Q1 2021 AeroVironment Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Aerovironments first quarter fiscal year 2021 earnings call. This is Steve get one chief marketing Officer, and Vice President of Investor Relations real environment. At 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 made predict forecasts indicate or imply future results performance or achievements and may contain words, such as believe anticipate expect estimate and 10 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 and Aerovironments periodically 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, and the Safe Harbor statement contained therein.
This afternoon, we also filed a slide presentation with our earnings release and posted a presentation on our website at <unk> dot com any events and presentations section.
The content of this conference call contains time sensitive information that is accurate only as of today September nine 2000 twice.
The company undertakes no obligation to make any revision to any forward looking statements contained in our remarks today.
Update them to reflect the events or circumstances occurring after this conference call.
Joining me today from Aerovironment, or President and Chief Executive Officer, Mr., Wahid, Nawabi, and senior Vice President and Chief Financial Officer, Mr., Kevin Mcdonnell, we will now be good which remarks from Wahid Nawabi for you.
Thank you Steve welcome to our first quarter fiscal year 2021 earnings conference call.
On today's call I will emphasize three key messages also included on slide number three of our earnings presentation.
First despite the unprecedented cobot 19, pandemic and resulting global economic challenges, we are on track to achieve our fiscal year 2021 objectives.
Second we continue to make progress on our key growth initiatives within our tactical you are yes tactical missile systems and helps product lines.
And third we are successfully executing our long term growth strategy, while bluebird delivering significant value to our shareholders.
I will start by summarizing all first quarter fiscal year 2021 performance and then we'll discuss our achievements during the first quarter.
Next Kevin will provide a more detailed summary financial performance in the quarter and then I will discuss our outlook for fiscal year 2021, before Kevin Stephen I take your questions.
Now, let's review our financial performance in the quarter, which we have summarized on slide number four of our earnings presentation.
We delivered the first quarter revenue of $87.5 million consistent with the expectations. We shared with you during our fourth quarter fiscal year 2020 earnings conference call.
Full year diluted earnings per share from continuing operations was 42 cents compared to 71 cents for the prior year, a difference, resulting primarily from a shift in revenue mix, which we expected.
Non-GAAP earnings per diluted share from continuing operations for fiscal year 2021 was 44 cents compared to 74 cents for the prior year.
We are executing our plan effectively while meeting continued robust global demand for Aerovironments highly differentiated solutions.
No I will review, our business achievements and the first quarter.
Our small unmanned aircraft systems product line represented 64% of total revenue in the first quarter.
Importantly, we remain the leader in the global market for small your way yes.
Demand for Battle proven Raven, Puma and watch solutions remains strong.
Additionally, we continue to engage with growing number of customers and have received orders for Puma at least system, which now can fly continuously for six and a half hours.
This extended flight time provides customers with even more group to capabilities and to pull my at least one footprint at a substantially lower costs and other group to solutions.
We continue to demonstrate context week onto customers, who are interested in its advanced capabilities such as fully automated launch flight planning operation data collection landing and radio frequency silent operation.
We believe these advanced features are compelling to customers, who are focused on enhancing capabilities and reducing the cognitive load on system operators.
[noise] Quanex Recon is one of the first unmanned systems to deliver a level of intelligence and autonomy that does not require human operators attention during its mission.
We expect these capabilities to continue to expand and increasingly to define or solutions and the future of unmanned systems.
Our teams are hard at work, creating these features for our next generation of tactical your yes to provide toward customers.
Next or tactical missile systems product line represented about 11% of first quarter revenue.
We are executing against the record elements contract award for Pacific relate that we received on April Thirtyth.
We recognized about $32 million of revenue from this award in fiscal year 2020, another $2 billion I'd be ends of our fourth quarter fiscal year 2021, and we anticipate recognizing a total of about $42 million during our fiscal year 2021.
Our strong momentum last fiscal year, developing or larger switchblade variant continued into this year with a number of successful demonstrations test and continued customer support and funding.
As part of this variance maturation, we plan to deliver a number of system store customers for operational deployment this fiscal year.
We're also establishing the low rate initial production capability consistent with the expectations of our customers.
We continue to believe this larger switchblade variant represents a game changing solution to disrupt the larger segment of the missile market currently dominated by legacy systems, such as Hellfire javelin and told missiles.
These legacy missiles accounted for more than a billion dollars enacted deo de procurement funding and government fiscal year 2020.
Moving now to house, which represented 19% of first quarter revenue. We successfully completed the fourth test flight of the newly named the Sun glider Solar house in the first quarter.
