Q4 2019 Earnings Call
This acquisition offers further evidence that we're executing a disciplined capital allocation strategy deploying our balance sheet toward opportunities that drive high growth and value creation and target markets.
This transaction does so by providing our customers with category, leading vertical take off and landing or retail use which complements our fixed wing use very nicely.
This all systems can take off and land without human intervention can hover in place for extended periods of time and maneuver in ways fixed wing aircraft cannot.
These unique maneuvering capabilities are particularly useful and confined areas.
Yes, all systems can also carry very heavy payloads relative to their weight.
This flexibility along with multiple payload options provide attractive capabilities to customers and defense and commercial end markets.
Recently pulse aerospace want a more than $13 million indefinite delivery indefinite quantity type contract with an undisclosed defense customer for us vapor vapor unmanned vehicle systems.
Since then we have secured the first two delivery orders under this contract and we are working to deliver the solutions to our customer.
We are in a unique position to deliver our global urea footprint and production capabilities to create value with the innovative vapor family of digital solutions.
In our tactical missile systems business Switchblade remains the primary driver of customer demand.
To highlight the growth opportunity, we see here I would like to touch on one of the latest Switchblade variants currently under development.
This customer co funded variance is larger than the original switchblade has a longer flight duration can cover greater distances and carries a much larger warhead for the delivery of significant mission effects on targets.
This variant will expand our addressable market significantly.
We look forward to providing additional details on this exciting development as we continue to make progress.
Moving to our haps business during fiscal year 2019, we achieved a number of significant milestones in this potentially game changing market opportunity.
In April we announced the rollout of the first Hawk 30 solar have system. After a design development and assembly period of less than two years.
This is an enormous accomplishment and reflects our deep expertise and knowledge of this groundbreaking technology.
Hello, Thirtys 260 foot wingspan is equivalent to that of an 83 80 passenger aircraft, which is the largest passenger airplane in the world.
The top surface of the Hawk Thirtys wing is covered by advanced photovoltaic cells that generate electricity from solar energy.
10, highly efficient electric motors also designed by Aerovironment will propel the hot 30 to altitude of about 65000 feet.
At this stratospheric altitude Hawk 30 is designed to operate for months without landing above the clouds and all other commercial air traffic and can maintain its orbit over a designated area.
This is particularly important because unlike orbiting satellites and balloons Hawk 30 can maintain its position relative to the earth delivering carrier grade connectivity to standard handsets and other connected devices on the ground and in the air.
The surface area from a single Hawk 30 is as wide as 120 miles covering a very large geographic area.
In fiscal year, 2019, we announced multiple increases to the value of the contract for Aerovironments design and development of 230 aircraft.
The result in contract value increased to $126 million.
This is a large increase from the initial contract value of $65 million, which we announced in January of 2018, we recognize this revenue customer funded research and development work as revenue.
Another way, we intend to create value as to our partial ownership of the haps mobile Inc. joint venture alongside Softbank Corp.
We exercised a onetime option to increase our ownership from 5% to 10% and March of 2019 at the initial valuation.
We invested another $4.6 million in May of 2019 to maintain our 10% ownership, bringing our total equity investment in this opportunity to about $15 million.
Apps mobile subsequently raised approximately $125 million from Softbank for investment into Loon, which deploys networks on lighter than air balloons drifting at high altitudes to deliver internet connectivity to rural and remote communities.
Since we did not participate in this last fundraising round.
For apps mobile our ownership stake was diluted to approximately 5.5%.
As future fund raising rounds take place, we will evaluate the investments required to maintain our ownership stake against other investment opportunities across our business.
Another value creation opportunity, we see here is the potential to be the exclusive manufacturer of solar have systems, perhaps mobile as long as our quality performance and cost for such work as competitive.
Prior to an anticipated 2023 commercial launch apps mobile will require a number of production Hawk 30 aircraft even at that has already announced its plans for larger aircraft main Hawk 50.
Before has mobiles commercial launch we expect that flight testing demonstration and aircraft certification what have been completed and we plan to enter into production based on successfully achieving project milestones and objectives.
We also possess exclusive rights to market the Hawk 34, non commercial applications everywhere, except in Japan.
We will capitalize on our market leadership around the globe to deploy this game changing technology to defense applications.
Haps mobile is another example of how we are deploying our balance sheet strategically to position us for long term value creation.
Moving now to our commercial information solutions business, we are gaining more knowledge and experience with our contacts data collection drone and Avi DSS analytic solution.
As I have stated previously this business and the market at serve.
Serves.
Continue to be in very early stages of adoption.
