Q4 2021 AeroVironment Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to Aerovironment and fourth quarter and full fiscal year 2021 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 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 1095 forward. Looking statements include without limitation any statement that may predict forecast indicate or imply future results performance or achievement.

And may contain words, such as believe anticipate expect estimate intend project plan or words or phrases of 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 of our 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 the Aerovironment and 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.

This afternoon, we also filed a slide presentation with the earnings release and posted the presentation on our website at <unk> Dot com and the events and presentations section.

The content of this conference call contains time sensitive information that is accurate only as of today June 29, 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 of President and Chief Executive Officer, Mr. Wahid, New hobby, and senior Vice President and Chief Financial Officer, Mr. Kevin Mcdonnell and we will now begin with remarks from Wahid Wahid Wahid.

Thank you, Steve and welcome to our fourth quarter and full fiscal year 2021 earnings conference call.

On today's call I will emphasize unimportant message and included on slide number 3 of our earnings presentation.

That message of this.

Aerovironment again delivered on its financial operational and strategic commitments. Despite the continued macroeconomic challenges.

And fiscal year 2021, we applied Aerovironment has unique value proposition of innovation customer intimacy and agility to help our customers succeed.

We're proud to have the delivered a fourth consecutive year of profitable revenue growth and the midst of the global pandemic.

We deployed our balance sheet to expand our solutions portfolio and the value of our addressable markets.

We successfully executed our growth strategy and create significant value for our 3 key stakeholders, our customers employees and shareholders.

And the demand and preference for innovative reliable and battle proven solutions remained strong, reflecting our continued global leadership and our chosen market segments.

Today, I will summarize our fiscal year 2021 performance and discuss our achievements during the fourth quarter and full fiscal year.

Next Kevin will provide a more detailed summary of our financial performance and the year and then I will follow up with a brief discussion on our goals for fiscal year 2022, before Kevin Steve and I take your questions.

Now, let's move to our fiscal year highlights included on slide number 4.

Our team has done an incredible job of staying focused on serving our customers and delivering profitable top line growth. Despite our full fiscal year operating during the COVID-19 pandemic.

Well, we produced record fourth quarter revenue of $136 million.

And record full year revenue of $395 million.

Full fiscal year revenue increased by 7.5%, including contributions from the <unk> UAV and ISG businesses acquired in the year, which I will discuss in a few moments.

While we were able to manage the majority of supply chain issues. During the pandemic some isolated issues prevented us from achieving all of revenue objectives for the fourth quarter and the full fiscal year, leaving us slightly below our guidance range.

Full year diluted earnings per share or 90 success compared to $1.72 for.

For fiscal year, 2020.

Fiscal year 2021 included an impairment of $8.4 million the.

Related to the haps, mobiles and investments and Luna, LLC and $9.3 million for legal accruals related to our former EES business.

Non-GAAP earnings per diluted share for fiscal year, 2021, or $2.10.

<unk> to $1.84 for fiscal year, 'twenty, and 'twenty and increase of 14%.

Record fiscal year, ending funded backlog of $211.8 million rose slightly from the prior year.

And I commend the entire aerovironment team for adapting to new ways of working during the pandemic and achieving the solid financial results. While also acquiring 3 new businesses and successfully integrating them and to our portfolio.

Now I will review, our business achievements and fiscal year 'twenty 'twenty 1.

First and foremost and fiscal year 2021, we significantly reshaped our portfolio by acquiring our tourist UAV <unk> and <unk> systems ISG.

These acquisitions further expand our offering to provide our customers a portfolio of intelligent multi domain robotic systems.

Beyond the defense markets, we're also able to deliver valuable solutions, combining air and ground robotic systems to first responders infrastructure managers homeland security personnel and others.

Supporting the broader adoption of UAS for commercial use and we were recently appointed 2 on the FAA Advisory Rulemaking Committee focused on beyond visual line of sight operations.

This ensures we remain and are positioned to provide recommendations that drive adoption of UAS and the United States.

As a result of our strategic acquisitions, we now organize our portfolio and 6 product lines, which I will now describe.

First our small unmanned aircraft systems product line represented 60% of total revenue and the fiscal year or $236 million.

We continue to secure new procurements and support awards for U S and some of our more than 50 international Allied customers, reflecting our continued global leadership and this category.

During the fiscal year, we received a number of contract awards that included more than $20 million from the U S Army for Raven Radiofrequency modification and a number of for criminal awards from international Allies for Raven, and Puma and for support services.

And total our small UAS product line generated approximately $111 million and international revenue during the year, a 6% increase over fiscal year 2020.

Second our new medium UAS product line is the result of our acquisition of Arcturus UAV a provider of group, 2 and 3 UAS and services.

