Wahid Nawabi
Signature
Wahid Nawabi
Name (Print)
President and CEO
Title
12/2/2019
Date
/s/ Charles R. Holland
Signature
Charles R. Holland
Name (Print)
12/2/2019
Date
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
AMENDMENT NO. 06 TO
STANDARD CONSULTING AGREEMENT
Aerovironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the
“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016
(“Agreement”), which provides for the Consultant to render certain specified services to AV during the Term of the
Agreement. The Parties have agreed to amend the Agreement as follows:
1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to May 31, 2021. The amended
Section 2 reads as follows: “Services will be performed between the Effective Date and May 31, 2021
(“Expiration Date”). This Agreement may be extended for additional periods by mutual written agreement between
the Parties prior to the Expiration Date of the initial term or any extension thereof. If the Parties do not execute such
a written agreement, this Agreement will expire and automatically terminate as of the Expiration Date.”
All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and
effect. If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment,
the terms of this current Amendment shall control.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of June 1, 2020.
AEROVIRONMENT, INC.
Signature: /s/ Wahid Nawabi
Printed Name: Wahid Nawabi
Title: President and CEO
Date: 5/28/2020
CONSULTANT:
GENERAL CHARLES R. HOLLAND, USAF, RETIRED
Signature: /s/ Charles R. Holland
Printed Name: Charles R. Holland
Date:5/29/2020
AEROVIRONMENT PROPRIETARY INFORMATION
Page 3
STANDARD CONSULTING AGREEMENT
Effective Date: January 1, 2016
Consultant: Charles R. Holland
TASK ORDER # FY20-001
Project and/or Charge No.0100 COR
A. Effort and/or Services to be provided by Consultant:
Consultant will assist with the following services:
1. General Holland will be attending 3 key events for us this year for specific objectives related to HAPS and
SB600. Those events are POST (Pacific Operations Sciences & Technology) Conference, which usually
happens in Feb/March; Space Symposium, which also is around Feb/March; and SOFIC, which just
happened virtually and it is usually in May.
2. SAG meetings also to 2 times a year (instead of 4/year) and Gen. Holland is not required to attend those
only optional.
In performance of the work under this Task Order and Consultant Agreement, the Consultant is not
permitted to disclose any export-controlled data or furnish any defense services to non-US persons, unless
authorized in advance by the US Department of State or Department of Commerce. The Consultant is not
permitted to access any US or other government classified information in the course of performance of work
under this Task Order and Consulting Agreement, unless the following actions have occurred: (1) AV
Security Officer has approved such access in advance; (2) the Parties have executed the “Consultant
Certificate Regarding Access to and Handling of Classified Information” (Attachment E to the Consulting
Agreement); and (3) and the Consultant has completed all necessary training.
B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is:
Wahid Nawabi
C. Target Performance Period: June 1, 2020 through May 31, 2021
AEROVIRONMENT PROPRIETARY INFORMATION
Page 1
D. Rates:
Authorized Days: As required and authorized by AV Task Manager
Monthly Retainer: $2,500.00
Total Not To Exceed Cost: $30,000.00 (plus any expenses incurred as approved by Task Manager)
E. Expenses:
Maximum authorized expenses: None
AV will reimburse Consultant for any AV related business travel expenses (transportation, lodging, meals,
etc.) during “Target Performance Period” defined under Section C above, provided all travel expenses are
pre-approved in writing by the AV Task Manager.
Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travel
procedures; receipts shall accompany invoices of $25 or more.
No labor or expense costs above those amounts shown here are to be incurred without the prior written
approval of the AV Task Manager.
F. SUBMITTING INVOICES: This practice will support efficient processing and payment.
1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No.
and include the name of the AV Task Manager on all invoices.
2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,
each invoice should also be accompanied by a progress statement.
3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail to
ACPinvoices@avinc.com, and also reference the correct Task Order Number and your organization’s
name in the subject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5130,
Simi Valley, CA 93065.
AeroVironment, Inc.
Charles R. Holland, USAF Retired
/s/ Wahid Nawabi
Signature
Wahid Nawabi
Name (Print)
President and CEO
Title
5/28/2020
Date
/s/ Charles R. Holland
Signature
Charles R. Holland
Name (Print)
5/29/2020
Date
AEROVIRONMENT PROPRIETARY INFORMATION
Page 2
CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK
[***]) HAVE BEEN OMITTED PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K. A COPY OF THE
UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION
UPON REQUEST.
Exhibit 10.47
AMENDMENT NO. 10 TO
THE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)
This Amendment No. 10 to the Design and Development Agreement (Step2) (“Amendment”) is entered
into as of the date of last signature below by and between HAPSMobile Inc. and AeroVironment, Inc. to
amend the Design and Development Agreement (Step2) made as of December 27, 2017 (as amended by
Amendment No.1 as of March 30, 2018, Amendment No.2 as of June 25, 2018, Amendment No.3 as of
August 28, 2018, Amendment No.4 as of December 5, 2018, Amendment No.5 as of March 19, 2019,
Amendment No.6 as of March 29, 2019, Amendment No.7 as of April 24, 2019, Amendment No.8 as of
June 20, 2019 and Amendment No.9 as of December 2, 2019 between HAPSMobile and AV) (collectively,
the “DDA”).
Background
The Parties hereby agree to amend the total fees of Design and Development for Step 2 due to the changes
of the project schedule and the Statement of Work as set forth herein (the “Change”).
