AVAV - Earnings call transcript Q2 2020

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Steven Gitlin

Good afternoon, ladies and gentlemen, and welcome to AeroVironment's Second Quarter Fiscal Year 2020 Earnings Call. This is Steven Gitlin, Vice President of Investor Relations for AeroVironment. At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session after management's remarks.

As a reminder, this conference is being recorded for replay purposes.

XXXX. note statements this the within Litigation Act please presented certain Private begin, Reform forward-looking contains the of we that call, on information Securities Before meaning of

that Forward-looking or phrases may future statements words performance and believe, or such achievements with contains or limitation, intend, anticipate, include, any expect, results, predict, indicate estimate, or without forecast, imply words as meaning. may similar statement project, plan

but may risks not current on expectations, and and based from governmental uncertainties, statements. involve technological actual our including, business the to, are outside statements Forward-looking materially or and limited assumptions forecasts to competitive, cause economic, of that differ strategy forward-looking results factors control our that

in and XX-Q information XX-K risks, This our For filed on harbor AeroVironment's at associated with safe with to filed statement Events earnings the we reports these review along avinc.com, release SEC, on in today SEC, and therein. X-K and earnings filed you slide release a Form Form on and factors the posted section. the the Form further encourage the periodic contained our with Presentations the presentation also discussed website the the risk presentation we and afternoon with

update forward-looking is any this statements contains of any no contained to undertakes call. conference after X, our the The them content this XXXX. company reflect circumstances to occurring as time-sensitive in accurate today information call of that only The December events make to conference or today, obligation revision or remarks to

President President Mr. Financial and Wahid today Officer, and AeroVironment Brian Vice Mr. Officer, are me Executive Chief Chief from Joining Shackley. and Interim Nawabi;

Wahid? with remarks We will begin Wahid from Nawabi. now

Wahid Nawabi

Today, earnings refer posted to second welcome XXXX year messages. I charts with the our our you, our supplemental and to conference and quarter to website important release filed we Thank highlight will earnings fiscal to Steve, call.

topics presentation. three I call, today's discuss our earnings on will X number outlined of that key are On Slide

continues. quarterly track delivering team's of record First, excellent results our

our make plan XXXX executing to successfully to our strategic we're fiscal on And progress track growth great achieve our and Second, continue remain objectives. on we year third, initiatives.

our start highlighting I the summarizing our during fiscal by quarter. year will performance, second strong key while XXXX achievements quarter

Next, Interim then Officer, summary will fiscal our performance year goals in detailed I financial of a our quarter. provide more Brian the Chief take discuss Steve, I Brian, XXXX Financial questions. your Shackley, will for and before

highlights profit points results reflect of for over increased increased than financial our year. $XX.X over XX% due on primarily mix and XX% last volumes. results, our execution sustained successful to revenue summarized quarter in presentation include second year. of more favorable Gross higher again, demand year, higher million was following: supplemental of number continued margin Page X Once Revenue XX% of Key solutions our last strong of the last by $XX.X the our and our team. Gross million X

year XXXX fiscal Slide EPS backlog XX% share $X.XX was $XXX.X product number to $X.XX. increased diluted for year diluted X of high, quarter service year, EPS share remain last of second million $X.XX historical past $X.XX revenue diluted diluted than from $X.XX. per earnings of GAAP from XXXX per Non-GAAP versus GAAP fiscal quarter the quarters. increased of illustrates earnings trend the five $X.XX, averages. but second compared of Funded lower

on With of Slide areas to to business X. in continued our respect our several operations, achievements important make team number highlighted as

with the of defense globally. continues business it for largest market Our and solutions DoD the U.S. fixed-wing to lead to small continues UAS grow share market,

UAS to FCS. as requires for U.S. because Systems from the for Army the ago. small U.S. The award radio auction the domain interest modification, Control the to this modification up spectrum Army We Army the commercial Raven recently worth several or frequency Systems, refers frequency The to award, government $XX contract announced million. the this years frequency DoD Flight

awarded awarded of in part six and full recent but was UAS FCS is June $XXX.X open was domains one The competition. contract This a contract of awarded XXXX, the of FCS the originally AeroVironment million program protest. for contract the a commencement the small XXXX. by in resolution until award under Army protest U.S. this April Army's delayed its as announced

small We In Puma program Army the spare Raven for Army Since systems compete XX% total, have more domains the Puma spare orders six value major domain. has IDIQ won all this for won parts Raven is the supplier AeroVironment with and individual four delivery new delivery orders than program. and of FCS, parts, to on of XXXX, of associated the UAS, for the the other we dollar and only components.

continuously and its long Puma As small UAS, that we its working we're new LE, a name endurance. expand the achieve customers in in with their capabilities to objectives. innovator Having of pioneer valuable the identify serial our help identified UAS, product can mission reflecting small small endurance need UAS October, them newest to a introduced

