Q1 2022 AeroVironment Inc Earnings Call

September 8, 2021

[music].

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the Aerovironment fiscal 'twenty 'twenty two first quarter conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be.

Today's conference is being recorded for replay purposes. If you acquired any further assistance. Please press star Zero I would now like to hand, the conference over to Joe in a teeter Ballon. Thank you. Please go ahead Sir.

Thanks, and good afternoon, ladies and gentlemen, welcome to Aerovironment <unk> fiscal year 2022 fourths, Kurt first quarter earnings call. This is Jonna Teeter Balan senior director of corporate development and Investor Relations for Aerovironment.

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

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

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

Statements.

For further information on these risks we encourage you to review the risk factors discussed in Aerovironment periodic reports on Form 10-K, and other filings with the SEC along with the associated earnings release and Safe Harbor statement contained therein.

This afternoon, we also filed a slide presentation with our earnings release and posted the presentation on our website and a V. I N C dot com in the events and presentations section.

The content of this conference call contains time sensitive information that is accurate only as of today September eight 2021. The company undertakes no obligation to make any revision to any forward looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call.

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

Thank you Jonah welcome to our fiscal year 2022 first quarter earnings conference call on.

On today's call I will summarize our first quarter fiscal year 2022 performance and discuss our achievements during the quarter next Kevin will provide a more detailed summary of our financial performance in the year and then I will follow up with a brief discussion of our goals for fiscal year 2022, before Kevin genre and I take your questions.

Let me emphasize four key messages, which are included on slide number three of our earnings presentation.

First we achieved strong quarterly results in line with our previously communicated expectations.

Second we have secured another record backlog, which included both organic and inorganic growth in our business.

Third we continued to successfully integrate the three.

Recently acquired businesses.

And fourth as a result of the strong momentum we remain on track to achieve our fiscal year 2022 plans, while delivering on another year of profitable topline growth.

Now, let's summarize our financial results for the first quarter.

We delivered revenue of $101 million compared to $88 million last year, which is a 16% increase year over year.

The revenue growth was primarily due to incremental sales, particularly in our medium unmanned aircraft system segment.

These along with other organic and acquisition led increases offset the negative impact from lower core product line shipments, which we expected in the first quarter specialty from our small unmanned aircraft system segment.

We achieved yet another record backlog of $258 million, driven by new wins across multiple business segments and in part by our recent acquisitions.

Our backlog increased more than 20% sequentially from the fourth quarter of fiscal year 2021.

This record backlog will enable us to achieve our financial objectives and ensure we are on our path for continued strong growth and value creation.

Finally, please note that we now provide increased financial visibility across four reportable segments, including revenue gross margin and income.

While this extra data, we'll provide more insights for investors segment performance will significantly vary quarter by quarter.

For that reason this data would be better assessed on an annual basis.

Moving on now I would like to provide some color regarding current developments within our various segments.

I'll start with our small unmanned aircraft systems, which is our largest product line and where aerovironment is positioned as the leading global player.

We recently announced the award of two firm fixed price orders totaling $24.0 million from the U S Air Force for Puma, three AE unmanned aircraft systems, and spares as well as Raven UAS spares.

In addition to these wins our innovation continues with the recent introduction of our Crystal. This next generation ground control station solution.

This is another advanced cutting edge offering which positions aerovironment as a leader in tactical and covered control systems for UAS and related payloads.

Chrysalis was designed to make operating robotic systems easier than ever.

Christmas is available in both modular elements and complete turnkey systems, making it adaptable to meet specific mission requirements.

Compatible with all major operating systems Chrysalis features an intuitive user interface to reduce cognitive load and training burden, while enhancing situational awareness and battlefield collaboration.

Crystal is standardizes the user experience across all Aerovironment small UAS platforms, simplifying the training requirements and operations of Puma Raven Wasp.

It's an exciting development that we believe will streamline command and control decision, making and improve overall effectiveness in the field, while opening new opportunities for growth and value creation for Aerovironment.

Next in our tactical missile systems segment, we made solid progress on our strategy in the quarter.

We continued to deliver switchblade 300 to our key domestic customers, while gaining traction with those overseas.

We're also making strong progress on our Switchblade 600, which is becoming a larger contributor to this segment's revenue and profitability.

We continue to produce low rate initial production quantities for operational fielding of the ground launched Switchblade 600, while also developing the maritime version through its integration into naval vessels for the U S Special operations command.

Moving onto our medium unmanned aircraft system segment, where we have continued to successfully integrate that business into our portfolio and operations.