Therefore, to formalize and reflect both the Changes, the Parties hereby agree with the amendments to the
DDA as follows:
1. Section 4 “Fifth Work Order and Optional Order” of Attachment F (INVOICE AND INCURRED
COSTS DOCUMENTATION) to the DDA (as amended by the Amendments No.9) is hereby deleted in its
entirety and replaced with the following clauses:
Amendments
4. Fifth Work Order and Optional Orders
4.1 Order Schedule
The Fifth Work Order and the following Optional Orders will be organized as follows;
Name
Covered SoW
Covered
Milestone
[***]
WO value
(USD)
WO due
date
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
The fifth Work
Order
The sixth Work
Order
Optional Order #1
[***]
[***]
[***]
*remark
Definition
[***]
Flight Location Change
Meaning
Decision Due Date
[***]
Additional tasks associated with;
a) a change from the original flight location,
[***]
[***]
Lanai, to an alternate site
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K
b) detailed flight test planning of [***] to be
tested and related planning optimization
of other flight test campaign.
In case either Party may request changes to
the conditions defined in Attachments A, C,
D, E, F or H relating the task herein defined,
then follows the procedures defined in Clause
2.4 in DDA or Attachment G ("Change
Control").
HM shall issue the fifth Work Order as defined above, and HM may issue the Optional Order by fully HM’s
option considering [***] but until WO due date defined as the above.
2. All other terms and conditions not specifically modified or amended herein remain in full force and effect
as provided for in the DDA and its Attachments, including Amendments 1 through 9. Capitalized terms,
unless otherwise defined herein, shall have the meaning set forth in the DDA. This Amendment may only
be modified or amended by a written document executed by the parties hereto.
IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s)
below.
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K
2
IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s)
below.
SIGNED for and on behalf of
SIGNED for and on behalf of
HAPSMobile Inc.
AeroVironment, Inc.
By: ../s/ Yoshihito Shimazaki.........…………..
By: ..../s/ Mike Cross.................…………..
Name: Yoshihito Shimazaki
Name: Mike Cross
Title: Board of Director, Senior Vice President
Title: VP of HAPS
Date: 01/24/2020
Date: 2/25/20
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K
3
CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN
ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K. A
COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES AND
EXCHANGE COMMISSION UPON REQUEST.
Exhibit 10.48
AMENDMENT NO. 11 TO
THE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)
This Amendment No. 11 to the Design and Development Agreement (Step2) (“Amendment”) is entered
into as of the date of last signature below by and between HAPSMobile Inc. and AeroVironment, Inc. to
amend the Design and Development Agreement (Step2) made as of December 27, 2017 (as amended by
Amendment No.1 as of March 30, 2018, Amendment No.2 as of June 25, 2018, Amendment No.3 as of
August 28, 2018, Amendment No.4 as of December 5, 2018, Amendment No.5 as of March 19, 2019,
Amendment No.6 as of March 29, 2019, Amendment No.7 as of April 24, 2019, Amendment No.8 as of
June 20, 2019 and Amendment No.9 as of December 2, 2019, and Amendment No. 10 as of January 24,
2020 between HAPSMobile and AV) (collectively, the “DDA”).
Background
The Parties hereby agree to amend the total fees of Design and Development for Step 2 due to the material
changes of the project schedule and the Statement of Work as set forth herein (the “Change”).
Therefore, to formalize and reflect both the Changes and Program Management Improvement, the Parties
hereby agree with the amendments to the DDA as follows:
Amendments
1.Article 1.16 (Subarticle of “1.DEFINITION”) of the body of the DDA (definition of the term “Flight
Test”) is hereby deleted in its entirety and replaced with the following clause:
1.16 “Flight Tests” means the “Low Altitude Flight Test”, “High Altitude Flight Test” and following
flight test campaigns specified respectively, on Attachments E and H.
2. The following Section 1.40, 1.41 and 1.42 are hereby newly inserted after Section 1.39 “Project” (was
added by Amendment #5, Subsection of “1 DEFINITION”) of the DDA:
1.40 “Flight Test Campaign” means certain Step 2 Project phases collectively Low Altitude Flight
Test, High Altitude Flight Test, [***], and Long Duration Flight Demonstration specified in
Attachements to the DDA.
1.41 “Test Scenario” means the procedure or testing pattern set prepared for single test case applicable
to Flight Test Campaign.
1.42 “Window Time” or “Payload Mission Time” means [***].
3.Article 19.3 (“Articles to Survive Termination”, Subarticle of “19. ENTIRE AGREEMENT”) of the
body of the DDA is hereby deleted in its entirety and replaced with the following clause:
19.3Articles to Survive Termination. Notwithstanding anything contained herein to the contrary, the
Articles 10, 12.5, 14, 17, 18, 19.3, 25, 26, 28 and Attachment E-1 in Attachment E and any other
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
1
articles which are intended to survive termination shall survive termination of this Agreement and
shall continue in full force and effect thereafter.
4.Article 24.1 (“AV to Obtain All Permits”, Subarticle of “24. COMPLIANCE WITH LAW AND
REGULATIONS”) of the body of the DDA is hereby deleted in its entirety and replaced with the following
clause:
1
AV to Obtain All Permits. A AV shall obtain any permit, licence or other authorisations required
by any governmental or other regulatory body to enable AV to perform its obligations under this
Agreement; provided, however, that HAPSMobile shall obtain any permit, licence or other
authorisations required by any governmental or other regulatory body to enable performance of
this Agreement in regards to hardware importation or provision of commercial services.
