AVAV 10-K & 10-Q changes, risk factors and insider trading

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this report and in our other public filings before investing in our common stock. If any such risks and uncertainties actually occur, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly. Statements in this section are based on our current beliefs and opinions regarding matters that could materially adversely affect our business, reputation, operations, financial condition and stock price in the future and are not representations as to whether such matters have or have not occurred previously.

Historically, we have derived a significant portion of our total sales and our SUAS and LMS sales from the U.S. government and its agencies. Sales to the U.S. government, either as a prime contractor or subcontractor and inclusive of foreign military sales, represented approximately 75%85% of our revenue for the fiscal year ended April 30, 2025.2026. The DoD, our principal U.S. government customer, accounted for approximately 35%63% of our revenue for the fiscal year ended April 30, 2025. With the acquisition of BlueHalo, we expect the proportion of total revenue attributable to sales to the U.S. DoD and other U.S. government agencies to increase in fiscal year 2026. 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 or budget cutbacks at these agencies. Recently, the reduction of government spending has been a primary focus of the federal government. In January 2025, President Trump announced an executive order establishing the Department of Government Efficiency (“DOGE”) to maximize government efficiency and productivity. In February 2025, President Trump stated that he has directed DOGE to review Pentagon spending for potential waste and fraud. As a result of these recent developmentsDOGE and other factors, the funding of U.S. government programs is uncertain. We are 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.

Because we generate a significant portion of our total sales from the U.S. government and its agencies and from foreign governments, our results of operations could be adversely affected by government spending caps, delays in the government budget process, program starts, the award of contracts or orders under existing contracts, or delays in release of funds by the federal government. Delays in the definitization of a contract could result in delayed funding, billing and payment. Our business may be adversely impacted due to shifts in the political environment and resulting changes in the government and agency leadership positions and priorities for funding. We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline, or that such funding will be accessible consistent with previously realized timelines due to federal budgetary review activities and potential freezes on or cancellation of various governmental programs from time to time. 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,government (the volume of which materially increased with our BlueHalo acquisition), our ability to receive timely payment from U.S. government entitiesentities, our ability to provide services to the U.S. government resulting in lost or delayed revenue under our services contracts, and our ability to timely obtain export licenses for our products and services to fulfill contracts with our international customers.

Additionally, there is a possibility that political decisions made by the U.S. government, such as the establishment of DOGE and the related probes into and reductions in government spending, policy changes regarding prior military commitments by the second Trump administration, including those regarding ongoing conflicts, including between Russia and Ukraine, Israel and Hamas, Israel and Iran, and the U.S. and Iran or an impasse on policy issues between the executive branch and Congress, could impact future spending and program authorizations, which may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs due to, among other factors, competing demands for federal funds and the number and intensity of military conflicts. We previously received a stopstop-work workorder on an OTA for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program, and in March 2026, the customer terminated the agreement for convenience. We also previously received a stop-work order, which was lifted shortly after issuance, on certain existing U.S. government contracts previously awarded to us for foreign military sales funded by the U.S. government via foreign military financing because of shifting foreign military aid priorities. We may continue to receive future stop workstop-work orders and/or contract cancellations for other existing U.S. government contracts due to shifting foreign military aid priorities,priorities. including due to the recently announced pause on U.S. military assistance to Ukraine, and weWe cannot project the aggregate negative impact on our results of operations due to any future stop workstop-work orders and/or contract cancellations.

We cannot predict whether and when a reduction in overseas operational levels will occur, how future procurement priorities related to defense transformation will be impacted, including by future events such as the conflicts between Russia and Ukraine orUkraine, Israel and Hamas, Israel and Iran, or the U.S. and Iran or how changes in the threat environment will impact opportunities and competition for our products,products and services, for existing, additional or replacement programs. While strategically, we have diversified our portfolio in an effort to mitigate the susceptibility of our business to reductions in overseas operational levels, we cannot be certain that such actions have mitigated the risk of our business to such reductions. If defense transformation or overseas operations slow down or cease in key operational areas, then our business, financial condition and results of operations could be impacted negatively.

The defense industry is highly competitive and generally characterized by intense competition to win contracts. Our current principal competitors in the UAS market include Elbit Systems Ltd., Quantum-Systems, Inc., EdgeRedwire Autonomy,Corporation, Teledyne Technologies, Inc., Sierra Nevada Corporation, Lockheed Martin Corporation, The Boeing Company, Textron, Inc., Shield AI, Inc., Northrop Grumman Corporation, Griffon Aerospace, Inc., L3Harris Technologies, Inc.Inc., Anduril Industries, Inc., Airbus SE and Israeli Aircraft Industries.

The defense and technology markets for thePrecision C-UASStrike and Precision StrikeDefensive products and solutions are highly competitive, evolving with rapid technological advancements and shifting customer needs. Competitors in the LMS market include Textron Inc., RTX Corporation, Lockheed Martin Corporation, Anduril Industries, Inc., Aevex Holdings,Corp., LLCSpektreWorks, Inc., Dragoon Technology LLC, Cummings Aerospace, Inc., Elbit Systems Ltd., and UVision Air Ltd. Competitors in the C-UAS and Electronic Warfare markets include Anduril Industries, Inc., The Boeing Company, Lockheed Martin Corporation, RTX CorporationCorporation, DroneShield Limited, SRC Inc., Polaris, Inc., CACI International Inc., Northrop Grumman Corporation, L3Harris Technologies, Inc., and other emerging technology firms and international players.

The space technology and directed energy market includes competitors such as The Boeing Company, Lockheed Martin Corporation, L3Harris Technologies, Inc., BAE Systems, Inc., nLIGHT, Inc., Epirus, Inc., EO Solutions Corporation, Huntington Ingalls Industries, Inc., and RTX Corporation. These companies have extensive experience and resources, offering satellite systems and spacecraft engineering solutions that compete with our offerings.

The cyber and mission systemssolutions areas are highly competitive, with principal competitors including L3Harris Technologies, Inc., Thales Group, Anduril Industries, Inc, andInc., Sierra Nevada Corporation.Corporation, Lockheed Martin Corporation, Booz Allen Hamilton Inc., and Leidos Holdings, Inc. We also face competition from specialized cybersecurity firms.

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 use their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales 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. Foreign competitors may also be able to offer more cost-competitive solutions as compared to our products and services. The markets for our products and services are expanding, and competition is intensifying as additional competitors enter such markets and current competitors expand their product lines. In order to secure contracts successfully when competing with larger, well-financed companies, we may need 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.

We cannot accurately predict the future growth rates or sizes of the markets for our products and services. Demand for our products and services may not increase, or may decrease, either generally or in specific markets, for particular types of products and services or during particular time periods. Historically, a large portion of our revenue has been with the U.S. government. Despite expanding our customer base to include international clients and non-military domestic agencies and making initial export breakthroughs, sustained increases in sales to international customers are not guaranteed. Historically, a large portion of our and BlueHalo’s revenue has been with the U.S. government. An increase ofin international sales of our product and services may not occur as anticipated. The expansion of the markets for our products in general, and the market for our products and services in particular, depends on several factors, including the following:

We derived approximately 52%28% 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, 2025,2026, compareddown tofrom 62%52% for the fiscal year ended April 30, 2024.2025 due to BlueHalo’s lower mix of international sales. We expect to continue to derive a significant portion of our revenue from international sales, including direct sales to allied nations, and initiated through our international operations, Telerob Gesellschaft für Fernhantierungstechnik mbH (“Telerob”); however, we expect the proportion of our total revenue attributable to international sales will decrease in fiscal year 2026 due to BlueHalo’s lower mix of international sales.. Our international revenue and operations are subject to a number of material risks, including the following:

Negative developments in any of these areas in one or more countries in which we operate could result in adverse effects, such as a reduction in demand for our products,products and services, the cancellation or delay of orders already placed, threats to our intellectual property, destabilization of performance, 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 operations and 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.