We achieved a key milestone in the quarter when we secured another contract from the U S. Special operations command for ISR services, using jumped 20 medium unmanned aircraft systems.

The initial task order of $22 million includes the first SaaS com enabled UAS for beyond line of sight operations as part of our EUA us for IV IQ contract with multiple follow on option years. After the initial 12 month period.

The jumped 20 delivers an unmatched level of versatility and performance, providing expanded reach and situational awareness, which bodes well for winning future opportunities with our customers.

<unk> jumped 20 system is also a candidate for the U S Army's future tactical UAS or FTE UAS program.

The U S Army proposed government fiscal year 'twenty, two budget calls for over $140 million of funding for progressing this potential program of record.

We remain well positioned and look forward to updating you on this exciting growth opportunity.

Our new unmanned ground vehicle product line.

Was created through our most recent acquisition of <unk>, a German leader and ground robotics solutions with a global footprint.

This transaction closed at the beginning of the first quarter and marks a significant extension into the ground domain for our portfolio of intelligent multi domain robotic systems.

We're successfully integrating the company and why we did not win the previously discussed U S. Air Force EOD Robot program, we continue to actively pursue new cross selling opportunities domestically and internationally.

We remain excited and optimistic about the future of this business as part of the Aerovironment portfolio.

And our haps product line, we are moving ahead in designing the next generation aircraft under the terms of our new five year Master design and development agreement with Softbank.

With the initial $51 million order secured last quarter. We are transitioning this program to its next phase and which we expect to build a third aircraft and continued extensive flight testing and certification.

We're also stating starting to engage with various domestic defense customers, who have shown interest in <unk> unique capabilities.

While these engagements are early in nature.

Our solar haps performance characteristics represent a significant market opportunity in defense applications for both counterinsurgency and peer near peer conflicts.

And finally, our Maccready works advanced solutions group continues to lead the industry in AI and autonomy.

We remain engaged in multiple advanced customer funded R&D projects, which are paving the way for <unk> continued leadership in multiple multi domain robotics system solution.

Additionally, the Mars helicopter ingenuity, which our Maccready works team help designed for NASA continues to amaze the world.

Exceeding all expectations ingenuity has been withstanding extreme margin environmental conditions for over six months now.

It just completed its 12 successful flight and modest as atmosphere.

Engineered <unk> is now being sent out to scout the way for perseverance.

This is yet another testament to one of Aerovironment core competencies, which is designing and delivering solutions with high reliability and ruggedness for extreme environmental conditions.

Now I would like to discuss three important global issues that directly affect the company.

The situation in Afghanistan.

COVID-19 pandemic.

And global supply chain disruptions.

As I am sure our listeners are aware the U S. Just completed its withdrawal from Afghanistan. After 20 years on the ground.

First and foremost I'm pleased that we were able to safely evacuate our employees from the country.

We think the U S forces for their sacrifice during this incredibly challenging time and keep the people of Afghanistan in our thoughts.

The U S service members and Afghan civilians loss and these recent tragic events will remain in our Hearts forever.

While the withdrawal of Allied forces was anticipated the rapid pace of the <unk> bonds takeover was not expected.

However, we do not anticipate these events will have any material impact on the markets, we serve or our operations.

While our products were used in various local missions as well as throughout the region. We believe that strong bipartisan support for our products will continue.

The proposed U S government fiscal year 2022 defense budget includes $68 million of continued funding for army <unk> procurement, where our Switchblade 100 is the incumbent solution.

Additionally, our current record backlog also provide.

Adequate visibility into the company's future growth.

We will continue to closely watch the situation.

As the World continues to Battle, COVID-19, and its variants. So far we have successfully mitigated and minimize material impacts to our business.

Our operations are running smoothly international travel still remains a challenge, but we believe aerovironment is well positioned to post top line growth and solid financial results this fiscal year and beyond.

Of course, this is a fluid situation and we're closely monitoring yet we remain prepared to react quickly.

Further supply chain bottlenecks in shipping constraints exacerbated by the pandemic continue to impact global Oems and their ability to get products to market.

We continue to monitor our supply chain and are working to mitigate any risks that materialize.

While we have had some supply chain challenges due to shortages of leading edge semiconductor microprocessors, we remain on track to achieve our objectives for the full fiscal year.

During the quarter, we also strengthened our board with the appointment of Cindy Louis <unk>.

Cindy has more than 30 years of leadership experience at several aerospace organizations, including most recently as CEO of Airborne consolidated holdings.

Given her expertise and acumen, we're thrilled to have her on board.