This was a longer flight that also little higher than previous tests. Following the end Philip envelope expansion process, we're executing during this demonstration phase.
We expect this program to transition to a full testing and certification phase towards the end of our current fiscal year 2021.
As a result, this should produce revenue similar to our fiscal year 2020 animal house run rate of about $60 million.
For the broader perspective momentum, perhaps continues to build with the Alps Alliance expanding awareness of this emerging capability and global leaders and telecommunications aerospace and technology joining forces with us so realized its potential.
As a pioneer and leader in this space Aerovironment is very well positioned to establish the platform and related capabilities and building relationships that will bring it out to market.
Our strong relationship with Softbank Corp, or haps mobile Inc. joint venture and our collaboration with alphabets Loon on the some gliders communication payloads provide a solid foundation for continued progress and the realization of house as a means to deliver global connectivity and create shareholder value.
No I would love to address the impact of Cuban 19 on our business.
We are experiencing some delays in customer contracting decisions as our domestic and international customers continue to adjusted Darryl remote work situations.
We're also experiencing some delays in limited areas of our supply chain, resulting from the impact of the pandemic.
When we developed our fiscal year 2021, and that will plan. We included assumptions about the pandemic, which is why it is slightly back end loaded with about 60% of revenue and the second half of the fiscal year.
While this is a very fluid an unprecedented situation. We are prepared for the likelihood that the cobot 19 pandemic will persist into next calendar year and are well positioned to mitigate its impact on our business.
The vast majority where people continue to operate remotely while maintaining and delivering on our commitments to customers fellow team members and our shareholders.
Despite the uncertainties regarding the pandemic, we remain on track to achieve our fiscal year 2021 objectives and are well positioned for growth and the year ahead and over the long term.
Thanks to the unwavering focus of our employees. We're confident we will emerge from this pandemic as an even stronger company.
As a measure of how or people feel about looking at Aerovironment. We were recently certified by the great place to work organization as a great place to work.
For second year in a row.
The great place to work methodology involves sending a very detailed anonymous survey to all of our team members to assess their views on questions relating to justice fairness credibility respect in a number of other important dimensions of accompanies workplace environment in culture.
87% or more people completed the survey this year and or overall score of 90% rose significantly from last year.
When we look at how different demographic groups within the company feel about aerovironment through the great place to work assessment, 100% <unk> African Americans, 90% of Hispanic or last Nx, 87% of Asian, and 89% of or LGBT team members, who responded to the.
Survey I agree that Aerovironment is a great place to work.
While these are very high and best in class scores, we realize that there's more work to do.
As we discussed on our last earnings call, we remain committed to promoting diversity and increasing representation of African American and other under represented groups within Aerovironment.
Our new internal diversity and inclusion committee includes 16 team members from across our company, representing a broad spectrum of background and identities.
This committee has been meeting on a regular basis and has developed a calendar of events designed to raise awareness further within aerovironment about issues relating to diversity.
Our recruiting efforts include outreach to minority serving and its situtions both through partners and directly. We're also continuing to plan and carry out stem education and mentoring programs at our local communities.
We remain committed to the objective of diversifying our team further and more generally we continue to advance our efforts to seek the most talented people to join our team regardless of race gender religious belief ethnicity country of origin or sexual orientation.
Now I will turn the call over to Kevin Mcdonnell for a summary of first quarter financials, Kevin. Thank you what he today I'll be reviewing the highlights of our first quarter financial performance I'll be referring to both our press release and earnings presentation available on our website I will deviate slightly from past practice by only addressing the key financial metrics and my remark.
And leaving some of the details of the press release at earnings presentation.
Revenue for the first quarter fiscal 2021 was $87.5 million, an increase of 1% from the first quarter fiscal 2020 revenue of $86.9 billion. The breakdown of revenue by product areas contained on slide six of the core quarterly earnings presentation.
During the quarter, we saw strength in domestic small, yes, which was up 24% from the same period last year and helps mobile development revenues, which were up 33%. This was largely offset by lower international small U.S. revenue in general in National visibility has been most impacted by pill that.
Turning to gross margins slide five of the quarterly in his presentation shows our product service mix and overall gross margin trends over the past five quarters. This market for the first quarter was $35.4 million or 40% of revenue compared to $41.3 billion or 47% of revenue for the first quarter of last.
Fiscal year.
47% gross margin last year with an outlier with exceptionally strong gross product margins of 54% and favorable product service mix. The 40% overall gross margin in the first quarter. This year was in line with our expectations.