The complexity of our business has increased significantly over the last several years, most recently with the closing of our acquisition of BlueHalo in May 2025.2025 and Empirical Systems Aerospace, Inc. (“ESAero”) in March 2026. We have increased the number of product lines being pursued, expanded international product sales and added commercial services and engaged in numerous acquisitions further expanding our operations domestically and abroad. Further, we have entered into certain credit facilities that include affirmative and negative covenants and place some restrictions on how we operate our business. Our growth has placed, and our expected growth 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 and service 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, as well as an adequate support structure. 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.

Our business relationships, including those of BlueHalo,relationships may be subject to disruption due to uncertainty associated with the post-acquisition integration, which could have a material adverse effect on our results of operations, cash flows and financial position.

Parties with which we do business and with which BlueHalo and ESAero did business prior to theour acquisitionacquisitions of such companies may experience uncertainty associated with the acquisition integration, including with respect to current or future business relationships with the combined company. Our and BlueHalo’sour businessacquired business’ relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than us. These disruptions could have a material and adverse effect on our results of operations, cash flows and financial position, as well as a material and adverse effect on our ability to realize the expected cost savings and other benefits of the acquisition.

The U.S. military represents our largest source of revenue. We have, however, expanded our product sales into new market segments, such as theRF AI-enabledand commonkinetic controlC-UAS, systemelectronic warfare systems, uncrewed underwater vehicles, satellite communications, laser communications, and laser weapon systems from our TomahawkBlueHalo acquisition. Our efforts to expand our product and service 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.

There are difficult issues to navigate in the development and use of AI, which may result in reputational harm or liability, and failure to introduce new and innovative products that have AI capabilities or to respond and comply with a rapidly evolving regulatory landscape could put us at a competitive disadvantage.

Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of high quality materials, components and subsystems, many of which are obtained from a select group of specialized suppliers, including some sole-source providers. In order to mitigate potential disruptions, we maintain long-term, non-binding agreements with several key suppliers that help stabilize pricing, reduce lead times and enhance planning accuracy. We do not have long-term agreements with all suppliers that obligate them to continue to sell components, products required to build our systems or products to us. Our reliance on suppliers without long-term binding contracts involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components or products of sufficient quality, will increase prices for the components or productsproducts, and will perform their obligations on a timely basis.

If any of our supplier’ssuppliers face capacity constraints, financial instability, or an unwillingness to provide raw materials or components to us, we may need to seek alternative suppliers or revise our designs, particularly because some of our components are sourced from foreign countries. Locating alternative sources may take significant time, and even then, we may encounter significant delays in manufacturing and shipping. Additionally, credit constraints among key suppliers could impact our cash flow. We have also experienced rising costs for components, shipping, tariffs, warehousing, and inventory. Our domestic suppliers have experienced increased demand for their products due to tariffs,products, which could impact the availability or price of our components. The permanence of these cost increases remains uncertain, and obtaining replacement components within our required time frames may prove challenging. Shortages could lead to excess inventory and potential obsolescence risks.

As a U.S.-based multinational business, we are subject to income tax in the U.S. and numerous jurisdictions outside the U.S. The relevant tax rules and regulations are complex, often changing and, in some cases, are interdependent. If these or other tax rules and regulations should change, our earnings and cash flows could be negatively impacted. Our worldwide provision for income taxes is determined, in part, through the use of significant estimates and judgments. Numerous transactions arise in the ordinary course of business where the ultimate tax determination is uncertain. We undergo tax examinations by tax authorities on a regular basis. While we believe our estimates of our tax obligations are reasonable, the final outcome after the conclusion of any tax examinations and any litigation could be materially different from what has been reflected in our historical financial statements. Also dueDue to the July 2025 reconciliation bill, commonly known as the One Big Beautiful Bill Act, and U.S. Internal Revenue Service tax capitalization rules, domestic Section 174,174A, which requiresallows R&D expenditures to be capitalized and amortized over a 5-year period for tax purposes,deducted, we expect ana increasedecrease in cash paid for U.S. federal income taxes in future fiscal years relative to prior periods. The One Big Beautiful Bill Act features several tax reforms including suspending the capitalization and amortization of domestic R&D expenditures for amounts paid or incurred in tax years beginning after December 31, 2024, and before January 1, 2030.

Changes in trade policies, including the recently-announcedimposition tariffof regime,tariffs, could cause adverse impacts to our business.

In the first half of 2025, we observed a significant shift in U.S. trade policy, with increased tariffs and the imposition of significant new tariffs that could have had an adverse impact our supply chain and business operation. While certain of the recently announced tariffs have been paused,paused or invalidated by the U.S. Supreme Court, whether and to what degree they may be reinstated is uncertain at this time and may have implications for our supplier and our business. Changes in trade policies, such as new tariffs or increases in tariffs, or reactionary measures including retaliatory tariffs, legal challenges, or currency manipulation, could adversely impact us.

In general, we perform our work under fixed-priceFFP contracts and cost-plus-feeCost Plus contracts. Under fixed-price contracts, we deliver products or perform services under a contract at a stipulated price. Under cost-plus-fee contracts, which are subject to a contract ceiling amount, we are 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.

Fixed-price contracts (including both government and commercial contracts) represented approximately 91%70% of our revenue for the fiscal year ended April 30, 2025. With the acquisition of BlueHalo, we expect the proportion of fixed-price contracts to decrease in fiscal year 2026. 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.

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, which could cause production delays, and could result in liability for workplace injuries and/or fatalities. WeFor 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, though our insurance coverage may be inadequate to cover all claims and losses related to such incidents. We may experience such incidentsexample, in the future,past whichcouple couldof resultyears we have experienced fires in productionsome delaysof our leased facilities that were started by lithium-ion batteries, although none resulted in material damages or otherwisedisruptions to our operations in such locations. While we have aprocedures materialin adverseplace effectregarding the proper storage of batteries and other explosive and flammable materials, we cannot predict whether future fires or other incidents involving such items will occur in the future or the impact on our businessfacilities, andoperations financialor condition.production.

Urban environments may present certain challenges to the operators of UAS and C-UAS. C-UAS may cause a collision with, and 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 and C-UAS in general. As the usage of UAS and C-UAS has increased, particularly by military customers, the danger of such collisions has increased. Furthermore, the incorporation of our Digital Data Link (“DDL”) technology into our SUAS 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 and C-UAS in urban environments may limit their value in such environments, which may limit demand for our UAS and C-UAS and consequently materially harm our business and operating results.

Our employees or others acting on our behalf have, and may in the future, engage in misconduct or other improper activities, which could cause us to lose contracts or cause us to incur significant costs.

