Q3 2024 AeroVironment Inc. Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the AeroVironment Fiscal Year 2024 third quarter conference call. At this time, all participants are in a listen-only mode.
Speaker Change: Good day, and thank you for standing by welcome to the Aerovironment fiscal year 'twenty 'twenty four third quarter conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jonah Teeter-Bailyn. Please go ahead.
Speaker Change: Ask a question you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jonathan Teeter Balan. Please go ahead.
Jonah Teeter: Thanks and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fiscal year 2024 third quarter earnings call. This is Jonah Teeter-Balin, Senior Director of Corporate Development and Investor Relations. Before we begin, please note that certain information presented on this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations. For further information on these risks and uncertainties, see the company's 10-K and other filings with the SEC, in particular, in the risk factors and forward-looking statement portions of such filings. Copies are available from the SEC on the AeroVironment website at www.avinc.com or from our investor relations team.
Speaker Change: Thanks, and good afternoon, ladies and gentlemen, welcome to Aerovironment for fiscal year 2024 third quarter earnings call.
Speaker Change: As John and Peter Ballan, Senior director of corporate development and Investor Relations.
Speaker Change: Before we begin please note that certain information presented on this call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Speaker Change: These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations.
Speaker Change: For further information on these risks and uncertainties is contained in the company's 10-K and other filings with the SEC in particular in the risk factors and forward looking statements portions of such filings.
Speaker Change: Copies are available from the SEC.
Speaker Change: Aerovironment website at Www Dot a V I N C dot com or from our Investor Relations team.
Jonah Teeter: This afternoon, we also filed a slide presentation with our earnings release and posted the presentation to the investor section of our website under events and presentations. The content of this conference call contains time-sensitive information that is accurate only as of today, March 4, 2024. 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 events or circumstances occurring after this conference call. Joining me today from AeroVironment are Chairman, President, and Chief Executive Officer, Mr. Wahid Nawabi, and Senior Vice President and Chief Financial Officer, Mr. Kevin McDonnell. We will now begin with remarks from Wahid Nawabi. Wahid?
Speaker Change: This afternoon, we also filed a slide presentation with our earnings release and posted a presentation to the investors section of our website under events and presentations.
Speaker Change: The content of this conference call contains time sensitive information that is accurate only as of today March 4th 2024.
Speaker Change: 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.
Wahid Nawabi: Joining me today from Aerovironment, our chairman, President and Chief Executive Officer, Mr. Wahid, Milwaukee, and senior Vice President and Chief Financial Officer, Mr. Kevin Mcdonnell.
Speaker Change: We will now begin with remarks from Wahid Milwaukee Wahid.
Wahid Nawabi: Thank you, Jonah. Welcome everyone to our fiscal year 2024 third quarter earnings conference call. I'll start by summarizing our performance and recent achievements, after which Kevin will review our financial results in detail. Next, I will provide information about our outlook for the remainder of fiscal year 2024. Kevin, Jonah, and I will then take a question.
Speaker Change: Thank you Joanna.
Wahid Nawabi: Welcome everyone to our fiscal year 2024 third quarter earnings Conference call.
Kevin Patrick McDonnell: I'll start by summarizing our performance and recent achievements after which Kevin will review our financial results in detail.
Kevin Patrick McDonnell: Next I will provide information about our outlook for the remainder of fiscal year 2024.
Kevin Patrick McDonnell: Kevin Jordan and I will then take your questions.
Wahid Nawabi: I'm pleased to report that our third quarter results were exceptional, and we once again hit key milestones toward achieving our best year ever. Our key messages, which are also included on slide number three of our earnings presentation, are as follows. First, third quarter revenue rose to $187 million, setting a new third quarter record and significantly outperforming last year's same-quarter results by nearly 40%. Second, revenue for the loitering munitions segment more than doubled year-over-year and achieved its highest quarterly revenue to date. Third, this quarter's exceptional performance and high visibility gives us confidence to raise and tighten our fiscal year 2024 guidance ranges. And fourth, AeroVironment continues to be a leader in the defense tech space and remains well positioned for double-digit revenue growth in fiscal year 2025.
Kevin Patrick McDonnell: I'm pleased to report that our third quarter results were exceptional and we once again had key milestones toward achieving our best year ever.
Kevin Patrick McDonnell: Our key messages, which are also included on slide number three of our earnings presentation are as follows.
Yes.
Kevin Patrick McDonnell: First third quarter revenue rose to $187 million setting, a new third quarter record and significantly outperforming last year same quarter results by nearly 40%.
Kevin Patrick McDonnell: Second revenue for loitering munition segment more than doubled year over year and achieved its highest quarterly revenue to date.
Kevin Patrick McDonnell: Third this quarter's exceptional performance and high visibility gives us confidence to raise and tightening our fiscal year 2024 guidance ranges.
Kevin Patrick McDonnell: And Ford.
Kevin Patrick McDonnell: <unk> continues to be a leader in the defense Tech space and remains well positioned for double digit revenue growth in fiscal year 2025.
Wahid Nawabi: Our strong top-line growth and profitability created meaningful value for our shareholders, and we're very pleased with our performance today. Our results were driven by increasing demand for our unmatched solutions and strong operational execution. Our backlog is up 12% from the same quarter last year, and we have leveraged this stable backlog to deliver more consistent quarterly performance. By level loading our factory's production throughout the year, we have achieved greater operational efficiencies while expanding throughput.
Kevin Patrick McDonnell: Okay.
Kevin Patrick McDonnell: Our strong topline growth and profitability created meaningful value for our shareholders and we're very pleased with our performance to date.
