Q3 2021 AeroVironment Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to Aerovironment <unk> third quarter of fiscal year 'twenty 'twenty. One earnings call. This is Steven Gitlin, Chief Marketing Officer, and Vice President of Investor Relations for Aerovironment. At this time all participants are in a listen only mode. We will conduct the question and answer session. After managements remarks.

As a reminder of this conference call is being recorded for replay purposes before.

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 that may predict forecast indicate or imply future results performance or achievements and may contain words, such as believe anticipate expect estimate intend project plan or words or phrases with similar meaning 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 is periodic reports on form 10-K, and form 10-Q filed with the SEC and the form 8-K filed today with the SEC along with the associated earnings release, and the Safe Harbor statement contained therein.

Afternoon, We also filed the slide presentation with our earnings release and posted the presentation on our website at <unk>, Inc. Dot com in the events and presentations section the.

The content of this conference call contains time sensitive information that is accurate only as of today March nine 2021.

The company undertakes no obligation to make any revision to any forward looking statements contained in our remarks today, where the 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, Milwaukee, and senior Vice President and Chief Financial Officer, Mr. Kevin Mcdonnell well.

We will now begin with remarks from Wahid Wahid Wahid.

Thank you Steve welcome to our third quarter of fiscal year 'twenty 'twenty, One earnings conference call.

On today's call I will emphasize three key messages included on slide number three of our earnings presentation.

First our team continues to deliver strong results. Despite the continued challenges presented by the COVID-19 pandemic.

Second we're on track to achieve our fiscal year 'twenty 'twenty, one objectives, while delivering our fourth consecutive year of profitable double digit topline growth.

And third we're successfully executing our long term growth strategy through a recent transformative acquisitions that will accelerate our success over the near and long term.

Now, let's review our financial performance in the quarter, which is outlined on slide number of four of our earnings presentation.

We delivered third quarter revenue of $78 $8 million on increase of 27% year over year and consistent with our expectations.

Earnings per diluted share of one cents increased from a loss of four cents in the prior year, primarily due to an increase in revenue and product margin.

Non-GAAP earnings per diluted share for the third quarter was 14 cents, an increase of 15 cents as compared to the prior year.

Our team continued to build on our positive momentum supporting our U S and more than 50 allied customers and simultaneously executing on transformative acquisitions.

While the pandemic continues to shift some orders due mainly to travel restrictions, we're still delivering on our commitments and working toward a fourth consecutive year of profitable growth.

During and shortly after the end of our third quarter, we announced three acquisitions debt, we're confident will significantly strengthen our company and extend the aerovironment as the track record of operational and financial success.

With the acquisition of <unk>, we're expanding our portfolio of solutions with the leading family of unmanned ground vehicles.

Based in Germany tell Rob has been in business for almost three decades and serves defense and public safety customers in 45 countries.

We see significant opportunities across our customer base for cross selling and await a decision from the U S. Air Force on the large EOD Robotics program, which we recently bid as a prime contractor.

We expect to close the teller of acquisition and learned the result of the Air Force competition by the end of our fiscal year 2021.

Next our acquisition of our tourists UAV, which closed on February 19 provides us with class leading medium UAS that can fly longer and further while carrying significantly larger payloads as compared to our small UAS.

We now refer to Puma, Ellie jumped 20, and T 20, as our medium UAS or M. UAS solutions, providing endurance ranging from $6 of half hours to 24 hours.

R. M. UAS team continues to deliver intelligence at the service on the U S. So com and E UAS for program.

In addition, jumped 20 is well position for the U S Army's future Tactical UAS program or F. T UAS, a multiyear opportunity for the replacement of the Army's the legacy group III solution.

We participated in a competitive S. T UAS demonstration last week, providing the army with a better understanding of the jumped twenty's capabilities and suitability for this program.

Our system performed extremely well in this demonstration, which should improve our competitive position for this program.

Last on February 24th we announced our acquisition of project E Systems' corporations intelligence systems group or ISG.

ISG is a best in class developer and supplier of machine vision and perceptive autonomy software solutions.

[noise] Isg's, Virginia office will become Aerovironment artificial intelligence and innovation center, serving as a focal point for accelerated development of advanced capabilities that will significantly enhance the intelligence and autonomy of our entire solution set.