We are exposed to the risk that employeenegligence, fraud or other misconduct from our employees or others acting on our behalf could occur. Misconduct by employees or others could includeinclude, for example, intentional failures to comply with U.S. government procurementor regulations,other regulations and requirements, engaging in unauthorized activities, insider threats to our cybersecurity, or falsifying time records. Misconduct by our employeesrecords, or others acting on our behalf could also involve the improper use of our customers’ sensitive or classified information,information. whichAny such negligence, fraud or other misconduct by our employees or others acting on our behalf could result in regulatory sanctions against us, serious harm to our reputation, a loss of contracts and a reduction in revenues, or cause us to incur significant costs to respond to any related governmental inquiries. It is not always possible to deter misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could cause us to lose contracts or cause a reduction in revenues. In addition, alleged or actual misconduct by employees or others acting on our behalf could result in investigations or prosecutions of persons engaged in the subject activities, which could result in unanticipated consequences or expenses and management distraction for us regardless of whether we are alleged to have any responsibility.

WeDespite our compliance and training programs, we have in the past and may in the future experience suchnegative misconduct,consequences despitefrom our various compliance programs.misconduct. Misconduct or improper actions by our employees, agents, subcontractors, suppliers, business partners and/or joint ventures could subject us to administrative, civil or criminal investigations and enforcement actions; monetary and non-monetary penalties; liabilities; and the loss of privileges and other sanctions, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.

In MayMarch 2025,2026, we closed our acquisition of BlueHalo,ESAero, the most recent in a series of acquisitions beginning in February 2021, with the acquisition of Arcturus and the Intelligent Systems Group business segment (“ISG”). We then acquired Telerob in May 2021, Planck Aerosystems, Inc. (“Planck”) in August 2022, Tomahawk Robotics, Inc. (“Tomahawk”) in September 2023.2023 and BlueHalo in May 2025. We intend to consider additional acquisitions that could add to our customer base, technological capabilities or system offerings. Acquisitions involve numerous risks, any of which could harm our business, including the following:

Acquisitions also frequently result in the recording of goodwill and other intangible assets that are subject to potential impairments in the future that could harm our financial results. For example, in January 2026 a stop-work order was received on an OTA for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program, and in March 2026, the customer terminated the agreement for convenience. We concluded that the stop-work order represented a trigger event that indicated the carrying value of the Space reporting unit exceeded its fair value. As a result, we updated the estimates of the long-term cash flows of the Space reporting unit to reflect the reduced revenue associated with the stop-work order and termination for convenience as well as an increase in expected research and development, and capital investments to achieve product commercialization, which is expected to result in expanded opportunities and improve long term product margins. The changes in estimates resulted in the recognition of a goodwill impairment charge of approximately $241 million in the Space reporting unit. Also, as part of our annual goodwill impairment test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025. Due to the changes in estimates, we recorded a goodwill impairment charge of $18.4 million and accelerated amortization of certain UGV intangibles of $4.3 million for our fiscal year ended April 30, 2025. During the fiscal year ended April 30, 2023, we recorded a MUAS goodwill impairment charge of $156.0 million and accelerated amortization of certain MUAS intangibles of $34.1 million for the MUAS reporting unit. The MUAS related charges resulted from decreases in expected cash flows associated with us not being down selected for a U.S. DoD program of record and the closure of all of our MEUAS COCO sites in the fiscal year ended April 30, 2023. In addition, if we finance acquisitions by issuing equity, or securities convertible into equity, such as the stock issued as consideration for the purchases of BlueHalo, Arcturus and Tomahawk, then our existing stockholders may be diluted, which could lower the market price of our common stock. Further, as lock-up and other restrictions on such consideration shares lapse, we could experience heightened trading activity that could disrupt the market price for our common stock. If we finance acquisitions through debt, such as the convertible notes issued after the BlueHalo acquisition and the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus and subsequently amended in connection with our acquisition of BlueHalo, then such future debt financing may contain covenants or other provisions that limit our operational or financial flexibility and represent default risk if we are unable to maintain certain financial performance metrics while the debt remains outstanding.

It is possible that following an acquisition, the integration process could result in the loss of key employees, the loss of customers, the disruption of either or both of our and the acquired company’s ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issuesissues, including the integration of IT systems, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. In addition, the actual integration may result in additional and unforeseen expenses. If we are not able to adequately address integration challenges, we may be unable to successfully integrate operations, and the anticipated benefits of the acquisition may not be realized.

We have a significant amount of goodwill and intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects, such as the impairment recorded for the MUAS and UGVSpace reporting units.unit.

As of April 30, 2025,2026, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $256.8$2,583.1 million and $48.7$929.8 million, respectively. With the acquisition of BlueHalo, the carrying values of goodwill and identifiable intangible assets will increase significantly in fiscal year 2026. We perform our annual impairment tests during the fourth quarter of each fiscal year or when events or circumstances change in a manner that indicates an asset might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.

On February 19, 2021, in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement with certain lenders, letter of credit issuers, and others (as amended February 4, 2022, June 6, 2023, October 4, 2024 and May 1, 2025 the “Credit Agreement”),. which,With togetherthe fourth amendment on May 1, 2025, the Credit Agreement, with its associated Security and Pledge Agreement, providesprovided for a $700.0 million term A loan (the “Term A Loan”) and provides for a revolving commitment in an aggregate principal amount of $350.0 million (the “Revolving Facility” and together with the Term A Loan, the “Credit Facilities”). TheOn the closing date of the BlueHalo acquisition, the Term A Loan matureswas ondrawn Mayin 1,full 2027,for $700.0 million, and we borrowed approximately $225.0 million from our available Revolving Facility, the twocombined year anniversaryproceeds of which were used to repay certain outstanding indebtedness of BlueHalo upon the closing of the acquisition of BlueHalo acquisition, and amortizesto atpay afor ratecertain ofrelated 5.00%transaction percosts. annum,In withJune the remaining outstanding principal amount due and payable on the maturity date. The applicable margin on the Term A Loan is based upon our Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether2025, we elect as its benchmark rate (i) SOFR (in which case, the applicable margin ranges from 1.50 - 2.50% per annum depending on our Consolidated Leverage Ratio) plus a credit spread adjustment of 0.10% or (ii) Base Rate (in which case, the applicable margin ranges from 0.50 - 1.50% per annum depending on our Consolidated Leverage Ratio). Upon the occurrence of an event of default,drew an additional 2.00%$10.0 permillion annum default interest rate may apply. Mandatory prepayments ofunder the TermRevolving A Loan are required in connection with (i) the disposition of certain assets to the extent not reinvested and (ii) the incurrence of non-permitted debt.Facility.

In support of our obligations under the Credit Facilities, we have granted security interests in substantially all of our personal property and that of our domestic subsidiaries, including a pledge of the equity interests in our subsidiaries (limited to 65% of outstanding equity interests in the case of our foreign subsidiaries), subject to customary exclusions and exceptions. In addition, our domestic subsidiaries, including BlueHalo and Arcturus,subsidiaries are required to be guarantors of the Credit Facilities.