This transaction closed and our fourth quarter and the product line contributed 4% or $16 million of full fiscal year revenue.

Our and UAS product line addresses the market segment that is even larger than the small UAS opportunity and the team continued to support our U S. So com customer on its and E UAS for services contract.

As a reminder, under this contract Aerovironment provides ISR services to our customer and their overseas basis.

This is a contract for our own contracts are operating at or cocoa business model and which are personnel operate our jumped 20, VTOL fixed wing hybrid systems and provide customers with the actionable intelligence they generate.

During the fiscal year, we also secured and extension of award for 1 of the customer locations and are gaining share and this program, reflecting our strong operational performance and value proposition.

Our jumped 20 system is also a leading candidate for the U S Army's future tactical UAS or ft UAS program.

And February we participated and the Army's FTE UAS rodeo of showcase and successfully demonstrated the advanced capabilities of the jumped 22 army officials.

We remain confident and our positioning for the FTE UAS program and expect the customer to announce prototype of awards and calendar year 2022, and procurement of awards as soon as government fiscal year 2023.

Third our tactical missile systems product line represented 22% of fiscal year, 2021 revenue or $87 million.

During the fiscal year, we secured a new switchblade and 300 procurement of award of $45 million under the U S. Army's 146 million Alamance contract and of separately funded logistics support award worth up to $41 million over 3 years for that program.

Importantly, the U S government granted it's the first export approval for Switchblade 300 procurement by and Allied nation on order and we expect to deliver before the end of fiscal year 2020.2.

We continue to work with additional allied customers, who are interested and switchblade 3 hundreds of unique capabilities.

During the fiscal year, we also introduced the Switchblade 600.

The U S Socal and awarded Aerovironment, and a $26 million contract for Switchblade 600 and April.

The award is for integration of Switchblade and 602 specialized naval vessels, highlighting the multi domain capabilities of this unique solution.

While we do not win the Marine Corps <unk> Phase II are D T and the award we are continuing to track and pursued this and other U S. Dod programs.

Additionally, we will be delivering switchblade and 600 units this fiscal year to another customer who continues to move forward with low rate initial production and operational deployment of this capability.

We're confident and our potential to continue to grow and succeed across our portfolio.

And adding to the multi domain applications for our Tms product line. The U S Navy announced their intent to order up to 120 of our Black wing reconnaissance systems for the submarine launched unmanned air of aerial systems or S. L. UAS program as part of its ongoing effort.

To adopt black wing across its submarine fleet.

And other platform integration opportunities.

We continue to work with general dynamics land systems on the integration of small UAS and switchblade into their next generation armored vehicles.

The recent conflict between Azerbaijan and Armenia highlighted the game changing capability of RMB, UAS and loitering missiles to neutralize traditional armored assets.

Aerovironment remains at the forefront of this disruptive capability and stands ready to support our military and our allies with patented battle proven loitering missile solutions.

For our new unmanned ground vehicles for UGG product line represents <unk>, the German leader and ground robotic solutions that we acquired in early May.

Since we have not closed the transaction prior to the end of our fiscal year 2020, 1 we're not reporting <unk> financial results for the fiscal year.

We retained all teller of employees, including the leadership team and we are actively pursuing a number of new programs and cross selling opportunities and the U S and internationally.

We're still waiting for the U S Air force to announce a decision on its large EOG robotics contract.

Fifth our haps product line represented 11% of fiscal year, 2021 revenue or $42 million.

We recently entered into a new 5 year of Master design and development agreement with Softbank to transition to the next phase of solar Haps development and build a third of aircrafts that would benefit from the learning gain and our 5 successful test flights.

Under this new agreement Aerovironment and received a new $52.1 million of order to continue our work on the program.

We also received an additional $4.7 million of order related to the completion of the previous design development agreement.

We've made tremendous progress on this potentially transformative development program and less than 3 years, we designed the fund the lighter solar haps and.

The established an innovation center and flight test facility produced 2 Sun delight, our solar Haps aircraft conducted 5 successful low and high altitude test flights and demonstrated the broadband LTE communication from the stratosphere.

We remain committed to creating value and our haps product line and are confident that our recent advancements represent an important step towards the ultimate commercialization of solar haps technology for global connectivity.

And our sixth product line Mcqueeney works advanced solutions expanded its capabilities with the acquisition of the project E. Systems' ISG team leader and the development of artificial intelligence enabled computer vision machine learning and perceptive of autonomy technologies.

We plan to introduce new AI capabilities and to our small UAS product line. This fiscal year with the roadmap for continued enhancements and to the future.

Also part of them are creating works, we recently celebrated the historic and highly successful flights of the Mars and Genuity helicopter and much of which our team designed and built for GPL and Napa.

