AeroVironment (AVAV) risk factors, FY2025 10-K

Risks Related to Our Business and Industry

1. 01We rely heavily on sales to certain customers, including the U.S. government, particularly to agencies of the DoD
2. 02A decline in the U.S. and other government budgets, changes in spending or budgetary priorities, delays in contract awards or in the release of approved funds may significantly and adversely affect our future revenue
3. 03Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our products and services
4. 04We operate in evolving markets, which makes it difficult to evaluate our business and future prospects
5. 05We face competition from other firms, many of which have substantially greater resources
6. 06The cyber and mission systems areas are highly competitive, with principal competitors including L3Harris Technologies, Inc., Thales Group, Anduril Industries, Inc, and Sierra Nevada Corporation. We also face competition from specialized cybersecurity firms
7. 07If the markets for our products do not grow as expected, if we cannot expand our customer base or if our products and services do not achieve broad acceptance, then we may not be able to achieve our anticipated level of growth
8. 08Our international business poses potentially greater risks than our domestic business
9. 09If we are unable to manage the increasing complexity of our business, or achieve or manage our expected growth, our business could be adversely affected
10. 10Our business relationships, including those of BlueHalo, 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
11. 11Any efforts to expand our offerings beyond our current markets may not succeed, which could negatively impact our operating results
12. 12The markets in which we compete are characterized by rapid technological change, requiring us to develop new products and product enhancements, and could render our existing products obsolete
13. 13There 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 could put us at a competitive disadvantage
14. 14We expect to incur substantial R&D costs and devote significant resources to identifying and commercializing new products and services, which could significantly reduce our profitability and may never result in revenue to us
15. 15Our products and services are complex and could have unknown defects or errors, which may give rise to claims against us, diminish our brand or divert our resources from other purposes
16. 16If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business
17. 17Earnings and cash flows can be impacted by changes in tax laws
18. 18Changes in trade policies, including the recently-announced tariff regime, could cause adverse impacts to our business
19. 19Our earnings and profit margins may decrease based on the mix of our contracts and programs and other factors related to our contracts
20. 20We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our future financial results
21. 21Cost overruns on our contracts could subject us to losses, decrease our operating margins and adversely affect our future business
22. 22Our senior management and key employees, including key employees of businesses recently acquired, are important to our customer relationships and overall business
23. 23We must recruit and retain highly-skilled employees to succeed in our competitive business
24. 24We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in supply imbalances that could harm our business
25. 25Due to the volatile and flammable nature of certain components of our products and equipment, fires or explosions may disrupt our business or cause significant injuries, which could adversely affect our financial results
26. 26The operation of UAS and C-UAS in urban environments may be subject to risks, such as accidental collisions and transmission interference, which may limit demand for our UAS and C-UAS in such environments and harm our business and operating results
27. 27Our quarterly operating results may vary widely
28. 28Shortfalls in available external R&D funding could adversely affect us
29. 29Unauthorized access to our, our customers’ and/or our suppliers’ information and systems could negatively impact our business
30. 30Our employees or others acting on our behalf may engage in misconduct or other improper activities, which could cause us to lose contracts or cause us to incur costs
31. 31Our work for the U.S. government and international governments may expose us to increased security risks
32. 32Our cash may be subject to a risk of loss, and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates
33. 33Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price
34. 34then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business,” for more detail on risks related to our supply chain
35. 35Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results
36. 36We 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 UGV reporting units
37. 37Our substantial borrowings under our credit facilities could adversely affect our financial condition and restrict our operating flexibility
38. 38To the extent we incur additional indebtedness, the risks described above could increase
39. 39We face various risks related to pandemics and similar public health crises, which may adversely impact our business
40. 40Our business and operations are subject to the risks of earthquakes and other natural catastrophic events
41. 41We self-insure a portion of our health insurance program, which may expose us to unexpected costs and negatively affect our results of operations
42. 42Recession, financial and credit market disruptions may adversely affect us

Risks Related to Our U.S. Government Contracts

1. 43As of April 30, 2025, we were classified as a small business defense contractor. The loss of our small business status may adversely affect our ability to compete for small business set aside US government contracts
2. 44We are subject to extensive government regulation, and our failure to comply with applicable regulations could subject us to penalties that may restrict our ability to conduct our business
3. 45Our business could be adversely affected by a negative audit or investigation by the U.S. government
4. 46If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected
5. 47Some of our contracts with the U.S. government allow it to use inventions developed under the contracts and to disclose technical data to third parties, which could harm our ability to compete
6. 48U.S. government contracts are generally not fully funded at inception, contain certain provisions that may be unfavorable to us and may be undefinitized at the time of the start of performance, which could prevent us from realizing our contract backlog and materially harm our business and results of operations
7. 49The actual receipt of revenue on awards included in backlog may never occur or may change because a program schedule could change or the program could be canceled, or a contract could be reduced, modified or terminated early
8. 50U.S. government contracts are subject to a competitive bidding process that can consume significant resources without generating any revenue
9. 51We are subject to procurement rules and regulations, which increase our performance and compliance costs under our U.S. government contracts

Risks Related to Legal and Regulatory Requirements

1. 52We may become subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity
2. 53Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS, MUAS and C-UAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS, MUAS and C-UAS to non-military customers in the United States
3. 54Our business may be dependent upon our employees obtaining and maintaining required security clearances, as well as our ability to obtain security clearances for the facilities in which we perform sensitive government work
4. 55We are subject to pending legal proceedings that may disrupt our business, cause us to incur substantial costs, expose us to significant legal liabilities and could have a material adverse impact on our financial performance
5. 56Environmental laws and regulations and unforeseen costs, including in response to climate change, could impact our future earnings
6. 57Compliance with the SEC’s conflict minerals regulations may increase our costs and adversely impact the supply-chain for our UAS products

Risks Related to Our Intellectual Property

1. 58If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietary rights, our business, financial condition and results of operations could be materially harmed
2. 59We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time consuming and limit our ability to use certain technologies in the future

Risks Relating to Securities Markets and Investment in Our Stock

1. 60The price of our common stock may fluctuate significantly
2. 61Our largest stockholder may have the ability to significantly influence all matters submitted to stockholders for approval
3. 62The market price of our common stock may decline because of our acquisition activity
4. 63We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders
5. 64Failure to maintain effective internal control over financial reporting could adversely affect our financial results
6. 65We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future
7. 66Delaware law and anti-takeover provisions in our organizational documents may discourage our acquisition by a third party, which could make it more difficult to acquire us and limit your ability to sell your shares at a premium
8. 67Significant inflation could adversely affect our business and financial results