As a result, the revenue impact to our business from this area is not material.
We believe this continues to represent a large attractive long term market opportunity.
The unique set of capabilities, we have developed will make their way into this market as it matures and as already informing other solutions were developed versus developing for the defense market.
We are monitoring this market closely for signs, indicating an inflection and adoption and in the meantime, our minimizing our investments to reflect slower adoption.
This slower adoption also affects how we account for some of the investments we've made in this business.
Specifically, we recorded an impairment charge of $4.4 million in the fourth quarter of fiscal year 2019, primarily for investments and our Avi DSS cloud based analytics solution and other fixed assets.
We also wrote down $1.7 million or quantify inventory and the same quarter.
We are transforming our business and multiple exciting ways.
We reshaped our portfolio in May 2018, with the divestiture of our business.
We are deploying our balance sheet strategically with our house investments our polls at aerospace acquisition and the first quarter fiscal year 2020, and our continued pursuit of assets that can help us execute our strategy more quickly and more cost effectively.
We continue to look at ways to partner with organizations in key areas to gain access to innovative technologies that can speed the delivery of our solutions.
We are expanding our footprint and access to pools of exceptional talent with new innovation centers in new England and the Midwest.
And we're working with other prime contractors to generate demand through new platforms and programs.
These include our teaming agreements with.
General dynamics land systems to integrate small UAS and switchblade into the Army's next generation armored combat vehicles, and the Marine Corps armored reconnaissance vehicle.
And with cradles to integrate Switchblade and other two launched us into a new unmanned fighter jet capable of traveling long distance as quickly to support missions against near peers.
And we're building on our capabilities and artificial intelligence and autonomy to give our next generation unmanned systems, the ability to operate and denied airspace detect targets and make decisions without human input.
We believe an operator in the loop would remain a requirement for any legal capabilities.
We have made tremendous progress in fiscal year 2019, and so far in the beginning of fiscal year 2020.
I am incredibly proud of our team's accomplishments and their work to advance and diversify our portfolio now I will turn the call over to treat them to discuss fiscal year 2019 financials Theresa.
Thank you our heat and good afternoon, everyone.
Aerovironments fiscal 2019 fourth quarter result follower.
Revenue from continuing operations for the fourth quarter fiscal 2019 with $87.9 million, a decrease of $25.7 million or 23% from the fourth quarter of fiscal 2018 revenue of $113.6 million.
The decrease was due to a decrease in product deliveries of $25.4 million.
As well as a decrease in service revenue <unk> point $3 million.
Fourth quarter fiscal 2019 revenue by major product line Clash program is as follows.
Finally, EPS was $52 million Tms for $16 million apps was $17.4 million and other was $2.5 million.
Gross margin from continuing operations for the fourth quarter fiscal 2019, with $37 million or 42% of revenue compared to $50.6 million or 45% of revenue for the fourth quarter fiscal 2018. The decrease in gross margin was primarily due to a decrease in product margin of $12.3 million and a decrease in service margin of $1.2 million.
Gross margin as a percentage of revenue decreased from 45% to 42% primarily due to an increase in the proportion of service revenue to total revenue unfavorable service revenue mix and higher inventory reserves.
Looking at the rest of the income statement SDMA expense from continuing operations for the fourth quarter of fiscal 2019 was $20.3 million or 23% of revenue compared to SNA expense of $15.3 million, the 13% of revenue for the fourth quarter fiscal 2018.
Increase in SNA was primarily due to lithia fixed asset impairment charge the rate of adoption for context, and 80 DSS solution has been slower than we expected in the fourth quarter, we lowered our future outlook for unit sale and as a result of the lower forecast took an impairment charge of $4.4 million from foreign fixed and 80 DSS fixed assets.
R&D expense from continuing operations for the fourth quarter of fiscal 2019 was $11.6 million or 13% of revenue compared to R&D expense of $7.4 million or 7% of revenue for the fourth quarter fiscal 2018.
Income from continuing operations for the fourth quarter of fiscal 2019, with $5.1 million or 6% of revenue compared to $27.9 million for the fourth quarter fiscal 2018.
The decrease in income from operations was primarily due to a decrease in gross margin to $13.6 million an increase in our scenic since the $5 million and an increase in R&D expense of $4.2 million.
Net other income for the fourth quarter of fiscal 2019 with $2.8 million compared to net other income of $2.9 million for the fourth quarter fiscal 2018.
The increase in net other income was due to income from that transition services agreement with the buyer the Iot business and higher interest income on our investments.