5.Article 27 (b) (Subarticle of “27. TEST RANGE AND FLIGHT TEST”) of the body of the DDA is
hereby deleted in its entirety and replaced with the following clause:
(b) The Flight Test Ranges to be used for conducting Flight Tests at both NASA AFRC and Spaceport
America have been mutually agreed by the Parties. High altitude Flight Test Range costs are also
included within the Agreement work scope. Newly procured hangar, facility or related equipment
(excluding earth work deliverables) will be deemed as Hardware Deliverables and transferred to
HAPSMobile pursuant to the terms and condition set forth in Article 3.5.
6. Section 3.12 “Overall Aircraft Functionality Reference” of Attachment D (High Altitude Platform (HAP)
Hawk30 Prototype Unmanned Aircraft System Specification) to the DDA (this section is newly inserted by the
Amendment No.9 to the DDA) is hereby deleted in its entirety and replaced with the following clauses:
3.12 Overall Aircraft Functionality Reference
Each Hawk30 Prototype shall have following characteristic and requirement as total vehicle level.
Profile
Characteristic
Capability
Achievement
Key
Device
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
Prototype
Low flight, stratospheric and long duration flight with
payload
Low Altitude Flight, High Altitude Flight, Long Duration
Flight, with payload
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
2
[***]
[***]
*convention: [***], or [***] specific column means [***].
7. Attachment A (DELIVERABLES) to the DDA (as amended by the Amendments No.1, 2, 3, 4, 6, 7 and
8) is hereby deleted in its entirety and replaced with the attached new attachment herein, Attachment A,
entitled (DELIVELABLES).
8. Attachment C (AeroVironment Statement of Work (SOW) for Hawk30 Prototype Program Statement of
Work) to the DDA (as amended by the Amendments No.5, 7 and 9) is hereby deleted in its entirety and
replaced with the attached new attachment herein, Attachment C, entitled (AeroVironment Statement of
Work (SOW) for Hawk30 Prototype Program Statement of Work).
9. Attachment E (FLIGHT TESTS) to the DDA (as amended by the Amendments No.7 and 9) is hereby
deleted in its entirety and replaced with the attached new attachment herein, Attachment E, entitled
(FLIGHT TEST).
10. Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA (as amended by
the Amendments No.1, 5 and 7) is hereby deleted in its entirety and replaced with the attached new
attachment herein, Attachment F, entitled (INVOICE AND INCURRED COSTS DOCUMENTATION).
11. Attachment H (PROJECT MILESTONE) to the DDA (as amended by the Amendments No.2, 4, 5, 6
and 7) is hereby deleted in its entirety and replaced with the attached new attachment herein, Attachment H,
entitled (PROJECT MILESTONE).
12. All other terms and conditions not specifically modified or amended herein remain in full force and
effect as provided for in the DDA and its Attachments, including Amendments 1 through 10. Capitalized
terms, unless otherwise defined herein, shall have the meaning set forth in the DDA. This Amendment may
only be modified or amended by a written document executed by the parties hereto.
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
3
IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s)
below.
SIGNED for and on behalf of
SIGNED for and on behalf of
HAPSMobile Inc.
AeroVironment, Inc.
By: ..../s/ Junichi Miyakawa.......………………..
By: ..../s/ Trace Stevenson...........................…
Name: Junichi Miyakawa
Title: President and CEO
Date: 2020/4/27
Name: Trace Stevenson
Title: Vice President Emerging Business and
Deputy GM
Date: 2020/4/30
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
4
ATTACHMENT A
DELIVERABLES
(This Attachment A is revised in its entirety by the Amendment No. 11 to the DDA)
1. Hardware Deliverables
1.1 Aircraft Deliverables
Deliverable Description
Stratospheric solar aircraft [***]
Stratospheric solar aircraft [***]
Relevant
WBS
Milestone
No.
2.3.2.3
2.3.2.6
[***]
[***]
Estimated
Completion
Date
[***]
[***]
Deliverables
Name
Hawk30 Prototype
[***]
Hawk30 Prototype
[***]
*1. [***].
*2. [***].
*3. [***].
The current physical solar array implementation plan is as follows:
[***].
[***].
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
1.2 Ground Control System
Deliverables Name
Deliverable Description
Relevant
WBS
Milestone
No.
Estimated
Completion
Date
[***]
Ground Control Station [***] of
the Hawk30 Prototype [***]
2.2.6
[***]
Technical Data Package
Technical Data Package
1.2.4.1
1.2.4.2
[***]
[***]
[***]
[***]
Ground Control
Stations and Misc.
Equipment
Hawk30 Prototype
Operating Manuals
Hawk30 Prototype
Training Manuals
*1 [***].
1.3 Motor Development
Deliverables Name
Deliverable Description
Relevant
WBS
Milestone
No.
Estimated
Completion
Date
[***]
[***]
[***]
[***] Project Data Memo
[***]
Technical data package of In-house
Motor First Article ([***])
2.2.1
2.2.1
2.2.1
[***]
[***]
[***]
[***]
[***]
[***]
1.4 Real Estate Deliverables
Deliverables
Name
Deliverable Description
Hanger at SA
Flight Test Site
Newly constructed hanger facility in SA,
NM
2. Document Deliverables
Deliverables Name
Deliverable Description
CDR & Component
Engineering Technical
Data Package
Update Component
Engineering
Fab & Test First Wing
Panel
Technical Data Package.
RFPs, RFIs, and RFQs.
Technical Data Package
Technical Data Package.
Recorded measurement data
aerodynamic test data.
Functional Test Reports Acceptance test reports for
components and assemblies
2
Relevant
WBS
Milestone
No.
2.3.3
[***]
Estimated
Completion
Date
[***]
Relevant
WBS
Milestone
No.