Offering help certainty. the as footprint Group X.X and means, significantly This to cost. with ability two total a well troops payloads, X front of carry as fraction X LE flight support the Puma them of for capabilities capabilities Group to hours time and proceed a delivers more line on with the to mission upfront,

evolve, And well from and the Army's growth continues SBS strong opportunities emerging nations. Puma success in near U.S. a as LE on programs. term, market there believe of interest through and has allied government as our multiple are U.S. as the to we to including the customers, several SRR expand number generated

progress. Our into expansion is UAS also small from fixed-wing showing unmanned helicopters

customers. VAPOR our have multiple products from We in generated interest

our We between and have business operations. processes Simi successfully Valley all Kansas integrated core

to driving the our to tooling Valley of line manufacturing our Simi the VAPOR by fixtures. move consolidation end are track operations manufacturing fiscal and on This incremental from product for quarter. expenditures We third capital Kansas is

with Our team addition this progress family our small UAS. is to new of making great

received the East, quarter, awards more existing international the than Southeast in the for significant demand million. customers continue we from UAS. $XX we In multiple market, small totaling of Middle and family In generate to our Asia

Border fixed-wing defense additional the we by systems a Puma This U.S. Border contract received of will Patrol another award $X the the million for opportunities be procurement We market, believe Patrol. our procurement forthcoming. Border U.S. Patrol. represents Beyond

our performance anticipate therefore quarter period XXXX. In product for award, We our we XX-month our two The addressing the line, have sole-source government is fiscal award and call. backlog and not fourth additional current proposal This would options. included recent fiscal been through submitted missile LMAMS includes this earnings base period, production quarterly to one in our we cover receiving years' by systems calculation. contract three-year XXXX AeroVironment tactical hardware contract in XX-month funded

be solution. $XXX largest over Switchblade be to government million period. sole U.S. time to made our Once progress with this for award on award exporting possibilities awarded, this would worth multi-year that our anticipate export will authorities significant Switchblade We’ve source up ever allies. of innovative, We the single the

stand we complete strong Switchblade and we receive protect to approvals forces capabilities the interest expressed appropriate unique have them allies the in associated their negotiations. and Multiple this ready with disruptive help once and

opportunity. greater also Marine combat application Switchblades, of development Systems Army Switchblade integrate of our This General to for Corp another to the significantly Dynamics UAS and to a far much potential programs. market and small of capable we AeroVironment's larger continue larger advance variant address generation vehicle partnering endurance Land of We and and upcoming Switchblade our GDLS' will of flight And are larger effects. which longer U.S. groundbreaking mission armored Systems version with technology, is next

UAS and only is provider small Army's are we for GDLS this of opportunity. vehicle sole Switchblades the armored the qualified combat next generation bidder specific for to the large potentially and program GDLS

SoftBank our venture a our Inc., to welcome test Mobile global participants Turning to our emerging joint and we digital with catalyst leader this with joint market global us. HAPS first to itself of HAPS opportunity. during flights second is XX and HAPS Hawk venture is solar HAPS in completed all with bridge HAPS the our exciting business divide positioning the for AeroVironment Corporation second SoftBank flying colors. and which Mobile the and quarter We the join established other as

HAPS supply, and to for support solar AeroVironment Mobile Noted HAPS on X, progress, positioning make continue Slide to we number UAS manufacture, Inc.

with have previously we HAPS Mobile to our stated, with program. offers grow the flexibility As significant contract

design Early to increase $XXX Today the agreement, contract. signed new million and This we HAPs development its a announced in $XX the $XX brings project was million contract this value of XXXX, when inception. the million. value we and the of the initially since value total

to our the phase. large anticipate continue program testing program updating HAPS beyond development exciting certification be year the as you year, this in XXXX will We bookings we fiscal this and and forward similar growth make and as design to progress and transitions to opportunity. look We from revenue the to

quarter. detailed Now. financial Brian overview Brian? a second will our provide of

Brian Shackley

you, everyone. Thank and afternoon good Wahid

was of XX% the of due quarter second the team a from $XX.X product delivered million. increase increase in operations quarter $XX.X Revenue revenue an The deliveries of the million. from of quarter strong XXXX $XX.X to continuing XXXX million, second or million increase for was performance financial of fiscal an $XX of XXXX. Our in fiscal second fiscal

$X.X TMS is portion XX% remaining product $XXX.X UAS X%. of for fiscal of of and was was the with or million or under was $XX.X consists The includes is HAPS XX%, Inception agreement million is on which HAPSMobile and contracts, and design is Small major revenue unfunded. XX% $XX.X $XX.X XXXX value or Second design million currently for related revenue contract $X.X or follows. other program by million quarter these that for program is the and preliminary million efforts. million. $XXX.X was development total all contracts or line $X.X million other million million, $XXX.X total as which There HAPS to-date, revenue. a

million of in million. compared revenue an was $XX.X for million of margin or of primarily from $X.X margin service $X.X due second in of increase and the operations to gross an $XX.X margin was quarter to continuing the margin fiscal increase quarter in million XXXX. XXXX or of The increase XX% of fiscal XX% for second revenue, product Gross

product as margin Product product percentage of an quarter an increase a partially XXX% XXXX, XX% the the by in XX%, for total to sales sales Gross and of from XXXX. second of to compared of due proportion increased total the inventory fiscal favorable were in mix reserve. fiscal to second offset revenue, XX% increase a quarter from in primarily of revenue revenue