With 8 flights completed J P. L has transitioned ingenuity from a technology demonstration to an operational demonstration.

The achievements of ingenuity speak not only to the ability of our team to develop the first of their kind of robotic systems for the most extreme environments, but also highlight our culture of partnering with our customers and suppliers to achieve incredible results.

We look forward to continued success with ingenuity on Mars as well as supporting emerging opportunities and the new category of robotic aircraft for planetary exploration.

Beyond the business achievements, we've made and our 6 product lines. We have also focused on the diversity of our team and have instituted programs aimed at furthering our culture of inclusion for all team members.

Our diversity and inclusion committee has established a series of programs designed to raise awareness of critical issues and implicit biases.

Our recruiting team is working with organizations that help us reach more underserved populations, including minority serving institutions and minority professional organizations.

We're focused on finding the best team members based on their skills experience and ability to live our values purpose and promise, while contributing to our customer success and to Aerovironment and growth.

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

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

Revenue for the fourth quarter of fiscal 2021 was $136 million of slot.

The increase from the fourth quarter FY 'twenty revenue of $135.2 million slide 6 of the earnings presentation provides the breakdown of revenue by product line for the quarter. The headlines here are that the newly acquired of tourist business, which now becomes our medium UAS product line contributed approximately $6 million of revenue to the quarter.

And of the year. This additional revenue was more than offset by of $16.3 million decline and our house revenue versus last year's fourth quarter, which included the build out of the joint ventures flight test facility.

Tms revenue was strong and the quarter at $39.2 million, but down slightly versus the very very strong fourth quarter and FY 'twenty.

Small UAS also ended the year strong with $79 million of revenue, which is of $7.8 million of 12% revenue increase year over year. Other revenue of the quarter was down $3.5 million from the prior year.

Revenue for the full fiscal year 2021 was $394.9 million.

And increase of 7.5% from the 2020 revenue of $367.3 million.

Reflecting continued leadership and our core products, we experienced strong year over year organic growth of 12% for the combined Tms and small UAS product lines.

However, this was largely offset by a $21.7 million decline and haps and other revenue.

The consequence overall organic.

Revenue growth netted to 3% for the year the.

And the contribution of newly acquired businesses boost to the overall growth to 7.5% level as previously noted.

Turning the gross margin gross margin for the fourth quarter was $59.7 million.

Or 44% of revenue compared to last year's fourth quarter of $53.2 million or 39% of revenue revenue gross margins were and will continue to be negatively impacted by intangible amortization expense included as part of cost of sales, which was $2.6 million for the quarter versus just over <unk>.

600000, and Q4 of FY 'twenty.

Excluding the intangible amortization overall gross margins were strong at 45, 8% for the fourth quarter versus 39, 8% and last year's fourth quarter.

Also excluding the intangibles product gross margins were very strong of 52% versus 42% of year ago.

And I should note that when we talk about intangible amortization under cost of sales. This also includes other noncash purchase accounting adjustments.

Gross margin for fiscal 2021 was $164.6 million.

For 42% of revenue compared to $153.1 million, which was also of 42% of revenue for fiscal 2020.

The total margin dollars increased by 7% year over year.

Total intangible amortization included as part of cost of sales was $4.5 million for fiscal 2021 versus $2.4 million for FY 'twenty.

Excluding the intangible amortization and overall adjusted gross margin for the year were 43% versus 42% last year adjust.

Adjusted product gross margins remained strong for the year at 47%, which is in line with fiscal 2020.

Our mix of products of the server service revenue has been roughly 70% product and 30% of service over the last 2 years as we move forward. We expect this mix will shift to closer to 60% product and 40% service as a result of our medium UAS product lines cocoa ISR operation, which is.

Classified as service revenue.

As a result overall full year gross margins, excluding intangible amortization will decline a few percentage points as a result of this mix shift.

Including the intangible amortization, we expect the drop will be between 5% and 6 percentage points.

Counting the effects the side, we expect full year product margins reported tangible amortization the remained fairly stable year over year and and the high 40% range.

We expect program and product revenue mix and the first quarter to drive lower quarterly margins significantly below our full year gross margin expectations and this should normalize in the second quarter.

Now I'll turn to operating expenses.

SG&A expense for the fourth quarter was $24.8 million.

Compared to $16.3 million for Q4 FY 'twenty included in SG&A for the quarter were intangible amortization and deal integration costs of $6.7 million.

Compared to just over 600000, and Q4, FY 'twenty, which represented most of the year over year increase in SG&A.

The increase in SG&A for the quarter was the result of newly acquired operations offset by lower travel and other expenses impacted by the pandemic.

In terms of the full fiscal year SG&A expense was $67.5 million compared to $59.5 million for fiscal 2020.