Next I will turn to operating expenses.
A few nave <unk> expense for the first quarter was $12 million or 40% of revenue compared to ask inexpensive $13.7 million or 16% of revenue for the first quarter F. Why 20, the lower spend in the current quarters in large part related to a reduction in travel and Tradeshow expenses. The result of cobot related restrictions.
And the expense for the first quarter was $11.1 billion or 13% of revenue compared to R&D expense of $8.7 million or 10% of revenue for the first quarter F. why 20, we continue to make significant R&D investments. These investments a good enhancements to current products new variants within product lines and product at this.
We believe these investments will enable continued leadership in the small U.S. space and drive growth in both our small UAS the Tms product wise in the near future and longer term.
Looking at the bottom line net income attributable to environment for the first quarter fiscal 2021 was $10.1 billion or 42 cents per diluted share compared to 17.
$1 billion or 71 cents per diluted share for the first quarter fiscal 2000 $27 million reduction net income was largely resulting reduced gross margin dollars.
5.9 million and increased R&D investments, a $2.4 million, which were mentioned previously and reduced interest income of $1.1 billion related to lower investment yields and more conservative investment policy.
Net income was positively impacted by lower asking the expense of 1.7 million and reduced tax rate of 9.6% versus the prior year of 10.4%.
The decrease in in tax rate was primarily due to an increase in excess tax benefits and equity awards.
Looking at the full year, we expect the yearend tax rate to be between 11% and 12%.
In terms of adjusted EPS.
Slide 11 shows a reconciliation of GAAP and adjusted or non-GAAP bps non-GAAP diluted earnings per share for the first quarter fiscal 2021 was 44 cents per diluted share and it was two cents per diluted share of intangible amortization related expense associated with our acquisition of pulse aerospace.
Non-GAAP diluted earnings per share for the first quarter fiscal 2020 was 74 cents per diluted share and excludes three cents per diluted share.
With which includes deal costs integration expenses and intangible amortization expense associated with our acquisition of pulse aerospace.
Turning to the balance sheet.
Once again, we ended the quarter and a strong cash position cash cash equivalents investments at the end the first quarter fiscal 2021 totaled $338.5 million, an increase of $20.8 million from the end of fiscal 2020.
Total cash flow from offered activity during the quarter was 26.8 million of was $10.5 million is was the result of working capital improvements and the remainder from other operating activities.
The working capital improvement came primarily from lower accounts receivable, partially offset by lower accounts payable at a reduced accrued liabilities as a result, a year end bonus payouts.
In terms of capital expenditures, we spent $4.1 million during the quarter.
Now I'd like to highlight some of our backlog metrics.
Our funded backlog at the end of Q1 was $154.4 million a decrease of $10.1 million from the first quarter fiscal 2020, and a decrease of $53.6 million from the fourth quarter fiscal 2020 backlog of $208.1 billion.
In terms of fiscal 2021 visibility, which is highlighted on slide seven of the earnings presentation.
As of today, we have unit revenues of $87 million first quarter, ending backlog that we anticipate the excuse in fiscal 2021 of $147 million.
What did they bookings that we anticipate to execute in fiscal 2021 at $20 million.
Unfunded backlog from incrementally funded contracts, we anticipate the recognize revenue during the balance a year of $30 million. This adds up to $284 million or 71% of our fiscal 2021 midpoint revenue guidance range now that the turn it back to what he.
Thanks, Kevin Aerovironments growth strategy is based on on innovation.
Our solutions are the result of our strategic research and development investments, Steve R&D investments typically exceed 10% of revenue each year and last year at totaled 13%.
At the pioneer and leader in every one of our target markets and our successful track record of profitable growth and value creation demonstrates the strength of our business model.
We continue to invest in innovation and growth with new capabilities and solutions advancing through our Mcgrady works and engineering labs.
Some of these development efforts seek to enhance existing solutions, some introduce new solutions to existing in markets and some target new capabilities for new markets.
We are expanding our portfolio to address a broader and more valuable range of customer emissions for example, formally and the largest switchblade variant, our new solutions addressing new missions and potentially valuable new market segments.
And we are aggressively developing and demonstrating innovative new unmanned systems solutions that are smaller and more autonomous to support our customers missions against much more capable adversaries and permissive and contested environments.
We're executing our strategy to offer a multi domain portfolio of unmanned solutions and capabilities integrating robotics sensors software analytics and connectivity technologies to equip our customers with the tools to win.