If we do not have sufficient funds to repay theoutstanding Term A Loan when it becomes due in 2027,loans, it may be necessary to refinance our debt through additional debt or equity financings. Any refinancing with new debt could be at higher interest rates and may require us to comply with more onerous covenants than the Credit Agreement, which could further restrict our business operations. Any refinancing through our sale of equity or equity-linked securities would result in further dilution to our stockholders or may provide for rights, preferences or privileges senior to those of holders of our common stock.

We have research and development and manufacturing operations located in California in regions known for seismic activity and wildfires, and in other areas prone to natural disasters. While we maintain insurance coverage to cover certain of risks of losses for damage or destruction to facilities and property and for interruption of our business, such insurance may not cover specific losses and the amount of our insurance coverage may not be adequate to cover all of our losses. 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, including if our losses are not adequately or timely covered by our insurance.

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 audits of ourlegacy AV’s incurred cost claims through fiscal year 20222024 have been settledsettled, and the audits of BlueHalo’s incurred cost claims through fiscal 2021 have been settled. As of April 30, 2025,2026, 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 our government contracts.

Any costs found to be improperly allocated to a specific costCost reimbursementPlus 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, 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. OurLegacy AV’s purchasing system was most recently reviewed and approved again in February 20252025, and BlueHalo’s purchasing system was recently reviewed and approved again in April 2025. 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.

We are subject to various legal proceedings and claims, and 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, including when negotiating settlementsettlements where appropriate in response to such claims, however, our actual losses may differ significantly from our interim 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.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included herein as Item 8. This discussion contains forward-looking statements. Refer to Part I, “Forward-Looking Statements” on page 2 and Item 1A, “Risk Factors” beginning on page 14, for a discussion of the uncertainties, risks and assumptions associated with these statements. The disclosures and references in Item 7 of this Annual Report, including the description of our business, financial data, management’s discussion and analysis of financial condition and results of operations do not include the BlueHalo acquisition which closed on May 1, 2025, unless otherwise specifically noted. The assets, liabilities and results of operations of BlueHalo have not been consolidated into our results as of and for the period ended April 30, 2025 or any of the historical periods presented.

We design,are develop,a produce,defense delivertechnology provider delivering integrated capabilities across air, land, sea, space, and supportcyber. aWe technologicallydevelop advancedand portfoliodeploy ofautonomous intelligent,systems, multi-domainprecision roboticstrike systems, counter-UAS technologies, space-based platforms, directed energy systems, and cyber and electronic warfare capabilities. We operate an international manufacturing footprint, delivering proven systems and related services for government agencies and businesses. We supply uncrewed aircraft and ground robot systems, loitering munitions systems and related services primarilycapabilities to organizations within or supplying the U.S. DoD, other federal agencies and to international allied governments. We derive the majority of our revenue from these business areas, and we believemarkets that the markets for these solutions offer the potential for significant long-term growth. In addition, we believe that some of the innovative potential products, services and technologies in our research and developmentR&D pipeline will emerge as new growth platforms in the future, creating additional market opportunities.

The success of our current product and service offerings stems from our investments in R&D to invent and deliver advanced solutions, utilizing proprietary and commercially available technologies, and in acquiring leading businesses that help our customers achieve their desired outcomes. We develop and acquire these highly innovative solutions by working closely with our key customers to solve their most important challenges related to our areas of expertise. Our core technological capabilities, developed overby more than 50 years of innovation or acquired through acquisitions,innovation, include robotics and robotics systems autonomy; modular open systems architecture,architecture; sensor design, development, miniaturization and integration; embedded software and firmware; miniature, low power, secure wireless digital communications and networks; lightweight aerostructures; high-altitude systems design, integration and operations; machine vision, machine learninglearning, AI and autonomy; land, maritime and air deployment of munitions and aircraft systems; design and qualification for robotics in extreme terrestrial and space environments; munitions systems warhead integration; low SWaP (Size, Weight and Power) system design and integration; collaborative multi-robotic crewed and uncrewed mission operation; 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 for fixed wing and hybrid aircraft and rotocraft systems; image stabilization and target tracking; advanced flight control systems; fluid dynamics; human-machine interface development; modular dismounted, networked multi-domain robotic control interfaces and analytic processing architecture; and integrated mission solutions for austere environments.

We generate our revenue primarily from the sale, support, design and operation of our UxS,UAS, LMSPSDS, UUV, UGV, Space and HAPSDirected Energy products. Support for our SUAS, MUAS and LMS customersproducts includes training, spare parts, product repair and product replacement. Under ISR services contracts we deliver the information our MUAS produce to our customers, who use that information to support their missions. We refer to these support activities, in conjunction with customer-funded R&D,D and services provided for our Cyber and Mission Solutions customers, as our services operation. We derive most of our SUAS, MUAS, LMS and HAPS revenue from fixed-price and cost-plus-fee contracts with the majority from U.S. government and allied foreign governments for SUAS, MUAS, and LMS.governments.

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, depreciation of in-service ISR assets, inventory reserve for excess and obsolescence charges, amortization of acquired intangible assets and other costs that are not directly charged to a specific contract.

As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025. These changes in estimates resulted in the recognition of a goodwill impairment charge of $18.4 million during the three months ended April 30, 2025 in the UGV reporting unit.

For the fiscal year ended April 30, 2025,2026, we determined that it was more likely than not that the fair value of each of the otherremaining reporting units,units other than UGV, waswere more than their carrying values as of the annual goodwill impairment test date, including the MUAS reporting unit which was no longer considered at an increased risk of failing future quantitative goodwill impairment tests due to an increase in the estimated fair value of the reporting unit from significant increases in forecasted results.date.

Other (loss) income, net includes unrealized gains and losses associated with decreaseschanges in the fair market value for equity security investments, realized gains and losses for the disposition of available-for-sale debt securities, interest income, and interest expense.

Our effective tax rates for fiscal years 20252026 and 20242025 were lower than the U.S. federal statutory rate of 21% primarily due to tax benefits from the U.S. federal research tax credit, excess benefits from stock-based compensation, and Foreign Derived Intangible Income deduction (“FDII”), excess benefits from stock-based compensation, the U.S. federal research tax credit..

Equity method investment (loss) income, net of tax, includes equity method income or loss related to our investment in limited partnership funds for which we have concluded we have influence for holding more than a minor interest. Beginning October 14, 2022, equity method investment (loss) income, net of tax also includes our proportion of any gains or losses of our Turkish joint venture, Altoy Savunma Sanayi ve Havacilik Anonim Sirketi (“Altoy”), due to our share sale in which we decreased our ownership interest to 15% but concluded we retain the ability to exercise significant influence.

We believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements. PleaseRefer seeto Note 1 to our consolidated financial statements entitled “Organization and Significant Accounting Policies,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

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.

Our performance obligations are satisfied over time or at a point in time. RevenueProduct revenue for LMScertain Precision Strike products including LMS, Space, Directed Energy and Cyber and Mission Solution product deliveries,deliveries and customization of UGV transport vehicles and customer-funded R&D contracts is recognized over time as costs are incurred. Contract services revenue is recognized over time and 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, includingservices, ISR services, isand recognizedcustomer-funded overR&D time as services are rendered. We elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, such as flight hours for ISR services, the entity may recognize revenue in the amount to which the entity has a right to invoice. Training services are recognized over time using an output method based on days of training completed.contracts. 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. We elected the right to invoice practical expedient in which if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. Certain training services are recognized over time using an output method based on days of training completed. Warranty agreements which meet the definition of a performance obligation are recognized straight line over the warranty period. LMS product revenue is currently recognized over time as the product is considered to not have alternative use as the U.S. government is the only current customer including FMS sales. Once LMS products receive a DCS contract, which is expected during fiscal year 2027, the products are considered to have alternative use and revenue will be recognized at a point in time.

