Q3 2020 Earnings Call

This time all participants are in 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.

Before we begin please note that on this call certain information presented contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Forward looking statements include without limitation any statement, they predict forecasts indicate or apply future results performance or achievements and may contain words, such as believe anticipate expect estimate intend project plan or words or phrases with similar meeting.

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

For further information on these risks we encourage you to review the risk factors discussed in Aerovironment periodic reports on form 10-K, and form 10-Q filed with the FCC and the form 8-K filed today with the FCC along with the associated earnings release on Safe Harbor statement contained therein.

This afternoon, we also filed a slide presentation, where the earnings release and posted a presentation to our web site at Avi I N C dot com in the events and presentations section.

The content of this conference call contains time sensitive information that is accurate only as of today March Threerd 2020.

The company undertakes no obligation to make any revision to any forward looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call.

Joining me today from Aerovironment, our President and Chief Executive Officer, Mr., Wahid, Nawabi, and senior Vice President and Chief Financial Officer, Mr., Kevin Mcdonnell we will now begin with remarks from Wahid Nawabi Wahid.

Thank you, Steve and welcome to our third quarter fiscal year 2020 earnings conference call today, I would refer to the supplemental investor presentation, We filed with our earnings release and posted to our website.

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

First we're on track to achieve our fiscal year 2020 objectives and deliver a third consecutive year of profitable double digit growth and today, we increased our EPS guidance to reflect our strong momentum.

Second we are well positioned to maintain our growth trajectory beyond fiscal year 2020 based on our assessment of demand drivers and third we're executing effectively against our strategy for long term value creation and delivering significant value to our stockholders.

I'll start by summarizing our third quarter fiscal year, 2020 performance, while highlighting our key financial and operational achievements during the quarter.

Next Kevin Mcdonnell, our new Chief Financial Officer will provide a more detailed summary financial performance in the quarter.

I will then discuss our goals and increased guidance for fiscal year 2020, before Kevin Stephen I take your questions.

As I stated last quarter, we expected about one third of our second half revenue and the third quarter, which is consistent with the $61.9 million, we delivered and described on slide number four.

Third quarter revenue produced loss per diluted share a four cents and non-GAAP loss per diluted share of one cents, which reflects expenses related to our pulse aerospace acquisition in June 2019, and amortization of intangible assets.

Third quarter revenue also resulted in lower overhead absorption, which impacted quarterly earnings.

Hi revenue planned for the fourth quarter will result in improved absorption.

For the fiscal year to date revenue of $232 million increased 3% compared to the prior year.

This was a modest improvement that does not reflect the higher topline growth. We continue to expect for the full fiscal year 2020.

Funded backlog of $126 million declined from last quarter as a result, a buck contract awards timing.

We expect funded backlog to increase with the Finalization of multiple contract negotiations, which are currently underway.

These contract negotiations include the multiyear Army Lmams program estimated at $160 million.

Now I will discuss the progress our team made in the third quarter.

Aerovironment remains the go to provider a fixed wing group one unmanned aircraft systems for the U.S. government and more than 45 Allied nations.

During the quarter, we announced international orders totaling $18 million for two allied customers.

Our international business remains strong adding into our fourth quarter.

The recently released U.S. government fiscal year 2021 budget request includes $85 million for elements procurement and $14 million from Marine Corps and airports Puma procurement.

This results in a total of about $100 million and requested line item funding for Aerovironment solutions.

In addition to requested line items for our solutions there is more than $45 million per Marines and you a SOCOM unmanned requirements and $40 million in request that funding for US Army short range reconnaissance or as are our and soldier borne sensor or SBS programs.

We believe these request that funding items represent additional potential opportunities for new next generation Aerovironment solutions.

And our family of tactical you're yes, we're focused on developing this next generation family of systems.

These new solutions will offer an enhanced user experience and will be capable of operating with greater autonomy through our focused development projects and AI computer vision and machine learning.