By doing so we believe we will continue to grow our business and deliver even greater value to our shareholders and our customers.
Customers within the U.S. duties differently would you continue to rely on our solutions to protect and enable us forces.
For example, there is $90 million and procurement funding proposed in the US governments fiscal year 2021 defense budget for Aerovironment solutions.
It is difficult to know the future of the U.S. defense budget, given the upcoming presidential election, and the budgetary effect of the massive economic assistance provided by the federal government during the pandemic.
By contrast, we're confident that the solutions, we supply now and are developing for the future.
Fit into categories that remain high priority generate bipartisan support and offer attractive economics as compared to legacy solutions.
We believe that the unmanned systems segment of the deal with the budget is among the most attractive and likely to receive continued robust investments.
Yet we are in a time of great uncertainty in times like these are strong balance sheet signals confidence to our customers, who seek long term partners and suppliers.
Additionally, our strong cash position and no debt serve as a valuable resource to inorganic opportunities that support our growth strategy.
Supported by 71% visibility to the midpoint of our guidance range, we reaffirm our full fiscal year 2021 guidance on revenue of between $390 million and $410 million as summarized on slide number nine of our earnings presentation.
We expect an operating margin of between 12% in 12.5% and earnings per diluted share of $1.65 cents to $1.85 cents.
This financial guidance assumes approximately 7% ownership of the apps mobile joint venture.
We expect non-GAAP earnings per diluted share, which excludes amortization of acquired intangible assets to be between $1.74 cents and $1.94 cents.
We still expect first half revenue to account for approximately 40% to the midpoint of our revenue guidance range.
We also expect first half earnings per diluted share to represent about 35% of the midpoint of our diluted EPS guidance range.
As Kevin mentioned earlier revenue mix will result in a lower gross margin percentage in fiscal year 2021, as compared to the prior year.
We expect research and development investments to range between 11% and 12% of revenue this fiscal year.
In summary to reiterate our main points for today's call.
First despite the unprecedented Gulf Cobot, 19, pandemic and the resulting global economic challenges we are on track to achieve our fiscal year 2021 objectives.
Second we continue to make progress on our key growth initiatives within our tactical UAS tactical missile systems, and perhaps product lines.
And third we are successfully executing our long term growth strategy, while delivering significant value to our shareholders.
Thank you to our customers our team members and our shareholders for your ongoing engagement and were challenging us always to deliver excellence.
We continue to focus on delivering on our promise to help you proceed with certainty.
Kevin Stephen 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 then one on your Touchtone phone if you wish to be removed from the Q press, the pound or hash key.
If you are using a speaker phone you may need to pick up your handset before pressing the numbers.
We respectfully ask that you limit your questions to too and then please enter reenter the queue. If you choose to ask additional questions.
Once again to ask a question. Please press star and then one on your Touchtone phone.
Our first question. This afternoon comes from Ken Herbert of Canaccord Genuity Ken.
Hi, good afternoon heating, Kevin and Steve.
Good afternoon Hello.
Hey, why you'd I just wanted to first off I think you mentioned in your remarks that your execution on the Omams contract accounted for 2 million.
Revenues.
In the first quarter, which would imply 40 million for the remainder of the year I just wondered if you could provide any more detail on the cadence of that or how we should think about that progressing through fiscal 21 sure. So Ken what I said on my remark was that on our fourth quarter fiscal year 20 on the contract that record content.
That we received last quarter, we recognized approximately $32 million, what the revenue and our fourth quarter of last fiscal year. In addition to that we recognize roughly about 6 million dollar what the revenue and our first quarter. This quarter and then for the full year, we expect roughly about 42 million dollar what the right.
Revenue for from the L. maps contract so roughly if you add up the fourth quarter.
Fiscal year 20 number of $32 million to the $42 million, where we're going to be we expected to recognize approximately $74 million with the revenue against that contract value.
Okay and my question was of the of the 42 this year with six in the first quarter. It can you provide any more detail on how that cases through the second third and fourth quarter for us.
Oh, So first of all quick correction I think for except for the first quarter, we recognize $2 million worth of the revenue not $6 million as I mentioned earlier in terms of the.
The distribution it really varies based on the six to six.
Revenue recognition rules.
We have not specific to specify the details of that but you can see you know as we build products and we progress towards our contract and customer acceptances happen, we recognize that revenue.
Okay, great and if I could just one follow up the I think you mentioned.
Booked 20 million so far this quarter.
Towards the full year number.