SG&A for the full fiscal year of 2021 included intangible amortization and deal integration costs of $11.1 million.

Compared to $1.9 million of fiscal 2020.

Backing out the increase the intangible amortization of deal cost estimate and the expenses actually declined year over year. So when you exclude intangible amortization and deal costs SG&A as a percentage of revenue in fiscal 2021 was 14, 3% versus 15, 6% and 2020 the year over year improvement can be attributed to.

Lower travel and trade show expenses. The result of the pin debit as business conditions return to normal we anticipate our SG&A expenses of percentage of revenue before and intangibles and deal costs will return to pre pandemic levels and 2022.

As the point of reference intangible amortization and integration costs are expected to be of combined approximately $18 million for fiscal 2022.

R&D expense for the fourth quarter was $17.1 billion of 13, 13% of revenue compared to R&D expense of of $15.5 million or 11% of revenue for the fourth quarter FY 'twenty R&D expense for fiscal 2021 was $53.8 million of 14% of revenue compared to $46.5.

$5 million of.

And our 13% of revenue and 2020.

Looking at the bottom line.

GAAP net income from continuing operations for the fourth quarter of fiscal 2021 was $10.9 million or <unk> 44 per diluted share compared to net income of $17.8 million.

Our <unk> 73 per diluted share for the fourth quarter of fiscal 2020.

The $6.8 million day.

Decrease in net income was largely result of of legal accrual related to our former EES business of $9.3 million and.

As well as an additional $8 million of acquisition related expenses, partially offset by growth from higher gross margin lower taxes, and lower equity method investment activities expenses.

For the full year of fiscal 2021 net income from continuing operations was $22.3 million.

<unk> 96 per diluted share compared to $41.3 million of $1.72 per diluted share for fiscal 2020.

The $18 million reduction of net income was primarily due to the $11 million of additional acquisition related expenses $99.3 million legal accrual I mentioned previously the.

Of the $8.4 million loss from our portion of the <unk> mobile impairment of its investment of Loon, partially offset by higher gross margins and lower taxes.

The terms of adjusted EPS Slide 11 shows the reconciliation of GAAP and adjusted or non-GAAP diluted EPS non-GAAP diluted earnings per share for the fourth quarter of fiscal 2021 with a $1.4 per diluted share versus diluted earnings per share for the fourth quarter of fiscal 2020 of 75.

For fiscal 'twenty, 1 non-GAAP diluted earnings per share was $2.10 versus non-GAAP diluted earnings per share for fiscal 2020 of $1.84.

The 14% increase year over year.

Turning to the balance sheet total cash and investments at the end of the quarter was $201.2 million.

A decrease of $116.5 million from the end of fiscal 2020, as we deployed our balance sheet for strategic growth opportunities.

Total cash flow from operating activities for the fiscal 2021 was $87.2 million of which $23.8 million was the result of working capital improvements and the remainder of from operating activities.

The working capital improvement came primarily from the collection of accounts receivable during.

During 2020 fiscal 2021, we spent $12 million on capital expenditures.

During the fourth quarter, we had total cash outlays from existing cash related to 2 acquisitions that closed in February of approximately $189 million. In addition in conjunction with the our tourists acquisition, we entered into a $200 million term loan facility.

And the $100 million revolving credit facility with the group of banks at the close of the Arcturus transaction, we drew down $200 million on the term loan facility, which was used to fund the acquisition of $100 million revolving credit facility remains unused.

And an additional $55 million of cash outlays related to tell Rob to the total <unk> acquisition early in May following the close of that acquisition.

And also at the close of the of tourist transaction, we issued approximately 574000 shares of <unk> stock to the sellers are true shareholders.

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

Our funded backlog at the end of 2021 was $211.8 million and increase.

And increase of $107 million from the third quarter of fiscal 2020, 1 and an increase of $3.7 million from the fourth quarter of fiscal 2020 backlog of $208.1 million.

Page 8 of the earnings presentation for stock provides the summary of our current FY 'twenty to visibility, we picked up over $100 million of bookings at the end of Q4, bringing our total visibility to the midpoint of the guidance range of 61%, which is the highest level for our fourth quarter and the past 5 years now I'd like to turn things back to Wahid.

Thanks, Kevin for planning for the return of many of our team members to our work sites as soon as next month, which is also when we will celebrate aerovironment 50th anniversary.

Our growth portfolio is rich with opportunity, our intelligent robotic systems and the air on the ground and and the water will work together to achieve mission success faster safer and more cost effectively than otherwise possible.

And that intelligence will be bolstered by our expanded AI and autonomy capabilities.

In terms of the U S D with the budget environment, the precedence of interim National security strategic guidance provide strategic direction to the U S. Dod and informs the department's priorities as reflected in the fiscal year 2022 budget request.