For example, Isg's technology automatically processes imagery from any source to search for specific objects detect changes overtime and develop pattern of life analysis.

Once the ISG software identifies an object of emission profile can be loaded into our unmanned systems, enabling them to search for and identify the object in the field the modify their missions autonomously to take appropriate actions.

I cannot overstate the value of the ISG teams ability to increase the capabilities of our solutions, while also increasing our revenue forecast from customer funded R&D projects.

ISG also helps us deepen our relationships with key U S government customers the.

ISG team will merge with our of Mccreedy works advanced solutions team and drive even more innovation into our portfolio for defense and nondefense customers.

Our new artificial intelligence innovation Center will also enhance our presence in the Washington D C area.

These are three exciting transactions that expand our business our team and our ability to drive shareholder value over the near and long term.

Now shifting to our business results are small unmanned aircraft systems product line represented 64 per cent of total revenue in the third quarter and we remain the leader in the global market for small UAS.

During the quarter, we announced a new extended range antenna for our small UAS that expands the command and control range of our solution set up to 40 kilometers.

The international market for small UAS remains strong contributing to our healthy pipeline.

While we are experiencing limitations in our ability to travel during the COVID-19, pandemic, which delayed some customer orders were confident in our ability to continue delivering strong results.

In our tactical missile systems product line, which represented 25 per cent of third quarter revenue. We received the first U S government approval for the export of Switchblade 300.

We do not intend to identify the customer for this export.

This is an important milestone for us as we market switchblades unique capabilities to international customers.

We believe additional demand from close U S allies will also be forthcoming.

We expect switchblade exports to take place within the U S government foreign military sales or F. M. S program as opposed to the direct commercial sales.

We pre released previously stated that Switchblade 600 would compete for the United States of Marine course, organic precision fires mounted or O P. F M program.

A key competitive demonstration took place in February for this program.

We're very proud of the performance of Switchblade 600 over numerous launches in harsh environmental conditions.

The multi pack launcher, we developed for Switchblade 600 also performed as expected providing the ability to transport and launched multiple loitering missile of from a mobile platform.

Due to the impact of the pandemic on program timelines, we now expect the customer down select on this program by the end of our fiscal year 2021.

We are building the demand pipeline for Switchblade product line as we continue to develop additional variants and as the U S. Navy proceeds with its adoption of Black wing.

Moving now to haps, which represented 9% of third quarter revenue.

Softbank Corporation, and Aerovironment remain committed to this opportunity and its value creation potential.

We have collected a large volume of data from our first five successful test flights and are incorporating our learning and to the design of the next aircraft.

Okay.

We're confident that the next version of Sun glider will facilitate the certification process and demonstrate both enhanced performance and improved manufacture ability.

No I would like to discuss the ongoing impact of the COVID-19 pandemic on our business.

We continue to experience some delays in customer contracting decisions on our domestic and international customers.

Who operate largely and remote work configurations.

We're also experiencing minor delays in limited areas of our supply chain without impact to our production timelines.

While the rate of vaccination continues to rise we're assuming that the current remote work situation is likely to continue through and beyond the summer.

Now I will turn the call over to Kevin Mcdonnell for a summary of third quarter and year to date financials Kevin.

Thank you Wahid today I will be reviewing the highlights of our third quarter and year to date financial performance I'll be referring to both of our press release and earnings presentation available on our website.

Revenue for the third quarter of fiscal 'twenty 'twenty, one was $78 $8 million, an increase of 27% from the third quarter of fiscal 'twenty 'twenty revenue of $61 $9 million the <unk>.

Breakdown of revenue by product area is contained on slide six of the quarterly earnings presentation.

During the quarter, we showed especially strong performance on our Tms product line, which was up 148 per cent from the same period last year.

<unk> was also up 37% from the same period last year. These higher sales were partially offset by lower haps and other revenue.

Revenue for the first three quarters of fiscal 'twenty 'twenty, one was $258.9 billion, an increase of 12% from the first three quarters of fiscal 'twenty 'twenty revenue of $232.1 billion.

Again, the revenue growth was largely due to the 125 per cent year over increase in Tms sales, which were partially offset by reduced haps revenue.