Obviously as part of your 70% you provide on the revenue line.
How does that compare to prior quarters can you give any or or I guess the second quarter. In prior years are you ahead of where you were or is the cold that impact maybe maybe that's dragging that down a bit, especially with international customers.
Sure. So as I mentioned in my remarks, Ken when we develop our planned at the end of last fiscal year for this fiscal year, we made sure that we put in some.
Some buffer and Christian in terms of the overall plan accounting for the corporate 19 pandemic in delays that we were expecting so our original plan do we developed at the beginning of the fiscal year or before the beginning of the fiscal year comprehend that some of those expectations of those types of delayed that I mentioned.
So since then weve those would be out those expectations that become reality, so far and we're on track. According to our results. So far we are first quarter results are right within the expectations. The we communicated to you last quarter and we're very pleased with those results. So far we expected the first quarter bookings to be lighter.
Then.
The normal.
Flow business. The we've had in the past, but again. This is this is something quite.
Common in our business, we've had you know.
Ups and downs in our quarterly revenue distribution and bookings for very long time, that's very natural in our just 60 40 is pretty much in line that would have been we did a little bit better over the last couple of years, but it's right out of the that that's about where we're at from a visibility perspective.
The current visibility is in line with visibility at this point of time in previous you're right. We've spent the last few years are dealing with 70, low 70, percents and that's about where out right now right very good.
Great. Thank you yeah. So according to our expectations can you know we're very much in line with our expectations and our plans and we have noticed some delays both on the customer contracting side as well as on some specific suppliers all of which we've accounted for in our plans and progressing quite.
Nicely so far throughout the first quarter, obviously to early it's our first quarter of the year and we'll keep you updated as we progress throughout the year.
Great. Thank you.
You can our next question mean to catch up their next question comes from Joe Denardi at Stifel Joe.
Hey, good afternoon.
Well he thank you for the additional color on on L., Mems and the the variant and some of the more granular guidance you provided that that's helpful.
Welcome.
You are you described.
Elmander and I think the variant as a game changing capability I'm wondering if you would characterize the.
Revenue benefit to Aerovironment back from that capability being adopted is also a game changer.
And then you mentioned preparing for L. ramp I think.
Well when would you expect the award.
Associated with that is that this fiscal year or sometime next year. Thanks.
Sure Joe so thanks.
We tried to the best we can to provide as much information as though we could ended up at a high level of actors in competence.
We thought it was within our business in terms of the larger very no switchblade. We do believe that this is a game changing capability. The reason why you believe that is because the current market for a larger variant of this size, which we roughly compared to a health plan or javelin or toe.
That amount of spending in the U.S. duties current budget you were last year was about a billion dollars. So it significantly increases the market size and opportunity for us relative to our original Switchblade. We've had tremendous success with this original switchblade as you've seen so far.
With record contracts and we've been the primary the producer of that to the U.S. government supplier to that and we believed that this additional variant larger Marianne opens up a much bigger market for US number one number two so far we're making very good progress we as I said, it's as co funded by us and our customer.
We are making really good progress in terms of developing the capability demonstrating the capability and progressing and maturing the designs and development effort and we've already started initially for low initially production set up and our manufacturing footprint. Obviously this is a longer term game and and endeavor for us.
We're excited about it but we'll keep you updated in terms of revenue potential. It is quite significant it couldn't be a game changer for us in the long run because the market is there potential is there that the funding dollars or there. We just have to execute and delivered the capability in the rest hopefully will play out itself.
And then the timing on an L. Rip Award.
Oh, So we are co funded currently for this program.
The investment in terms of manufacturing generally is all on our part because we are the manufacturer.
We will know we will keep you updated on the R&D Awards as we go forward as I mentioned in my remarks, we are right now in the process of growth already building low limited quantities for initial deployment.
And our customers operations as I mentioned on my remark remarks. It is part of the program and I effort that we have with our customer so.
When we have more information that we can share we will be glad to share that with you of course.
Thank you Joe Our next question comes from Pete Skibitski at 11 Big Global Pete.
Hi, good afternoon guys.
Just a couple of questions first one the Quantix recon I think it's interesting I wanted to get a sense of your perspective on it in terms of you do you guys expect us to kind of play into a program of record. The you know what the next year or two and I guess overall, how near term revenue contributor do you think it could be.
Sure So Pete.
Context recon the reason why I believe and we believe this is such a game changing capability.