Estimated
Completion
Date
[***]
[***]
2.2
2.2
[***]
2.2.3.1
[***]
[***]
[***]
2.3
[***]
[***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
Initial Integrated Test
Reports ([***])
Integrated Test Reports
([***])
Integrated Test Reports
([***])
[***]
[***]
Final Bill of Materials
(BOM)
Low Altitude Flight
Test Report
High Altitude
Conversion Report
High Altitude Touch
Flight Test Report
High Altitude Flight
Test Report
[***]**
Long Duration Flight
Test Report**
Final Engineering
Technical Data Package
Final Engineering
Technical Data Package
Logistics Instruction
Document Package
**[***].
Initial Acceptance test reports for
aircraft & Ground Control Station
Acceptance test reports for aircraft
& Ground Control Station
Acceptance test reports for aircraft
Acceptance inspection and close-
out reports
Final key drawing, asset list and
utility explanatory for Flight Range
facility
BOM listing all materials
consumed in the manufacturing of
the Hawk30 Solar Aircraft and
Ground Control Station
Descriptive test report, Ships logs,
maintenance report, and recorded
raw flight data during test session.
Descriptive conversion work and
test report for High Altitude
Conversion Package
implementation
Descriptive test report, Ships logs,
maintenance report. Recorded
flight data.
Descriptive test report,
maintenance report, and recorded
raw flight data during test session
[***].
Descriptive test report, Ships logs,
maintenance report.
Technical Data Package.
Hawk30 Solar Aircraft System
controlling specifications and
requirements.
Technical Data Package.
Hawk30 Solar Aircraft System
controlling specifications and
requirements.
Logistics Instruction Manuals for
Assembly/Disassembly,
Packaging, Transporting, etc. for
management purpose.
2.3.2.3
[***]
2.3.2.3
[***]
2.3.2.6
[***]
2.3.2.8
[***]
2.3.3
[***]
[***]
[***]
[***]
[***]
[***]
1.1.5
[***]
[***]
3.1, 3.2
[***]
[***]
2.2.2.5,
2.2.2.6
[***]
[***]
3.2
3.2
3.2
3.2
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
Various
[***]
Various
[***]
[***]
Various
All
Corresponding
Milestone
Completion Date
As used in this Attachment A, and as limited by Section 4.8 in the IPLA, “Technical Data Package” means:
1.
2.
[***]
[***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
3
3. System specifications
4. System description documents
5. System performance data
6.
7.
[***]
[***].
“Technical Data Package” transfer could be in various forms, for example:
1. Agile database export in PDX file which will include PDF files for assembly drawings, DOC for
procedures and test plans, and EXE files for executable code.
2. Specifications, descriptions, Program Data Memos, test data in a ZIP file which can include a
combination of DOC, XLS, and other data formats.
4
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
Exhibit A
Source Code to be Provided by AV to HAPSMobile
1. Software and Firmware Tabular View
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
Attachment C
AeroVironment Statement of Work (SOW) for
Hawk30 Prototype Program
(This Attachment A is revised in its entirety by the Amendment No. 11 to the DDA)
A) Scope
Purpose
[***].
Hawk30 Prototype Objectives
[***].
Scope
[***]:
● [***].
● [***].
● [***]
B) Services
0
1
HAWK30 PROTOTYPE
PROGRAM MANAGEMENT & SYSTEMS ENGINEERING
1.1
[***]
1.1.1
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***];
(i)
(ii)
(iii)
(iv)
● [***]:
[***] (origin, outlook, etc.)
[***] (if applicable)
[***] (if applicable)
[***]
Ø [***]
Ø [***]
Ø [***]
Ø [***].
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
2
Reporting Process diagramｃ
Exit Criteria: [***]
Task Output:
•
•
•
REMARK: [***].
[***]
[***]
[***].
1.1.2
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***])
● [***]
● [***]
● [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
Exit Criteria: [***].
Task Output:
● [***] ([***])
[***]
1.1.3
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***]
Task Output:
● [***]
● [***]
● [***]
● [***]
1.1.4
[***]
Objective: [***].
Approach: [***].
Exit Criteria: [***].
Task Output:
● [***]
● [***]
1.1.5
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***]
Task Output:
● [***]
● [***]
● [***]
● [***]
● [***]
1.1.6
Travel
Objective: [***].
Approach: [***].
Exit Criteria: [***].
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
2
Task Output:
● [***]
1.1.7 Reserved
1.1.8
[***]
Objective: [***].
Approach: [***].
Exit Criteria: [***].
Task Output:
● [***]
1.1.9 Reserved
1.1.10 [***]
Objective: [***].
Approach: [***]
Exit Criteria: [***].
Task Output:
● [***]
1.1.11 [***]
Objective: [***].
Approach: [***]
Exit Criteria: [***]
Task Output:
● [***]
1.2
[***]
1.2.1
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
3
● [***]
● [***]
● [***]
● [***]
1.2.2
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
[***].
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
1.2.3
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
1.2.4
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
4
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
1.2.5
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
1.2.6
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***].
1.2.7
1.2.8
1.2.9
Reserved
Reserved
[***]
Objective: [***].
Approach: [***].
Exit Criteria: [***].
Task Output:
● [***].
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
5
2
[***]
2.1
[***]
2.1.1
[***]
2.1.1.1 Reserved.
2.1.1.2
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***].
● [***]
2.1.1.3
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
2.1.1.4
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
6
● [***]
● [***]
● [***]
2.1.1.5
[***]
Objective: [***].
Approach: [***].
Exit Criteria: [***].
Task Output:
● [***]
2.2
[***]
2.2.1
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***].
● [***]
● [***]
2.2.2
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
o [***]
o [***]
2.2.2.1
[***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
7
Objective: [***].