The effective income tax rate from continuing operations was minus 1% for the fourth quarter fiscal 2019 compared to an effective income tax rate of 30.7% through the first fourth quarter fiscal 2018, the decrease in our effective tax rate for the fourth quarter fiscal 2019 with due to the reduction in the fiscal 2019 federal statutory rate from 30.4% to 21% and lower pre tax profit.
Equity method investment activity net of tax for the fourth quarter of fiscal 2019, with a loss of $1.9 million or eight cents per diluted share compared to a loss of $2.9 million net of tax for the fourth quarter fiscal 2018.
Net income from continuing operations attributable to Aerovironment for the fourth quarter fiscal 2019 with $6.1 million or 26 cents per diluted share compared to a net income from continuing operations attributable to aerovironment of $90 million or 79 cents per diluted share for the fourth quarter fiscal 2018.
The net loss from discontinued operations net of tax for the fourth quarter fiscal 2019, this point $4 million compared to a loss from discontinued operations net of tax of $2.2 million for the fourth quarter fiscal 2018.
Now moving through to our full year fiscal 2019 result.
Revenue for fiscal 2019 with $314.3 million.
An increased to $45.9 million as compared to $268.4 million for fiscal 2018.
The increase in revenue was due to an increase in service revenue of $25.5 million and an increase in product revenue of $20.4 million.
The inception to date revenue, perhaps mobile is $77.5 million. The total value of all contracts with apps mobile is $133.4 million, which consist of $125.7 million for the design development agreement and $7.7 million for preliminary design and other related efforts.
There is $55.9 million remaining on these contracts, which includes a portion that is currently unfunded.
Gross margin for fiscal 2019, with $128.4 million or 41% of revenue as compared to $107.7 million or 40% for fiscal 2018. The increase was due to an increase in product margins of $16.3 million and an increase in service margins of $4.4 million.
Gross margin as a percentage of revenue increased from 40% to 41% primarily due to a favorable product mix, partially offset by unfavorable service mix and an increase in inventory reserve charges.
As seen expense for fiscal 2019, with $60.3 million or 19% of revenue compared as seeing expense of $50.8 million or 19% of revenue for fiscal 2018.
This increase in SDMA was primarily due to a $4.4 million fixed asset impairment charge in our CMS business and expenses related to the transition services agreement from the buyer of the business.
R&D expense for fiscal 2019 was $34.2 million or 11% of revenue compared to R&D expense of $26.4 million or 10% of revenue for fiscal 2018.
Net other income for fiscal 2019 was $16.7 million compared to the prior year net other income of $2.2 million. The net other income increase was primarily due to the litigation settlement income earned under the transition services agreement for the buyer the ies business and an increase in interest income.
The effective income tax rate from continuing operations was 9.2% for fiscal 2019 as compared to an effective income tax rate of 30% for fiscal 2018.
The effective.
Income tax rate for fiscal 2018 included the impact of the one time deferred tax expense, resulting from the re measurement of our existing deferred tax assets and liabilities of $3.3 million.
The decrease in the effective income tax rate was also due to the reduction in the fiscal 2019 federal statutory rate from 30.4% to 21%.
Equity method invest tivity net of tax for fiscal 2019, with a loss of $3.9 million or 16 cents per diluted share compared to a loss of $1.3 million net of tax for fiscal 2018.
The increased loss was due to an increase in ownership and perhaps mobile joint venture from 5% to 10% and higher investments made by the haps mobile joint venture.
Net income from continuing operations attributable to Aerovironment for fiscal 2019 with $41.9 million or one dollar and 74 cents per diluted share compared to $21.8 million or 91 cents per diluted share for fiscal 2018.
Net income from discontinued operations net of tax for fiscal 2018 was $5.5 million or 23 cents per diluted share compared to a loss from discontinued operations net of tax of $3.9 million for fiscal 2018, or a 16 cents loss per diluted share.
Fiscal 2019 included an 8.5 million dollar gain net of tax on the sale that EPS business.
Our funded backlog as of April 32019 was $164.3 million a decrease of $100000 from the fourth quarter fiscal 2018, and an increase of $31.8 million or 24% from the third quarter fiscal 2019 backlog of $132.5 million.
Turning to our balance sheet cash cash equivalents and investments at the end of the fourth quarter fiscal 2019 totaled $332.6 million, an increase of $34.8 million from the end of fiscal 2018 cash cash equivalents and investments of $297.8 million.
Net accounts receivable, including Unbilled receivables and retention at the end of the fourth quarter fiscal 2019 totaled $84.1 million, the unbilled receivables and retention balance was $53 million inclusive of $9 million of related party amount.