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 UxS product sales revenue is primarily composed of revenue recognized on contracts for the delivery of UxSUAS, UGV, UUV, IAMD, and EW systems and spare parts, respectively. 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.

For the year ended April 30, 2025,2026, favorable cumulative catch up adjustments of $11.1$14.3 million were primarily due to favorable adjustments on eight18 contracts.contracts, Fourof LMSwhich undefinitizedone contract actionshad wereindividually definitizedmaterial duringadjustments. theA yearSpace endedand AprilDirected 30,Energy 2025,contract whichhad resulteda favorable adjustment due to lower expected costs and an increase in cumulativeprofitability catch-up revenue adjustments thatwhich increased revenue by approximately $9.9$6.7 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch up adjustments of $5.1$16.9 million were primarily related to unfavorable adjustments on 1725 contractscontracts, forof higherwhich one contract had individually material adjustments. A Cyber and Mission Solutions contract had an adjustment due to revised estimates of the total expected costs to complete the contract, including one LMS contract,contracts, which decreased revenue by approximately $2.9$(3.1) million. The remaining adjustments individually were not material.

For the year ended April 30, 2023,2025, favorable cumulative catch up adjustments of $2.9$11.1 million were primarily due to final costfavorable adjustments on 23eight contracts, of which four LMS undefinitized contract actions were definitized during the year ended April 30, 2025, which resulted in cumulative catch-up revenue adjustments that increased revenue by approximately $9.9 million. The remaining adjustments individually were not material. For the same period, unfavorable cumulative catch up adjustments of $3.8$5.1 million were primarily related to unfavorable adjustments on 517 contracts for higher revised estimates of the total expected costs to complete the contract, including one LMS variant contract, which decreased revenue by approximately $1.9$2.9 million. The remaining adjustments individually were not material.

As part of our annual goodwill impairment and identifiable asset test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025. These changes in estimates resulted in the recognition of a full goodwill impairment charge of $18.4 million during the three months ended April 30, 2025 in the UGV reporting unit. We determined that it was more likely than not that the fair value of our other reporting units were more than their carrying values as of the annual goodwill impairment test date.

As of April 30, 2025,2026, our MUASSpace reporting unit has a goodwill balance of $135.8approximately $291 million. During the most recent annual impairment test during the fourth quarter of fiscal year 2025,2026, the estimated fair value of all reporting units,units otherwith thangoodwill UGV,from acquisitions in previous years substantially exceeded their carrying value. The reporting units from the BlueHalo and ESAero acquisitions were recently recorded at estimated fair value during the fiscal year ended April 30, 2026 and, other than the Space unit, no triggering event for goodwill impairment was since identified.

Also effective May 1, 20252025, due to the increased size and complexity of the businesses, the significant amount of debt to finance the acquisition and the related debt covenants, the Chief Operating Decision Maker’s (“CODM”) measure of profitability for the new reportable segments will beis Segment Adjusted EBITDA, defined as segment income (loss) from operations before interest income, interest expense, income tax expense (benefit) and depreciation and amortization,amortization and adjusted for the impact of certain other non-cash items, including goodwill impairment, amortization of implementation of cloud computing arrangements, stock-based compensation, other purchase accounting adjustmentsadjustments, and cash items including acquisition related expenses.expenses and certain one-time non-operating expense or income such as legal expense. The following table (in thousands) sets forth our revenue and segment adjusted EBITDA generated by each reporting segment for the periods indicated. Prior period segment information has been revised to align with the new segment measure of profitability and the new reportable segments.

Revenue. Revenue for the fiscal year ended April 30, 2025 was $820.6 million, as compared to $716.7 million for the fiscal year ended April 30, 2024, representing an increase of $103.9 million, or 14%. The increase in revenue was due to an increase in product revenue of $107.0 million, partially offset by a decrease in service revenue of $3.0 million. The increase in product revenue was primarily due to an increase of $164.7 million from the production of our Switchblade products, driven by increased global demand for our LMS associated with the current global conflicts as well as U.S. DoD. resupply and an increase of $4.4 million from the delivery of MW products driven by demand for new product releases, partially offset by a decrease of $62.1 million of product deliveries of our UxS products, primarily due to a decrease in international sales to Ukraine. Fiscal 2025 also included favorable cumulative catch-up revenue adjustments of $12.0 million due to changes in estimates associated with the definitization of certain LMS contracts. The decrease in service revenue was primarily due to a decrease of $2.8 million in other engineering services and customer-funded R&D activities primarily associated with the shift from development to production of certain LMS products. With the acquisition of BlueHalo, we expect the proportion of service revenue to total revenue to increase in fiscal year 2026 and beyond.

Interest Expense, net. Interest expense, net for the fiscal year ended April 30, 2025 was $2.2 million, as compared to interest expense net of $4.2 million for the fiscal year ended April 30, 2024. The decrease in interest expense, net was primarily due to a decrease of $5.0 million in interest expense primarily due to lower average outstanding balances on our debt facility, partially offset by a decrease in interest income of $2.5 million primarily due to lower interest rates and a decrease in our average investment balances. On May 1, 20252025, in connection with the closing of the BlueHalo acquisition, we entered into a new Term A Loan and borrowed from our revolving credit facility (the “Revolving Credit Facility,” and together with the Term A Loan, the “Credit Facilities”). As of May 1, 2025, the outstanding balance of the Credit Facilities was $955.0 million, which bears a variable interest rate. Interest expense for fiscal year 2026 is expected to increase significantly.

LMSAxS Revenue. LMSAxS revenueRevenue for the fiscal year ended April 30, 2025 was $352.0$820.6 million, as compared to $192.6$716.7 million for the fiscal year ended April 30, 2024, representing an increase of $159.4$103.9 million, or 83%.14%. The increase in revenue was due to an increase in product revenue of $164.6$107.0 million, partially offset by a decrease in service revenue of $5.2$3.0 million. The increase in product revenue was primarily due to increasedan increase of $164.7 million from the production of our LMSSwitchblade systemsproducts, duedriven toby increased global demand for our LMS systems associated with the current global conflicts as well as U.S. DoDDoD. resupply.resupply and an increase of $4.4 million from the delivery of MW products driven by demand for new product releases, partially offset by a decrease of $62.1 million of product deliveries of our UxS products, primarily due to a decrease in international sales to Ukraine. Fiscal 2025 also included favorable cumulative catch-up revenue adjustments of $12.0 million due to changes in estimates associated with the definitization of certain LMS contracts. The decrease in service revenue was primarily due to a decrease of $4.2$2.8 million in other engineering services and customer-funded R&D activities primarily associated with the shift from development to production of certain SwitchbladeLMS products.