Increased autonomy will reduce the comment of load on system operators and will help enable operation and denied aerospace.

We're making significant progress in this area and remain focused on delivering this next generation family of systems.

Now turning to our vapor small unmanned helicopter product line, we continue to execute our strategy and make good progress.

We have relocated and set up vapor manufacturing and Simi Valley and are now producing units alongside our other units and Tms products.

Our vapor systems are also generating interest from commercial customers, who are pioneering the use of unmanned systems and their operations.

Vapor isn't the process of becoming evaluated for approval by the Epay for beyond visual line of sight operations in collaboration with the commercial customer.

This specific timing is not known yet, but we look forward to achieving continued progress towards commercial certification.

We're seeing continued momentum in our tactical missile systems product line, where we are the leading provider of loitering missile systems to the U.S. government with our switchblade and its patent wave off technology.

We are in negotiations with our customer for the multi year $160 million Elms requirement.

The timing of this contract award is currently on certain which means it could happen towards the end of this quarter or shortly thereafter.

In addition to the U.S. government demand for our unique switchblade capabilities, we are actively engaged and export discussions with multiple allied customers.

We remain confident such exports will take place and create an opportunity for significant value creation, although timing is not certain.

I would also like to point out that the $85 million than the government fiscal year 2021 budget request for Army Lmams includes $5.5 million to promote competition for this program.

Historically every aerovironment US defense contract has required some form of competitive evaluation before an award could be issued.

We have been competing successfully for more than a decade four elements contracts and have had great success.

These competitions typically involve a number of defense contractors and other companies ranging from some of the largest underworld to very small startups.

Consistent with our track record of competitive success, we are confident in our ability to compete and win future competitions.

As a technology company, we continually invest in research and development to enhance our capabilities and solutions Switchblade as an example of a product we have continued to invest in to delivered the best capability to our customers and greatest value to our stockholders.

Our investments to improve our operations continue to position us to deliver favorable bottom line results for our customers and our stockholders.

As I have mentioned on prior earnings call, we continue to make progress and the development and maturation of a larger varian of our switchblade solution.

We continue to invest strategically alongside our customer in order to deliver this capability to the war fighter.

During this fiscal year, we conducted a series of flight tests, which are moving us closer to introducing this product.

This new varian as not only a game changer in this market, but it also significantly increases the size of the addressable market for Switchblade family of systems.

We're excited about this opportunity to extend our leadership position.

Speaking of large markets, we continue to make progress on our half program, which is targeting the global connectivity opportunity.

We are preparing for the next round of flight testing, where we will expand flight duration and altitude, while validating performance against our models.

We now have to Hawk 30 aircraft to deploy for flight testing.

Last month, the Haps Alliance was unveiled to promote the growth of this emerging global industry utilizing the stratosphere.

Leaders from technology Telecom and Aerospace industries joined the Haps mobile alliance to accelerate commercial adoption advocate for safety and sensible regulation promote cross industry collaboration and provide thought leadership and education.

In addition to Aerovironment Softbank and Haps mobile the other participating companies include Airbus, China Telecom, Deutsche Telekom, Ericsson, and Telesat alphabets, Loon, Nokia and Telefonica.

Brought and cross industry support for the haps opportunity well help power its growth and create the framework for market adoption overtime.

This market and business opportunity are still and their infancy, but by working together with other industry leaders were confident we will advance to the deployment of half solutions for long term value creation for aerovironment stockholders and customers.

With that as a summary of our third quarter I'm delighted to introduce Kevin Mcdonnell as Aerovironments Chief Financial Officer.

Kevin brings extensive leadership and CFO experience across diverse industries, which give him unique insights and perspectives that will support aerovironments continued growth and success.

Kevin as a strategic thinker with a demonstrated track record of long term value creation, and we look forward to his contributions to aerovironments growth.

Now Kevin will provide a detailed financial overview of our third quarter Kevin.