Total days sales outstanding from continuing operations for the fourth quarter fiscal year 2019, with approximately 87 days compared to 49 days for the fourth quarter fiscal year 2018.
Net inventory at the end of the fourth quarter fiscal year, 2019, with $54.1 million compared to $37.4 million at the end of the fourth quarter fiscal year 2018.
Days in inventory outstanding for the fourth quarter fiscal year 2019 was approximately 92 days compared to 63 days for the fourth quarter fiscal year 2018.
Accounts payable at the end of the fourth quarter fiscal year, 2019, with $16 million compared to $21.3 million at the end of the fourth quarter fiscal year 2018.
Total days payable outstanding for the fourth quarter fiscal year 2019, with approximately 24 days compared to 23 days for the fourth quarter fiscal year 2018.
Turning to capital expenditures in the fourth quarter fiscal year 2019, we invested approximately $2.1 million and property improvements and capital equipment for continuing operations and recognized $2.1 million of depreciation and amortization expense.
Now an update to our fiscal 2020 visibility as of today, we have fourth quarter ending backlog that we expect to execute in fiscal 2020, the $152 million.
Q1 quarter to date bookings that we anticipate to execute in fiscal 2020 of $29 million.
Unfunded backlog from incrementally funded contracts that we anticipate to recognize revenue during the balance of the year of $16 million. This adds up to $197 million or 55% of our fiscal year 2020 midpoint revenue guidance range.
We anticipate a full year effective tax rate in the range of 11% to 12%.
Now I'd like to turn things back to Wahid.
Thanks Theresa.
We have now delivered double digit topline growth for two years in a row.
The large majority of government fiscal year, 2019, appropriations totaling nearly $200 million for our solutions are not reflected in our fiscal year end funded backlog.
These expected orders support our continued growth in fiscal year 2020.
Government fiscal year 2020 appropriations for our solutions are slightly lower than that in the previous year, but still very high compared to our historical trends.
We expect tactical missile systems, and small you weigh us to drive growth in fiscal year 2020.
We expect the shift in revenue mix and our fiscal year 2020 that will result in lower gross margin than in fiscal year 2019.
Additionally, we do not anticipate another onetime gains similar to the litigation settlement, we benefited from last year.
We do however, expect continued double digit growth in revenue, reflecting the large market adoption potential force business to between $350 million and $370 million.
This would mark the third consecutive year of double digits strong revenue growth.
Our 55% visibility into the midpoint of our revenue guidance range is almost equal to last year's visibility at this time and the fiscal year and is much higher than visibility at this point in prior years.
With lower gross margin and no expectation of litigation settlement gain we expect GAAP diluted earnings per share for fiscal year 2020 of one dollar and 35 cents to $1.55 cents.
This compares to our fiscal year 2019, GAAP diluted earnings per share of one dollar and 74 cents, which included.
26 cents diluted earnings per share for the litigation settlement gain.
Adding the acquisition related expenses and amortization of intangibles associated with Apollo Aerospace that aerospace acquisition adjusted non-GAAP diluted earnings per share equaled one dollar and 47 cents to one dollar and 67 cents.
As a reminder, we expect the post aerospace acquisition to be accretive to earnings by the third full year of operations and increasingly thereafter.
We expect internal research and development investments to total 11% of revenue this fiscal year.
Similar to fiscal year 2019, we expect revenue distribution to be roughly balanced between our first and second half and within their associated quarters.
Last quarter, we communicated all expectations that unbilled receivables with decline in coming months.
We expect an increase and Tms shipments that were already recognized as revenue under the ASV six or six accounting standard.
This increase in shipments should result in a decline in unbilled receivables and the first half of this fiscal year.
Once again todays main messages are.
First our team delivered outstanding results in fiscal year 2019 across nearly every aspect of our business.
Second we achieved great progress and our growth initiatives.
And third we continue to successfully transform aerovironment to achieve our long term value creation objectives.
Thank you to all our Aerovironment team members, including our newest colleagues in new England, and Lawrence, Kansas for your engagements and dedication to supporting our customers.
Thank you to our customers for continuing to entrust us with providing you the capabilities to help you proceed with certainty.
And thank you to our shareholders for your continued confidence.
Now trees, as Steve and I will take your questions.
Thank you Wahid.
We will now begin the question and answer session before we do have just a couple of things number one we realize that we've just given you a lot of information and we've done that on purpose because of the ended the year, we want to make sure we have the opportunity to share as much as possible with you.
We also realized that many of you do many of these calls on them.