At the same time, we announced that arent Fishman has decided to retire and not stand for reelection at the company's annual meeting of its shareholders on September 24.

All of that day, both he and chairman Tim Congress will retire after several decades of service to the company.

We thank Tim and already for their dedication and numerous contributions and wish them well in their future endeavors.

With that I would like to now turn the call over to Kevin Mcdonnell for a detailed review of first quarter financials Kevin.

Thank you Wahid today I'll be reviewing the highlights of our first quarter performance during which I will occasionally refer to both our press release and earnings presentation available on our website I would like to note before I begin that now we have four reportable segments small UAS medium UAS tactical missile systems and other.

Other segments comprise Martin really acquired unmanned ground vehicles business Haps and on engineering services business, which includes the acquired property ISG business.

And our Form 10-Q and press release, we will continue to report revenue gross margin income from operations and adjusted operating income for each segment.

But investors this will provide improved transparency, but as Wahid mentioned I would caution that our segment performance will vary greatly quarter to quarter as a result of business mix and volume. So it will be better analyzed on an annual basis.

Revenue for the first quarter of fiscal 2022 was $101 million.

16% increase from the prior year's comparable period slide five of the earnings presentation provides a breakdown of revenue by product line for the quarter, our small UAS business segment generated $48.0 million of revenue versus last year's first quarter revenue of $58.0 million a year over year decline reflects.

The timing of orders, particularly after a very strong fourth quarter of almost $71 million in revenue.

Our newly acquired medium UAS segment had a solid first quarter at $26.0 million, which was in line with our expectations.

Tactical missile systems business our Tms.

Business contributed $21.0 million of revenue during the quarter up from $14.0 million.

Versus the prior year versus the prior year period, we remain positive on the continued growth of the Tms business.

Revenue for the other segment, which includes have declined slightly year over year to $24.0 million versus $28.0 million.

Fiscal 2021 first quarter the.

The decrease was largely a result of a decline in haps revenue of approximately $6 million.

Partially offset by revenue from the acquired property ISG and <unk> businesses, both of which were on track with our business plan.

Haps variance year over year was largely attributable to the fact that in fiscal 'twenty. The fiscal 2021 first quarter, we were ramping up to a flight test driving additional service revenue.

In summary, newly acquired business contributed just over $29 million in the quarter more than offsetting some of the timing challenges on our small UAS business. Consequently, our base business slowed.

18% in the first quarter from the prior year's first quarter.

On LTM basis, our core small UAS and Tms businesses combined grew just over 12% or just under 12%.

Before I jump into gross the gross margin numbers. The big picture is that intangible amortization of three acquisition has had and will continue to have a negative impact on our GAAP margins, but our core products and service margins remained strong and consistent with our historical business model.

We now have a chart in the earnings presentation, slide which shows product and service gross margins without intangible amortization when you adjust out the intangible amortization that becomes a product versus service mix analysis as well as the normal product mix issues impacting gross margins.

As a reminder, historically there have been a 10% to 15 percentage point difference between our product and service margins.

In the short term there'll be some drag on the service margins as we absorb the project ISG contract and to some extent take on the medium UAS service business, which has lower gross service margins than the historical <unk> business.

With that said, let's turn to the numbers are.

Our gross profit for the first quarter was $35.0 million reps.

Representing the gross margin of 28% of revenue compared to last year's first quarter gross profit of $39.0 million.

Our 40% of revenue.

When you back out and intangible amortization of $4 million and 600000 from the current and prior year period, respectively. Overall gross margin was 32% in 2022 versus 41% in 2021.

The lower gross margin was anticipated as mentioned during our fourth quarter Conference call. This was primarily due to the high proportion of service revenue in the quarter as well as the product mix in the pipeline.

The quarter consist of 53% product revenue versus 47% service related compared to our historical 70.30 split.

Our aggregate gross margin without an intangible amortization was 42% in the first quarter versus 46% last year, reflecting the negative impact of a lower mix of small UAS revenue, which historically has higher margins. We continue to expect product gross margins, excluding intangible amortization to be in the historical mid 40.

<unk> percent range for the year.

Service gross margin again vacuum out intangible amortization was 22% in the quarter versus 31% in fiscal 2021.

Climate is largely attributable project mix and slightly lower margins from the project ISG and <unk> acquisitions with both which both of US have substantial service component, but provide AAV, what's very strategic capabilities.

Over the past two years, our service margins have been in the low 30% range and we would expect the same for fiscal 2022 in total Asics.

