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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended October 26, 2019

OR

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

95-2705790

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

900 Innovators Way

Simi Valley, California

93065

(Address of principal executive offices)

(Zip Code)

(805) 520-8350

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

AVAV

The NASDAQ Stock Market LLC

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 26, 2019, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 23,990,616.

Table of Contents

AeroVironment, Inc.

Table of Contents

Item 1.

Financial Statements :

    

Consolidated Balance Sheets as of October 26, 2019 (Unaudited) and April 30, 2019

3

Consolidated Statements of Operations for the three and six months ended October 26, 2019 (Unaudited) and October 27, 2018 (Unaudited)

4

Consolidated Statements of Comprehensive Income for the three and six months ended October 26, 2019 (Unaudited) and October 27, 2018 (Unaudited)

5

Consolidated Statements of Stockholders’ Equity for the three and six months ended October 26, 2019 (Unaudited) and October 27, 2018 (Unaudited)

6

Consolidated Statements of Cash Flows for the six months ended October 26, 2019 (Unaudited) and October 27, 2018 (Unaudited)

8

Notes to Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

40

Item 6.

Exhibits

40

Signatures

41

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AeroVironment, Inc.

Consolidated Balance Sheets

(In thousands except share and per share data)

October 26,

    

April 30,

2019

2019

    

(Unaudited)

 

Assets

Current assets:

Cash and cash equivalents

$

130,742

$

172,708

Short-term investments

 

161,635

 

150,487

Accounts receivable, net of allowance for doubtful accounts of $1,055 at October 26, 2019 and $1,041 at April 30, 2019

 

40,564

 

31,051

Unbilled receivables and retentions (inclusive of related party unbilled receivables of $21,717 at October 26, 2019 and $9,028 at April 30, 2019)

 

62,397

 

53,047

Inventories

 

52,769

 

54,056

Prepaid expenses and other current assets

 

8,045

 

7,418

Income taxes receivable

821

Total current assets

 

456,152

 

469,588

Long-term investments

 

13,478

 

9,386

Property and equipment, net

 

20,571

 

16,905

Operating lease right-of-use assets

8,902

Deferred income taxes

 

8,019

 

6,685

Intangibles, net

15,952

459

Goodwill

8,080

Other assets

 

13,339

 

5,821

Total assets

$

544,493

$

508,844

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

11,022

$

15,972

Wages and related accruals

 

13,218

 

18,507

Customer advances

 

2,550

 

2,962

Current operating lease liabilities

2,290

Income taxes payable

2,570

Other current liabilities

 

13,141

 

7,425

Total current liabilities

 

44,791

 

44,866

Deferred rent

 

 

1,173

Non-current operating lease liabilities

6,843

Other non-current liabilities

2,422

150

Deferred tax liability

29

29

Liability for uncertain tax positions

 

51

 

51

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.0001 par value:

Authorized shares—10,000,000; none issued or outstanding at October 26, 2019 and April 30, 2019

 

 

Common stock, $0.0001 par value:

Authorized shares—100,000,000

Issued and outstanding shares—23,990,616 shares at October 26, 2019 and 23,946,293 shares at April 30, 2019

 

2

 

2

Additional paid-in capital

 

178,550

 

176,216

Accumulated other comprehensive loss

 

181

 

2

Retained earnings

 

311,627

 

286,351

Total AeroVironment stockholders’ equity

 

490,360

 

462,571

Noncontrolling interest

(3)

4

Total equity

490,357

462,575

Total liabilities and stockholders’ equity

$

544,493

$

508,844

See accompanying notes to consolidated financial statements (unaudited).

3

Table of Contents

AeroVironment, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)

Three Months Ended

Six Months Ended

October 26,

October 27,

October 26,

October 27,

    

2019

    

2018

    

2019

    

2018

 

Revenue:

Product sales

$

57,386

$

47,056

$

123,225

$

102,369

Contract services (inclusive of related party revenue of $13,393 and $12,832 for the three months ended October 26, 2019 and October 27, 2018, respectively; and $25,728 and $24,395 for the six months ended October 26, 2019 and October 27, 2018, respectively)

 

25,885

 

25,923

 

46,957

 

48,653

 

83,271

 

72,979

 

170,182

 

151,022

Cost of sales:

Product sales

 

30,802

 

26,567

 

61,210

 

56,378

Contract services

 

17,303

 

18,013

 

32,534

 

33,656

 

48,105

 

44,580

 

93,744

 

90,034

Gross margin:

 

 

Product sales

26,584

20,489

62,015

45,991

Contract services

8,582

7,910

14,423

14,997

35,166

28,399

 