Multi day basis, and we really realize how hard that can be and many of you were probably multitasking. While you do this so we ask one thing before we get into Q and eight lets everybody just take a breath, let's be present, let's have a conversation.
So here's how it's going to work if you have a question.
Plus the pressed a little button, where the star audit on your phone and then the number one on your Touchtone phone if you wish to be removed from the Q you can 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.
We kindly ask that you limit your questions to two and then if you have follow up questions just join the queue again, and we'll make sure we get back to your follow up question.
Once again to ask a question. Please press star and then number one on your Touchtone phone.
And we will start with Ken Herbert from Canaccord Ken.
Welcome.
Hi, Stephen Good afternoon, Wahid and Theresa.
Hello, There came second.
Hi, I just wanted to first ask about.
Perhaps and it sounds like from your commentary washy that that the revenues you may recognize from apps in fiscal 20 could be maybe flat to down slightly if we look at what you did this year just considering.
Some of the mix comments around strength in small you on Oosten Tms since.
Im just wondering if you could provide a little more granularity on expectations, perhaps in particular and then within that what we should be watching out for in terms of some of the important milestones and where you are with with the flight test aircraft and anything else. You can you can detail around progress on that program.
Sure so.
Your general conclusions are roughly accurate based on what we provided the comments we expect the majority of the growth for the year your year over year growth to come from our small UAS and Tms business as you know our haps business as an exciting large opportunity for the long run we're on the design development and demonstration phase of this which we've generated so far about $126 million worth of backlog or orders.
And the revenue between fiscal year 19 in fiscal year 2008 will be roughly the same. Obviously this is a customer funded development work, which is primarily doing work to design and develop and demonstrate the aircraft.
Beyond that as you know we have.
Publicly said that.
We.
Rolled out the first aircraft and obviously, there's a lot more ground testing and flight testing to come.
Later as part of this exercise and then of course, we are planning on eventually certifying the airplane and then getting into what I referred to as a business launch in production, which means producing decent volumes and scaling the business in the commercial market.
We still believe this is a very large significant large global opportunity for us our partners a softbank and we are very excited about this that's why we have continued to increase the value of the contract contract and keep growing our business in this area and progressing our strategy and of course theres lots of other value creation opportunities as I outlined in my remarks on the call earlier.
And it's very exciting for us to pursue this in the long term.
Great and if I could just one follow up on that I think you mentioned in your prepared remarks that a portion of the give or take $56 million.
Remaining.
Was not yet.
Funded or was partially unfunded can you talk about maybe what percentage of that is and is there any risk around timing of that.
Getting funded obviously through the partnership.
Sure. So I just provided that to make sure that we're very clear on specifics.
Generally speaking, we're not expecting any surprises or issues there in my view and our view.
It's just a natural.
Stopes nature of such a contract when you're working on a large complex programming long term development effort that you have certain milestone as we complete that you release. The next phase the next phase and the next step in the milestone of the contract. So majority of that is really funded but there is some portion of its always that may be or may not be unfunded in that regard.
Other than that we're very pleased with our progress. So far this is historic in my view.
That we've been able to deliver the first airplane.
And less than two years from the start of this effort.
We and both our strategic partner very convinced and committed about the performance characteristics of the airplane and its ability to compete in the marketplace for a multi billion dollar global market and we look forward to updating you in the future.
And our next question will come from Pete Skibitski at Olympic Global Fleet.
Yes, good afternoon, guys. Thanks.
Let me start with on the fiscal 20 guidance can you share with us how much pulse is going to contribute to revenue in fiscal 20.
And.
You mentioned that small you ask the Tms would be the growth drivers in 20.
His key grades amazed because it came in a little lighter than I call for fiscal 19, and so it seems like maybe there is still lot of corporate funds out there for Tms.
Sure. So first we're very pleased with the results that we delivered for fiscal year 19, with the double digit second consecutive year of growth on the topline in very solid performance in the bottom Psoc and we're fortunate to have effects, such a diversified portfolio of business and opportunities that allows us to lever different parts of our business depending on the.
The markets and the customer of situation and the timing of those orders.
As I mentioned in my remarks, the Pauls Aerospace acquisition really is a technology and product acquisition, it's really less about a revenue multiple or.
Our existing.
Profitability multiple acquisition in terms of valuation we are in in it has basically are acquiring a whole family of vertical take off and landing systems that complements our small you will see us very very well.
We have already secured a ITI two contract to approximately over $13 million.
And deposit business and since that acquisition, we have secured two of the task order. So that the revenue for this business is going to be not not significant for fiscal year, and we do not break our revenue down to that level of product lines.