As explained on prior calls our product and service mix, along with our product and service margins will vary quarter to quarter.

Next turning to operating expenses.

SG&A expense for the first quarter was $28.0 million compared to $12 million in the first quarter of fiscal 2021 included in SG&A for the current year quarter were intangible amortization deal integration cost of $11.0 million.

To $86000 last year.

$7 million.

Remainder of the increase in SG&A year over year was a result of the newly acquired operations, partially offset by lower travel and other expenses impacted by the pandemic.

When you exclude intangible amortization and deal costs SG&A, the SG&A expense as a percentage of revenue in fiscal 2022 was 19% for the first quarter versus 14% last year, However, SG&A, excluding intangibles Asian should normalize in the 15% to 16% range for the full year.

R&D expense for the first quarter of fiscal 2022 was $20.0 million or 14% of revenue compared to $12.0 million or 13% of revenue for the first quarter of fiscal 2021 again the increase in R&D reflects our newly acquired operations R&D as a percentage of revenue should be in line with our guidance of 90%.

To 10% for the full year.

Looking at the equity method loss activity in the quarter, we recorded a loss of $2.0 million related to our haps mobile JV.

As disclosed earlier, we are in the process of finding additional financial partners to carry the haps mobile joint venture to full commercialization in the interim AVN Softbank are advancing funds in the form of loans that cover the administrative costs of the venture for accounting purposes. The loans are considered investments and required.

The record is proportional losses of the JV under the terms of the agreement on those are guaranteed and will be repaid when financing is obtained or by softbank. Upon repayment any previously recognized losses up to the amount of alone will be recorded as equity method income we expect to continue to record equity method losses during Q2 and Q3.

But the net impact to our full year earnings should be minimal.

Looking at the bottom line.

Our GAAP net loss for the first quarter of fiscal 2022 was $14 million or <unk> 57 per diluted share compared to net income of $11.0 billion or 42 cents per diluted share for the first quarter of fiscal 2021.

The $25.0 million decrease in net income was due to $16.0 million.

Of acquisition related expenses SEC.

$4.0 million of incremental SG&A from acquired businesses $6.0 million of unfavorable gross gross margin mix.

And $6.0 million of higher net interest expense. These were partially offset by a tax benefit during the first quarter versus the tax provision in fiscal 2021.

In terms of adjusted EPS Slide 10 of our earnings presentation shows the reconciliation of GAAP and adjusted or non-GAAP diluted EPS. The company posted an adjusted loss per diluted share of <unk> 17 for the first quarter of fiscal 2022 versus earnings of <unk> 44 per.

Per diluted share for the first quarter of fiscal 2021.

The adjusted loss was slightly better than our expectations as outlined on our fourth quarter conference call and we are still on track for the guidance we have outlined.

During the fourth quarter first quarter, we had total cash outlays related to the <unk> acquisition, which closed in may of approximately $46 million net of cash acquired.

We continue to have a strong balance sheet with over 120 million of cash and investments and $100 million working capital facility.

Now I'd like to highlight some of our backlog metrics our funded backlog at the end of the first quarter of fiscal 2022 was 257, seven $264.0 million or so.

Sequential increase of $54.0 million.

In the fourth quarter, and an increase of $106.0 million versus the first quarter of fiscal 2021.

Slide seven of the earnings presentation provides a summary of our current fiscal 2022 visibility as of today total visibility towards the midpoint of our $560 million to $580 million revenue guidance range is 66% now.

Now I would like to turn things back to Louise.

Thanks, Kevin.

As I mentioned earlier, we're strengthening our leading market positions, achieving critical milestones expanding our offering and delivering on our commitments to our customers.

Supported by 66% visibility to the midpoint of our guidance range and summarized on slide number eight of our earnings presentation now I would like to provide some updates to our guidance for this fiscal year.

We are reaffirming our full fiscal year 2022 guidance for revenue of between $560 million and $580 million and adjusted EBITDA of between $105 million and $110 million.

We have revised our GAAP EPS guidance to $16.0 to $36.0, reflecting the final purchase accounting for our <unk> acquisition.

As we communicated last quarter, our prior GAAP EPS guidance was contingent upon completing this effort.

We're also reaffirming our guidance for non-GAAP earnings per diluted share, which excludes acquisition related expenses amortization of acquired intangible assets and other noncash purchase accounting adjustments to be between $52.0, and $72.0

Before turning the call over for questions, Let me sum up the quarter with these key three key messages.

We delivered top line growth and solid results as we built our backlog to yet another record level.

We're making good progress in successfully integrating our recent acquisitions.