Thank you a heat for sharing our third quarter financial results I'd like to take a moment to thank Aerovironment board of directors Wahid, the leadership and the leadership team for the opportunity to serve our stakeholders as Chief Financial Officer. This is a unique an exciting company with tremendous growth potential I look forward to working with our team to achieve our value CRE.

Ration objectives I also look forward to me in our stockholders and research analysts in the near future now, let's turn to the Q3 results as highlighted on page four of the posted presentation.

Revenue for the third quarter fiscal 2020 was $61.9 billion, a decrease of $13.4 billion or 18% from the third quarter fiscal 2019 revenue a $75.3 million. The decrease was due to a decrease in product deliveries of $13.6 million.

Third quarter fiscal 2020 revenue by major product lines and program is as follows.

Uhhuh EPS was $37 million or 60% of total revenue half was $11.8 million or 19%.

CMS was $7.9 billion or 13% and other was $5.3 million or 8%.

Let me take a moment to outline the current status of the Haps program.

Inception to date revenue under contracts from the House program is $115 million the total value of all contracts with caps.

Mobile is $148.6 billion, which consists of $140.3 million for design and development.

And $8.3 million per preliminary design and other related efforts.

There is $33.6 million remaining on these contracts, which includes a portion that is currently unfunded.

Turning back to the financial performance for the quarter.

Gross margin for the third quarter fiscal 2020 was $23.5 million or 38% of revenue compared to $30.4 billion or 40% of revenue for the third quarter of fiscal 2019.

The decrease in gross margin, primarily due to a decrease in product margin of $7.8 billion.

Partially offset by an increase in service margin of $1 million gross margin as a percentage of revenue decreased to 38% from 40% primarily due to a decrease in the proportion of product revenue to total revenue as highlighted on slide five product sales were 59% of total sales in the third quarter.

Fiscal 2020 compared to 66% for the third quarter of fiscal 2019.

In terms of bottom line results the net loss.

The net loss from the third quarter fiscal 2020 was $1 billion or four cents per diluted share compared to net income of $8.4 million or 35 cents per diluted share for the third quarter fiscal 2019.

The reduced third quarter net income was result of lower gross margin of $6.9 billion higher operating expenses of $2.1 million increased loss from house mobile equity method investment activity, a point $5 million and reduced other income of $1 billion.

It should be noted that fiscal 2019 net other income included transition services income for services reform for the buyer of our former efficient energy systems business.

Non-GAAP diluted loss per share for the third quarter fiscal 2020 was one cents per diluted share and excludes three cents per diluted share for intangible amortization expense and integration costs associated with our acquisition of pulse aerospace GAAP and non-GAAP diluted earnings per share for the third quarter fiscal 2019.

Was 35 cents.

Now moving through to our results for the first three quarters of 20 fiscal 2020.

Revenue for the first three quarters of fiscal 2020 was $232.1 million, an increase of $5.8 million from the $226.3 million recognized in the first three quarters of fiscal 2019.

The increase in revenue was due to an increase in product deliveries of $7.3 million, partially offset by a decrease in contract service revenue of $1.5 million.

The first three quarters of fiscal 2020 revenue by major product lineup program is as follows.

Small UAS was $162.9 billion or 70% of total revenue.

Apps was $37.5 billion or 16%.

Mass was $21.4 million or 9% and other was $10.3 million or 5%.

Gross margin for the first three quarters of fiscal 2020 was $99.9 billion were 43% of revenue as compared to $91.4 million or 40% of revenue for the first three quarters of fiscal 2019.

The increase in dollars was due to an increase in product margin of $8.2 million and the increase in service margin of point $4 million.

Gross margin as a percentage of revenue increased from 40% to 43% primarily due to favorable product mix and the increase of the proportion of product revenue total revenue.