This guidance states quote.

New technologies like artificial intelligence autonomy and robotics will change the character of warfare, resulting in a faster more lethal and more distributed battlefield unquote.

Additionally, proposed U S government fiscal year 2022 funding for defense procurement and research and development testing and evaluation or our D T and E for unmanned technologies exceeds $7 billion.

This includes $68 million for army <unk> procurement, where our Switchblade 300 is the incumbent solution.

$69 million for army ft, UAS, or <unk>, which we are well positioned for with our <unk> jumped 20 solution.

Additionally, the army added $73 million to their unfunded list in order to accelerate the <unk> program by 2 years.

Beyond UAS and Tms Army ground robotics funding request total $124 million.

In summary, our expanded portfolio of solutions gives us potential access to as much us for $150 million and the GFY 2022 budget request, a much larger set of DVD opportunities than ever before.

Importantly, we have seen no decrease in demand for our solutions are the result of the military drawdown in Afghanistan.

This is consistent with the manner in which small UAS and Tms solutions have become institutionalized and to the way our customers plan train procure and operate.

Our 3 acquisitions and significantly expand our revenue profile, along with our growth portfolio contributing to a significant increase and our revenue expectations for fiscal year 2022.

Looking ahead, we have very good visibility into fiscal year 2022, with strong funded backlog and total visibility of 61% described on slide number 8 of our earnings presentation.

This gives us confidence and our ability to achieve our annual revenue and earnings objectives.

As summarized on slide number 9 of our earnings presentation for fiscal year 2022, we expect to deliver our fifth consecutive year of profitable top line growth with revenue of between $560 million and $580 million adjusted EBITDA of <unk>.

<unk> $105 million and $110 million and earnings per diluted share of $1.31 to $1.51.

We expect non-GAAP earnings per diluted share, which excludes amortization of acquired intangible assets to be between $2.50 and $2.70.

This guidance represents a 44% increase and revenue and a 50% increase and adjusted EBITDA.

Because of the impact of the pandemic on contract timing, we expect first half revenue to account for approximately 40% of total fiscal year 2022 revenue.

We also expect first quarter revenue to represent about 40% of the first half revenue and our first quarter non-GAAP EPS loss of approximately 25 to 35 as a result of volume and mix effects.

We expect research and development investments to be about 9% of 10% of this fiscal year's revenue.

We expect a decline in fiscal year 2021, overall gross margin to about 35% of 37% as Kevin described in his comments.

We are monitoring our supply chain carefully for any risks that could affect our business.

And as an example, the ongoing global semiconductor chip shortage may impact some of our programs.

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

Aerovironment again delivered on its financial operational and strategic commitments. Despite the continued macroeconomic challenges.

As I look ahead into the new fiscal year I see the potential for continued growth and success for our company.

Our confidence and the future has never been stronger.

We look forward to meeting with many of you in person and fiscal year 2022, and with many other spiritually.

I would like to express my deep appreciation for our customers for trusting and working with us as well as we all adapted to the pandemic.

Thank you to our incredible expanded aerovironment team and all of its team members, you and dedication to our purpose and to serving our customers has always inspired me, but even more so this past year.

And have delivered once more and positioned us for continued momentum and fiscal year 2022.

A special thank you to chairman and former CEO, Tim Konver, who will retire from our board of directors effective at our next annual meeting.

Aerovironment and would not be the market leader. It is today without Tim's vision and perseverance and we're all grateful for his contributions.

I am grateful for Tim's guidance and Mentorship throughout the last decade.

The entire Aerovironment team and I wish him and his family the very best.

I would like to also express my great appreciation to Steve Gitlin, who is leaving US at the end of this month to pursue opportunities outside of Aerovironment and the robotics industry.

Throughout the last 2 decades, Steve has made significant contributions to aerovironment and success.

Among his many roles and responsibilities, including Chief marketing Officer strategic planning internal communications and Investor Relations, Steve as always honestly and candidly represented the voice of our shareholders and sighed Aerovironment.

Steve has been instrumental and defining and achieving our future state strategy, which positions the aerovironment as and intelligent multi domain robotics solution provider.

And we could not have achieved what we have achieved so far without steves visionary leadership throughout the last 2 decades.

I wish them, well and his future endeavors.

With that Kevin and Steve and I will now take your questions.

Thank you Wahid Youre welcome Sir.

We will now begin the question and answer session. If you have a question. Please press star and then 1 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 to pick up your handset first before pressing the numbers.

And we respectfully ask that you limit your questions to 2 and please reenter the queue to ask further questions.

Once again to ask a question. Please press star and then 1 on your Touchtone phone.

Our first question today comes from Pizza Kubicki of Alembic Global.