Turning to gross margin slide seven of the quarterly earnings presentation shows our product service mix and overall gross margin trends over the past five quarters.

Margin for the third quarter was $28 $6 million or <unk> 36 per cent of revenue compared to $23.5 million or <unk> 38 per cent of revenue for the prior year third quarter.

The lower year over year of gross margin percentage was primarily due to an unfavorable product mix, which was partially offset by higher a higher proportion of product versus service revenue.

Gross margin for the first three quarters of fiscal 'twenty 'twenty, one was $104.9 million or <unk> 41 per cent of revenue compared to $99.9 million or <unk> 43 per cent of revenue for the first three quarters of 2020.

Again, the lower year over year of gross margin was primarily due to an unfavorable product mix.

Looking forward, we expect gross margin percentage to decline as the result of increasing the intangible amortization expense from the announced the acquisitions. While we are still on the process of completing the purchase accounting, we expect a decline in gross margin percentage to be as much as four percentage points from increased intangible amortization.

Next I will turn to operating expenses S.

SG&A expense for the third quarter was $15.7 million or 20 per cent of revenue compared to the SG&A expense of $13 $2 million or 21 per cent of revenue for the third quarter of fiscal 2020.

SG&A expense for the first three quarters of fiscal 'twenty, and 'twenty, one was $42 $6 million or 16% of revenue compared to $43.1 billion of 19% of revenue for the first three quarters of fiscal 2020.

The current quarter increase in SG&A expense was driven by an increase in acquisition related expenses of $3 $4 million, partially offset by a reduction of travel and trade show expenses, resulting from Covid related restrictions, we expect significant acquisition related expenses in the fourth quarter as we complete and integrate the recently announced the.

Sure.

In addition, we should see higher SG&A as we consolidate the acquisitions and recognize a portion of the intangible amortization expenses as part of SG&A integration costs will also continue into fiscal 2020.

Two overall.

The overall SG&A expense as a percentage of revenue will increase of fiscal 2020 two as a result of the intangible and tangible amortization and the integration costs.

R&D expense for the third quarter was $13 $6 million or 17% of revenue compared to R&D expense of $11.4 million or <unk> 18 per cent of revenue for the third quarter of fiscal 'twenty R&D expense for the first three quarters of fiscal 'twenty 'twenty, one was $36 $7 million or <unk> 14 per cent of revenue compared to.

$39 million of 13% of revenue for the first three quarters of fiscal 2020.

We continue to make R&D investments across our product lines and absolute dollars of the vessel and increase as we absorb the acquisitions, but we expect the decline to approximately 10% of revenue on a full year basis of fiscal 2022.

Looking at the bottom line net income attributable to Aerovironment for the third quarter of fiscal 'twenty 'twenty, one was $211000 or one cent per diluted share compared to a loss of $1 million or or minus four cents per diluted share for the third quarter of fiscal 2020, the one point to the billion dollar increase of net income.

<unk> was largely a result of higher gross margins of $5.1 million of higher benefit from income taxes of point $9 million and a reduction in equity investment loss of $1.1 million. These improvements where last year, largely offset by higher SG&A and R&D spending.

For the first three quarters of fiscal 'twenty 'twenty, one net income was $12 $4 million of our 51 cents per diluted share compared to $23 $6 million or 98 sets of diluted share for the first three quarters of fiscal 2020. The 11 $2 million reduction of net income was primarily due to the $8.4 million loss from our portion.

Of the Haps mobile impairment of its investment of Loon, together with higher R&D spending of $5 $8 million and lower interest income of $3.3 million. These reductions of net income were partially offset by higher gross margin of $5 million.

In terms of adjusted EPS Slide 11 shows the reconciliation of GAAP or an adjusted or non-GAAP diluted EPS.

Non-GAAP diluted earnings per share for the third quarter of fiscal 'twenty 'twenty. One was 14 cents per diluted share versus the diluted loss per share for the third quarter of fiscal 2020 of one Seth.

For the first three quarters of 'twenty 'twenty, one non-GAAP diluted earnings per share was $1 six per diluted share versus non-GAAP diluted earnings per share for the first three quarters of fiscal 2020 was $1 seven per diluted share.