Approach: [***]:
Exit Criteria: [***].
Task Output:
•
•
•
•
•
[***]
[***]
[***]
[***]
[***]
2.2.3
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
2.2.4
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
2.2.5
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
8
● [***]
● [***]
[***].
●
● [***].
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
2.2.6
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
2.2.7 Reserved
2.2.8
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
[***]
[***]
●
●
2.3.1 Reserve
2.3.2
[***]
Objective: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
9
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***].
2.3.3
[***]
Objective: [***].
Approach: [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
[***]
Objective: [***].
Approach: [***].
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
●
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
10
● [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]
● [***]
● [***]
● [***]
3.2 [***]
Objective: [***]*.
* [***].
Approach: [***].
● [***]
● [***]
● [***]
● [***]
● [***]
● [***].*
[***]*
●
[***]
●
●
[***]
● [***]
● * [***]:
o [***]
o [***]
Exit Criteria: [***].
Task Output:
● [***]
● [***]* [***]
● [***]
● [***]
[***] ([***]* [***])
● [***]
● [***]*
●
4 Reserved.
5 Reserved.
[***]: [***].
Approach: [***]:
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
Exit Criteria: [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
11
Task Output:
● [***]
● [***]
● [***]
As used in this Attachment C, “Technical Data Package” shall have the same meaning as provided in Attachment
A to this Agreement.
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
12
ATTACHMENT E
FLIGHT TEST
(This Attachment E is revised in its entirety by the Amendment No.11 to the DDA)
1. Purpose
AV will perform a flight test plan which will optimize data collection efficiency during the Flight Tests. A
build-up approach to the flight test campaign will be conducted which efficiently demonstrates aircraft
handling and performance at low altitude prior to transitioning to high altitude. Ref. PDM AV 55266-1019.
Data will be collected to verify that the final aircraft configuration meets the requirements defined for FAA
basis of certification as detailed in PDM AV55266-1020-FAA Standards Development and Coordination.
The details of the flight test program pertain to the prototype version of the Hawk30 Prototype with the goal
of demonstrating [***] flight endurance.
Prior to the beginning of the initial Flight Test, the AV team will accomplish exhaustive build-up testing in
venues such as environmental qualification laboratories, the HAP System Integration Laboratory, and HAP
flight deck and flight test control room simulation environments.
The AV team will support finding a suitable location and work with the payload team to integrate payload
operations in the flight test plan.
2. Process
The Ground Test and Flight Test Plan listed in PDM AV 55266-1019 list the following test elements to be
successfully completed for the Hawk30 Prototype flight test program.
● Ground test campaign:
o Aircraft functional tests with motor runs
o Ground handling
o Airfield operations
● Low altitude flight test campaign (with Flight Test Instrumentation System)
o [***] is [***] an airfield in SA, New Mexico and NASA Armstrong Flight Research Center,
Edwards, California as [***]
o This phase consists of notionally [***] on [***] and [***] on [***]
o Flight Test events are planned to be executed at the rate of [***]
o Test objectives include:
◾ Basic controllability and manoeuvrability data
◾ Subsystem performance (power, thermal, efficiency, etc.)
◾ Flight data for correlation of analysis and design tools
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
13
● [***]
● [***]
● High altitude and endurance test campaign (with Flight Test Instrumentation System)
o [***] is [***] an airfield in SA, New Mexico
o [***]
o [***]
o [***]
o [***]
o Test objectives:
◾ [***]
◾ [***]
◾ [***]
◾ [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
● [***]
o [***]
o [***]
o [***]
o [***]
o [***]
● [***]
● [***]
◾ [***]
● [***]
● [***]
● [***]
● [***]
◾ [***]
● [***]
● [***]
● [***]
◾ [***]
● [***]
● [***]
● [***]
● [***]
● [***]
◾ [***]
● [***]
● [***]
● [***]
o [***]
o [***]
o [***]
14
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
● [***]
● [***]
● Payload Test Campaign
o [***]. * [***].
o [***]
o [***]. (*[***])
o [***]
o [***]
o [***]:
◾ [***]
◾ [***]
◾ [***]
◾ [***]
◾ [***]
◾ [***]
◾ [***]
◾ [***]
AV will coordinate with HAPSMobile and provide a test flight schedule for Payload test. HAPSMobile will
have full responsibility to operate its Payload during the Payload test.
AV will conduct airport survey, selection and perform all maintenance on the Hawk30 Prototype Aircraft
system during the Flight Test program.
3. Requirement
4.1 Key Achievement Requirement
The following Table E-1 sets forth the key achievement requirement per each Flight Test campaign, and in
case inconsistency occurring with other condition defined anywhere in the Agreement including
Attachments, then the content defined in Table E-1 shall prevail.
Table E-1 Flight Test campaign key achievement requirement
Flight Test
Campaign
Type
[***]
[***]
[***]
[***]
[***]
[***]
Low Altitude
Flight Test
[***]
[***]
[***]
[***]
Meet completion
criteria as defined
in Attachment H
Project Milestones
Note: * [***].
High Altitude
Flight Test
High Touch
[***]
[***]
[***]
[***]
[***]
Within planned
flight window,
attempt flight and
achieve flight
session to
maximize flight
opportunity
High Altitude
Flight Test
Overnight
[***]
[***]
[***]
[***]
[***]
Within planned
flight window,
attempt flight and
achieve flight
session to
maximize flight
opportunity
[***]*
[***]
[***]
[***]
[***]
[***]
Within planned
flight window,
attempt flight and
achieve flight
session to
maximize flight
opportunity
Long Duration
Flight Demons-
tration *
[***]
[***]
[***]
[***]
[***]
Within planned
flight window,
attempt flight and
achieve flight
session to
maximize flight
opportunity
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
15
ATTACHMENT E-1
Flight Test Site Requirement Description
Following facility, utility, service and related availability will be provided at SA, NM.