of fiscal XX% the The increase fiscal million legal the million employee primarily increases was to rest related was of quarter quarter for for revenue expenses from XX% XXXX second revenue, $XX.X at of expense SG&A expense or of SG&A expenses, due Looking in commission operations expense $XX.X compared of XXXX. second or expenses. income to the in of SG&A statement. and continuing the

fiscal of of the of expense was fiscal expense compared second to revenue, of R&D XXXX. XX% of revenue XXXX operations or or for continuing for second the million from quarter XX% R&D million quarter $XX.X $X.X

quarter gross to Income second continuing was an $X.X $X.X operations for the an SG&A an was $X.X The XXXX. million in $X.X from operations due expense by million in increase of second from increase margin million, and to for increase fiscal the in compared million. fiscal of primarily income partially R&D increase million, offset of of expense $X.X of in XXXX quarter

efficient Net to for for of effective $X.X was of the income XXXX. net quarter performed was of to the The rate million for effective was fiscal XX.X% of The from income systems compared quarter quarter the income buyer second XXXX. continuing million, business. operations services compared the due the income our of other fiscal second decrease in rate other of an $X.X tax to XXXX tax XXXX, a former second transition fiscal for decrease XX.X% quarter primarily in for energy second

second fiscal XXXX. operations per or of $X.XX tax or compared quarter share quarter share, to AeroVironment diluted per Equity-method from $X.XX a quarter investment $X.XX net continuing a of million the diluted to fiscal XXXX per fiscal loss XXXX. or compared attributable was to XXXX $X.X activity per for the quarter fiscal million diluted for $X.X the second of of diluted loss for Net share share, for $X.X million income second of $X second or of million of of $X.XX the

$X.XX. and quarter second fiscal for share amortization diluted earnings $X.XX the non-GAAP share associated $X.XX for share the diluted was fiscal per per XXXX Pulse of share was and with acquisition second excludes per XXXX per of quarter and integration of for earnings diluted GAAP Non-GAAP diluted Aerospace. the costs expense intangible

contract offset $XXX service Now due half moving of the million. was revenue fiscal results. the in million, in compared decrease first for half XXXX. first increase through to was increase $XX.X fiscal product of XXXX increase partially $XXX.X fiscal a The XXXX Revenue to an of of first million, an of by for deliveries our in million, $XX.X million revenue half $X.X

$XXX.X revenue The follows. line HAPS XXXX UAS other $XX.X program X%, was Small revenue. was million first as and TMS $XX.X XX%, was of half was is or fiscal total X%. or or of million million XX% major or product million by of $X

for first half million, fiscal margin margin $XX.X to was of offset margin increase decrease half XX%, the in in of XX% XXXX. $XX due first partially million million. compared an service Gross The a increase for $XX of was of million to XXXX by the or $X.X product or fiscal

margin Gross increased percentage an increase in revenue proportion reserves. product an favorable XX%, due product as to a and offset revenue to primarily partially inventory of revenue, a XX% total of by the from increase mix in to

is million of $XX.X due fiscal SG&A expenses revenue, for increases of R&D $XX.X or or XX% XXXX expense commission of the of rest XXXX. to was million Looking first expenses, of the $XX.X of half XXXX revenue of half of XXXX. R&D revenue first the $XX.X legal expense half XX% in the XX% million million for with XX% compared SG&A increase at the of fiscal or expenses. of to SG&A of expense employee-related for The half in or compared first first and to fiscal statement. fiscal income the for expense revenue,

Income fiscal million of or revenue, million first increase an increase of R&D fiscal in million, of expense for for continuing in XXXX of XXXX. of primarily $XX.X operations due expense first income half The was XX% compared an increase by half $XX.X $XX.X million $X or revenue to of XX% the offset from an partially and in from $X.X tuning of increase operations SG&A in margin million. gross was to the

gain XXXX of $XX.X million, compared during Net a $X.X was litigation of for The XXXX. in decrease to due XXXX. $X.XX one other first settlement of income quarter the income the fiscal to primarily a other first per first half from net time for fiscal the was share fiscal of half diluted million

first an The tax of effective per a fiscal was with method loss XX.X% first for to first the $X.XX the half million share, diluted of income of rate half fiscal rate half to $X.X of diluted for XXXX. the a fiscal XXXX. tax effective tax investment continuing of from Equity compared $X.X for half XXXX fiscal first activity’s operations income of million $X.XX net compared or XX.X% of for of the loss per or share XXXX,

attributable share, Net $XX.X for AeroVironment to or to of income continuing operations the XXXX. for diluted fiscal half per half $X.XX the first of compared million from XXXX million was $X.XX share first diluted or per fiscal $XX.X

half of per included a a share. gain one-time litigation from first fiscal $X.XX of XXXX diluted settlement The

diluted $X.XX a XXXX. first per share one-time litigation per earnings amortization excludes $X.XX and gain for per Non-GAAP excludes fiscal $X.XX XXXX associated costs share share was XXXX share Aerospace. for per diluted diluted per in diluted Non-GAAP the our half earnings settlement integration Pulse share first per was of of intangible diluted deal $X.XX acquisition of fiscal expense half the from and diluted for and and share with fiscal