Turning to our balance sheet.

Our cash position was strong at the end of the third quarter of fiscal 'twenty 'twenty, one with cash cash equivalents and investments totaling $384 $3 million and the increase of $66 $6 million from the end of fiscal 2020 total cash from operating activities. During the first three quarters of the year was 79 million of which 40.

Point 1 million was the result of working capital improvements and the remainder from operating activities. The working capital improvement came primarily from the collection of accounts receivables.

Terms of capital expenditures, we spent $8 5 million during the first three quarters of 2021.

Subsequent to the end of the third quarter, we had total cash outlays from our existing cash related to the acquisitions that closed in February of approximately $196 million. In addition in conjunction with the Arcturus Transit acquisition, we entered into a $200 million term loan facility and of 100 billion dollar of evolving.

The facility with a group of banks at the close of the Arcturus transaction, we drew down the $200 million on the term loan facility, which was used to fund the acquisition.

The 100 million revolving credit facility remains unused.

We expect an additional $54 million of cash outlays related to the tell Rob acquisition, which is expected to close during the fourth quarter.

Also at the close of the Arcturus transaction, we issued approximately 574000 shares.

Of the Avi stock to the selling our tourist shareholders the.

The stock issuances restricted and will become sellable in tranches over an 18 month period.

I'd also like to note that we're adding adjusted EBITDA at the non-GAAP measure on a go forward basis to better inform our investors for children. Given the fact that we now have significant intangible amortization and debt on our balance sheet.

Now I'd like to highlight some of our backlog metrics.

Our funded backlog at the end of Q3 was $103.9 million a decrease of $22 $1 million from the third quarter of fiscal 2020, and an increase of on and a decrease of $104 $2 million from the fourth quarter fiscal 'twenty 'twenty backlog of $208 $1 million the <unk>.

Backlog decline is primarily due to delays in orders, resulting from the impact of the Covid pandemic.

In terms of fiscal 2021 visibility, which is highlight highlighted on slide eight of the earnings presentation.

As of today, we have year to date revenue in fiscal 2020 one of $259 million.

Third quarter, ending backlog that we anticipate the execute in fiscal 2021 of $76 million.

Quarter to date bookings, including the acquisition backlog of assumed that we anticipate to execute in fiscal 2021 of $28 million in unfunded backlog from incrementally funded contracts that the anticipate to recognize revenue during the balance of the year of $20 million. This adds up to $383 million or 95.

Per cent of our fiscal 'twenty 'twenty, one midpoint revenue guidance range now.

Now I'd like to turn things back to Wahid.

Thanks, Kevin.

The global demand for our unique and broad set of solutions remains healthy.

And overseas locations, where the U S. Military has reduced its footprint, we have seen increased demand for ISR solutions, including UAS and ISR services, which are M. UAS product line team delivers.

To highlight this point today, we announced the latest task Order award from U S. So calm for its N E. UAS for program valued at approximately $7 million for M. U S ISR services.

We have also seen increased demand from Allied nations for our capabilities to help them operate when faced with a smaller U S military presence.

Supported by 95% visibility to the midpoint of our guidance range. We are narrowing our first full fiscal year 'twenty 'twenty, one revenue expectations to between $400 million and $410 million are summarized on slide number nine of our earnings presentation.

This range corresponds to the upper half of our prior fiscal year 'twenty 'twenty, one revenue expectations.

Our revised expectations include revenue from the acquired Arcturus, UAV and ISG businesses and the pending teller of acquisition, which we anticipate the close prior to the end of the current fiscal year.

We expect that our full year revenue, excluding incremental revenue from our acquired businesses well achieved the low end of our prior revenue guidance range.

We now expect to deliver adjusted EBITDA of $64 million to $69 million earnings per diluted share of 76 cents to 96 cents and non-GAAP earnings per diluted share, which excludes acquisition related expenses amortization of acquired intangible assets and the haps mobile investment in <unk>.

Hammond of <unk>.

Between $1.74 and $1.94.

Achieving these results will represent our fourth consecutive year of profitable double digit revenue growth.

