AeroVironment (AVAV) risk factors, FY2026 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 DoD67% rewritten
2. 02on 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 declineNew
3. 03A 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 revenue21% rewritten
4. 04Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our products and services23% rewritten
5. 05We operate in evolving markets, which makes it difficult to evaluate our business and future prospects
6. 06We face competition from other firms, many of which have substantially greater resources86% rewritten
7. 07Corporation, 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., Anduril Industries, Inc., Airbus SE and Israeli Aircraft IndustriesNew
8. 08If 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 growth23% rewritten
9. 09Our international business poses potentially greater risks than our domestic business
10. 10If we are unable to manage the increasing complexity of our business, or achieve or manage our expected growth, our business could be adversely affected
11. 11Our business 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 position31% rewritten
12. 12Any efforts to expand our offerings beyond our current markets may not succeed, which could negatively impact our operating results39% rewritten
13. 13The 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
14. 14There 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 disadvantage51% rewritten
15. 15We 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
16. 16Our 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
17. 17If 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
18. 18Earnings and cash flows can be impacted by changes in tax laws41% rewritten
19. 19Changes in trade policies, including the imposition of tariffs, could cause adverse impacts to our business
20. 20Our earnings and profit margins may decrease based on the mix of our contracts and programs and other factors related to our contracts
21. 21We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our future financial results
22. 22Cost overruns on our contracts could subject us to losses, decrease our operating margins and adversely affect our future business
23. 23Our senior management and key employees, including key employees of businesses recently acquired, are important to our customer relationships and overall business
24. 24We must recruit and retain highly-skilled employees to succeed in our competitive business
25. 25We 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
26. 26Due 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 results70% rewritten
27. 27fires or other incidents involving such items will occur in the future or the impact on our facilities, operations or productionNew
28. 28The 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
29. 29Our quarterly operating results may vary widely
30. 30Shortfalls in available external R&D funding could adversely affect us
31. 31Unauthorized access to our, our customers’ and/or our suppliers’ information and systems could negatively impact our business
32. 32Our 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 costs35% rewritten
33. 33Our work for the U.S. government and international governments may expose us to increased security risks
34. 34Our 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
35. 35Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price24% rewritten
36. 36Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results39% rewritten
37. 37expected. Additionally, we may inherit from acquired companies legal, regulatory, and other risks that occurred prior to the acquisition, whether known or unknown to us, which may be materialNew
38. 38We 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 Space reporting unit60% rewritten
39. 39Our substantial borrowings under our credit facilities could adversely affect our financial condition and restrict our operating flexibility62% rewritten
40. 40To the extent we incur additional indebtedness, the risks described above could increase
41. 41The indebtedness represented by our Notes could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under the NotesNew
42. 42The conversion of Notes could impair our financial position and liquidityNew
43. 43We face various risks related to pandemics and similar public health crises, which may adversely impact our business
44. 44Our business and operations are subject to the risks of earthquakes and other natural catastrophic events
45. 45We self-insure a portion of our health insurance program, which may expose us to unexpected costs and negatively affect our results of operations

Risks Related to Our U.S. Government Contracts

1. 46We 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
2. 47Our business could be adversely affected by a negative audit or investigation by the U.S. government
3. 48If 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
4. 49Some 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
5. 50U.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
6. 51The 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
7. 52U.S. government contracts are subject to a competitive bidding process that can consume significant resources without generating any revenue
8. 53We 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. 54We 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. 55Failure 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. 56Our 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. 57We 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 performance46% rewritten
5. 58individuals, which could decrease demand for our products, require us to restrict our business operations, increase our costs and impair our ability to maintain and grow our customer base and increase our revenueNew
6. 59Environmental laws and regulations and unforeseen costs, including in response to climate change, could impact our future earnings57% rewritten
7. 60contaminated facility. Although we have never been named a responsible party at a contaminated site, we could potentially be named a responsible party in the futureNew
8. 61Compliance 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. 62If 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. 63We 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. 64The price of our common stock may fluctuate significantly
2. 65Our largest stockholder may have the ability to significantly influence all matters submitted to stockholders for approval23% rewritten
3. 66The issuance or sale of shares of our common stock, or rights to acquire shares of our common stock, could depress the trading price of our common stock and the NotesNew
4. 67The market price of our common stock may decline because of our acquisition activity
5. 68We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders
6. 69Failure to maintain effective internal control over financial reporting could adversely affect our financial results
7. 70We have committed to a remediation plan to address the deficiencies and enhance the internal control environment and remediation efforts are ongoingNew
8. 71We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future
9. 72Delaware 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
10. 73Significant inflation could adversely affect our business and financial results
11. 74Recession, financial and credit market disruptions may adversely affect us