And we're on track to meet our annual guidance with gross margins and underlying profitability expected to increase as the fiscal year progresses.

In short our goals remain the same as before to expand the company's base of business strengthen our leading position across the unmanned robotic systems landscape and deliver solid returns for our shareholders.

Looking ahead, our record backlog strong balance sheet and the enduring demand for our products and solutions position us to have our best year ever, but we won't stop there.

We continue to execute on our strategy to broaden our capabilities integrating robotics data analytics and an intuitive user interface to provide more effective tools than ever before for our customers.

I am confident we have the staff technology and key customer relationships to build the aerovironment of tomorrow.

We have enjoyed the opportunity to meet and speak with our investors over the past quarter and thank you for your continued interest in Aerovironment.

We have been increasing our visibility in speaking with investors as much as possible and look forward to connecting at our upcoming conferences and our virtual annual stockholders meeting on September 24.

I want to say, thank you to our customers our team members and our shareholders for your ongoing engagement and four challenging us always to deliver excellence.

We continue to focus on delivering on our promise to help you proceed with certainty.

Kevin Joanna and I will now take your questions.

And thank you as a reminder to ask a question you will need to press star one on your telephone.

John Your question press the pound key please standby, we compile the Q&A roster and once again that is star one if you'd like to ask the questions and our first question comes from Peter.

Keith.

<unk> global.

Your line is now open.

Hey, good afternoon, guys. Thank you.

It looks like we will have a continuing resolution.

Certainly for the federal government for fiscal 'twenty two starting in October just was wondering if you could give us a sense of.

The level of that's factored into your guidance for fiscal 'twenty two.

And then just any more color you can provide maybe on small UAS for this quarter.

Those are of being down was that due to maybe a GAAP between either either production or upgrade cycles or something else and would you expect small UAS to ramp the balance of the year.

That's it for me thank you.

Hi, Thank you for the questions, Yes, I could.

Shed some light on both items in terms of the continuing resolution with the U S government's budget.

We have.

We have considered that into our guidance obviously the situation is fluid and.

And it could change, but we believe that despite a continuing resolution I believe that we're on track to achieve our fiscal year results as we said earlier.

Earlier on the call.

And then obviously our record backlog sets us well really well for that as well going into the second and third and fourth quarter in terms of the small UAS business being down for the first quarter as I mentioned on my remarks.

It's really important to make sure that we keep an eye on the longer term.

<unk> and picture of these businesses.

The.

Lower revenue on Q1 for small UAS was specifically because of timing of some specific contracts that said because the business is made up of pretty large chunks of individual contracts.

Timing of any one of those either previous year or this quarter or next quarter could have a significant.

Sort of change in those optics for the quarter, but if you look at the longer term picture and you will see that we have growth in most all of our core businesses, but especially in small UAS and Tms.

As Kevin mentioned in his remarks.

And last several quarters, there is a trend line roughly looks a little bit less than 12% growth in our business on our core businesses.

<unk> based on LTM basis, yes, right, so and this year in our guidance, we expect our both our Tms and small UAS business system grow.

This year over last year, so overall I feel actually really good about it we're engaged in a lot of opportunities both domestically and internationally and we will keep you updated on that.

I appreciate the comment about guidance in particular, that's helpful. And then just.

Travel restrictions and Covid is that you know.

Is that so any kind of meaningful.

When to closing sales for for I guess for any of your products at this point.

Yes, Pete that has remained to be a challenge we have as I said on the remarks, we have addressed those challenges extremely well. So far we are able to get into these countries and they are able to travel, but there are very limited and very difficult to spill.

Many of the countries in the middle East the process is extremely.

Sort of long and challenging.

As well, but a lot of customers are still hesitant to allow their teams to travel as well as to us.

Wow.

Visitors to come to their countries. Our sites. That's also true in many of the U S. Government sites. Many of the sites are still very careful and cautious in terms of allowing folks to get in but we expect that to change obviously overtime as vaccination becomes more and more.

The requirement across U S beauty.

Okay, great. Thanks for the update guys.

You're welcome Thanks Pete.

Thank you and our.

Our next question comes from Peter Arment from Baird.

Your line is now open.

Good afternoon, Kevin.

Hey, we get this question a lot regarding just as less foods come out of the year more boots come at a theater.

How you are kind of emulators.

<unk> is positioned to kind of perform for kind of services on demand. How do you. How do you characterize I know you've won some recent awards in that method.

Sure So Peter in terms of our M. UAS business, we were very pleased with the results so far but.