Subcontractor names of AV are listed, but it is anticipated for the convenience of SA operation only.
1. Product Purchasing
HAPSMobile will own following object procured from [***]:
●
●
●
[***]
[***]
[***]
2.Service Provisioning
2-1. AV’s subcontractor name: Spaceport America
2-1-1. Lease & Services ( Flight services PoP [***])
●
●
[***]
[***].
● Details on what is being provided:
o
o
Summary: [***].
Summary: [***].
2-1-2.Other Service
●
●
●
●
●
●
●
●
●
●
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
2-2AV’s subcontractor name: [***]
2-2-1. Labor/Material Services: [***]
●
PoP [***]
● Details on what is being provided:
o
Summary: [***].
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
16
o
Summary: [***].
2-2-2.Other Service
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
2-3.AV’s subcontractor name: [***]
2-3-1. Labor Services
●
Target COA submission date is [***].
● Details on what is being provided:
o
Summary: [***].
2-3-2. Other Service
●
●
[***]
[***]
2-4. AV’s subcontractor name: [***]
●
2-4-1. Labor Moving Services Details on what is being provided:
o
o
o
o
[***]
[***]
[***]
[***]
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
17
2-5. AV’s subcontractor name: [***]
2-5-1: [***]
● Rental service: [***].
2-5-2.Details on what is being provided:
●
●
●
●
●
●
●
[***]
[***]
[***]
[***]
[***]
[***]
[***]
2-6. AV’s subcontractor name: [***]
2-6-1. [***]
2-7. AV’s subcontractor name: [***]
2-7-1.Labor Service
Unloading of the aircraft at SA Labor
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
18
ATTACHMENT F
INVOICE AND INCURRED COSTS DOCUMENTATION
(This Attachment F is revised in its entirety by the Amendment No. 11 to the DDA)
PRICING AND PAYMENT SCHEDULE
1. Payment for Work Step2
1.1 Total Contract Value
The total amount of Design and Development Fees payable for Step 2 is Not-to-Exceed USD $163,779,945
based on Best Efforts. The Contract Value may be modified by the Parties as a result of Change Control or
by any other amendment to the Agreement (the current contract value at any time under this Agreement
shall be the “Contract Value”). The Parties agree to account for payment of USD $5,988,678 already made
by SoftBank to AV as payment for the consideration of Step 2 Bridge Contract as partial payment for
commencing Step 2. The Parties shall pay to AV the remaining balance of USD $157,791,267, consists from
USD $69,800,624 as Initial Contract Value, and incremental amount by Amendment No.1, USD
$17,226,306 as additional cost by Amendment No.5, USD $38,675,443 as additional cost by Amendment
No.7, as additional cost by Amendment No. 9, USD $14,557,250 and further additional funding of USD
$17,531,644 subject to EAC adjustment activity done in [***], in accordance with Exhibit A to this
Attachment F Project Funds Status Report accompanied by a combined Milestone & Monthly Invoice
approach as detailed further in this Attachment F. Each Milestone payment shall be payable after
completion of the applicable Milestone according to Completion criteria on Attachment H.
1.2 Contract Value Growing Transition
The Initial Contract Value may be modified by the Parties as a result of Change Control or by any other
amendment to the Agreement (the current contract value at any time under this Agreement shall be the
“Contract Value”). Each Party recognizes the total Project Cost has grown as follows;
a. SoftBank and AV concluded Step 2 Bridge Contract for preliminary development activity for Step2,
and payment of USD $5,988,678 was made to AV by SoftBank;
b. SoftBank, HM, and AV agree to account for payment of USD $5,988,678 already made by SoftBank to
AV as defined as above as partial payment ("Taken-Over Value”) for commencing Step 2.
HAPSMobile;
c.
Initial contract value for DDA was USD $65,011,481 (“Initial Value”), and USD $71,000,159 in case
including Taken-Over Value;
d. USD $4,789,143 was added to Initial value by the execution of the Amendment No.1 and total value
was modified to USD $69,800,624 (“Amendment 1 Value”), and USD $75,789,302 in case including
Taken-Over Value;
e. USD $17,226,306 was added to Amendment 1 Value by the execution of the Amendment No.5 and
total value was modified to USD $87,026,930 (“Amendment 5 Value”), and USD $93,015.608 in case
including Taken-Over Value;
f. USD $38,675,443 was added to Amendment 5 Value by the execution of the Amendment No.7 and
total value was modified to USD $125,702,373, and USD $ 131,691,051 in case including Taken-Over
Value;
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
19
g. USD $14,557,250 was added to Amendment 7 Value by the execution of the Amendment No.9 and
total value was modified to USD $140,259,623, and USD $ 146,248,301 in case including Taken-Over
Value;
h. USD $17,531,644 as further incremental funding subject to Flight Test Site relocation and EAC
adjustment activity done on [***] and caused by the change in flight test site, SoW and milestone
changes as defined in detail in Attachment H herein, SoW and technical requirement changes as
defined in detail in Attachment C herein; and the contract value reaches USD $157,791,267, in case
including Taken-Over Value then USD$163,779,945.