Three to outline we break it down to by different product families small, you'll see us being one and the polls revenue will be reported under the small us category for us starting in fiscal 2000 and beyond so essentially you can think of the polls product line as part of our small usfive.
And the future.
Okay sounds great and then on the team.
Hi, guys. This is Tim it's going to be a growth leader in fiscal 14.
Sure so.
I said, absolutely, both CMS and to us or both.
Areas that is going to generate growth to increase our growth top line growth for the third consecutive year with double digit numbers were very pleased with these guidance expectations that we have out of our business.
We feel very strongly about the position that we have in the market and the amount of demand that there was exist in our products both domestically and internationally, it's very exciting to see that and across our portfolio. There seems to be very strong demands across the globe for all types of solutions and products and Im very pleased with the results of our teams and execution in the last fiscal year and we're looking forward to update you in fiscal 2000 as we go forward.
And our next question comes from Joe Denardi at Stifel Nicholas Joe.
Hey, good afternoon, Steve Thanks for setting the tone for the call.
Thank you just another on off on Haps. It seems like you guys have decent visibility now kind of over the next few years.
In terms of maybe the revenue profile as you transition from production to certification in flight testing. So can you just talk about your should our expectation be that.
Haps revenue is roughly flat for the next few years before.
Larger scale production or are you expecting the kind of the ramp up in production to occur sooner than that.
Sure Joe So.
As I said you know we are on a multi phase.
Pursuit of this very large multi billion dollar global market opportunity.
This is a very exciting capability that is uniquely compelling to us in both our strategic partner.
We're really focused on this phase of the.
Activity or effort and the business plan, which is.
Ill make two airplanes design boost the airplanes and demonstrated the capability, which we intend to complete that.
Within this phase of this project our partner Softbank and we both feel very confident and pleased with our progress so far.
And obviously this is not an easy task in an easy Shimon has never been done before type of effort as you see.
And.
Beyond this step we expect to obviously ramp up as I mentioned in my remarks, the producing a few more airplanes, because you need more airplanes for the testing and certification phase during that time, we will be obviously assessing the business and assessing the prospects for the future with our partner and will inform you of the athletes that we provide.
As far as fiscal year.
20 is concerned we expect this business again to execute the strategy that we have and.
Very pleased with the topline growth that we're going to be delivering hopefully this year as well.
Okay, and then just on the acquired business I mean, you guys have had plenty of cash for a while.
Im sure a number of opportunities to engage in these decent sized M&A like this and you haven't pulled the trigger really up until now.
Yes, big deal being earnings accretive by year, three isn't super compelling from where we stand. So can you talk about what's so attractive about it.
From your point of view.
Thank you Sir.
Sure of course, Joe that's a great question so.
I'm very excited and so as our team about the acquisition of pulse our product line and the assets I really consider this a strategic product and technology acquisition, not necessarily an immediate or rigs or current revenue or profitability multiple acquisition.
So thats number one number two.
We are essentially getting a whole family of systems.
Pulse aerospace has multiple different products in the vapor family of be toll helicopters. If a big vapor 15, 30, 555, and 65 with the whole integrated solution set we believe that this is a naturally perfect tuck in and expansion. In addition tours existing world meeting small UAS family of systems, obviously, mostly fixed wing.
So our customers will benefit from this in terms of.
More mission critical objectives being accomplished with the mix with a team of these two solutions and products.
We can use our distribution channels globally with 45 plus countries around the world to sell a lot more this adds as you all know developing a product internally, we will easily take at least a couple of years, if not more than that to come to fruition. So in our view. This is a long term strategic acquisition that strengthens our portfolio delivers more value to our customers and certainly delivers a lot of value long term in terms of our shareholders interest as well.
We're very excited about that and we're also expanding our talent base engineering talent base and the Midwest with opening that innovation Center and Lawrence Kansas. So all in all were very pleased with this acquisition and we believe that this is going to deliver a lot of value long term for our shareholders.
Our next question comes from Troy, Troy Jensen from Piper Jaffrey Troy.
Hey, Thanks, Steve Congrats on the nice results.
Tim Mchugh, Thanks Troy.
Hey, so well he held for you first I mean, you've touched on it it's a little bit in your prepared remarks, but it looks like U.S. defense spending can you, maybe just kind of have a down year.
I guess do you really think Thats true for Aerovironment I know you guys have always talked about coming up with new variants of your products so different.
U.S. defense agencies, so just.
Just some more detailed thoughts on use to consider sure of course.