We've delivered the business has obviously grown already for the first quarter, we expect that business to continue to grow this year.

The U S. So comms contract the Emmy UAS for opportunity.

We're really gaining share in a very large position on that today. So I expect that to continue the signs and signals from the U S. SOCOM is quite positive.

We believe that the drawdown could actually increase.

ISR services.

And that region in many other regions around the world as U S starts to have less booths on the ground the need for.

Intelligence surveillance and reconnaissance data analytics and those types of services.

It is expected to some extent to actually do better.

In general so we feel good about that for both our small UAS as well as four.

And UAS business in general.

Okay, that's helpful and just.

Last quarter, you gave us an update on kind of Tms for export opportunities, maybe what's the latest there.

And that you can talk about.

Sure. So as you know we've received our first export license. We are in the process of actually building that product and shipping it to our customer.

We are engaged with multiple additional countries, who not only have shown interest in that capability, but also are starting the process of actually.

Making the request for acquisitions and we have started that process with as I said multiple countries.

As I said before it is a matter of when versus if that we're going to get more countries too.

To join our international customers for Switchblade.

That's specifically related to Switchblade 300, we are also now since the announcement of our Switchblade 600, we've seen interest from international countries in the Switchblade 600 ground launched as well.

While that's much earlier in its process, but that also represents a pretty significant opportunity for us long term.

And with U S troops actually having less boots on the ground. Peter we think that the international countries would be a more needs of this capability in order to defend themselves keep themselves protected.

And just last one from me, Kevin just to calibrate us on guidance, you're still expecting kind of a 40% of the mix in the first half 60% second half in terms of revenue.

We haven't changed that.

Okay. Thank you.

And thank you.

And if you'd like to ask a question that is star one again, ladies and gentlemen, if you would like to ask a question that is star one and our net.

Question comes from Austin Moeller from Canaccord. Your line is now open.

Hi, Wahid how are you.

Pretty good how about yourself.

Pretty good here just my first question, if we look at the backlog and the pipeline here.

Do you consider the most significant upcoming opportunity for you guys to be the so-called UAS for contract or the Army's future Tactical UAS program.

So Austin both of those two opportunities are significant for us. They are both represented significant long.

Long term opportunities for Aerovironment and the UAS as you can see over the last.

Several quarters.

Our acquisition of Arcturus has been the newcomer into that contract for the last two years and they have consistently have gained share against the.

The incumbents.

Our two major primary incumbents in that contract.

And so we feel good about the fact that we're gaining share and I expect that to either stay the same or continue obviously, its very competitive and I believe that the competition is going to get more and more.

Aggressive in the future, but that's definitely.

Position that we enjoy a market leading position and we continue to actually grow in that.

Additionally, on the <unk> side, that's a brand new multi 100 multi $100 million long term program of record. The U S. Army has close to over $140 million in the budget to sort of accelerate that program and the next government fiscal year, which is 2022 for the government and we are one of the Dallas.

<unk> and we expect that to be a significant opportunity for us for growth, but regardless of that we also expect our small UAS to grow our Tms to grow as well as our other acquisitions that we've done to grow this year and beyond.

Okay, Great and just wondering if we think about CMS here.

The budget is sort of being.

Excuse me towards.

I think warfare and potentially countering China.

You anticipate or have you guys been bidding more on on the either for black wing or for the ship borne bearing of the switchblade 604 or more naval platforms.

Sure. So Austin, we actually have secured a contract with the U S Navy for the Black wing.

<unk> now are in Contra on contract they have actual official program of record for Black wing to essentially increase the deployment of black women to more and more of U S submarines in the last two to three years that.

Adoption has gone extremely well the navy is very satisfied with our capability and we expect that to actually continue over the next year or two.

However that business because the size of the submarine fleet is not very large is not a very significant large opportunity in terms of switchblade 600 maritime as I mentioned on my remarks, that's definitely a large opportunity for us that we already have a contract with U S. Silicon, but there are several additional U S. <unk>.

<unk> that have an interest in our platform both independently by itself as well as integrated with maritime vessels small and medium sized ships as well as other ground assets.

So we're going to continue to.

<unk> progressed, those and continue to actually work those aggressively and I feel good about that for the long run because it's going to be a significant growth opportunity for us for the Tms business.

Okay, Great. That's very interesting. Thank you for the color there.

Thank you Austin, Thank you Austin.

Thank you and we have a follow up question from Pearce Kubicki.

<unk> Global your line is now open.

Yes, thanks, guys.

On haps.

I want to make sure I understand.

