1. Organization and Significant Accounting Policies

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Organization

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AeroVironment, Inc., a Delaware corporation (together with its fully-owned subsidiaries, collectively referred to herein as the “Company”), is engaged in the design, development, production, delivery and support of autonomous systems, precision strike systems, Counter-Uncrewed Aircraft Systems (“C-UAS”) technologies, space-based platforms, directed energy systems, and cyber and electronic warfare capabilities. The Company provides these products and services primarily to organizations within or supplying the U.S. Department of Defense (“DoD”), other federal agencies and to international allied governments.

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The Company’s reportable segments are as follows:

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Autonomous Systems (“AxS”)— The AxS segment focuses on the design, development, production, delivery, and support of intelligent, multi-domain robotic systems, including uncrewed aircraft systems (“UAS”), uncrewed underwater vehicles and ground robot systems. The segment includes the Company’s former Uncrewed Systems (“UxS”), Loitering Munitions Systems (“LMS”), and MacCready Works (“MW”) segments as well as Integrated Air and Missile Defense (“IAMD”), Electronic Warfare Systems (“EW”) and Uncrewed Maritime (“UUV”) products and services from the BlueHalo acquisition. This segment encompasses the Company’s core autonomous platforms, such as drones and robotic systems, tailored for mission-critical applications across air, land and sea domains.
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Space, Cyber, and Directed Energy (“SCDE”)— The SCDE segment focuses on advanced technologies in the space domain providing space-based and ground-based platforms, cyber capabilities, and directed energy systems. This segment positions the Company in high-growth areas of next-generation defense technology, addressing emerging threats and mission requirements in space, cyber warfare, and directed energy applications (e.g., high-energy lasers).

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Basis of Presentation

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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three months ended August 1, 2026 are not necessarily indicative of the results for the full year ending April 30, 2027. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2026, included in the Company’s Annual Report on Form 10-K.

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The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including estimates of anticipated contract costs and revenue utilized in the revenue recognition process, that affect the reported amounts in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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The Company’s unaudited condensed consolidated financial statements include the assets, liabilities and operating results of wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

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Recent Acquisitions

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On May 1, 2025, the Company closed its acquisition of BlueHalo, a Delaware limited liability company, pursuant to the Agreement and Plan of Merger, dated as of November 18, 2024 by and among AV, Archangel Merger Sub LLC, a

Delaware limited liability company, BlueHalo, and BlueHalo Holdings Parent, LLC, a Delaware limited liability company and sole member of BlueHalo. Refer to Note 15—Business Acquisitions for further details.

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On March 16, 2026, the Company closed its acquisition of Empirical Systems Aerospace, Inc. (“ESAero”), a leading producer of UAS and advanced air mobility platforms. ESAero is incorporated into AeroVironment’s AxS segment. Refer to Note 15—Business Acquisitions for further details.

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Recently Adopted Accounting Standards

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The Company did not adopt any accounting standards during the three months ended August 1, 2026.

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Reclassifications

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Certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, the Company’s prior year disaggregated revenue disclosures and segment information have been reclassified to conform to the current year presentation.

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Revenue Recognition

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The Company’s revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products and to provide related engineering, technical and other services according to the specifications of its customers. These contracts may be firm fixed price (“FFP”), cost plus fixed fee, cost plus award fee, and cost plus incentive fee (collectively “Cost Plus”), or time and materials (“T&M”). The Company considers all such contracts to be within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).

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Performance Obligations

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On August 1, 2026, the Company had approximately $1,457,822,000 of remaining performance obligations under fully funded contracts with its customers, which the Company also refers to as funded backlog. The Company currently expects to recognize approximately 78% of the remaining performance obligations as revenue in fiscal 2027 and the remaining 22% in fiscal 2028 or beyond.

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Revenue by Category

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The following tables present the Company’s revenue disaggregated by operating group, contract type, customer category and geographic location (in thousands).

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Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more risk with FFP contracts. However, these types of contracts generally offer additional profits when the Company completes the work for less than originally estimated. Cost Plus contracts generally subject the Company to lower risk. Accordingly, the associated base fees are usually lower than fees on FFP contracts. Under T&M contracts, the Company’s profit may vary if actual labor hour rates vary significantly from the negotiated rates.