In terms of the year to date third quarter bottom line net income was $23.6 million or 98 cents per diluted share compared to $41.8 billion or $1.49 per diluted share for the first three quarters of fiscal 2019.

The fiscal 2019 year to date diluted earnings per share. It excludes 20 income of 25 cents per diluted share from discontinued operations.

In addition, the first three quarters of fiscal 2019 include the onetime gain from a litigation settlement equal to 26 cents per diluted share and net other income for transition services performed for the buyer of our former efficient energy systems business.

In addition to the above fiscal 2020 net income decreased year to date of as result of increased operating expenses of $11.4 million increased loss from half's mobile equity method investment activity of $1.3 million, partially offset by higher gross margin of $8.6 million.

I should also note that the effective tax rate was 10.6% for the first three quarters of fiscal 2020 compared to an effective income tax rate of 11.1% for the first three quarters the fiscal 2019.

Non-GAAP diluted earnings per share for the first three quarters of fiscal 2020 was $1.70 per share and this was nine cents per share for intangible amortization expense deal and integration costs associated with our acquisition of pulse aerospace.

Non-GAAP diluted earnings per share for the first three quarters. The fiscal 2019 was $1.23 per share and excludes 26 cents per share from a onetime litigation settlement gain of fiscal 2019.

Our funded backlog as of January 20, Fiveth 2020 was $126 million a decrease of $6.5 million from the third quarter fiscal 2019, and a decrease of $20.7 million for the second quarter fiscal 2020 backlog of $146.7 million.

Now, let's take a few moments to highlight some of the key balance sheet accounts.

Cash cash equivalents restricted cash and investments at the end of the third quarter fiscal 2020 totaled $311.4 million a decrease of $21.2 million from the end of our fiscal <unk> up from year end fiscal 2019 balance of $332.6 million.

The decrease in cash was primarily related to our acquisition of pulse aerospace as well as our increased investment in half the haps mobile joint venture.

Net accounts receivable, including Unbilled receivables of attention at the end of the third quarter fiscal 2020 totaled $105.3 million.

Unbilled receivables and Retentions was $77.4 million and this includes $28.8 billion of related party amounts, which we expect to be paid by the end of the current fiscal year.

Total days outstanding for continuing operations for the third quarter fiscal 2020 was approximately a 151 days compared to 87 days for the fourth quarter fiscal 2019.

Net inventory at the end of third quarter fiscal 2020 was $65.2 million compared to $54.1 million at the end of fiscal 2019.

The increase in inventory in Q3 reflects the buildup of inventory to fulfill a number of contracts like the Raven contracts from the US Army Security Force assistance brigades, and the L. Nams contract.

Days in inventory us getting for the third quarter fiscal 2020 was approximately 138 days compared to 92 days for the fourth quarter fiscal 2019.

In terms of capital expenditure activity in the third quarter of 2020, we invested approximately $1.7 million and property improvements in capital equipment to support our growth and new product launches and recognize $2.6 million of depreciation and amortization expense.

Lastly, I'd like to summarize our fiscal 2020 visibility as highlighted on page eight of the supplemental charts.

As of today, we have year to date revenue in fiscal 2020 of $232 million.

Third quarter, ending backlog that we anticipate to execute the fiscal 2020 of $95 million.

Q4 quarter to date bookings that we anticipate to execute the fiscal 2020 of $25 billion.

We currently have no unfunded backlog from incrementally funded contracts that we anticipate to recognize revenue during the balance of the year.

This rounds to approximately $350 million or 98% of our fiscal 2020 midpoint revenue guidance.

We do anticipate a full year effective tax rate of approximately 11%. This is higher than the fiscal 2019 full year tax rate of 9%, primarily due to anticipated lower excess tax benefits from equity awards and other tax credits.

Now I'd like to turn the call back to what he'd.

Thanks, Kevin we're executing on our plan and are on track to achieve and exceed our fiscal year 2020 objectives and deliver a third consecutive year of profitable double digit top line growth.