How much more financial backing is needed if any to finish development or I'm. Sorry are you looking for more financial sponsors for development or is it more so for our follow on production.

And when do you think youll complete kind of the design and testing of the new design.

So I'm so glad you asked that question because.

It is a very critical growth opportunity for us and deserves some.

Sort of color on it.

We have already secured in the last quarter very towards the end of last fiscal year, we secured a five year Master agreement with Softbank essentially this blanket master agreement allows for Softbank to place multiple orders over the next five years with Aerovironment. The first one of those orders, which we just recently secure.

Also during the last few days of the last quarter last fiscal year was about a $51 million contract that will essentially fund us for a good amount of a year to 15 months. The period of performance is roughly 15 months.

Purpose of that contract is to essentially designed the next generation airplane basically take the learnings of the first set of five flights and then incorporate that into the next design, where the ultimate design that is going to be certify ball by entities, such as the FAA and other agencies around the world.

That funding is sufficient and regardless of whether we get another investor not Softbank and Aerovironment is committed to pursue this opportunity on our own.

In terms of additional investment when we sought was formed the business plan for Haps mobile with Softbank. Both parties agreed that after phase one, which we have now successfully completed we will start to engage and look for additional investors to see if they want to come and join the haps mobile joint venture.

The reason for that was primarily because we believe the haps mobile joint venture is a.

Unbiased global entity that can service and connect billions of people around the world. So other telecom operators other strategic investors and financial investors will most likely have interest to invest in it both softbank and aerovironment stays open to that.

Should there not be an investor we're not eager to get one if we don't that's still okay, because both softbank and Aerovironment is committed to growing it the way we are but that was the original plan and will continue to go down that path.

And so the last part of your question as to how long it will be done with it. We expect this design phase to be finished within another 12 to 15 months and we also expect to build another airplane. This is the third airplane, which is going to be the basis of the certification with the FAA and we've already started that process with the FAA and we're working the materials and.

<unk> issues to make sure that we can build that airplane.

On a timely manner.

Okay that makes sense I appreciate all the color.

I mean I'll have to follow.

Can you hit another.

Another program updates Switchblade 600, Youre also trying to integrate that with the Craig Jones Valkyrie. If I recall, just was wondering kind of how thats coming along and if theres a completion date.

Scheduled to hit for that.

Sure. So we're working with <unk> on both Switchblade 306 hundred to be integrated with some of their platforms, especially the valkyrie platform for multiple programs that they are pursuing that that engagement is going well, but it's still early.

The reason why I say, it's early because first and foremost they have to win that program of record, which theyre, obviously doing really well.

And as they win that program then a part of that development is for the U S Air Force to start integrating our our drones are loitering missiles with that platform.

Boats.

<unk> and Arrow, Robyn really believe in that capability.

The customer based on their interactions with very positive feedback on that and but it is a slower process in a more long term engagement rather than a short term.

That's just one of many we're also engaged with general dynamics land systems to integrate switchblade with their ground platforms.

Programs, such as the OSV optionally manned fighting vehicle for the U S Army and many other opportunities that we're going to be competing in the future.

Okay, great, Great and I promise last one for me.

Now one of the guys who are on site.

The two competitive losses, the Air Force <unk> competition with tell Rob and then the Marine Corps <unk> have you last time you reported out.

I've gotten a debrief from the from the customer yet.

Get a feel for what they are.

Preferred or didn't prefer about selected.

Competition.

Did you get a chance to get debrief on those two programs yet and whether.

Well not necessarily sharing.

Too much with us.

Do you feel that you learned kind of what's the customer said I was looking for on those two competitions at this point.

Yes, and no to the best of our abilities. We've tried really hard to learn as much as we can.

We have gotten some feedback.

We are still in.

And sort of assessment of that learning more about it.

The truth of the matter is that we have a very diversified portfolio now and we are engaged in lots and lots of opportunities at any given time.

While we don't like any losses.

The probability that we're going to have one or two or three losses here and there is obviously with our portfolio and our business growing.

Just sort of changed the Opex a little bit in regards to those specific opportunities and lessons learned absolutely there are lessons learned.

Several of them, we have a very thorough process internally that we go through that we take them very seriously and one of the things actually has been a little challenging as because of the COVID-19 situation travel to the customer and having sit down face to face meetings have been more difficult.

Challenging however, we're going to continue that path and regardless of that we expect both of these two businesses to grow this year and they have been growing in the past. So we still feel good about the overall market opportunity there for us and for the rest of our portfolio.