Sure Troy So first of all the year to year comparison.
Certainly is slightly down not up not a significant amount down to slightly down compared to fiscal 19, but we've got to keep in mind that fiscal year 19, and 20 in comparison to our historical averages is far greater than several years before that or as far as I've been with the company.
So thats, an important point to point out and I've mentioned that in my remarks.
Secondly, the demand drivers for our business across the broad board overall at a macro level is very strong.
More and more of the future is unmanned systems and robotics, we're very uniquely position that the technology solution provider at the intersection of these for future defining technologies, obviously robotics annuities being one of them sensors software analytics and connectivity.
So this is all very positive and encouraging for small UAS and needless to say this is just one of our.
Portfolio of diversified growth initiatives, we have small UAS thats contributing to our.
Financials, we have our Tms business, we have our haps business. So we're very fortunate to have a pretty diverse portfolio of products revenue and customer base globally.
That complements our business.
And overall I don't consider the deal with the budget slight decline from 19 to 20.
Negative at all I consider that it's still a very positive about the historical levels.
All right perfect how about.
A couple of year for Teresa quick just on the guidance here to get the bps. I think you said the tax guidance was 11 and 12 I just want to make since non-GAAP and then what should we assume for other income.
So Troy, yes, the tax rate that we have in his 11, 11% to 12%.
For fiscal 20, and your other question was what about other interest and other yes, other income which split what does your EPS guidance assume in your modeling on what should we be modeling we didnt.
Didn't provide guidance per se on the other income in fiscal 19.
We had.
The onetime litigation settlement, we also had.
The transition services from the buyer of our Es business.
Were the two drivers along with our interest income.
Okay, perfect I think I understand all right, we'll keep a good luck and good luck in 2000.
Thank you Troy.
Just a reminder, if you'd like to ask a question. Please press the star key and then one on your Touchtone phone.
And our next question will come from Louie Dipalma with William Blair globally.
Good afternoon, My Teresa and Steve.
Good afternoon.
What is your degree of confidence that you will win short range reconnaissance orders in the context of how there seems to be an incredibly large number of contenders and.
Aerovironment at least prior to the pause aerospace acquisition historically has not specialized in Vito al systems.
Sure so.
We are first and foremost we're fortunate to have a diversified portfolio of businesses and growth opportunities that allows us to deliver strong.
Results year after year.
And have strong demand drivers across our businesses and number two in relates to in relationship to serve as our our as I mentioned in my remarks, there was a very small down select small award by that value, which we will not selected on that that does not mean that were not engaged with our customer. We are actually very engaged with that customer we've tracked that opportunity and engage with the customer quite closely.
And we stand ready to compete in the future and we will obviously keep you updated on that.
And the same token.
Let's keep in mind that the overall.
Do the requirements and budget dollars for our types of solution.
Specifically in most cases, calling out our product specifications remains even is quite robust for fiscal year 2020.
And so we feel we're very pleased with those demand drivers were very pleased with our fiscal 19 results.
And fiscal 20 of course will be the third consecutive year of double digit topline growth.
And very healthy profitability to the bottom line.
The fact that theres more competitors in the space is really not new news to us at all we've been competing in this space for a very long time.
Very successfully we have a very high win rate.
We obviously do not have a 100% market share, but that doesn't mean that we're not going to continue to compete and stand ready to win opportunities in the future.
Okay and.
And I missed this but what was the the year over year growth rate for the international small UAS for the quarter.
So the way you're asking a small UAS international small you at quarter to quarter. So.
In the fourth quarter, we had $35.9 million of revenue.
Versus $46.5 million in fiscal 18 on a full year basis, though we were at $107.7 million of small Yulia international revenue.
Versus $96.7 million.
In 2018, so it grew 11 and a half a percent.
Okay and.
You guys have commented regarding this international small UAS that it still seems to be in the very early innings and I think.
Last year, you signed your largest order ever for the Puma and the Middle East are there any other data points that you could provide to give us some sense of.
The penetration for like International small UAS, and how your Puma and Raven stack up relative to the competitors internationally.
So let me Thats a great question.
As I said in my remarks, we continue to grow our international footprint and small youre, yes, very successfully and very well throughout the last several years.
Our international business in terms of topline growth as you've seen has grown significantly but so has the number of customers in the geographies that we're expanding into.
Secondly is that I believe that our international markets are still five plus years, maybe five to 10 years in many cases behind the adoption cycle of the U.S. first generation systems.
And in a majority of those countries, we have the ability and the opportunity to expand our portfolio and increase our.