backlog XXXX XX, of $XX.X of fiscal funded backlog the decrease million a XXXX and $XX.X million $XXX.X from million, the of fiscal quarter quarter $XXX.X Our first of million. from XXXX second as was October a decrease of of

compared of October backlog as funded XXXX high, historical averages. to XX, remained Our

restricted of HAPSMobile end $XXX.X investment at in our equivalents, of Aerospace, our primarily as cash joint acquisition million, fiscal the of well balance fiscal related increased venture. our The cash the Cash, cash from as decrease of million. to was $XXX.X the $XX.X of a in XXXX the of second decrease sheet. end Pulse million quarter Turning and totaled investments XXXX to

of related million. receivable, the of accounts of the fiscal million fourth retention receivables days million unbilled XXXX, from totaled XXX outstanding second second inclusive end for $XX.X party days, and of quarter for was receivables at quarter quarter XXXX. the Total including fiscal retention amount. Net $XXX Unbilled was and continuing $XX.X the sales of XX days XXXX year operations to compared fiscal approximately

compared end XXXX end Net XXX quarter at outstanding was of compared to days, million quarter $XX.X of of Days of second fourth in $XX.X quarter fiscal inventory for for the days the approximately fiscal at XX year XXXX million, fiscal the year to inventory the fiscal of year year XXXX. of the second XXXX.

end days year fiscal for the the for the quarter payable of the year of compared XX compared at year fiscal to at of the fourth second days year the payable XX of quarter was second fiscal days, Accounts million, end $XX Total $XX of quarter million XXXX. quarter of XXXX. fiscal was approximately XXXX XXXX outstanding to fourth

expenditures. year and growth invested million In in capital strategy fiscal to capital depreciation of we recognized million] support second $X.X equipment to [$X.X launches, property of the Turning and expense. product new amortization approximately improvements and quarter and XXXX, our

update to visibility. fiscal our Now, an XXXX

supplemental on As charts. highlighted Page X the of

As of today, $XXX of XXXX million. we have year-to-date revenue in fiscal

Second funded execute XXXX execute recognize the midpoint year of of quarter that million fiscal ending million, guidance we $X QX that in million. anticipate balance our $XX backlog contracts fiscal range. from we up adds XXXX of fiscal to that to revenue backlog XX% This million, or bookings incrementally revenue anticipate the of XXXX of during quarter-to-date we unfunded year and in to to $XXX anticipate $XXX

fiscal anticipate estimates. XXXX awards equity benefits rate anticipated a full-year full-year of lower of X%, credit XX%. due tax effective is This from other than tax We tax approximately higher and the excess to primarily tax rate

like the to call I'd to turn back Wahid. Now,

Wahid Nawabi

Brian. Thanks,

deliver and our of are on XXXX and to of We're our top and closely achieve track results year full in year third our match XX% consecutive second half line profitable quarters. fiscal a growth. executing objectives plan double-digit on plan with first our Our year first revenue

current deadline. another the our A of any impact would likely December the solutions, likelihood procurement hamper new on XX of to its program continuing increasing could operations for government's continuing resolution an starts and resolution see beyond funding the extend We length. depending

year midpoint number $X.XX in diluted our the guidance revenue on in X, of of $XXX and to described of $X.XX revenue, to guidance XX% full million million EPS. non-GAAP With diluted visibility to to $XXX in Slide $X.XX we $X.XX reiterate range, as our EPS,

in as margin in fourth mix third a compress and margins. gross shift expect will quarters, to We decline revenue the

expect to revenue. continue year spending full XX% internal of R&D We be to about

full We fiscal our number XX summarized supplemental on charts. our XXXX have expectations financial Slide year of

half investments and pipeline second to opportunities, growth. SG&A in higher of of support fiscal business XXXX, the for have order We planned year our the

invest capital We X% fiscal our to of plan growth to to X% support this revenue in expenditures strategy. year

We also a represent third half second revenue. anticipate about third quarter revenue will of

Before we quarter. our fiscal take key would from your like reiterate second takeaways questions, I AeroVironment to

Our excellent continues. of track quarterly team's results record delivering

We remain focus and support strategic are plan their our our like in XXXX initiatives. to to great successfully you, executing dedication, most to our team achieve our plans. our and mission challenging solutions year for take deliver thank for growth opportunity fiscal and customers stockholders to us confidence your the on employees progress effective this for our their we track make and our our I continue on to objectives, continuously and to would success

are certainty. We you with helping dedicated proceed to

Brian, Steve, now questions. your and take I will

Operator

Wahid. you. Thank

Peter? now [Operator We Our the from Arment at Baird. question begin comes Instructions] will first Peter question-and-answer session.

Peter Arment

Good afternoon, Wahid, Brian, Steve.