76,438

 

60,988

Selling, general and administrative

 

16,255

 

13,646

 

29,923

 

25,602

Research and development

 

10,858

 

8,109

 

19,567

 

14,544

Income from continuing operations

 

8,053

 

6,644

 

26,948

 

20,842

Other income:

Interest income, net

 

1,266

 

1,068

 

2,595

 

1,974

Other income, net

 

157

 

1,291

 

512

 

9,679

Income from continuing operations before income taxes

 

9,476

 

9,003

 

30,055

 

32,495

Provision for income taxes

1,108

1,211

 

3,241

 

3,778

Equity method investment loss, net of tax

 

(863)

 

(752)

 

(2,210)

 

(1,354)

Net income from continuing operations

7,505

7,040

24,604

27,363

Discontinued operations:

(Loss) gain on sale of business, net of tax (benefit) expense of $(114) and $2,463 for the three and six months ended October 27, 2018, respectively

(391)

8,452

Loss from discontinued operations, net of tax

(599)

(2,449)

Net (loss) income from discontinued operations

(990)

 

 

6,003

Net income

7,505

6,050

24,604

33,366

Net (income) loss attributable to noncontrolling interest

(4)

7

7

21

Net income attributable to AeroVironment

$

7,501

$

6,057

$

24,611

$

33,387

Net income per share attributable to AeroVironment—Basic

Continuing operations

$

0.32

$

0.30

$

1.04

$

1.16

Discontinued operations

(0.04)

0.25

Net income per share attributable to AeroVironment—Basic

$

0.32

$

0.26

$

1.04

$

1.41

Net income per share attributable to AeroVironment—Diluted

Continuing operations

$

0.31

$

0.29

$

1.02

$

1.14

Discontinued operations

(0.04)

0.25

Net income per share attributable to AeroVironment—Diluted

$

0.31

$

0.25

$

1.02

$

1.39

Weighted-average shares outstanding:

Basic

 

23,804,364

 

23,667,400

 

23,775,355

 

23,621,720

Diluted

 

24,061,810

 

24,098,833

 

24,063,775

 

24,059,394

See accompanying notes to consolidated financial statements (unaudited).

4

Table of Contents

AeroVironment, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

Three Months Ended

Six Months Ended

October 26,

October 27,

October 26,

October 27,

    

2019

    

2018

    

2019

    

2018

 

Net income

$

7,505

$

6,050

$

24,604

$

33,366

Other comprehensive income:

Change in foreign currency translation adjustments

10

(11)

179

(31)

Unrealized gain on investments, net of deferred tax expense of $51 for the six months ended October 27, 2018

 

 

 

 

57

Total comprehensive income

7,515

$

6,039

24,783

33,392

Net (income) loss attributable to noncontrolling interest

(4)

7

7

21

Comprehensive income attributable to AeroVironment

$

7,511

$

6,046

$

24,790

$

33,413

See accompanying notes to consolidated financial statements (unaudited).

5

Table of Contents

AeroVironment, Inc.

Consolidated Statements of Stockholders’ Equity

For the six months ended October 26, 2019 and October 27, 2018 (Unaudited)

(In thousands except share data)

Accumulated

 

Additional

Other

Total

Non-

 

Common Stock

Paid-In

Retained

Comprehensive

AeroVironment

Controlling

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

Equity

Interest

    

Total

 

Balance at April 30, 2019

 

23,946,293

2

176,216

286,351

2

462,571

4

462,575

Adoption of ASU 2018-09

 

 

 

665

 

665

 

665

Net income (loss)

 

 

 

 

24,611

 

24,611

(7)

 

24,604

Unrealized gain on investments

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

179

179

 

179

Stock options exercised

 

3,000

 

 

93

 

93

 

93

Restricted stock awards

 

65,692

 

 

 

 

Restricted stock awards forfeited

 

(11,005)

 

 

 

 

Tax withholding payment related to net share settlement of equity awards

 

(13,364)

 

 

(743)

 

(743)

 

(743)

Stock based compensation

 

 

 

2,984

 

2,984

 

2,984

Balance at October 26, 2019

 

23,990,616

$

2

$

178,550

$

311,627

$

181

$

490,360

$

(3)

$

490,357

Accumulated

Additional

Other

Total

Non-

Common Stock

Paid-In

Retained

Comprehensive

AeroVironment

Controlling

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

Equity

Interest

    

Total

Balance at April 30, 2018

 

23,908,736

2

170,139

238,913

(21)

409,033

23

409,056

Net income (loss)