With 98% full year visibility to the midpoint of our revenue guidance range as described on slide number eight and a number of contract negotiations underway, we reiterate our guidance of $350 million to $370 million in revenue.

As a result of anticipated favorable revenue mix and operational improvements we are raising our earnings guidance as described on slide number nine.

Our previous earnings guidance was between one dollar and 35 cents in $1.55 cents and diluted EPS and between $1.47 cents and $1.67 cents and non-GAAP diluted EPS.

Our new earnings guidance is between $1.55 cents, and one dollar and 75 cents and diluted EPS and between one dollar and 67 cents and $1.87 cents and non-GAAP diluted EPS.

This represents an increase of 20 cents per share of earnings at the midpoint of our the ranges.

As I noted earlier, our investments are producing strong results and delivering favorable bottom line results for our customers and our stockholders.

The midpoint of our fiscal year 2020 revenue guidance range implies fourth quarter revenue of $128 million.

While this is higher than each of our last three quarters. It is lower than we have delivered in the past we are confident in our ability to achieve our targets and extend our track record of value creation.

We continue to expect full year internal R&D spending to be about 11% of revenue.

Consistent with our plants, we are on track to invest 5% to 6% of revenue and capital expenditures this fiscal year to support our strong and consistent growth.

We have summarized our full fiscal year 2020 financial expectations on slide number nine of our supplemental presentation.

Importantly, we are monitoring the corona virus situation closely.

Our business is not experiencing any the adverse effects due to the virus at this time.

Our supply chain is almost entirely us based.

Safety remains a top priority for Aerovironment and out of abundance of caution where limiting some international travel by our people.

Before we take your questions I would like to reiterate our key takeaways from Aerovironments third fiscal quarter.

First we are on track to achieve our fiscal year 2020 objectives and deliver a third consecutive year of profitable double digit growth and today, we increased our EPS guidance to reflect our strong momentum.

Second we're well positioned to maintain our growth trajectory beyond fiscal year 2020 based on our assessment of demand drivers.

And third we're executing effectively against our strategy for long term value creation and delivering significant value to our stockholders.

I would like to take this opportunity to thank our employees for their focus and dedication our customers for continuously challenging us to deliver the most effective solutions to support their mission success and new our stockholders for your confidence in our team and our plants.

We are dedicated to helping you proceed with certainty.

Kevin Steve and I will now take your questions.

Thank you Wahid, we will now begin the question and answer session.

If you have a question. Please press star and then the number one on your Touchtone phone.

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Once again to ask a question. Please press star and then one on your Touchtone phone.

Our first question comes from Pete Skibitski at Olympic Global Pete.

Hi, good afternoon guys.

Good afternoon Pete.

Well he can you tell sorry, you leaning maybe towards the low end of your revenue guidance range at this point or the high end of the range and maybe you could talk about what sort of the moving pieces are within that range with one quarter left.

Sure Peter So as I mentioned on my remarks.

We delivered for the third quarter very closely to what we actually said during the second quarter earnings call, which I commented on about a third of our second half revenue will be in this and first third quarter of the year.

Secondly, we have looked at a number of opportunities that we have inboard negotiating multiple contracts, both with domestic as well as international customers. As a result of that based on the information that we have now we believed that the guidance range on our revenue should remain up $350 million to $370 million and we're confident about about our ability to achieve that outcome.

In terms of the S. GAAP EPS, we believe that based on.

Improvements in our operations as well as the Rep favorable revenue mix that we see in this year that we increased our guidance by 20 cents both bond in GAAP as well as a non-GAAP. So this will be again, the third consecutive year of double digit topline profitable growth, we're confident about about our ability to achieve those targets should any chain changeable.

Yup updated throughout the quarter and or otherwise, but next quarter call.

Okay. My follow up on gross margins in terms of your expectations for the fourth quarter.

Your gross margins were obviously very strong in the first half of their they came down in the third quarter I think sort of Thats expected.