Wahid to previous – first first I mean, guess you've pretty had on a just I high you visibility, maybe it could is, periods? six how benchmark guess seems that months. I the the years, compares us where previous question with compared give XX% Just certainly

Wahid Nawabi

Sure.

good So, afternoon. Peter,

years. First of of I backlog multiple to higher and historical averages and strong visibility highlighted, our numbers and relative as is all, Brian

time on second period, earnings we versus visibility our at XX% However, compared quarter visibility the at same XX% fiscal today. to a call, year, of our end had the last

that delivered expect focused the we year, compared strategy excellent two and slightly for last results And is those long-term on as ourselves we the percentages is historical in we’ve so delivering the this year of of growth you our we're far fairly to our it out lower first high, before, and year. executing to remainder than of outcomes the plans both spoken although half with are So, track averages. we've on

Peter Arment

you as when we variant, product were would you just on just, then a if follow-up, Switchblade that to you for And a again. you Thanks larger could it. mentioned a category? to, expect Got have that in

Wahid Nawabi

Peter. Sure.

to existing lot in mission a we've unmanned well. a we've UAVs. larger missile this that earnings expand been product systems the last effect variant So, larger actively Basically, And at I in now customers quarterly some in Switchblade. to and carry a it as our small Family develop have what fixed-wing to our customer terms with funded larger looking working our tactical for call line, mentioned a are of done also VARs payload. systems, much us time the saying and variant much endurance, flight further This of goes similar

market TMS opens us, essentially is does market for larger and product it much an for What up line. a business opportunity as addressable

are in as and able keep to in going making the to a a believe that coming timing we're specific onto process to when very progress great we'll the be We you it compelling and that updated releasing we're that of not disclose We be through solution quarters. we're we to position progress. the launching but market,

Steven Gitlin

Thank Peter. next our question Herbert at from comes Genuity. Canaccord Ken you, And Ken?

Ken Herbert

good everybody. Hi, afternoon

Wahid Nawabi

afternoon. Good

Ken Herbert

you start where Wahid, color LMAMS stand. wanted process and I on incremental the just provided here out, appreciate the you to

year of Can of you’d award, this and getting confident how are the your for steps the end the specifically fiscal what the sound this $XXX in You prospect handicap for of million. or this you of the very terms potential terms here risks sort outstanding in next of AeroVironment? about award from potential of sort this by to in talk still

Wahid Nawabi

Ken. Thanks, Sure.

essentially, And potentially I your the on years. U.S. with keep source office are try provided, the us, the in sole negotiations colors that engaged based on do can to informed. we best a the on information with you the appreciate three to contracting we of already available a we guys feedback to So, government, we

We additional believe total. about million year is but two to the years contract sure, – First in value be this X is there to make $XX obviously years. will it of up

continuing our is risk that one, why of backlog XXXX is definitized. that that's there process, in of because budgeting year and award the the resolution reflected not number the And number to continues timing reason being government today. that as Now, the highlighted two, fiscal I some

are that to the going in sometimes we're future. near confident definitized We in that get

timing on what of customers' control out are our and – from However, based even side. is control the the exact really we some of to learning our extent their out

original So, of are where million very for award. this historically because multi-award large we pleased, Switchblade, which a contract gives TMS would line. us tune basically This – the getting creation visibility period time, is for $XXX almost a in believe be first this proposition the of the value we're a for in a about the still our Switchblade. value business a and product compelling three-year our We and

said future. remarks our parties our on the We believe engage customers potentially could updating on we'll I plan And so and results track as there benefit interested in forward And far that look with. their that, international from and that you to executing this. we're additional the with

Ken Herbert

award fiscal into factored XXXX Wahid. a That's or risk assuming that? at I this just point, your real how great. guidance. the what fiscal is this at for on handicap extends And contract point February, CRR this does become a or follow-up that mean, you say would And January what into I'm of none assuming XXXX

Wahid Nawabi

Yes. you're welcome, I would – Ken.

reflected. that So, it's not conclude I wouldn't

have we at given very and levels profitability in – have timing. of time, factors large number any of and opportunities different at profiles We risk a

up that internally, possible. range most come is believe judiciously. and outcomes large and is calculation the what rigorously very our believe we we we of into likely that And all review with take most that we – So,

believe this at most forecast our is range So, is based on the what outcomes likely moment today. we of

year year our earnings have of on we outstanding on and the work of information through have half let by I that we'll still with We more only you remain through. contract update would and of hopefully, status that and another track our the the half goes. first know that call you to how plans, we're results Obviously, with to suspect next

Steven Gitlin

Ken. you, Thank

from we'll Blair, Louie to Louie? Next, turn William DiPalma

Louie DiPalma

Steve. Brian Good and afternoon. Wahid,

Wahid Nawabi

afternoon. Good

Brian Shackley

afternoon. Good

Louie DiPalma

what it you indicated expecting Raytheon your missile was years? you export is As couple receive of are received that, their soon guys past over process to have in system. wondering, Coyote to aware application the I approval tactical feedback