Our share of that customers overall spend and to do the budgets.
How large that is and how big could that be.
Time will tell and number one number two overall the demand drivers are very healthy.
Also due to customer sensitivity and competitive reasons I am not in a position to be able to disclose specifics of our engagements with each customer, but as you saw from my remarks on our portfolio of customers, our diversification geographically as well as our solution sets penetration within those customers are pretty strong and it speaks volumes to these the value proposition and the compelling capabilities of our solution, that's helping our customers to see the certainty.
Next we have a follow up question from Pete Skibitski at Olympic Global go ahead Pete.
Yes, thanks, guys.
Can you talk a little bit about where the U.S. Army is good when a new ABTS with us air launch the facts.
And I guess, just kind of an S&P effort and your potential role there.
And then how much you guys spending on things like autonomy and it seems like thats, becoming more important at least domestically I just want to get your thoughts on those two areas.
Sure Pete in terms of the US Army and the whole view. These overall approach to use.
As I've said in several quarters and two plus years now I believe that the overall macro trends in that space is very positive more and more systems are going to become.
Unmanned and robotic systems and solutions integrated with ground systems is also going to increase.
And we're fortunate to be that intersection of those two for future. The funding technologies as I said number one number two we also have the ability to expand our market addressable market with new announcements intentions on existing platforms as I mentioned, so general dynamics land systems and create those are two examples that are the specifics that you referred to is essentially a program that we're working with potential program with Kratos Corporation, where our solution is going to be essentially included as part of a larger unmanned.
Supersonic were hypersonic air at unmanned wavy that carries switchblade and other capabilities deep into the into the.
Contested environments of amenity and then it actually launches and delivers mission effects that really in the past has never been done before these types of solutions and partnerships speaks to the potential opportunities in the space and the ability for solutions to really deliver a lot more value to our customers missions.
And that's just one aspect of our macro demands and opportunities in our market. The other thing is also US army and many other customers are coming up with new requirements for new types of systems and solutions, such as SBS and as our RM LR and all that and we're tracking all of those and we're engaged with them and we'll keep you updated.
Thank you.
Youre welcome.
Okay and our last question will come from Joe Denardi follow up question from Joe Denardi of Stifel Go ahead Joe.
Yes, Thanks, and can you just talked about what the customer is saying around switchblade in terms of wanting to possibly deploy it more broadly across the force is that still a conversation.
What are you hearing in terms of a competition a formal competition for that program, what's the latest there.
Sure. So we're very pleased with the progress we've been making on our tactical missile systems business. As you know in terms of revenue growth and demand and value proposition to our customers.
We continue to engage with our customer on the switchblade originals, which laid out there too.
Adoption in potential larger penetration and.
Deployment within the army in larger forces.
That remains to be a discussion point and an interest of our us army customer and our customer in general.
The timing of which is really unpredictable I won't be able to give you anymore.
Visibility to that.
Thats specific.
The relationship however, I did mention in my remarks, our new variants very exciting new variance, which is being co funded by us and one of our customers that essentially is a larger version of our Switchblade that goes further has a longer endurance.
Covers more geography and carries a significantly larger warhead. This variant which work actively in the development phase right now.
Is significantly good increase the mission effects and the types of.
Smooth problems that our customers are trying to solve with our solution. We believe that our small UAS was a pioneer and capability in a small UAS and we believe the same thing and our tactical missile systems business in a similar way. So we're making really good progress on our development and we'll keep you updated as we have more updates on that front overall you can see in the view of the budgets for government fiscal year 19, and 20. There is significant dollars for original Switchblade and majority of which is not reflected in our backlog and visibility number so far.
I'd like to also point out I'm, sorry to drill a pizza earlier question I did not get a chance to answer his second part of his question, Peter which was about AI. What are we doing in that area as I mentioned in my remarks, but thats a really important point, we have been and we continue to invest heavily in the AI category as I said previously we were at the intersection of this.
For future defining technologies very excited and connectivity software analytics AI artificial intelligence is a very critical component of our solutions, even today as well as in the future. We've got a lot of investments in that area, which we believe is going to further differentiate us from competition and enable our customers to.
Do a lot more missions and deliver more value to them and as we make progress we will keep you updated.
During the fall.
I don't thank you.
Thank you very much for your time, so with that as we have no further questions. We thank you all for spending a good chunk of your afternoon or evening with us as the case may be.
We appreciate your interest and archive version of this call all SEC filings and relevant company and industry news can be found on our website HP Inc. dotcom and of course, we look forward to speaking with you again following next quarter's results good day.
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