<unk>.

Hey, good afternoon, guys hope you're doing well.

The great question.

Quick question on fourth quarter revenue, it seemed a little soft versus expectations and just by.

My My model excuse me it seemed almost completely due to the haps.

I thought the expectation was for haps revenue to be kind of stable year over year, but it looks like it was maybe down about $18 million year over year.

Was that a surprise to you guys.

And was it due to the the contract kind of change and then and then.

Fiscal 'twenty, 2 and going on but should we kind of extrapolate the contract awards to think the path will be up to $55 million and fiscal 'twenty 2.

So Steve this is wahid, thanks for the common and regards to your question obviously.

Obviously, we're very pleased with the record fourth consecutive year of profitable top line growth both organically as well as inorganically.

And we're also positioned extremely well for fiscal year 2022, with another year of consecutive growth expected in terms of the fourth quarter.

And we.

We faced a few challenges.

Challenges on supply chain, which we address most of that throughout the entire year extremely extremely well.

Given the fact that we were and a pandemic we addressed all of those issues quite well, but there were some specific minor issues that caused some delays and a few revenue items that.

Addressed of our fourth quarter, specifically again record quarter record year record backlog rocker and visibility and also record the sort of top line growth for the past year and next year and we're looking forward to another very.

Very high growth year, both organically and Inorganically and we'll keep keep you updated on that.

In terms of the haps.

And haps revenue should go up a little bit more next year, but really it depends on that's a customer funded R&D program and that program is really the.

The the fluctuations are not significant but you're right overview of year over year. The haps program was slightly slower and again that was affected to some extent by the global pandemic, which we have not been able to travel.

Internationally and our customer of partner has not been able to travel either so there has been some effect of that as well on the fourth quarter.

Okay, Okay gotcha, Okay, I'll get back into the queue. Thanks, guys.

You're welcome.

Our next question comes from Peter Arment at Baird Peter.

And good afternoon, Kevin and Steve.

And wahid on the export for the Switchblade 300 could you maybe talk about you mentioned that there was the others that were interested and when do you expect.

And to see potential orders, there and maybe what's the path forward with that program.

Sure Peter.

So obviously, we're very pleased with the performance of our Tms business last year, it's been a growth year for us and it will continue to be of growth year for a net force next year.

As Kevin and I outlined some of that growth for next year and terms of the export license for Switchblade 600 of 300 I'm sorry, We did received the first 1 and we are expect we expect the ship that the.

Before the end of this fiscal year, we are talking to multiple other interested countries and allies.

All of whom have an interest and this capability and it's patented.

And very unique value proposition the timing of receiving additional export.

Licenses and awards is again.

Very difficult to predict exactly however, I think that the fact that we received the first export license.

<unk> position as well and allows us to.

To have a higher probability of success with additional allies, we considered the international markets for Switchblade 306 hundred quite significant and we believe that as we execute our strategy and progress throughout the next few years will continue to expand our switchblade and 600 exports internationally and 300 and sorry.

Yes, just just as a follow up to the 600 comment you mentioned that was being incorporated into some navy vessels or at least the initial award can.

Can you talk about if there is other interest from other services and within the D O D.

Sure. So we've made a lot of great really great progress and fiscal year, 'twenty, 1 and our Tms product line in general we secured a number of awards for Alamance contracts of which I mentioned and the tune of $40 million and my remarks.

But also the export license for 300 in terms of the 600, we received a couple of key awards..1 is our existing customer placed orders for us to deliver units for operational deployments down range, which is very positive means and that means they really believe and the maturity of the product and the differentiated capability of the solutions.

And Additionally, we have secured another contract over $20 million for the development of an additional variant of this for the ability for Switchblade and 600 to be launched off of maritime vessels. So this is a maritime variant of Switchblade 600, which is a development and development.

Contract, which our customer is pleased with us so far and continues to work with US now. This is obviously a development agreement, which will take us a little bit of time, but it goes to show that the VAT.

The proposition of this game changing capability and the desire of our customers for this assets.

And lastly, I would also mentioned that all of the other branches of the services, including the U S Army and the U S. Marine Corps and the Navy are looking at various types of loitering missiles to be basically embedded or integrated with other ground or maritime assets. So it's very consistent with our strategy.

And it supports our theory and our belief that this capability could be very very game changing long term for the U S. Warfighters.

Thank you Peter.

Our next question comes from Joe de Nardi at Stifel, Hi, Joe.

Good afternoon, and Steve sorry to see you go you are 1 of the.

Good guys and the industry and you'll be missed.

Joe.

The true we will miss him as well, Joe I think Steve it's been on every call since the.

Since the IPO of them I'm, not mistaken, but anyway.