Consistent with last quarter's guidance revenue mix will result in a lower gross margin percentage in fiscal year, 'twenty 'twenty, one as compared to the prior year.

We now expect research and development investments to total approximately 12% of revenue for this fiscal year.

Our strategic acquisitions increase the talent pool across our team and make us a stronger company with a more expansive portfolio of solutions to address a wider variety of customer missions.

We have carefully selected dedicated and capable leaders to manage each of these new businesses and are confident in their ability to integrate our new team members and to Aerovironment and execute our strategy for near and long term value creation.

As a result of the significant portfolio shaping we have undertaken to position us for continued growth and success. We're now providing preliminary expectations for fiscal year 'twenty 'twenty two based on our current view of market conditions as follows.

We expect five of around $60 million to $580 million on revenue.

$110 million to $115 million and adjusted EBITDA.

Earnings per diluted share between $1.38 and $1.58.

Non-GAAP earnings per diluted share between $2 50 and $2.70.

And research and development investments of around 10% of revenue.

We may provide more refined revenue and EPS expectations, and our fourth quarter and full fiscal year 'twenty 'twenty. One earnings released in late June after the completion of all acquisitions and associated purchase accounting.

We continue to evolve our business and shape our portfolio to achieve our future state objectives of delivering a range of intelligent multi domain robotic systems.

The three acquisitions I have discussed today represent major steps toward achieving that future state.

Ultimately our goal is to provide the solutions our customers increasingly rely upon to achieve their objectives, and thereby advance our growth and value creation strategy.

In summary to reiterate our main points for today's call.

First our team continues to deliver strong results. Despite the continued challenges presented by the COVID-19 pandemic.

Second we are on track to achieve our fiscal year 'twenty 'twenty, one objectives, while delivering our fourth consecutive year of profitable double digit topline growth.

And third we're successfully executing our long term growth strategy through a recent transformative acquisitions that will accelerate our success over the near and long term.

Before opening the Q&A I want to thank our talented team across the entire organization for their ongoing commitment to serving our customers and their dedication to doing so during this unprecedented pandemic.

Thank you to our customers for continuing to rely on us to help them succeed and to our shareholders for your ongoing trust.

Our commitment to all of our stakeholders remains to help 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 one on your Touchtone phone.

If you wish to be removed from the queue press the pound or hash key.

If you are using a speakerphone you may need the pickup your handset first before pressing the numbers.

We respectfully ask that you limit your questions to two and please reenter the queue to ask any further questions.

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

Our first question. This afternoon comes from Peter Arment of Robert Baird Peter.

While he'd Kevin.

And wahid, thanks for giving us kind of on initial sneak peek at fiscal 'twenty. Two I think it's obviously helpful. Given all of the M&A efforts that you've talked about but obviously you had to come up with some sort of basis of what the operations would be I think when you came into fiscal 'twenty. One you had a 60% visibility kind of on that revenue.

Maybe if you don't want to break down the specifics of the acquisitions, maybe you could just talk about some of the key pieces around that increase our when we're thinking about fiscal 'twenty two.

Thanks, Peter share so.

As I mentioned on my remarks, this will be the fourth consecutive year of <unk>.

Profitable doubles, you the top line growth and our core businesses be before the acquisitions are also within our guidance range in terms of fiscal year 2022.

Given the significant positive impact of these acquisitions on our business. We believe it is very helpful for investors to understand how this will translate into our from next fiscal year as anticipated results. So for that matter. We figured it'll be helpful. If you could provide some level of <unk>.

Clarity as the preliminary outlook for next year in terms of the overall visibility we will provide that and amongst other details as we always do on our fourth and full year fiscal year, earning.

Earnings call late in June what I can tell you is that our cross our business demand for solutions, both domestically and internationally remained strong the three acquisitions, coupled with our existing portfolio of solutions and positions really position us incredibly well for a very large set of long term growth and opportunities and Val.

Of the creation opportunities for us. So we're delighted these are very deliberate and very carefully selected our moves that we've made and I firmly believe in the long term value creation opportunities that these will provide for us and of the value that of deliveries of our customers' missions. Peter. Thank you. Thank you for that just as a follow up if I could.

On on just related to the the Switchblade 300 to the first Allied nation of.