It is because the way that this system is designed and operates addresses some fundamentally key desires and requirements that our customers really wishing I have asked for for a while for a long time essentially this autonomous automatic flight planning and operation.
And in navigation, and then review silent operation, where you can actually go into a re area and you literally would not have to have any communication with the operator and achieve a mission or conduct a mission.
As a radio silent system is really really attractive in terms of a program a record Oh I'm not in a position to be able to comment on that specifically there is no specific programs that we know, but we do know customers who've been asking for this capability. We're engaged with those customers we have delivered.
To some of those customers wouldn't process hopefully delivering more to other customers, we'll keep you updated as that.
Strategy bars progresses over time, and it's again another part of our overall strategy from a system solution offering to our customers as a family of systems. It's also maybe worth noting that if you look across our portfolio and small UAS and in Switchblade Tactical missile systems. There were no programs of record when we.
The yen those products when we introduce those products, we define the new capability, we put those into the hands of customers. They begin to understand how they can be used how they could add value that operation and those ultimately led to competitions and in some cases programs of record. So the nature of the unique set of capabilities that Quantix recon offers.
Is similar to what a raven looked like years before it was adopted what switchblade looked like before it was adopted and follow as the model we've been falling quite successfully for a number of years.
Okay Fair point, and just one follow up for me guys I'm.
Just trying to get into your had more on this larger switchblade variant because you're you're talking about its kind of a hell of fire or tow or javelin replacement essentially all powered missiles right you didn't mention mourners.
Was that deliberate do you really you don't see there's more replacement of those you know higher price point missile programs as opposed to replacement for maybe a lower price point mourner system.
So Pete the reason why we chose to just highlight those three it because they're very well known this capability is a brought generally fits in that category or size of missiles and warheads and capability. So there are number of other ones. Besides the three that I mentioned that we mentioned that.
Absolutely could qualify as a.
Peter or call comparable in some way shape or form by no means there are exactly the same we obviously believe that we have something very innovative and disruptive in terms of its nature of how switchblade works and how its design and the technology that's built into it but the idea here is really to try to give you guys. A sense of what is the sizes up market look like and what type.
The capability. This is as we progressed through this process and we're in a position to share more details about it will obviously do that with you in more detail as time goes forward and we progress.
And just one thought to add to that in response to your question Pete the nature of the Switchblade emerging family of systems is scalability. So if you start with the original Switchblade small man portable back Packable dismounted inventory type of solution designed for certain kind of soft targets. For example, the larger variances, obviously bigger can fly longer farther Kerry.
A large warhead order much more significant effects on targets and there are opportunities for different points, along that scale addressing all kinds of different missions that our customers are facing so we're at a very early stage of the evolution of this family of systems that ultimately is designed to be able to.
Deliver unique capabilities across a broad range of mission sets.
Our next question comes from Peter Arment at Baird.
Peter Please.
Good afternoon, what you'd Kevin.
Good afternoon, eight Wahid you mentioned about you guys and now we've got quite a bit <unk> visibility on the 71%, but you also kind of gave some commentary around you know international visibility small you asked that there were probably a little bit of delays in contracting cousin cobot or how has that progress I guess.
You know since and as we've seen kind of this summer and the are you expecting some of that to improve as we get into the fall.
Sure So Peter as I mentioned on the remarks, we do have a.
71% visibility that Kevin outlined the specifics of at this time of year. This is pretty much in line with our historical levels.
We have seen some delays on our customers contracting activities with us.
Primarily because of the cobot 19 situation out there everybody is getting used the duty normal and there were essentially.
Adjusting and figuring out how to do that Werent very close contact with our customers all of our customers domestic international across all of our family of systems and products.
And we feel very confident about our plans today, that's why we reaffirmed our guidance we provided earlier at the same time, we know what it takes to get these contracts over the line over the crop crossing over the past them so to speak and get into the final stage of awards and based on all that data that we have.
We feel quite good that we can achieve the outcomes, though the goals, we set for ourselves and expectations that we have arsenal for this year and at the same time I would say that we're also very sort of fortunate that we have a strong balance sheet when a great position, there's going to be another year of profitable growth as a company and as a business and.
The demand drivers over overall long term for our business seems very positive there is close to as I mentioned on the call $90 million worth of funding on government fiscal year 21 proposed budgets, which has not been approved yet, but there was a healthy to do so.
Demand for these types of systems because this category were in is quite attractive in the overall category of defense in general both domestically and internationally.
Okay. That's helpful and just as a follow up on on the Haps, you mentioned that was going to be entering kind of a new phase.