UxSAxS Segment Adjusted GrossEBITDA. Margin. UxSAxS segment adjusted gross marginEBITDA for the fiscal year ended April 30, 2025 was $187.1$146.4 million, as compared to $210.5$127.8 million for the fiscal year ended April 30, 2024, representing aan decreaseincrease of $23.4$18.6 million.million, or 15%. The decreaseincrease in UxSAxS segment adjusted gross marginEBITDA was primarily due to aan decreaseincrease in revenue of $66.2$103.9 millionmillion. The increase in revenue,revenue was partially offset by aan decrease of $42.8 millionincrease in adjusted cost of sales excludingof intangible$60.1 amortization.million, adjusted SG&A of $25.5 million primarily due employee related costs driven by the increased headcount, and R&D of $3.0 million. The decrease of $42.8 millionincrease in costsadjusted cost of sales excluding intangible amortization iswas primarily due to aan decreaseincrease of approximately $35$58 million associateddue withto the decreasedincrease in sales volume and shift in mix of approximately $8$2 million due to mix.mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production.

Except as set forth below, thereThere have been no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2025.2026. Please refer to that section for disclosures regarding the risks and uncertainties related to our business.

Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications, including the finalization of undefinitized contract actions, occur. The impact of revisions in estimate of completion and variable consideration for all types of contracts are recognized on a cumulative catch-up basis in the period in which the revisions are made. Changes in variable consideration associated with the finalization of undefinitized contract actions could result in cumulative catch up adjustments to revenue that could be material. During the three and nine months ended JanuaryAugust 31,1, 2026 and JanuaryAugust 25,2, 2025, changes in accounting estimates on contracts recognized using the over time method are presented below. Amounts representing contract change orders or claims are included in revenue if the order or claim meets the criteria of a contract or contract modification in accordance with ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”).

For the three months ended JanuaryAugust 31,1, 2026 and JanuaryAugust 25,2, 2025, favorable and unfavorable cumulative catch-up adjustments included in revenue were as follows (in thousands):

For the three months ended JanuaryAugust 31,1, 2026, favorable cumulative catch-up adjustments of $12.5$8.2 million were primarily due to cost adjustments on 307 contracts. During the three months ended JanuaryAugust 31,1, 2026, we revised our estimates of the total expected costs to complete ana LMS contractSpace and aDirected Small UAS (“SUAS”)Energy contract. The aggregate impact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfied in previous periods was an increase to revenue of approximately $3.2$2.3 million. For the same period, unfavorable cumulative catch-up adjustments of $8.0$(11.5) million were primarily related to higher than expected costs on 2434 contracts, which individually were not material.

For the ninethree months ended JanuaryAugust 31,2, 2026,2025, favorable cumulative catch-up adjustments of $3.3$2.3 million were primarily due to cost adjustments on 13 contracts, which individually were not material. For the same period, unfavorable cumulative catch-up adjustments of $12.8$6.5 million were primarily related to higher than expected costs on 3113 contracts.contracts, which individually were not material.

In January 2026, a stop-work order was received on the Company’s Other Transaction Agreement for the delivery of BADGER phased array antenna systems to support Space Force’s SCAR program. We concluded that the stop-work order represented a trigger event that indicated the carrying value of the Space reporting unit exceeded its fair value. As a result, we updated our estimates of the long-term cash flows of the Space reporting unit to reflect the reduced revenue associated with the stop-work order as well as an increase in expected research and development and capital investments to achieve product commercialization, which is expected to result in expanded opportunities and improve long term product margins. The changes in estimates resulted in the recognition of a goodwill impairment charge of approximately $151$240 million in the Space reporting unit. As of January 31, 2026, we have not identified any events or circumstances, other than those identified for the Space reporting unit, that could trigger an impairment review prior to the our annual impairment test during the fourth quarter of fiscal year 2026, including taking into account the reporting units identified from the BlueHalo acquisition on May 1, 2025. Due to the trigger event, we also performed a recoverability test on the long-lived assets, inclusive of the intangibles, of the Space reporting unit for impairment in accordance with ASC 360.360 during the fiscal year ended April 30, 2026. The undiscounted cash flows exceeded the carrying value and no impairment was recorded. As of August 1, 2026, we have not identified any events or circumstances since the prior year’s annual impairment test that could trigger an impairment review.

Due to our fixed year end date of April 30, our first and fourth quarters each consist of approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on a Saturday. Our 20262027 fiscal year ends on April 30, 20262027 and our fiscal quarters end on August 2, 2025, November 1, 20252026, October 31, 2026 and January 31,30, 2026,2027, respectively.

Three Months Ended JanuaryAugust 31,1, 2026 Compared to Three Months Ended JanuaryAugust 25,2, 2025

Cost of Sales. Cost of sales for the three months ended JanuaryAugust 31,1, 2026 was $309.3$355.9 million, as compared to $104.4$359.6 million for the three months ended JanuaryAugust 25,2, 2025, representing ana increasedecrease of $204.9$3.7 million, or 196%.1%. The increasedecrease in cost of sales was a result of ana increasedecrease in product cost of sales of $119.0$17.1 millionmillion, andpartially offset by an increase in service costscost of sales of $85.9$13.4 million. The decrease in product cost of sales was primarily due to a shift in mix of product sales of approximately $28 million, partially offset by approximately $11 million due to the increase in product revenue. The increase in productservice costs of sales was primarily due to an increase of approximately $63.1 million associated with the recently acquired BlueHalo product lines and an increase of approximately $9.4 million in intangible amortization primarily related to the BlueHalo acquisition. For legacy AV business, product cost of sales increased $46.5 million. The increase in legacy product costs of sales was primarily due to an increase of approximately $30$9 million due to the increase in sales volume and approximately $17$4 million due to mix shift toin a higher proportionmix of lower margin products driven by the increase in Switchblade production. The increase in service cost of sales was primarily due to an increase of approximately $87.2 million associated with the BlueHalo acquisition, partially offset by a decrease in legacy AV service cost of sales of $1.9 million primarily due to a mix shift of approximately $11 million due to a higher proportion of higher margin services driven by an increase in customer funded R&D, partially offset by an increase of approximately $9 million due to the increase in service revenue.provided. Cost of sales for the three months ended JanuaryAugust 31,1, 2026 included $12.7$18.6 million of intangible amortization and other related non-cash purchase accounting expenses as compared to $3.7$37.4 million for the three months ended JanuaryAugust 25,2, 2025. As a percentage of revenue, cost of sales increaseddecreased from 62%79% to 76%74% primarily due to increaseddecreased amortization and other non-cash purchase accounting expenses and an increase in the proportion of service revenue resulting from the effect of the BlueHalo acquisition,expenses, resulting in gross margin decreasingincreasing from 38%21% to 24%.26%.

Selling, General and Administrative. SG&A expense for the three months ended JanuaryAugust 31,1, 2026 was $99.4$111.5 million, or 24%23% of revenue, as compared to SG&A expense of $43.8$131.3 million, or 26%29% of revenue, for the three months ended JanuaryAugust 25,2, 2025. The increasedecrease in SG&A expense was primarily due to ana increasedecrease of $30.1$17.4 million of intangible amortization expense and a decrease of $22.5 million in acquisition related toexpenses resulting from the BlueHaloprior year acquisition andof BlueHalo, partially offset by an increase of approximately $7$9 million of employee related expenses related to theincreases in headcount and an increase inof headcount.$4.4 million of bad debt expense.