Wahid Nawabi

question. Sure Louie, for the this Wahid. is Thanks

with that mentioned, the capabilities this to the and we We've shown interest get are So, we and as U.S. provided the of engaged and the required market for our and able who Switchblade. to need with them. as allies, the be approvals I licenses export heavily to strong working engaged also international department multiple and also DoD state and sure have to customers been customers make foremost to those through process first eventually to but and

is be clear, prospects I to will through it's happen. in some if. exactly when the predict that major a believe is more will said allowed. long-term that to we of extremely – pretty strong, of belief make my really, before, progress versus that, it's when be the glad on that as and As I would matter difficult as for we milestones that update get that updates And we're and you we timing as I exact that, process would

that. So, that's where we stand on

not. Coyote to know, the similar if or there of terms I In that's this product exactly a – don't

the extremely on with going. we've And funding that plans, for that, the delivered and our believe in we're are or got budgeting track we we demand line focused strategy. executing for for we've strong the excellent Munition the first loitering Switchblade negotiations half, saw and However, our our as the System results you is on

Louie DiPalma

these you're UAS could Switchblade about a variant also Switchblade? Could be as used UAS new between how missions? Coyote developing Switchblade this, tactical that to the and are a missions? differences a used payloads? the system And could that In fundamental related you follow-up topic, counter new missile And counter Okay. the spoke for for be have what payloads on previous answer,

Wahid Nawabi

so you where Louie, capability Sure to I those systems to – be the look of is and original solutions concept public, I'll team at most comment provide the of detailed our information’s. won't And the disruptive information to glad Switchblade, and available. customers were we some encourage be or tactical into publicly its specific our that to the our compelling that confident when that design its differentiation differences, of and so, I and of in to and benefits. we and able general, But missile conceived very you

fact And that more-and-more customers product and And customers, the That to the able in benefits grow the to the able why prove we we've true. remains fact business Switchblade who still solution using and in been have see for that line. capabilities. fact, its and that advantages years over to revenue our that are that's been

similar let's small the or create long over UAS missile and and term, of will I’m our not confident business that larger a tactical business we systems solutions. able than be to family our

pretty prospects I'm available our And terms that bullish some of there’s out specifics TMS publicly the long-term you in differences, online. at today. encourage there that's of I available information and lots in business, of look So, Switchblade on

for UAS. Now, in payloads additional and terms Switchblade capabilities of for counter

not We opportunity market any are and We've been parties; demand very and to moment. aware of the engaged this counter at able have been need. with we UAS multiple that disclose publicly of

the examples UAVs. the cases to are of about conflicts in. all that our the and feel combat allies that Switchblade And we're vehicles those the use case with we involved multiple future. we solutions, bring that Warfighter Systems, with it use And have additional of applications equipping all our in capabilities their General our systems just confident Land and was Kratos, originally ground our and developed. believe we that future partnership original Switchblade pretty we're where partnership systems However, beyond with and has the The Dynamics

Steven Gitlin

Troy a Jensen question now of Louis. you Piper you, from there. Thank We’ll Troy Troy? Jaffray. take

Okay. the Herbert, Is next question. Ken our line on

next question. Our

Ken Herbert

VAPOR around that just significant ahead done? Wahid, obviously interest move Yes, multiple expect VAPOR you Can the expect on detail and from the seeing since the that production made to you your that product that interest or on you Appreciate to you completed when update when playing process expectations, transition that to And relative initial you're Simi more the interest line and moving If acquisition? is the and any also customers you on you that also I be Valley, are out be you the Hi. could how you with follow-up. believe plans I think to I mentioned said to of mentioned.

Wahid Nawabi

Sure, Ken.

addressing line. So, and that fronts number VAPOR the acquisition of Pulse there are of the with we a product different

First future want are back all enterprise domestic, international we and planning that our business sure of new our of that, resource activities, production processes, existing we In well to and we set of marketing development integrating business the our sales operations, product supply capabilities that. offer chain, all customers. our as processes, mission core also all, our make activities, as operationally and the in our capability on processes, and both to capabilities development

overall, really really, that, So, my call and the with progress activities. making we're this was integration good earlier comments acquisition on the

strong early, was quite of quite customers. from had Secondly, based seen and international customers And this our initial demonstrations and track both on plan the products, originally on we've with engagements interest our family VAPOR as we've with as with that existing well we're domestic, that.

that market our process and customers we're these our very because as the process Obviously, long overnight, in things you acquisition rest from the in. solutions don't happen know the involved of is

historical we And as to we leveraging creating performances, However, our progress strategy to value we more and this our our you believe, good we'll capability progress, customers. make continue and of advance making keep on we're updated. based

So, that in we UAS, in pipeline America. products our to in our be we are our also able rest able have quarter, to integrated roadmap. Simi And to of in terms product small operations Made have all the by be the going and and our fiscal we to third VAPOR with R&D in we order future produce develop of our our Valley operations our engineering, line Kansas company of the make manufacture and end of where the

Ken Herbert

Air sure, and on Force? opportunity if Vanguard product Golden Hoard the all just Force any appreciate TMS wondering curious just swarming Golden it's one could their parts if following Air munitions programs, initially, as the follow-up. focused and other the been I'm the Wahid. – the the effort. line Hoard, just you've I'm opportunity your I know I'm of smaller swarming portfolio detail specifically of for I If other munitions from part but there's or opportunity the I their