How do we think about the fourth quarter.

Should that be.

Sequential increase from the third quarter when you compare to the first half just any color there would be appreciated. Thanks sure. So as I stated on the remarks, we only guide on the topline revenue and on our bottom line GAAP and non-GAAP EPS.

And we based on the revenue mix Youre, absolutely correct that Q3, we expect the best primarily because of the timing of the contracts lower volume as well us the revenue mix of products or services and what the type of contract that we had for the third quarter, that's only optically for the third quarter for the full year.

We are confident with the EPS guidance at both on the GAAP and non-GAAP and we believe that's the reason why we raise that obviously if you look at a full year number that will most likely indicate.

Slightly higher gross margin percentages for the fourth quarter two achieved the full year results based on our R&D spending and as well as our revenue and EPS guidance.

Thank you Pete and our next question comes from Ken Herbert of Canaccord, Genuity Hi, Ken.

Hi, good morning, good afternoon.

While Hayden, Steve and I welcome Kevin.

Thank you Hello, there Ken.

Hey, why you I just wanted a first ask on the Omams and the contract it sounds like there's still some maybe some uncertainty around timing.

Can you just maybe provide a little bit more color or handicap, the potential to see that in that contract finalized in fiscal 20, Orissa slips into fiscal 2001, when you'd expected maybe just some of the moving pieces between.

You're seeing now and wrapping that up.

Sure So Ken as I mentioned on the remark and as you stated.

Yes, we're very much and.

Pick off the negotiations on that contract. Obviously this is the largest contract a multiyear contract in the history of our Tms business. So it's a significant contract for us, we're making significantly good progress.

And although the process of negotiating and definitive during such a contract does take quite a long time.

We expect this contract to either close towards the end of this fiscal year or the beginning of next so it really it say optics timing.

Situation. If you asked me regardless of that we believe that based on a portfolio of opportunities that we have that we are confident with our ability to achieve our revenue guidance for the full year as well as the increased.

EPS guidance range that we provide for the full year. So we look at a number of different factors and and contracts and for opportunities to determine the range of outcome, but we believe is most likely for the quarter at this time.

Okay. Thank you and if I could just a follow up on your larger Switchblade variant you've talked about this call you've indicated I think.

This is a larger addressable market can you provide anymore detail watching it on on maybe when you'd expect to be.

Getting some of these under contracts, maybe your target market or any other detail on this this opportunity for larger switchblade, which sounds fairly interesting. Thank you sure no problem can so yes of course, we as we introduce the initial switchblade that we've been now providing to the us.

Military on open competitions for over a decade successfully and essentially won almost every single competition and contract that has been competitive opens contract competition in our entire history I wanted to make sure that I'd clarify that.

To our investors in our shareholders and our analysts number two we are in the midst of the development of a larger variant of or.

Original Switchblade this larger varian, obviously, fleiss further and longer and carries a much bigger.

Mission effects or mission.

Impact and so what that does it actually increases the addressable size of the market for Switchblade and tactical missile systems significantly.

We have conducted already successfully a series of flight test, which is part of the development effort.

And we're looking forward to introduce in this product to the market in the near future and as we made more progress and we are ready to introduce it.

We'll obviously update you at that time, but it's a very exciting capability, which were co funding with alongside our customer to deliver and develop and deliver the next generation capabilities for the warfighter that they need.

And it's very exciting for us.

Thank you Ken our next question comes from Troy Jensen at Piper Jaffrey, Hi, Troy.

Hello, gentlemen, congratulations on the nice results in the better profitability.

Thank you thank you soi.

Okay. So first a clarification did you see that the haps segment was 7.9 million.

They have segment I believe that.

Kevin mentioned on his remarks.

In the half perhaps revenue revenue segment, yes.

Was 11.8 million 11.8, Swiss Tms was seven point.

Yes.