Research and Development. R&D expense for the three months ended JanuaryAugust 31,1, 2026 was $27.1$24.0 million, or 7%5% of revenue, as compared to R&D expense of $22.5$33.1 million, or 13%7% of revenue, for the three months ended JanuaryAugust 25,2, 2025. The increasedecrease was primarily related to thetiming BlueHaloof acquisition.planned expenditures. R&D expense is expected to continue to be 7% to 8%9% of revenue.revenue for fiscal year ended April 30, 2027.

Interest Income (Expense), net. Interest income, net for the three months ended JanuaryAugust 31,1, 2026 was $3.7$4.1 million compared to interest expense, net of $0.2$17.4 million for the three months ended JanuaryAugust 25,2, 20252025. The increase in interest income was due to a combination of higher cash and investment balances and lower interest bearing debt balances. The decrease in interest expense related to the Fourth Amendment Term Loan Facility and Revolver Facility obtained on May 1, 2025 in conjunction with the BlueHalo acquisition and the unamortized debt issuance costs allocated to the Fourth Amendment Term Loan Facility of $6.7 million, which were expensed upon repayment of the Fourth Amendment Term Loan Facility in July using the proceeds from the Notes and common stock issuances in July 2025.

Other (Expense) Income, net. Other expense, net, for the three months ended JanuaryAugust 31,1, 2026 was $0.4$0.6 million as compared to other income, net of $1.0$2.4 million for the three months ended JanuaryAugust 25,2, 2025. The increasedecrease in other expense,income, net was driven by unrealized lossesgains in equity security investments.investments for the three months ended August 2, 2025. The equity security investments were subsequently sold during the fiscal year ended April 30, 2026.

Benefit from Income Taxes. Our effective income tax rate was (11.1)%5.4% for the three months ended JanuaryAugust 31,1, 2026, as compared to (25.6)%18.0% for the three months ended JanuaryAugust 25,2, 2025. The change in our effective income tax rate was primarily attributable to FDII,a reduction in loss before income taxes and an increase in Section 162(m) limitation on executive compensation, partially offset by an increase in federal R&D credits and non-deductible goodwill impairment loss for the quarter.credits. The effective income tax rate for the three months ended JanuaryAugust 31,1, 2026, was primarily attributable to non-deductiblethe goodwillcurrent impairmentquarter loss Equitybefore Methodincome Investmenttaxes Loss,relative net of Tax. Equity method investment loss, net of tax forto the threeprojected monthsfull endedyear Januaryincome 31,before 2026income wastaxes, $0.3state millionvaluation asallowances, comparedSection $0162(m) forlimitation theon threeexecutive monthscompensation, endedpartially Januaryoffset 25,by 2025.federal R&D credits.

AxS Revenue. RevenueAxS revenue for the three months ended JanuaryAugust 31,1, 2026 was $278.7$346.0 million, as compared to $167.6$285.3 million for the three months ended JanuaryAugust 25,2, 2025, representing an increase of $111.1$60.7 million, or 66%.21%. The increase in revenue was due to an increase in product revenue of $83.0$33.2 million and an increase in service revenue of $28.1$27.5 million. The increase in product revenue was primarily due to the $30.0 million of product revenue resulting from our acquisition of BlueHalo in May 2025. Legacy AV product revenue included in the AxS segment increased by $53.0 million driven by an increase in LMS, MacCready Works, SUAS, MUAS and UGVUAS products of $39.1 million due to an increase in domesticthe global demand for UAS products, partially offset by a decrease in PSDS of $6.8 million. The decrease in PSDS was driven by decrease of $56.9 million of Switchblade product revenue due to order delays, partially offset by revenue from the ESAero acquisition of $41.8 million and internationalincreased demand.demand for defense systems of $18.5 million. The increase in service revenue was primarily due to the $17.2 million service revenue resulting from our acquisition of BlueHalo. Legacy AV service revenue increaseddriven by $11.0increases millionin driven byAxS customer funded R&D and engineering services increase of $10.2$34.1 million driven by an increase in SUAS customer funded R&D awards. Proportion of service revenue to product revenue is expected to remain higher following the acquisition of BlueHalo.million.

AxS Segment Adjusted EBITDA. AxS segment adjusted EBITDA for the three months JanuaryAugust 31,1, 2026 was $46.2$62.3 million, as compared to $21.8$52.8 million for the three months ended JanuaryAugust 25,2, 2025, representing an increase of $24.4$9.5 million, or 112%.18%. The increase in AxS segment adjusted EBITDA was primarily due to an increase in revenue of $111.1$60.7 million.million Theand increasea decrease in revenueR&D wasof $7.6 million, partially offset by an increase in adjusted cost of sales of $79.8 million, adjusted SG&A of $6.2$25.2 million and R&Da decrease in adjusted EBITDA add backs of $1.6$34.6 million.million for depreciation, amortization, cloud computing related amortization, stock-based compensation, and acquisition related expenses. The increase in adjusted cost of sales was primarily due to an increase of approximately $37 million associated with the recently acquired BlueHalo product lines, an increase of approximately $38 million due to the increase in sales volume andvolume, approximately $7$1 million due to mix shift to a higher proportion of lowerservices, marginpartially products drivenoffset by thea increasedecrease of approximately $13 million in Switchbladeintangible production.amortization expense.

SCDE Revenue. SCDE Revenue for the ninethree months ended JanuaryAugust 31,1, 2026 was $1,335.2$134.5 million, as compared to $545.6$169.4 million for the ninethree months ended JanuaryAugust 25,2, 2025, representing ana increasedecrease of $789.6$34.9 million, or 145%.21%. The increasedecrease in revenue was due to ana increasedecrease in product revenue of $465.9$17.6 million and ana increasedecrease in service revenue of $323.7$17.3 million. The increasedecrease in product revenue was primarily due to the $343.3 million of product revenue resulting from our acquisition of BlueHalo in May 2025. Legacy AV product revenue included in the AxS segment increased by $122.6 million driven by an increase in LMS, MUAS, MacCready Works, and UGV products due to increase in domestic and international demand, partially offset by a decrease in SUASSpace and Directed Energy product sales of $18.1 million primarily due to athe decreasetermination of the SCAR program in internationalthe sales.prior year. The increasedecrease in service revenue was primarilydriven dueby a decrease to the $313.6 millionCMS service revenue resulting from our acquisition of BlueHalo. Legacy AV service revenue, included in the AxS segment, increased by $10.1$18.3 million driven by anreduced increasescope inon customercertain funded R&D and engineering services of $11.7 million. Proportion of service revenue to product revenue is expected to remain higher following the acquisition of BlueHalo.contracts.