 

 

 

 

33,387

 

33,387

(21)

 

33,366

Unrealized gain on investments

 

 

 

 

 

57

57

 

57

Foreign currency translation

 

 

 

 

(31)

(31)

 

(31)

Stock options exercised

 

12,725

 

 

71

 

71

 

71

Restricted stock awards

 

34,446

 

 

 

 

Restricted stock awards forfeited

 

(14,655)

 

 

 

 

Tax withholding payment related to net share settlement of equity awards

 

(12,879)

 

 

(975)

 

(975)

 

(975)

Stock-based compensation

 

 

2,632

 

2,632

 

2,632

Balance at October 27, 2018

 

23,928,373

$

2

$

171,867

$

272,300

$

5

$

444,174

$

2

$

444,176

See accompanying notes to consolidated financial statements (unaudited)

6

Table of Contents

AeroVironment, Inc.

Consolidated Statements of Stockholders’ Equity

For the three months ended October 26, 2019 and October 27, 2018 (Unaudited)

(In thousands except share data)

Accumulated

Additional

Other

Total

Non-

Common Stock

Paid-In

Retained

Comprehensive

AeroVironment

Controlling

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

Equity

Interest

    

Total

Balance at July 27, 2019

 

23,990,459

2

177,207

304,126

171

481,506

(7)

481,499

Net income

 

 

 

 

7,501

 

7,501

4

 

7,505

Unrealized gain on investments

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

10

10

 

10

Stock options exercised

 

 

 

 

 

Restricted stock awards

 

7,831

 

 

 

 

Restricted stock awards forfeited

 

(6,285)

 

 

 

 

Tax withholding payment related to net share settlement of equity awards

 

(1,389)

 

 

(75)

 

(75)

 

(75)

Stock based compensation

 

 

 

1,418

 

1,418

 

1,418

Balance at October 26, 2019

 

23,990,616

$

2

$

178,550

$

311,627

$

181

$

490,360

$

(3)

$

490,357

Accumulated

Additional

Other

Total

Non-

Common Stock

Paid-In

Retained

Comprehensive

AeroVironment

Controlling

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

Equity

Interest

    

Total

Balance at July 28, 2018

 

23,923,342

$

2

$

170,789

$

266,243

$

16

$

437,050

$

9

$

437,059

Net income (loss)

 

 

 

 

6,057

 

6,057

(7)

 

6,050

Unrealized gain on investments

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

(11)

(11)

 

(11)

Stock options exercised

 

6,725

 

 

4

 

4

 

4

Restricted stock awards

 

1,034

 

 

 

 

Restricted stock awards forfeited

 

(1,202)

 

 

 

 

Tax withholding payment related to net share settlement of equity awards

 

(1,526)

 

 

(156)

 

(156)

 

(156)

Stock-based compensation

 

 

1,230

 

1,230

 

1,230

Balance at October 27, 2018

 

23,928,373

$

2

$

171,867

$

272,300

$

5

$

444,174

$

2

$

444,176

See accompanying notes to consolidated financial statements (unaudited).

7

Table of Contents

AeroVironment, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Six Months Ended

    

October 26,

    

October 27,

 

2019

2018

Operating activities

Net income

$

24,604

$

33,366

Gain on sale of business, net of tax

(8,452)

Loss from discontinued operations, net of tax

2,449

Net income from continuing operations

24,604

27,363

Adjustments to reconcile net income from continuing operations to cash provided by operating activities from continuing operations:

Depreciation and amortization

 

4,486

 

3,584

Loss from equity method investment

2,210

1,354

Provision for doubtful accounts

 

14

 

(27)

Other non-cash expense

81

Non-cash lease expense

2,255

Losses (gains) on foreign currency transactions

 

1

 

(13)

Deferred income taxes

 

(669)

 

(614)

Stock-based compensation

 

2,984

 

2,517

Gain on sale of property and equipment

(75)

Amortization of held-to-maturity investments

(984)

(459)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

 

(9,400)

 

22,261

Unbilled receivables and retentions

 

(9,350)

 

(28,782)

Inventories

 

1,621

 

(8,671)

Income tax receivable

821

Prepaid expenses and other assets

 

(1,051)

 

(831)

Accounts payable

 

(5,046)

 

(8,841)

Other liabilities

(4,583)

(6,184)

Net cash provided by operating activities of continuing operations

 

7,919

 

2,657

Investing activities

Acquisition of property and equipment

 

(6,850)

 

(4,135)

Equity method investments

(4,569)

Business acquisition, net of cash acquired

(