Perfect All right. So then the question is I would just wanted to know more about.

Just to next the timing of these next.

Test flights for haps in the milestones, we should be looking for and then and a follow up to that would be if you look at the Haps Alliance seems like there's a few international carriers listed there too.

The Silicom China telco.

And.

Telefonica, but just curious on us service provider interests in the aspirations.

Sure. So in terms of the flight testing, perhaps as you know.

We're under the what we referred to the design development.

And demonstration agreement, which essentially means that we have to develop the airplane design it.

Provide or make in produced two airplanes and deliver dose due to our customer being haps mobile joint venture and as part of that we also have to achieve a certain milestones of flights et cetera, et cetera, we're coming towards the towards the near end of that phase of this multi phased business plan Troy and we.

Currently our preparing for multiple a series of flight test, which essentially what it does it increases the flight envelope. Both in terms of duration of flight as well as altitude of where we're going to be flying this airplane higher and higher and our goal obviously as to achieve all of those successfully.

And then it's not a by binary as sort of at situation, we're going to us transition essentially from design and development to testing and certification of the aircraft airplane, which is another phase of this development effort.

That is where we are with the flight and we're very pleased with our results so far and we're making significant progress in this area and we believe that this represents a very significant long term opportunity in terms of your second question, Perhaps alliance, yes. The apps Alliance is a very major.

What I call step towards the adoption and opening of the stratosphere for Fiveg connectivity.

The Haps alliance the essentially the initial three partners that form that was Aerovironment Softbank telecom of Japan as well as.

Alphabets Loon and essentially now.

Since we launched this already we have multiple global companies, both from telecom as well as technology and other industries have joined this movement and the intent here is to essentially bring to bring forward. This topic of how do we harness the stratosphere and how do we make global Fiveg conductivity.

Bob.

Abel and realistically capable with the haps platform that is the main intent of that perhaps alliance. We're very pleased that multiple parties from a lot round. The world actually is joining us in this endeavor and has already become members of this alliance and we look forward to progressing our efforts and.

Bringing this vision to reality one day.

Thank you Troy once again to ask a question. Please press star and then the number one on your Touchtone phone.

Our next question comes from Louie Dipalma at William Blair Hello, Louie.

Why he Kevin and Steve Hello, Good afternoon.

Yes, Hello really.

First one for for Kevin is the difference between the bottom in the top range of.

2020 revenue guidance for related.

The $160 million Oems contract and are those shipments expected to start before the end of April.

I think what he'd would address that earlier basically we have a range of opportunities and different possibilities.

So weve, obviously take another count as we look either the sign that this year or early next year, yes.

So we look we expect to achieve our range.

By a number of different opportunities.

Neither one of one specific one is the make or break as situation for us and we look at all the different variables and different factors and we determine what's the most likely range of outcome, but we believe at this time and since our expectation on a contract as it could happen in the end of this fiscal year may not.

In terms of its dependent sizing.

We believe it's going to happen either close to the end of this quarter or at the beginning of next quarter.

But at either case, we're still confident about our ability achieve our guidance range and Thats why we confirm the topline and we increased the bottom line by 20%, which essentially makes a third consecutive year of us delivering double digit top line profitable growth as part of our.

Process here.

Sounds good and Wahid you noted that you have successfully competed against.

Many large contractors for alamance over the past eight or so years do you feel that the budget request, which may not actually come to fruition met the budget request that.

A second source for Al Mann.

Do you think the reason that they put that in there was to achieve.

The benefits of diversity or do you think that the customer just wants to keep you on your toes.

So let me answer the question a very clearly based on where we see at San Luis I'm Glad you asked the question first and foremost historically every single competition in award. The we have received for the L. Mems and other ouest products evolves, we'll be with DMD. We have competed on those open competitions.

With not just one but multiple parties competing both small and large companies deep in the defense contract as a lot of non defense startup companies from the technology World and you can see from our track record over the last decade, plus that we've had a significantly strong track record almost.