Well. He is just the can you give us the organic growth.

Assumption embedded in the FY 'twenty 2 revenue guidance.

Sure. So we'll provide more color when we get to our first quarter earnings were still in the midst of of the integration of the businesses that we've just acquired which all are going really well.

I'm not sure if we're going to be able to.

Break out our specific product line growth.

And by that time, but we will keep you updated and general what I can tell you is that and for fiscal year 'twenty to 2020.2 we still expect growth both on our acquisitions the inorganic acquisitions that we've done as well as on our core businesses and our core businesses Tms and suas remains strong.

The product gross margins going into next year also remains stable and healthy and so we expect growth on both organic businesses as well as our inorganic businesses for the next year and as you heard my comments.

This would be <unk>.

Fiscal 'twenty 2 will be if we achieve the outcomes that we set for ourselves the fifth consecutive year of double the top line profitable growth.

The organic growth greater than 10% at least.

We will provide the specific details later on our first quarter earnings call, Joe, but we feel pretty good about the growth of our businesses and.

And another key point that I would mention is that by these acquisitions and the growth of our product line, we're really a very well diversified portfolio of company now.

Got assets and capabilities and ground and the air and on the water and we have <unk> and Uavs that are of different sizes.

Customers and different geographies, so the diversity of our portfolio of customer base and geographic footprint. All allows us to have a more a better business and the higher growth business.

Yes, and the organic growth for the core products as I mentioned was 12% year over year, and Thats combined Tms Tms and small UAS business, what kind of dragged us down organically was the haps and other service revenue.

Thank you for your question Joe.

Once again to ask a question. Please press star and then 1 and you touched on the phone.

And our next question comes from Ken Herbert at Canaccord, Hi, Ken.

Hey, good afternoon, Wahid, Steve and Kevin.

Wanted to dig the efforts.

And I wanted to dig first and Arcturus and it seems like the run rate.

For your fiscal first quarter or I'm, sorry of fiscal fourth quarter consistent with what you had guided to after the third quarter, but maybe a little bit lower than than the run rate when you acquired the business.

How should we think about that business now that you are just a few months into ownership but.

Is it on track to see organic growth and your fiscal 'twenty, 2 and maybe if you could discuss a little bit more detail wahid on some of the timing around the ft UAS opportunity and how we should think about that is there anything this year or is that really.

'twenty late 'twenty, 2 maybe 'twenty 3 type of opportunity.

Sure So Ken in terms of of the <unk>, we're very pleased with that acquisition, obviously, the actual close of that deal happened quite late in the quarter somewhat later in the quarter and so the contributions on the revenue was.

<unk>.

Not very significant for fiscal year 'twenty, 2 we expect that business for growth and it's really really well positioned as I mentioned on my comments and the fiscal year 'twenty 1 at the last quarter, we even received a renewal of 1 of our sites and what kind of gaining share and that and eus for program against the incumbents debt.

<unk> been there for many years and our customers.

We really see the value of our solution and very very very strongly in terms of FTE UAS, what I can tell you is that.

The timing of this is all in the hands of the U S Army well what they have mentioned is that the and the government fiscal year 2022 proposed budget. There is additional line items for the ask 2 UAS program as I mentioned on my remarks, and those line items actually been increased by the U S Army.

In order to sort of expedite or expedite the whole process a little bit now these are all obviously.

And the future of that and that needs to happen, but the combined amount is about $69 million on the budget for the <unk> for FTE UAS and additional $73 million.

And list order and order to accelerate the after U S program. We are as you know down selected on that.

After the U S program, we are very focused on making sure that we're positioned well and we compete in order to win and we like our chances, but it is a very competitive program and it is a very large program. So.

And that program for us as a gain in share and gain and market penetration and addition to our and UAS silicon contract and other potential international customers that are interested.

And I always hate it.

I would add just debt for.

That the vision that they will have some bumps and revenue during the year as they have deployments. So that'll that'll also bump up the recurring revenue.

Okay, that's great and if I could on the fiscal 'twenty to guide the.

The total guidance implies roughly sort of flat EBIT margin and 22 over 21 as you get a greater contribution from some of the higher margin businesses.

Like Arcturus is it fair to say that much of the headwind would be coming from lower <unk> revenues or is there something else, we should be thinking about as the headwind to margins from 22.

I think we're acquiring these businesses, we're putting them together I think we've tried to do our best estimate of what the margin percentage is I think over time, we'll see more leverage there.

Thank you very much for your question Ken. Our next question comes from Louie Dipalma of William Blair Good afternoon Louie.

Good afternoon, Steve Wahid, and Kevin and Steve Good luck on your future endeavors.

Thank you Amy Thank you.

And.

Wahid you discussed.