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Customer-Funded Research & Development

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Customer-funded R&D costs are incurred pursuant to contracts (revenue arrangements) to perform R&D activities according to customer specifications. These costs are direct contract costs and are expensed to cost of sales as costs are incurred. Revenue from customer-funded R&D contracts is recognized in accordance with ASC 606 over time as costs are incurred. Revenue from customer-funded R&D was approximately $84,982,000 for the three months ended August 1, 2026. Revenue from customer-funded R&D was approximately $60,847,000 for the three months ended August 2, 2025

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Contract Balances

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Changes in the contract asset and liability balances during the three month period ended August 1, 2026 were not materially impacted by factors other than billings, cash collections, and timing of revenue recognition. For the Company’s contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.

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Revenue recognized for the three month period ended August 1, 2026 that was included in customer advances balances as of April 30, 2026 was $23,665,000. Revenue recognized for the three month period ended August 2, 2025 that was included in customer advances balances as of April 30, 2025 was $11,358,000.

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Investments

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Certain of the Company’s investments are accounted for as available-for-sale and are reported at fair value. Unrealized gains and losses for debt securities are excluded from earnings and reported as a separate component of stockholders’ equity, net of deferred income taxes for available-for-sale investments. Gains and losses realized on the disposition of investment securities are determined on the specific identification basis and credited or charged to income. Investments in equity securities and warrants are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in other income (expense), net. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any.

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Fair Values of Financial Instruments

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Fair values of cash and cash equivalents, accounts receivable, unbilled receivables and retentions, and accounts payable approximate cost due to the short period of time to maturity.

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Accounts Receivable

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The Company is party to a receivables sales agreement with Citibank, N.A. with an aggregate capacity of $100,000,000. The receivables sold under the factoring facilities are without recourse and result in a true sale. Receivables are de-recognized in their entirety when sold. As of August 1, 2026, no receivables have been sold, proceeds collected, or purchase discount fees incurred under the agreement.

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Government Contracts

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Payments to the Company on government Cost Plus or T&M contracts are based on provisional, or estimated indirect rates, which are subject to an annual audit by the Defense Contract Audit Agency (“DCAA”). The cost audits result in the negotiation and determination of the final indirect cost rates that the Company may use for the period(s) audited. The final rates, if different from the provisional rates, may create an additional receivable or liability for the Company for Cost Plus and T&M contracts.

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For example, during the course of its audits, the DCAA may question the Company’s incurred costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallow such costs. Historically, the Company has not experienced material disallowed costs as a result of government

audits. However, the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future. The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable government contracts to be recorded at estimated full year rates unless collectability is not reasonably assured. As of August 1, 2026, the company had a reserve for incurred cost claims of $956,000. As of April 30, 2026, the Company had no reserve for incurred cost claim audits.
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Loss Per Share

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Basic loss per share is computed using the weighted-average number of common shares outstanding, excluding shares of unvested restricted stock.

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The reconciliation of basic to diluted shares is as follows (in thousands except share data):

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Due to the net loss for the three months ended August 1, 2026 and August 2, 2025, no shares reserved for issuance upon exercise of stock options or shares of unvested restricted stock were included in the computation of diluted loss per share as their inclusion would have been anti-dilutive. Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 330,957 for the three months ended August 1, 2026. Potentially dilutive shares not included in the computation of diluted weighted-average common shares because their effect would have been anti-dilutive were 168,254 for the three months ended August 2, 2025.

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Recently Issued Accounting Standards

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In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 requires disclosure in the notes to financial statements of specified information about certain costs and expenses included in each expense caption on the face of the income statement at interim and annual reporting periods. The new standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, and should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the potential impact of this adoption on its consolidated financial statements.

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In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which better aligns the accounting guidance to how software is developed by eliminating project stages from capitalization criteria. The new standard is effective for annual reporting periods beginning after December 15, 2027 and interim periods within those annual reporting periods. The standard allows for prospective, modified, or retrospective transition. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new pronouncement.

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In December 2025, the FASB issued ASU 2025-11, Interim Reporting (“ASU 2025-11”), which is intended to improve the navigability of required interim disclosures and clarify when that guidance is applicable, and also to provide additional guidance on what disclosures should be provided in interim reporting periods. The new standard is effective for annual reporting periods beginning after December 15, 2027 and interim periods within those annual reporting periods. The standard allows for prospective or retrospective transition. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new pronouncement.