I'm not familiar aware of any losses that we've had in this space at all to my knowledge to our knowledge number one number two when the budget documents or form they usually have formed and and develop weigh in advance of today, probably month on month and advance usually the Pentagon has to include specific dollars for different allocate.

Well.

Purposes, or or items and there is a five and a half million dollars, a $5 million, which I mentioned on the call earlier my remark.

Allocated for.

Essentially I think it says to qualify a second.

Competitor or a contractor.

We're very familiar with that we also are very familiar with the fact that this has happened in the past and we've competed very successfully.

Last but not least I mentioned that the contract there were under negotiation right now extends our ability to deliver solutions to our customer for at least another three years.

So thats a three year contract. So one could argue that this is really try to position for beyond that and we are used to that and we look forward to that competition and we absolutely are focused on making sure that we win as we've won in the past.

And again this to us as a very positive because.

This is a growth opportunity for us we've developed this capability we have patented technologies that are within our switchblade and tactical missile systems, such as our wave off capability, which is very unique to this loitering munitions systems.

And we believe that we hold a compelling depreciation in our solution against all competitors globally and the space and we welcome the competition.

Thank you Laurie.

Our next question comes from once again, Pete Skibitski at Olympic Global Pete.

Peter you with us.

Yes, I'm sorry to hear me, yes, we can IP.

Yes, a couple of follow ups.

I wanted just a housekeeping question do you guys have will be international revenue was for the quarter.

We're going to look that up when you're right now Peter just the second.

Okay great.

Well, maybe I'll ask the second one while while you guys look kind of second one was on the larger switchblade variant.

Im trying to figure out.

I guess get a better sense of of funding for that because you know kind of looking through the Army's budget you see the Alabama's funding.

I don't see anything in there right now for sort of a larger switchblade variant in terms of production. So.

Maybe I'm missing, but do you guys. Thanks to this larger Switchblade variant did it then its production Ron is funded or are you hopefully it will be added to the budget maybe in fiscal 2002 and beyond.

Sure so we.

Have a co funding customer that is funding this with us together and our customer on US. We believe that we've always believed that there was a family of lowering munition and the future strategy of our tactical missile systems business and product line. We've always believed that from the inception up when we launched the.

First product of the market.

So what is exciting about this one is big that because it flies further and carries a bigger mission effect of obviously of larger payload and it also has a longer endurance in terms of its flat duration. It opens up the envelope of missions far beyond our current original switch.

Late capability.

If you look at the Doody spend and other category of systems that are in that space. It's much much larger spend dollars and that addressable market.

So we have been co investing in this with our customer and I'm very pleased that the progress we made so far it's incredibly great. We've had a series of flight test and we've successfully achieved those we continue to do that obviously what they.

Mission critical.

You know lethal.

Loitering munition safety and reliability is of utmost importance for the war fighter and our customer and we take nothing for granted and so we're doing we're going through a series of testing and we hope that we could introduce this product to the market in the near future.

When we are ready obviously, we'll tell you that in terms of funding. This is a new capability just echo Switchblade as you remember when we first introduced a product there was nothing like it in the market.

And we believe that this is the case with this as well and so obviously, we have to work with our customer to educate them and inform them about this capability. So they can essentially switch their acquisition dollars or generate new acquisition dollars for the consumption of this in the long term in the long term and obviously thats one of the reasons why invested in.

This app alongside our customer for the long term growth and value creation strategy.

At the answer your first question the international revenue in the third quarter was 34.3 million results.

Okay very helpful guys. Thank you very much.

You're welcome Peter Thank you Pete.

At this time, we have no further questions. We thank you for your attention and for your interest in Aerovironment, an archived version of this call all SEC filings and relevant company and industry news can be found on our website www dot and.

See dotcom, we wish you a good day and we look forward to speaking with you again following next quarter's results.

Thank you.

And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

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