Wahid Nawabi

Sure, Ken.

and We could play small mission I or our operation. am the it's that fixed UAVs, future that all having UAS the believe small and for in UAV concepts of concepts being the and whether and capabilities our that Golden or systems initiative U.S. program swarming mission and capabilities. DoD types the has of am belief value can of potential rotary UAVs, role allies. effects our Switchblade and small applications causes even Hoard and and So, and of and wing compelling a that is quite team I the the of U.S. well-positioned warfare DoD fairly swarming those provide aware the to so also our swarming for

to more to early any Very for able be provide details. us

of systems our bullish them with We at excellent we're – seen in and look to quite that I we to think capable next premature strategy, and application specific any you as make year. as very where informing they of creation well are the we and sort using it's we're a on delivering executing or as our claim we're point, about customers; value be But said, this be concept few our to the forward could for far, are actual today. that them – for of results we potential long-term the updating showing this that. Long-term, business. I it's quarters could the so our forecast We're engaged thinking we've

Steven Gitlin

for from again are Thanks Will try Ken. there? you follow-up, Jensen Jaffray. Troy Piper Troy, the

Troy Jensen

Yes.

Sorry, sorry the about nice But on that results. guys. congrats

Wahid Nawabi

Troy. you, Thank

Troy Jensen

for case. LMAMS of in ever situation the mentioned your remarks is any that sole conviction So, that's search? any – several this source prepared the Wahid, And you your is kind they where contract, dual times there

Wahid Nawabi

No.

with our engagement source announced with public it's AeroVironment made customer. we been our sure is already a sole publicly what we announcements based is on understanding, It that on on this that various So, nature. government their communicate

was There because two more a every obviously competitions competitions of open Switchblade been ago, single time. our couple years of we've maybe than we've years several those open line of proud we're track product full winner had and a essentially And record the and in the competition ago.

to quite read negotiating hearing publicly – that's and that's that we're confident are we��re that we've party it's what contract the how sole we directly, us So, published it in from because our Troy. communicated how was been customers this negotiation and what

Troy Jensen

And on Alright, be HAPS. would then up just perfect. my follow

know you will curious, be the the next next what steps are, we just trial see and So, flight? when

Wahid Nawabi

Sure.

key about HAPS few of and out So, We've we're flights, there had and we've points so two the that. program. proud initial our is want Number to our strategy I one, executed a successful far. very point plans well very

Our design in the last or of development made and of We're progress years. sort ending so the entering of phase the phenomenal and phase certification. team now the and two has testing

process going is Testing to process. launch airliner a and certification phase certified going Imagine is extensive through FAA, really we of a fiscal of there conducting a the early to that very the We're will be is foresee we stages that multiple, process. in testing at this business commercial you and long be this is go through quite that place beyond XXXX. period multiple flights there an take lot future a of that get in and over

short-term this dramatically the That's or also expect don't my for I revenue mid-term. the in to remarks mentioned on change we in business that why bookings

have seen We in expect the to continue years. couple that as past of we

well from market is really would say, I global Because we're exciting an large very opportunity. Lastly, positioned really, opportunity. this

that that venture supporter for building be rights use developing systems, towards also such defense partnership working and manufacturer, we're also generating hopefully the business, to applications, we're HAPS we our contractual revenue, we're product while of a designer, sole to joint could have we SoftBank. And with and the even

me, have so we We'll milestones excellent far. and more to updated this keep we're great progress. you making is significant results as So,

Steven Gitlin

Troy. will at now Instructions] question Stifel. Joe? a De Thank [Operator We from take you, Joe Nardi

Unidentified Analyst

guess can your this kind the looking U.S. that and the adoption is terms on update in trends are – headway and of any helpful making you has you end? of Hi of the Joe. what government guys, I can update Wahid, we’re on rate international John UAV adoption accelerating been especially customers. kind for, the with on for you that on us us Internationally, rates. you're seeing domestic

Wahid Nawabi

Sure.

customers spend, geographies. saw customers and internationally, and and those new and both with John, in continues our customer results, but with terms share of with investments expansion you existing also So, breadth UAS of new from customer repeat and of small orders as our those wallet grow to

very, We have been that. demonstrate very heavily. for the our very on three And plus results focused that last years

We also export have achieving strong record the and export licenses working Department State required a be to very of with that. able the regulatory to track

to up countries we're XX Now, worldwide. plus

how in see value in record our well. track complex understand also be And the world. this as last we in it been So, yes, business they this store the has and potential strong the of U.S. government has here. And allies been plus the and involved three very supportive, we're could future tremendous – demonstrate, the years that the

small better we because that to obviously pleased and pretty we're of problems with our It's systems, in VAPOR it our UAS reason another customers' enhances family even So, solves further. way. of the a of of addition acquisition our why mission portfolio, did the that capabilities our more

well. growth to very and internationally, remains growth of continues results our strong terms as as in we're So, our things and showing portfolio advance business strong,

Unidentified Analyst

Alright, you. thank

you're with contractor Just on was kind the the us System. that of on how GD you you kind give on and how update Land are pivoting this of to the Army's given this there GD the arrangement viewing details GD teaming us you're Can approaching news, of sole How your the of the and news optionally man fighting work? some size you about timing opportunity kind vehicle. can internally, thinking