AxSSCDE Segment Adjusted EBITDA. AxSSCDE segment adjusted EBITDA for the ninethree months JanuaryAugust 31,1, 2026 was $150.0$(8.9) million, as compared to $84.8$3.8 million for the ninethree months ended JanuaryAugust 25,2, 2025, representing ana increasedecrease of $65.2$12.7 million, or 77%.334%. The increasedecrease in AxSSCDE segment adjusted EBITDA was primarily due to ana increasedecrease in revenue of $320.0$34.9 million.million Theand increasea decrease in revenueadjusted wasEBITDA add backs of $26.6 million for depreciation, amortization, cloud computing related amortization, stock-based compensation, and acquisition related expenses, partially offset by ana increasedecrease in adjusted cost of sales of $223.1$28.7 million, adjusteda decrease in SG&A of $20.2$19.0 million primarilyand duea employeedecrease related costs driven by the increased headcount, andin R&D of $10.2$1.6 million. The increasedecrease in adjusted cost of sales was primarily due to ana increasedecrease of approximately $117.9 million associated with the recently acquired BlueHalo product lines, an increase of approximately $77$30 million due to the increasedecrease in sales volume and approximately $38$5 million decrease in intangible amortization expense, partially offset by approximately $7 million due to mix shift to a higher proportion of lower margin products driven by the increase in Switchblade production.services.

Consistent with ASC 606, we define funded backlog as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract. As of JanuaryAugust 31,1, 2026, our funded backlog was approximately $1,120.7$1,457.8 million, as compared to $726.6$1,183.0 million as of April 30, 2025.2026.

In addition to our funded backlog, we also had unfunded backlog of $2,968.8$1,366.5 million as of JanuaryAugust 31,1, 2026. Unfunded backlog does not meet the definition of a performance obligation under ASC 606. We define unfunded backlog as the total remaining value of awarded Cost Plus and FFP contracts with incremental funding. Unfunded backlog does not obligate the customer to purchase goods or services. There can be no assurance that unfunded backlog will result in any orders in any particular period, or at all. Unfunded backlog includes a $1,493.2 million of unexercised options related to the SCAR program which are no longer expected to be awarded.

On October 4, 2024, we amended the Credit Agreement to increase the Revolving Facility to $200 million, and the Term Loan Facility was repaid in full and removed from the Credit Agreement. Borrowings under the Amended Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions that meet certain parameters. In February 2025, we borrowed $15.0 million under the Revolving Facility. In May 2025, in connection with the consummation of the BlueHalo Acquisition,acquisition, the Company entered into athe Fourth Amendment to Credit Agreement with BofA NA, the administrative agent and the swingline lender, JPM, U.S. Bank, Citibank, BMO, Citizens and RBC.Citibank. The Amended Credit Agreement provides for an aggregate $700.0 million term loan and an aggregate $350.0 million revolving credit facility. Upon effectiveness of the Amended Credit Agreement, we drew $225.0 million from the amended Revolving Facility and the full $700.0 million of the Fourth Amendment Term Loan Facility. The proceeds from the Fourth Amendment Term Loan Facility and the Revolving Facility were used to repay certain outstanding indebtedness of BlueHalo and to pay for certain related transaction costs. In June 2025, we drew an additional $10.0 million under the Revolving Facility.

In July 2025, we issued 4,057,460 shares of common stock at a public offering price of $248.00 per share (the “Common Stock Offering”) and issued $747,500,000 aggregate principal amount of 0% convertible senior notes due 2030 (the “Notes Offering”).2030. The aggregate net proceeds from the Common Stock Offering and the Notes Offering, after deducting underwriting discounts and debt and equity issuance costs, was approximately $1.70 billion. The Company used approximately $965.3 million of the net proceeds from the Common Stock Offering and the Notes Offering to repay indebtedness under the Fourth Amendment Term Loan Facility and outstanding borrowings under the Revolving CreditFacility. Facility,The remainder can and thehas remainder is expected to bebeen used for general corporate purposes, including to increase manufacturing capacity.

Our ability to borrow under the Revolving Facility is reduced by outstanding letters of credit of $11.0$13.0 million as of JanuaryAugust 31,1, 2026. As of JanuaryAugust 31,1, 2026, approximately $339.0$337.0 million was available under the Revolving Facility. Refer to Note 9—Debt to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. In addition, Telerob has a line of credit of €7.09.0 million ($8.2$10.5 million) available for issuing letters of credit of which €2.2 million ($2.6 million) was outstanding as of JanuaryAugust 31,1, 2026.

We anticipate funding our normal recurring trade payables, accrued expenses, ongoing R&D costs and obligations under the Credit Facilities through our existing working capital and funds provided by operating activities including those provided by our acquisition.acquisitions. The majority of our purchase obligations are pursuant to funded contractual arrangements with our customers. We believe that our existing cash, cash equivalents, cash provided by operating activities and other financing sources will be sufficient to meet our anticipated working capital, capital expenditure requirements, and future obligations related to the acquisition during the next twelve months. There can be no assurance, however, that our business will continue to generate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may be required to sell assets, reduce capital expenditures or draw on our Credit Facilities. We anticipate that existing sources of liquidity, Credit Facilities, and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future.

The Company is party to receivables purchase agreement with Citibank, N.A., with an aggregate capacity of $100 million. As of JanuaryAugust 31,1, 2026, no receivables have been sold, proceeds collected, or purchase discount fees incurred.

The following table provides our cash flow data for the ninethree months ended JanuaryAugust 31,1, 2026 and January 25, 2025 (in thousands):

Cash Provided by (Used in) Operating Activities. Net cash usedprovided inby operating activities for the ninethree months ended JanuaryAugust 31,1, 2026 increased by $172.9$137.2 million to $(173.9)$13.5 million, as compared to $(1.1123.7) million for the ninethree months ended JanuaryAugust 25,2, 2025. The increase in net cash used in operating activities was primarily due to aan decreaseincrease in cash as a result of changes in operating assets and liabilities of $260.3$112.7 million, largely related to decreases in accounts receivable and increases in accounts payable, partially offset by increases in unbilled receivables and retentions due to year over year timing differences as well as increases in inventory to meet demand.differences. The increase in cash usedprovided inby operating activities was also driven by a decrease in net incomeloss of $268.0$62.3 million, partially offset by ana increasedecrease in depreciation and amortization of $175.8 million, largely due to the intangibles and acquired property and equipment from the BlueHalo acquisition, and goodwill impairment of the Space reporting unit of $151.3$34.2 million.

Cash Used in Investing Activities. Net cash used in investing activities increaseddecreased by $1,208.3$768.4 million to $(1,224.9108.2) million for the ninethree months ended JanuaryAugust 31,1, 2026, as compared to $16.6$(876.6) million for the ninethree months ended JanuaryAugust 25,2, 2025. The increasedecrease in net cash used in investing activities was primarily due to the cash consideration for the acquisition of BlueHalo, net of cash acquired of $844.6 million andin the prior year, partially offset by the net purchase of available-for-sale securities of $313.7$58.8 million.

Cash Provided by (Used in) Provided by Financing Activities. Net cash used in financing activities decreased by $1,649.5 million to $(4.1) million for the three months ended August 1, 2026, as compared to net cash provided by financing activities increasedof by $1,655.6 million to $1,647.2$1,645.4 million for the ninethree months ended JanuaryAugust 25, 2025, as compared to net cash used in financing activities of $8.4 million for the nine months ended January 25,2, 2025. The increasedecrease in net cash provided by financing activities was primarily due to proceeds from issuance of common shares of $968.5 million, net of underwriter costs and proceeds from the issuance of Notes of $726.9 million, net of underwriter costs.costs in the prior year. Part of the proceeds were used to repay the outstanding balances of the Fourth Amendment Term Loan Facility and Revolving Facility drawn in conjunction with the acquisition of BlueHalo.