We've seen in the past how you've been able to just kind of continue to expand the opportunities with your core UAS platforms internationally does this follow a similar path or is it something different just given that it's of loitering munition and how do you expect that the kind of be adopted.

Sure. Thanks, Peter up yes, the short answer is absolutely, yes, as I've said before.

The first and foremost the international market adoption for our Switchblade the entire family actually just not the Switchblade 300, but now also the expansion into our Switchblade 600, and other variance definitely represents the equal if not larger opportunity for us globally.

Internationally outside of the domestic markets, we are extremely delighted at the.

That after a very long <unk>.

Any years of hard work that we were able to achieve a successfully obtaining an export license for an allied nation for our of Switchblade 300.

We were not in a position to be able to disclose the name of that customer for sensitivity purposes, but this is absolutely a.

Paradigm shift in terms of the future of our Tms business and this disruptive capability that we brought to the market.

We also are engaged as I've said on my remarks with multiple other allied countries.

Obviously these things take time.

But I think that the opportunity is great and our team has been incredibly good at executing our plans as we have said before so we look forward to updating you in the future on that.

Thank you Peter and our next question comes from Pizza Kubicki of Alembic Global Pete.

Hey, good afternoon, guys and congrats on all of the accomplishing all of the hard work this quarter.

Good afternoon. Thank you Peter.

Just wanted to ask a little just the follow up on on Peter's questions.

For both fiscal 'twenty, one and fiscal 'twenty two in your revenue guidance are you assuming kind of some incremental you touched on this wahid a little bit in your opening remarks, but are you kind of assuming some incremental headwind from international small UAS.

Actually what I mentioned on my remarks, Peter is that in general primarily because of the Covid pandemic.

And the restrictions that it has placed for our domestic and international customers. The travel to come for acceptance test and flight demos and do trainings, we have seen some delays because of that risk selection in terms of contract timing, we've seen some on our supply chain, but we've really managed all of those of mitigated them extremely well on.

Very proud of our team's achievements in that regard going into next fiscal year next fiscal year. We are of very healthy pipeline of opportunities internationally for our small UAS no doubt that that the change in the U S posture.

And the drawdown of our troops as also.

Motivated our international customers to take a harder look in terms of equipment themselves with ISR services and capabilities to.

Sort of make up for that so I think that going into fiscal 'twenty. Two we are of very healthy pipeline of international of opportunities.

Pretty diverse and robust in terms of size and volume of customers as well.

And I don't see any major issues, especially if we can get this pandemic behind us sometimes of hopefully.

Towards the end of the summer or so.

But in general we've seen some delays in overall pretty good pretty healthy demand overall.

Okay, Great I appreciate that just one follow up on.

On the haps it.

It sounds like the test events are coming along nicely youre going to make some improvements.

Should we expect kind of a new contract at some point for kind of the next kind of up operated.

So on rider on the next couple of quarters or so what's the right way to think about that yeah. So as I mentioned on the remarks, Pete that both companies are committed to the long term value creation opportunity of the haps on what valued brings on how large of a multibillion dollar market. It is going after and attacking in terms of the short term we are.

Working with our partner we've had five consecutive successful flights as I said and we have an enormous amount of learning from that there's tremendous amount of data that we've collected all of which was the was our original plan to incorporate into the building and designing of the next generation of that airplane, it's very very natural in terms of the divi.

All of Manhattan.

Exercise and.

The progression of that so we are working with our customer to figure out of way to either augment the existing contract or.

<unk>.

Put in place of new contract to continue the work, we do not foresee any disruptions there of short term, but obviously, we're going we're entering a phase where we're going to be continuing to improve the product improve its certification chances and improve its ability to be able to manufacture it more reliably and cost effectively and we will keep you updated and.

I'm very proud of the team again, despite the COVID-19 pandemic of how.

Well, we've executed throughout these difficult times debt.

Very critical program on our business so far.

Thank you Pete our next question comes from Ken Herbert at Canaccord Genuity Ken.

Yes, hi, good afternoon.

Wahid I just wanted to just first ask.

The guidance of the initial look at 'twenty two implies some nice margin expansion.

But does the guidance imply maybe a step down and in the margins of the contribution as a percentage from extra as you as you have that for a full year.