Wahid Nawabi

Thanks, remains left that opportunity, we're their and we value GDLS Yes. or I'm the for only and this glad that that really mutually. only supplier latest on based on partner the in OMFV John. also you public partnership announcements competition. that competition that provider noticed publications only GDLS only be And qualified was the to or not competitor now

towards working are progressing those prototypes and We concepts.

them deliver When and working there. the and with to the already happens, record. published is are multi-year publicly a the several happens And we if it there are mature it's program to that program program, program eventual end and in possible are opportunities customer Obviously, actively capability market. that the known it timelines for essentially

family of qualified program UAS our of First, there which for integration small Switchblade an as systems. armored refer opportunity receive of that is any part is is, to, potential, Greenfield vehicles and that I to an new OMFV

also with is some potential armored extent retrofit the us installed be to systems. existing our of qualified for could market Secondly, vehicles, base and a to

solutions So, our to look another and and prospects its it's customers. way of potential our for value for forward shareholders that the and creation growth to application we our see and

Steven Gitlin

And from Louie Blair. question – Louie? at our William DiPalma comes last follow-up from question

Louie DiPalma

Thanks guys.

based In rough build run average potential terms procurement? calculated compare I procurement models, what the does a April currently three-year how how right this XXXX. since future to in rate million increase you you're in for as million, $XX our ballpark $XX an Switchblade how you're million in terms on of doing? is incremental contract with what to financial us consider contract the doing Switchblade of helping have contracts Would out you that currently publicly be $XXX disclose LMAMS LMAMS

Wahid Nawabi

Yes.

What's call from [$XXX So, almost is procure that, to would Louie, referred – urgent to the what operational joint what which statements, contract in unique million] need an interpret Switchblade as about past, had I way ad I this the hoc that [indiscernible] customer I basis. enabled And year potential budget, million. fiscal on unapproved, our government we've the XXXX one government of but is this approved a $XXX about ceiling award runway million proposed XXXX it that, the and fiscal window and budget line year gives plus us $XXX comes submitted items. potential the and that with three-year

government the up or items to those million you two-line fiscal in about it If year, $XXX so. add adds

that year have and and estimate our for demand ahead a result and is once us supply be be And sale to and done. that. XXXX and There environment what see to with fiscal contract potential we government Obviously, based comes as obviously of a work to go is customers along. on needs guaranteed potentially limited, that million about it's we a so, vehicle not not $XXX also because

that of your in comprehend specific your should terms questions, you to how model? In as

will $XXX coming backlog your do under right the reflected have reflected of not that, our what now, that model that contract I'm this privy specifically be today. in We of to you not as tell of in so none backlog. is our million can is any far I

likely basically, existing on Switchblade will most be our forward. So, business all to of going incremental that

Brian Shackley

revenue, associated report that other Switchblade just our kinds is data to production, customer-funded just to of revenue And with pieces. add date Louie’s there the and TMS includes R&D other point, more than

Wahid Nawabi

right. That's

than just system. Our original revenue more TMS Switchblade includes

Louie DiPalma

Right. what sense of Do have procurement? you revenue of, guess Switchblade TMS percentage is I any

Wahid Nawabi

we a down we specific reasons. not our sensitivity individual to by do Mainly, of and that them break towards for number No, don't that product unfortunately detail customers' have begin of because with.

Louie DiPalma

five-year [long-range in Okay. which scripted was XXXX than reconnaissance] for for task obtained you were for more said to? for that And remarks one orders, $XXX the clarification, of part April your you were just IDIQ the volume dollar XX% for that the that is referring the that of million you you what

Wahid Nawabi

to, was other and I that to what that, the award. U.S. at if XXXX Army roughly Louie competitors AeroVironment referring the So, by now, No, until was you on IDIQ awarded for from UAS, multiple look was contract small which

of over was rate, that. able, We task on our dollars based orders a win very And demonstrate task while point contract that, high orders, record category, XX% to comes we support orders, we secure within my for have and competing competition individual have it delivery when and show and value. that, our essentially, been of that, the that have

we that, of noting desire all a respect we have on to competition, better-and-better you. but always respect solution, that our always count is never to We customers' record worth it's performing track it

Brian Shackley

we won UAS small we the a couple has of run times, to were iteration million recompete just this latest a And XXXX. IDIQ, your add renewed, Louie, of contract UAS so prior – We of that question contract. to under operating and prior to the little answer in since April the Army back its bit to XXXX the question. been $XXX.X announcement initial it

that XXXX from through up explains IDIQ. revenue so any current this And

Steven Gitlin

you look and company news be and forward next An that, And interest no your for with all industry call, archived further this questions. Wishing all and a and We www.avinc.com. speaking thank a good and we you wish healthy you relevant your quarter's season attention you for holiday found our we AeroVironment. day. And to have of we with filings, again SEC in following joyous a results. on can website version

AeroVironment (AVAV) 3 Dec 192020 Q2 Earnings call transcript