Thank you and our next question comes from Louis Dipalma with William Blair. Your line is now open.

Okay.

Well he'd Kevin and John Good afternoon.

Hi, Louis.

How do you view.

Haps mobiles business model compared to recent satellite startups, such as ASP space mobile trying to broadcast cellular signals from space directly to the cell phones.

Sure so we.

Obviously keep a close eye on the developments in the entire broadband space not only on <unk>, but also <unk>.

Satisfactory and.

Space related.

Softbank, who really is an expert in this area who have invested in all different domains, whether its space near space satisfy Eric and terrestrial they are really a great source of sort of opinion on this the opinion is that.

Essentially there is not one winner takes all the market is massive and all of the platforms play a role however, haps mobile and <unk> value proposition is extremely unique and very very disruptive there are lots of advantages to our son glider platform to any of the levo in geosynchronous.

And while we do not expect to completely.

Placed in completely and replace them. We do believe that <unk> will play a very key role and a significant role in the long run and providing broadband.

Can go through a list of specifics as to why Softbank and we think that.

But it's quite evident even from some of the satellite players that they consider solar sun <unk> as a complementary rather than a.

Inferior solution, we believe it's actually got a lot of superior capabilities.

Great and also on the topic of satellite connectivity.

In July you want you announced that you won the SOCOM.

Award with the Emmy UAS for.

Program to put satcom connectivity on your jumped 20 are you able to disclose whether it's L band or Ku band satellite connectivity and related to that are you aware if any of your competitors and group to also have this.

Satellite connectivity capability.

So.

Louis.

I'm not able to actually disclose that specific specific.

Information about those contracts as you know they're very sensitive.

In terms of our customers' operations and we were not allowed to talk about that what I can tell you is that we were the first one.

And we will be the first in the UAS for agree.

Agreement not only to win the site, but also to potentially provide us or others going to try to provide that.

I can't really speak to that openly because of the.

Confidentiality of our customer and the sensitivity of the application for our customers' safety.

Sounds good thanks, Mike.

Youre welcome Louis.

Thanks, Louis Thank you.

And our next question comes from Brian Gutenberg from Imperial capital.

Your line is now open.

Yes. Thank you very much I just wanted to clarify something that pizza kubicki had asked and.

I just wanted to drill down a little bit on the haps.

The third aircraft.

I heard a couple of numbers and I'm, just trying to narrow down what I. Just heard is it 24 months that you expect the order or is it you expect to produce an aircraft a third aircraft within the next 24 months I guess that number just stuck out to me.

You can just re highlight that sure. Brian. This is wahid. So we have already secured a 51 plus million dollar contract award from Softbank, the scope of that is too.

Implement the learnings from the first two aircraft in the first five flights into the design of the third aircraft and also start the development of the third of the production of the third aircraft, we expect to actually make their airplane.

Not to secure a contract in 24 months so usually.

The first two airplanes that we made to give you a point of point of reference.

We built the two airplanes in less than two years.

Less than two year timeframe, so really it depends on first getting the design.

<unk>.

Completed and locked in the configuration, and then engaging with FAA to make sure that that serves as the basis of the certification airplane and then start building the airplane.

Buying material for it.

Great. Thank you very much.

Welcome Brian.

Yeah.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Thank you everybody.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Aerovironment fiscal 'twenty 'twenty two first quarter conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your tongue.

Please be advised that today's conference is being recorded for replay purposes.

If you acquired any further assistance. Please press star Zero I would now like to hand, the conference over to Joanne Peter Belinda. Thank you. Please go ahead Sir.

Thanks, and good afternoon, ladies and gentlemen, welcome to Aerovironment <unk> fiscal year 2022 forced Kurt first quarter earnings call. This is Jonna Teeter Balan senior director of corporate development and Investor Relations for Aerovironment.

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 $114.0

Statements.

For further information on these risks we encourage you to review the risk factors discussed in Aerovironment periodic reports on Form 10-K, and other filings with the SEC.

Along with the associated earnings release, and Safe Harbor statement contained therein.

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

The content of this conference call contains time sensitive information that is accurate only as of today September eight 2021. The company undertakes no obligation to make any revision to any forward looking statement contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call.

Thank you Jonah welcome to our fiscal year 2022 first quarter earnings conference call on.

Let me emphasize four key messages, which are included on slide number three of our earnings presentation.

First we achieved strong quarterly results in line with our previously communicated expectations.

Second we have secured another record backlog, which included both organic and inorganic growth in our business.

Third we continued to successfully integrate the three recently acquired businesses.