Hi, Ken I would say that we're very very.

Delighted what the potential.

Outlook for fiscal 'twenty, two both in terms of our core business and in on the acquisitions overall I would say, it's very much in line with what we expected and the progress that we're already making so far with both an EUA S. Four program, which we announced an award of 7 million dollar of war today.

In a very successful demonstration that we did for the Army's ft. UAS program. So it gives me a lot of confidence that we're positioned extremely well keep in mind. These are strategic long term move.

Moves and acquisitions that we've done not only are they actually bringing in delivering incremental significant both topline and bottom line EBITDA improvements in our on our financials, but they also represent a very large opportunity long term and all of billions of dollars of market opportunities.

The N UAS alone represents over 1 billion all the market opportunity for us. So what we're trying to do is we.

We just closed the acquisition we're engaged with the team.

Everything that we're engaged with them so far looks quite good but there's a lot more work to be done and we will keep you updated throughout the next quarter as we go forward.

Okay, that's great and if I could just to follow up on the FTE UAS.

Should we expect in terms of of the next milestones or time lines and can you give any more.

Any more detail around the.

On the demo flights of few weeks ago on how the system performed.

Sure. So this was actually a formal invitation by the U S Army to two.

To conduct.

A demonstration in all of the key selected players to come in and demonstrate their capability. This was primarily to see how far along.

In matured the solution sets are from various competitors as well as to inform them in terms of the requirements that they are going to.

Sort of finalize and conclude before they actually really hold the competition in terms of a form of RFID or RFP.

They haven't announced any specific milestones as a result of this so far it is a longer term program, which I believe it's I expect it to be able to be awarded within another year and of half of two years.

But in general what really impressed me in what I'm very pleased about is that our solution set.

From the extremely well despite the very difficult challenges in terms of the environmental conditions wind conditions in the scenarios that the customer obviously creates for US we believe that our team and our system really performed well.

So that is a fairly positive sign for us debt at least positions us quite well, we still have to compete and we're no.

You know, we're not unfamiliar with that we're very familiar with that but I think we're positioned quite well.

Thank you Ken now I will turn to Louie Dipalma at William Blair, Hi, Louie.

Hey, Steve and Hi, Wahid and Kevin Good afternoon.

Good afternoon, how are you Louie.

Doing doing well on over over the past.

Three months there has been increased investor appetite for next generation based technologies of many investors view Aerovironment with sung lighter in this nextgen space category can you discuss the competitive environment for Sun glad here and how.

You know your aircraft.

Stands versus others that are pursuing the same type of haps aircrafts and on this.

Capex do you have specific patents on the aircrafts engineering that will prevent like other aerospace giants from attempting to.

Copy what you have done after you've been doing.

What appears to be all of the heavy lifting and like the certification process.

Louis So great questions, let me address both of them one at the time. The first one in terms of the competitive landscape and the value proposition of our son glider versus all of the other near space alternatives and competitive platforms. I can tell you that both our partner strategic partner ourselves.

Feel quite confident this is of a space or a category, where aerovironment has an enormous amount of.

Track record and successful experiences, which is unmatched in the entire industry and the world. There's nobody that I know of that has achieved as much as we have and as much progress. We've made so far as we have in the space.

We also feel very strongly about the competitive differentiators of Sun glider against not only other solar haps platforms, but also other competitive alternatives, such as balloons or micro or geosynchronous of Leo satellites and are we really believe that haps has a compelling value.

Proposition in that space in terms of patents and our ability to sustain that differentiate it.

Our competitive advantage. It is fundamentally a part of our strategy from the beginning to defend and have a competitive advantage in that area. We have numerous numerous patents from past as well as from the last two to three years work that we have filed both.

Jointly at Haps mobile also separately there of environment. So there are a number of per patents that we have in terms of the design of the architecture.

The constellation the out of the different sub systems of the airplane the way it actually even provides communication et cetera et cetera. So.

If you like we can provide you with more details on a separate discussion later, but in general.

These are stuff that we filed publicly and they are available and we feel very good about our competitive position in.

In terms of us versus all the other players who claim that they can compete in this space and we welcome the competition.