1.3 Work Order Issuance Schedule
HAPSMobile agrees to issue six (6) scheduled separate Orders and may issue three (3) optional separate
Orders (“Optional Orders”)to AV for authorization of Work. The Orders shall be issued as follows:
a.
b.
c.
d.
e.
f.
initial Order [***];
second Order [***];
the third Order [***];
the fourth Order [***];
the fifth Order [***];
and two more optional Orders will be defined further more in detail in 4.1 herein. Each Order will be
issued pursuant to the terms and conditions of this Agreement including the attachments thereto. Work
performed under the Orders will be in support of the entire Statement of Work based on best effort, up
to the value funded on the Order.
1.4 Milestone Target Budget Values & Forecast Revisions
Exhibit A (Project Funds Status Report) to this Attachment F assigns Initial Target Budget values for each
of the 11 Milestones identified in Attachment H.
AV will provide updates and revisions to the Initial Target Budget values for each Milestone and revised and
updated forecasts for such Milestones to HAPSMobile on a monthly basis. Milestone values are subject to
Change Control based on updated forecasts of program resource requirements to complete the Work
required under this Agreement, including the SOW(Attachment C). Milestone values will be based on the
AV labor projected spend plan forecasted for each AV fiscal month.
1.5 Milestone Invoicing & Payment
Upon AV’s written notification to HAPSMobile of AV’s completion of a Milestone, AV will provide an
invoice for all AV labor Incurred Costs and [***]% fee. Invoices will include all program labor expenses
incurred by AV up through the date of the Milestone acceptance, less any labor already paid for in prior
Milestone invoices. Milestones completed before the 15th of the calendar month will be based on actuals
from the prior AV fiscal month end. Milestones completed after the 15th of the calendar month will be
invoiced upon completion of that fiscal month. [***].
[***].
Notwithstanding the foregoing provisions of this section 1.5, Milestone invoiced amount especially for
Milestone 5 [***], and Milestone 7 ([***]) shall be paid in respect of each valid invoice no later than,
but not be obliged to pay before April 15, 2020. All Milestone payments thereafter will be restored to
its original NET 15 payment.
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
20
Notwithstanding the foregoing provisions contained in the body of DDA or Attachment F herein, SA
readiness related AV labor, material, and subcontracting fee will be invoiced by AV and compensated by
HAPSMobile by three (3) instrument basis together with the milestone invoiced amount for Milestone 6
([***]) , 8 ([***]) and the [***] invoice to be sent by AV on 4/15/2021 and to be paid no later than
4/25/2021. If Milestones [***] and/or [***] are not achieved by [***] in any reason, AV will invoice the
applicable instrumental equivalent amount costs (excluding [***] instrument value on April 2021) are to be
paid within 30 calendar days of invoice submittal.
1.6 Non-Milestone Invoicing & Payment (Monthly Invoices)
Program expenses for material, subcontract and other direct costs will be invoiced by AV to HAPSMobile
on a monthly basis based on actual Incurred Cost and [***]% fee. Invoices to be submitted within 4
Business Days after each calendar month end. HAPSMobile agrees to pay each such invoice within the
same calendar month. Invoices for material related Cost will be provided with applicable level of detailed
description for HAPSMobile’s book keeping purpose.
Notwithstanding the foregoing provisions of this section 1.6, for the Monthly Invoice for November of
2019 through March 2020, HAPSMobile shall make payment in respect of each valid Monthly Invoice
no later than, but not be obliged to pay before, ninety (90) calendar days of the end of the calendar
month in which the relevant invoice was received by HAPSMobile All non-milestone payments
thereafter will be restored to its original NET 30 calendar days payment.
1.7 Currency
All payments under this Agreement shall be made in United States dollars.
1.8 Excess Incurred Costs
a.
In the event that AV identifies a projected increase in Incurred Costs by AV for the performance of its
obligations under the Agreement as identified in the Monthly Status Report, in excess of the Not-to-
Exceed Value of the Order as identified in Article 2.3 then the Parties agree the excess of the amount
and continue to proceed the Project subject to the process set forth in the Section 4 of this
ATTACHMENT F, HAPSMobile may,
(1) agree to authorize AV to incur the excess costs and provide a modification to increase the Contract
Value, provided however that both Parties shall follow the Change Control set forth in Article 2.4
of the Agreement or Amendment of Agreement set forth in Article 13. Should HAPSMobile
authorize additional spending, all of AV’s Incurred Costs must be paid to AV with the applicable
[***]% fee;
(2) agree in accordance with the Change Control or Amendment of Agreement to reduce the Scope of
Agreement so that AV’s performance of the Scope of Agreement will be projected to fall within
the amount of the then current Contract Value; or
(3) Terminate the Agreement for convenience as contemplated by Article 12.3 of the Agreement and
pay AV all Termination Liability as defined in paragraph 1.7 of this attachment.
1.9 Unutilized Consideration
In the event of a projected cost underrun as identified in a Monthly Status Report, any amounts from the
Order which remain after completion of the Scope of Agreement may be reimbursed or, if authorized by
HAPSMobile separately and specifically, utilized for AV’s risk reduction or additional scope to be defined
through written mutual agreement subject to the terms of this Agreement. To avoid confusion, the total
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
21
amount as identified in paragraph 1 of this Attachment and any portion thereof, to the extent that it is
utilized, must be utilized only for matters or items within the Scope of Agreement and any additional scope
as agreed. Incurred Costs shall be inclusive of any applicable consumption, value added tax or any other
applicable sales/use tax. For the avoidance of doubt, the Incurred Costs shall be exclusive of any and all
import duties.