So the 3 acquisitions significantly expanded your total addressable market. If you were to compare your bidding pipeline today and all of the opportunities that you mentioned such as FTE UAS.

If you were to compare that pipeline to what it was a year ago, how is that pipeline changed now with the 3 acquisitions.

Louis So the 3 acquisitions really transformed our portfolio and position and the market.

We now have access to a much larger total addressable market, which in the past, we really didn't have the ability to be able to compete or participate in.

And example of that is.

Arcturus UAV, the jumped 20 and $10.20 product line addresses a $1 billion plus market opportunity alone on those 2 platforms and we have also.

Obviously of our ideas about integrating our solutions together, what's even increases the value proposition further and opens up new opportunities for us that doesn't even exist today based on our customers' needs and requirements that we know of.

And of course, similar thing could apply to.

To.

The UGG business that we have.

And that's a smaller business today, but we're going to be a key player in that space and we like our solution, we like our position and a very disruptive capability that the product line offers to us. So in general I would say it has really transformed our portfolio. It has dramatically increased our.

Market size and opportunity in front of us and what I'm also really pleased the is that long term. Besides just giving us access to the specific markets the integration of AI and autonomy with Isg's.

Artificial intelligence and computer vision technologies, we will be able to deliver even more value to our customers and open up more opportunities for us and the long run.

So it's pretty quiet.

Quite quite transformative for us.

Great. Thanks Mohit.

Youre welcome Luis.

Thank you and we once again to ask a question. Please press star and then 1 on your Touchtone phone.

We have a follow up question from Joe de Nardi. Joe. Please go ahead, yes. Thanks Wahid just on <unk> I mean.

Aerovironment doesn't lose very often so I imagine that was a bit of a surprise for you. So can you just talk about.

What happened there and if you've learned kind of why you lost.

Sure So Joe as I mentioned, we have not the 1 we were not awarded the specifics specific phase of the contract which is the second phase.

And my my.

And my estimate is the that's roughly about 20 ish million dollar worth of and award that we did not receive.

To our knowledge of the customer has not disclosed publicly the winter of debt program.

And we were very surprised by that obviously.

So we continue to see.

<unk> the customers feedback on why they think that we were not awarded.

And we will continue to learn more from that and keep you updated as we learn more about it although the customer right now is in a position where.

They are sensitive to being able to communicate with the.

The different contractors until they make a public announcement probably somehow.

I would also mentioned something else, which you're right our win rate is extremely high.

We did however, and other areas.

When other opportunities, which does support our thesis on Switchblade 600, and the larger size market and the adoption of it.

And while this was really of development activity for the U S Marine Corps.

It does not rule out for our ability to come in and compete on the third phase, which is really the larger acquisition for deployment and operational.

Reduction contracts.

And the and the U S. Marine Corps has not made any statements related to that yet so.

So that's 1.2 as we secured a contract to the to deliver units for operational use today with our existing customers. So our systems are while this contract was a development contract we're already deploying systems for operational use and then lastly.

And then additional customer of seeing a lot of value and our solutions, which they have placed an order for the tune of $20 million for the maritime variant of it so.

There is also additional other opportunities that we're tracking.

So like you said.

We're disappointed with that.

We were not awarded but we've not given up on that and we're keeping very close eye on it and that war is not over yet.

Okay. That's helpful. And then you mentioned briefly the semiconductor shortage may impact you or are there certain programs, where thats more acute and can you and is that embedded in your guidance and how meaningful could that be.

Sure. So let me state that because.

The company, we are we use the latest greatest cutting edge technology and all of our solutions in terms of the latest greatest computer vision processors.

Graphics, and microprocessors and components debt.

Across our portfolio.

So far and fiscal year 'twenty, 1 we really address that.

The majority of those challenges quite well in advance and effectively.

So far and fiscal year 'twenty, 2 we think that we have managed most of that so far as well, but as you know there is a global shortage of these parts and.

And the timing of the shortages really unknown and how bad could it get is also still to some extent unpredictable.

The theres likely less impact of that on our production contracts and more likely to affect our engineering development contracts or development activities for new products, because that's where we use a lot of the systems for development of new capabilities, but so far we've managed it well and thats already comprehended in our guidance.

However, there is always at risk on that and I wanted to make sure that I communicate that to all of the upfront.

Thank you for the follow up question Joe.

We have no further questions at this time on.

On a personal note it's been a real privilege to represent aerovironment and the entire team to the investment community for the past 14 years.

I truly value the relationships of developed here and with the investment community.

Thank you for your attention and for your interest and Aerovironment and archived version of this call all SEC filings and relevant company and industry news can be found on our website <unk> Dot com. We wish you a good day and the Aerovironment team looks forward to speaking with you again following next quarter's results.

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