Thanks Wahid I also wanted to say congrats on the Switchblade export approval that is something that many investors have been waiting for for a long time and.

My last question.

Is does the the preliminary fiscal 2022 guidance.

Assume any contributions from those three program competitions that you referenced like such as the teller of.

Explosive.

Disposal of competition, the long range precision fires mounted or the the F.

T UAS like are there assume contributions from those kind of <unk>.

<unk> in the <unk>.

Our guidance.

From Louie, we will provide you with a lot more details.

And our next the earnings conference call. When we go into detailed summary of our outlook for fiscal year 'twenty. Two we believe that the current preliminary numbers that we provided you because of the.

A significant strategic moves that we've made that has an impact on our next fiscal year. We felt that this was this level of visibility at this time was critical for shareholders and analysts and.

In general I can tell you that we have a very large portfolio of opportunities both on our core businesses and in our acquired businesses that were integrating with the rest of our businesses are positioned in the space is incredibly strong our breadth and depth of our portfolio of opportunities is pretty large and diversified.

We're very fortunate to have access to such large opportunities at various different ends of the spectrum and I believe there will be a uniquely positioned against all of their competitors in the space to provide a multi domain intelligent robotics system solution.

You know of coupled with AI and autonomy in the artificial intelligence capability. So as use of as you saw from our comments.

You know revenue range of about $560 million to $580 million of the significant growth on our current numbers and obviously, a very strong growth on our non-GAAP earnings per diluted share.

All the way up to two on $2.50 of $2 70 range. So we look forward to providing more details on the next call.

Thank you Louie once again to ask a question or to reenter the queue for a follow up please press star and then one on your Touchtone phone.

And our next question comes from Joe de Nardi at Stifel. Good afternoon, Joe.

Hey, good afternoon, Steve Wahid Kevin.

Hi, Joe Wahid.

Sorry too.

Kind of beat this one of the death, but I think its what folks are kind of.

Focused on on a little bit.

And just to clarify you said the absent the acquisitions you would've come in at the low end of the FY 'twenty. One revenue guidance is that right and then can you just quantify how much organic revenue growth is implied in the FY 'twenty two guidance for us.

Joe I as I said on my remarks that yes. If you if you look at our original guidance that we provided at the beginning of our fiscal year 'twenty, one about a year ago from the from now.

Our organic business as our core businesses left you referred to it as that.

Would still be within our guidance range, although on the lower end and again, that's a there's a variety of outcomes at any given time that we look at that gives us the.

The probability of risk adjusted probability of where we think we're going to land with.

With these acquisitions, although one of them are still not close, but we expect that to close this quarter, which is this month.

We still believe that.

That we're going to be within our guidance, but at the upper limit. So we're very pleased with that one of the things of that has affected us the match up set throughout the entire year is that this pandemic has had some timing delays on the actual timing of these orders.

We have a very healthy pipeline, we're involved in lots of different customers on opportunities across our entire portfolio, we've got a pretty significant.

Quarter, which were ready for and we expect it.

As we planned and we look forward to delivering that so again this will be our fourth consecutive year of double digit top line profitable growth.

And I can't think of another company that is positioned so well as we are in our space for the long term value creation opportunities that we havent front of us the size of the markets. The breadth of our solution the ability for us to solve our customers' problems. The end to end is really really unmatched in the industry. So we look forward to that for the long run.

Okay and in the organic revenue growth implied in the FY 'twenty two guidance.

We have a purpose.

We will be providing those details Joe as we said on our fourth quarter and full fiscal year earnings conference call coming up in the next one.

At this point, we provided the amount of preliminary information that we can based on what we see you know keep in mind, we still havent closed one of the acquisitions, we still Havent finished this year, which we intend to do and deliver on our commitments on our expectations and look forward to another year and again the amount of progress we've made on our key growth initiatives is remarkably.

Impressive based on what we've done so far given all of the headwinds would get the Covid pandemic change of administration.

No change of political parties in terms of power and the Congress et cetera, et cetera, but we're we're looking at where on a good position.

We have no further questions at this time and so 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 a V Inc. Dot com, we wish you a good day and look forward to speaking with.

You again following next quarter's results.

Okay.

Some of it.

Okay.

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