So I I assume that you you in the slide you mentioned that Theres, a you've had 11 I believe contract modification. So we would anticipate more of that as we get into this new phase or does it maybe just a little bit more insight on how that's going well.
Yes, Kevin Yes, Peter so in terms of perhaps what I want it just specifically communicated that we're making some great progress over the last two years or so on this program and in this initiative, we're positioned really well we've had four consecutive flights successful flights in demonstration so far we have.
Both in delivered two airplanes, and we're sort of coming towards the end of the phase one of this business plan and were their transition from phase one to the next phase, which has an extensive testing and certification phase is essentially a very smooth transition and we expect that transition to happen sometimes by the end of this fiscal year and so.
We what I tried to articulate is that we expect our revenue for perhaps business. This year to roughly be equivalent to our run rate of last fiscal year, which is around $60 million assault and that gives you an idea as to what do we expect this year, obviously in order to achieve that they're either have to be modifications on the existing contract.
We have or we have to get a new contract. The good part is that we're very close with our partner Softbank in this case, we work hand in glove in this process throughout the whole process on a daily basis, and we know what we have to do an order that gets I've done so depending on the needs of the program. We will join the address that as we go forward.
And we're in a good position for the long term value creation here as well.
Thank you for that question Peter Our next question comes from Louie Dipalma from William Blair Good afternoon Louie.
Good afternoon. Thanks, guys for taking the question de loading Kevin you are you mentioned that the Puma Elie has.
I'm in a of approximately six hours I was wondering how does that translate to range.
And how does that compare to the potential range that you could achieve with the the AFE for mentioned Switchblade long and Darren sparing it.
Right. So let me great question I'm glad you asked the question, we do believe that our Puma and Lee, which now can fly up to six and a half hours on a single battery in a single flight continuous flight.
There's really a group to capability in a group want footprint economics.
Package as well as financial considerations and logistically it is far far easier to operate a boom at least system than any of US I think if the conventional group two systems that are out there.
In terms of the range of the system you know typically with the standard antenna, though we have it could fly for you know 30 2030 kilometers we do have a long range tracking and 10 other we'd refer to as LR Ta and essentially what it does it's slightly bigger on 10 out but what it does it allows the pool not to fly almost us.
Closest 40 50 kilometers so it's pretty much longer range. Additionally over the years weve, even demonstrated the ability to be able to control and.
Communicate pull through a satcom satellite communication. So we have developed and demonstrated that capability with our Puma systems already more than a year ago, and so number one the existing Puma by itself greet range and great you know insurance with their long range tracking antenna.
Expand even further and also the big capability exist to go even beyond and on a satellite communication and connect it that way for much longer.
Just add ranges.
Thanks, and have it potentially you could have be a the puma connect to the sun glad or antenna right.
That is that as accurately the very accurate statement Luis I mean, our vision of these unmanned family of systems robotic systems.
Absolutely encompasses not type of future state capabilities.
Great and one final one in July you announce that you won.
The the 21 million dollar Lake control system Domain Award that's.
Currently under your your Army I'd I Q, that's for has a ceiling of $249 million and.
You said that there are a total of six domain for this this I'd like you and I was wondering what are the other domains and month Your award last year for.
$45 million for I think it was 200 Raven aircraft is that also part of this.
This I'd like you and I'm just trying to size of what the potential opportunity is is remaining yeah. Sure. So is that you're you're absolutely right. We didn't get that award. It was basically it's called the Fcs.
Portion of that contract that contract is an idea to contract that encompasses the small UAS and its you know there has been many task orders underneath that for a number of years now maybe a couple of years or so and Steve doesn't have the specifics of what the five or six categories or Steve you want to sure sure living so those six domains redefined.
By the Army as systems Tactical open government owned architecture, a code toga other major components are 220, Puma spares RQ 11 B.
Ravens fares and flight control systems, FCS Whos, a six domains. They all fall under that $248.5 million five year I'd like you type contract.
And it got yet but also yes go ahead.
Sorry for this I know there were I think there were four other vendors as part of this I'd like you and I might have even than five other vendors, but as far as you're aware have you won.
Vast majority of the dollar amount that's far for this.
And you have you Louie that is accurate both comments are accurate there are at least five maybe six different players on this idea to contract from inception.
We have competed against task orders for all the years against that we believe based on the math. The we've done as the amount of awards that have been issued against that contract and the amount of awards. The we've won the we've won the vast majority of them.