1.10Termination Liability
AV’s Termination Liability (defined as: all of AV’s Step 2 Incurred Costs incurred prior to the date of the
ramp down period specified in Article 12.5 of the Agreement plus the applicable [***]% fee, less all
payments received by AV from HAPSMobile under this Agreement, plus all material, subcontract, other
direct costs including open commitments and other wind down costs outstanding as of the start of the ramp
down period, plus 60 days of AV labor costs incurred during the ramp down period) will be billed to
HAPSMobile 30 days after the end of ramp down period and Termination Liability shall not exceed then
current Contract Value but AV labor cost may be compensated exceeding then current Contract Value based
upon actual Work performed. Schedule delays may occur and be resolved subject to Article 3.2 of the
Agreement.
2. Fee Assumptions
2.1 Exclusion
1. Range Fees for the High Altitude and Endurance Flight Tests shall be borne by, and be the sole
responsibility of, HAPSMobile. AV and HAPSMobile will mutually consult to set up an appropriate
implementation plan for High Altitude and Endurance Flight Tests minimizing such Range Fees in
accordance with Attachment C and D.
a. As of [***], AV and HM have agreed to continue flight test operations at Spaceport America, New
Mexico after concluding flights at NASA AFRC. The flight test site preparation is led by AV and the
flight test site preparation and ongoing operational costs are included as part of Amendment No. 11.
b. Notwithstanding the terms and conditions defined in this Section 2.1-1 above, for the task of flight
range acquisition and maintaining will be a part of AV’s obligation and contained in its Scope of Work
relating to Spaceport America, New Mexico.
2. Payload Integration is based on the [***] payload [***], any changes to Payload Supplier and/or
integration will be subject change control process.
3. Labor, shipping and other costs are not included, however is inclusive of labor for obtaining the
clearance and permission under EAR or related export regulations for delivery of [***], [***] and GCS
at other than the Spaceport America flight test location. Any changes to the final delivery location will
be subject to change control process.
3. Change Control & Agreement Amendments Payment Schedule
HAPSMobile agrees to pay to AV all additional Incurred Costs resulting from any fee adjustments for the
Work pursuant to any Change Control per Attachment G or any other amendments to the Agreement, but in
any case subject to the terms set forth in Section 1.9 in this ATTACHMENT F. After being provided with a
request or providing a Change Control Proposal as provided on Attachment G or any other amendment to
the Agreement. AV will provide HAPSMobile with a Change Assessment (as contemplated by Attachment
G) or a similar assessment or other proposed amendments to the Agreement with estimated additional or
reduced Incurred Costs plus the applicable fee for the applicable Change Control Proposal or other proposed
Agreement amendment along with the costs estimation documentation. In the event of a projected increase
in Incurred Costs by AV in performance of the Agreement pursuant to Change Control Proposal or other
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
22
proposed Agreement amendment would result in a total Contract Value that exceeds the then-current
Contract Value, HAPSMobile will agree to authorize AV to incur the excess costs (thus increasing the
Contract Value) or the Parties will agree in the Change Control (or pursuant to any other Agreement
amendment) to reduce the Scope of Agreement so that AV’s performance of the Scope of Agreement will
fall within the then-current Contract Value. Any increase in Contract Value that exceeds causes the value of
this Agreement to exceed the Initial Contract Value shall require approval by HAPSMobile's board of
directors.
The tables below provide the basis for calculating the additional Fees applicable for Change Controls and
other Agreement amendments as a result of a Change or other Agreement amendment that may be required
from time to time in accordance with relevant clauses of the Agreement.
Cost Element
Labor
Labor Total Cost w/[***]% Fee
Material Total Cost w/[***]% Fee
Subcontract Total Cost w/[***]% Fee
Other Direct Costs (ODC) Total Cost w/[***]%
Fee
Description
[***].
[***]
[***]
[***]
[***]
4. Remaining Work Orders
4.1 Order Schedule
The Fifth Work Order and the following Optional Orders will be organized as follows;
Name
Covered SoW
Covered
Milestone
[***]
WO value
(USD)
WO due
date
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
The fifth Work
Order
The sixth Work
Order
[***]
[***]
The Seventh Work
Order
The Eighth Work
Order
[***]
[***]
*remark
Definition
[***]
Flight Location Change
Meaning
Decision Due Date
[***]
[***]
[***]
Additional tasks associated with;
a) a change from the original flight location,
Lanai, to an alternate site, SÁ in New
Mexico
b) detailed flight test planning of [***] to be
tested and related planning optimization
of other flight test campaign.
In case either Party may request changes to
the conditions defined in Attachments A, C,
23
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
D, E, F or H relating the task herein defined,
then follows the procedures defined in Clause
2.4 in DDA or Attachment G ("Change
Control").
[***].
[***]
Strategic Performance
Extension
4.2 Effect of No Issuance of Optional Order
In case HM does not issue the Optional Order before or on the due date, AV may suspend the entrance of
the equivalent Milestone and covered Works until AV receives the Optional Order. In the event of Optional
Work Orders are not exercised, AV will transfer all assets to HAPSMobile.
Exhibit A – Project Funds Status Report
Exhibit B – Monthly Status Report (Example)
Exhibit C – Milestone Invoice (Example)
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
24
1. Estimate at Completion on Dec.10,2017
Exhibit A to Attachment F – Project Funds Status Report
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
2. Estimate at Completion on Dec.10,2018
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
3. Estimate at Completion on March 4,2019
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
4. Estimate at Completion on September 2019
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
5. Estimate at Completion on April 2020
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
[___] = [***]
1
Exhibit B to Attachment F – Monthly Status Report (Example)
AeroVironment Inc.
980 Enchanted Way
Simi Valley, California 93065 – U.S.A.
Telephone 1(805) 581-2187 – FAX 1(805) 584-6922
[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.
2
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