Vast majority of the dollars up and so essentially you can see that up it's it's very consistent with our track record of having a high win rate within our category, both domestically as well as internationally.
Sounds good thanks, thanks, everyone.
Thank you. Thank you very much well take our next question again, another follow up question from Joe Denardi Joe.
So what he.
In first quarter, you disclose nine and half million in revenue from Tms I think you said that the Omams contract contributed.
Two so does that mean that the seven and a half million difference.
Our company is coming from variance and if so can you can you say, how many variants are making that.
So Joe.
Very good insight we did good revenue the revenue profile within our tactical missile systems product line is made up of different categories of items, one of them being the original Switchblade and which we said we recognize about $2 million worth the revenue in the quarter for that there's also a chunk of revenue in that.
That is really did it to like training and sustainment of existing switchblade systems for customers and repair.
You know what we referred to as a training vehicles are training rounds that we provide to our customers for training new.
A war fighters.
Additionally, there is customer funded R&D dollars that comes in for the funding for example, new variants of the systems or maintenance of the similar enhancements on that at the variance. The other variants that we've spoken about publicly is the blackwing bear yet obviously, that's in a much specific target market into smaller more specific targeted.
Marketo submarines, but those are the different types of revenue that's in that bucket of Tms product line category.
Okay. Okay.
And then well he during your tenure and even back through Tim's, there's been I think a challenge around predicting timing and magnitude of adoption, but if you look back over the last several years there aren't many.
Fence companies with a better track record on meeting revenue guidance. So I feel like you have better visibility into the business on on the revenue side and maybe give yourself credit for so the question is given given the strong track record of visibility when do you think you'll be in a position to provide more longer term.
Three to five year financial targets. Thank you.
So thank you Joe for recognizing it and noticing that we try our best we never considered to be.
Good done done, we always strive for better and more accurate information in predictions in terms of the long term again look we're very fortunate that we're in a position in a market that promises so much growth and prosperity for us.
Yes, the whole world is challenged with the pandemic, that's going on and it's affecting every one of us all around the globe, but we believe that given our strong balance sheet given our strong positions in these leading positions in these markets and the growth portfolio that we have and the track record and we've had in the years. This will be the fourth year of consistent profitable growth.
That we've been able to at least plan as well as the liver so far as so we look forward to that in terms of long term. It is really a difficult challenge to see beyond the fiscal year. We do believe that these markets are large we have a plan to strategy. So far we're very much.
Pleased with our results and.
No, we look forward to executing and delivering delivering more value and as we have the ability to predict further along in a more accurate way, we would absolutely make sure that we keep you are aware aware and informed on that front.
Okay. Thank you.
You're welcome. Thank you Joe once again to ask a question. Please press Star then one on your Touchtone phone.
Our next question comes from Ken Herbert of Canaccord Genuity Ken.
Hi, Thanks, I wanted to ask a question for Kevin Perhaps you delivered really good cash in the quarter and it sounds like a receivable specifically help working capital but are you you know I know the last couple of years conversion spin been lower then then maybe in the prior years then it can be fairly volatile, but can you talk about either.
We we should think about conversion on the free cash this year say relative to net income or maybe just some of the Q puts and tight puts and takes for the remainder of the year and because it looks like your position coming out of this quarter to have a they really nice rebound in cash generation for the fiscal year.
Yeah, I mean, we're looking at a at a very much positive cash flow year I.
I mean, the one of the key drivers is the investment in working capital items like inventory receivables and Unbilled receivables and we did bring that down substantially in the first quarter. The unbilled is been running kind of high on the 70 $576 million range that should come down somewhat during the year.
But potentially could be back at the same level by the end the year as we recognize revenue on some of some of the contracts, but the other items there should stay fairly close to their current levels throughout the year.
We did spend 4 million of Capex in the quarter, that's probably type of spending per quarter would be expected. The next several quarters, we are investing in new products and things like that and so that that spending should continue through the year.
Okay. Thanks, Kevin.
Thank you Ken.
Our next question comes a follow up question from Peter Arment Fair Peter.
Yeah actually yeah, Ken just asked a what I was going to ask on the a receivable. So thanks, Kevin for all the details I'll jump back into queue. Thanks.
You're welcome Thank you and with that we have no further questions. At this time, we appreciate everybody's engagement and interest thanks for your and your attention and an archived version of this call all SEC filings and relevant company in industry news can be found on our website www dot Avi I and see dotcom.
We wish you a good day look forward to speak with you again following next quarter's results and continued good health and safety good afternoon.
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