Kevin Patrick McDonnell: Our results were driven by increasing demand for our unmatched solutions and strong operational execution.
Kevin Patrick McDonnell: Our backlog is up 12% from the same quarter last year, and we have leveraged this stable backlog to deliver more consistent quarterly performance.
Kevin Patrick McDonnell: Okay.
While level loading our factories production throughout the year, we have achieved greater operational efficiencies, while expanding throughput.
Wahid Nawabi: AeroVironment has demonstrated market-leading manufacturing capacity for unmanned systems, and we continue to invest in facilities, people, and processes to prepare for even greater demand in the future. With both our customers and shareholders in mind, we continue to invest in an innovative customer-driven solution. We're targeting multiple billion-dollar programs of record, as well as emerging unmanned solutions markets. We're also investing in upgrades to our current platforms so they remain well-suited to evolving battlefield conditions. While our focus is primarily on internal development, we also remain active in seeking inorganic opportunities, which would benefit our current product portfolio and further our success.
Kevin Patrick McDonnell: Aerovironment has demonstrated market, leading manufacturing capacity for unmanned systems, and we continue to invest in facilities people and processes to prepare for even greater demand in the future.
With both our customers and shareholders in mind, we continue to reinvest and innovative customer driven solutions.
Kevin Patrick McDonnell: We're targeting multiple billion dollar programs of record.
Kevin Patrick McDonnell: As well as emerging unmanned solutions markets.
Kevin Patrick McDonnell: We're also investing in upgrades to our current platforms. So they remain well suited to evolving battlefield conditions.
Kevin Patrick McDonnell: Okay.
Kevin Patrick McDonnell: While our focus is primarily on our internal development. We also remain active in seeking inorganic opportunities, which would benefit our current product portfolio and further our success.
Wahid Nawabi: We're proud to partner with our country and our allies by delivering the solutions they need to successfully carry out their vital mission, and we're confident that we will continue to deliver strong value to our stakeholders for the remainder of fiscal year 2024 and beyond. Now, let me provide an update on current developments across our three segments. I will begin with our loitering munitions segment, or LMS, whose revenue for the third quarter more than doubled year-over-year to $58 million.
Kevin Patrick McDonnell: We're proud to partner with our country and our allies by delivering the solutions they need to successfully carryout their vital missions.
Kevin Patrick McDonnell: And we're confident that we will continue to deliver strong value to our stakeholders for the remainder of fiscal year 2024 and beyond.
Kevin Patrick McDonnell: Okay.
Kevin Patrick McDonnell: Now, let me provide an update on current developments across our three segments.
Kevin Patrick McDonnell: I'll begin with our loitering munitions segment or LMS in which revenue for the third quarter more than doubled year over year to $58 million.
Wahid Nawabi: Higher demand across the globe and emerging programs of record are driving historic top-line growth. This was our best quarter ever for LMS, with a significant rise sequentially and year-over-year. Yet, we believe we're only getting started.
Kevin Patrick McDonnell: Higher demand across the globe and emerging programs of record are driving historic topline growth.
Kevin Patrick McDonnell: This was our best quarter ever for LMS with a significant rise sequentially and year over year, yet. We believe we are only getting started.
Wahid Nawabi: As I mentioned last quarter, we're in active negotiations with the U.S. government on a large multi-year sole source IGIQ contract for Switchblade to meet increased demand for the U.S. and our allies. We are also engaged with more than 20 countries who have demonstrated a strong interest in Switchblade, and of those, about a third continue to seek export authorization from the U.S. DOD. We're also optimistic about These include the U.S. Marine Corps solicitation for its Organic Precision Fires, or OPF, program, the U.S. Army's Low Altitude Stalking and Strike Coordinates, or LASO, program, and the U.S. Defense Innovation Unit's Replicator Initiative.
Kevin Patrick McDonnell: As I mentioned last quarter, we're in active negotiations with the U S government on a large multiyear sole source Iga IQ contract for Switchblade to meet increased demand for the U S and our allies.
Kevin Patrick McDonnell: We're also engaged with more than 20 countries, who have demonstrated a strong interest in switchblade and of those about a third continue to seek export authorization from the U S. Dod.
Kevin Patrick McDonnell: Yeah.
Kevin Patrick McDonnell: We're also optimistic about key programs of record in the pipeline.
Kevin Patrick McDonnell: These include the U S Marine Corps solicitation for its organic precision fires or <unk> program.
Kevin Patrick McDonnell: The U S Army's low altitude stocking and strike ordinance or lasso program.
Kevin Patrick McDonnell: And the U S Defense innovation unit Replicator initiative.
Wahid Nawabi: We believe we're well positioned for these significant long-term opportunities, and we look forward to sharing further updates on these programs later this calendar year. In addition to these standalone applications, we continue to see opportunities to integrate Switchblade into other platforms, such as helicopters through the U.S. Army's Long-Range Precision Munition, or LRPM, program, and ground vehicles with the U.S. Army's Optionally Manned Fighting Vehicle, or OMFV, program.
Kevin Patrick McDonnell: We believe we are well positioned for the significant long term opportunities.
Kevin Patrick McDonnell: We look forward to sharing further updates on these programs later this calendar year.
Kevin Patrick McDonnell: Okay.
Kevin Patrick McDonnell: In addition to the Standalone applications, we continue to see opportunities to integrate switchblade into other platforms such as helicopters through the U S. Army's long range precision munition or L. RPM program and ground vehicles with the U S. Army's optionally manned fighting vehicle or B program.
Kevin Patrick McDonnell: Yeah.
Wahid Nawabi: We believe platform integrations will be a significant component of LMS revenues in future years. We expect Switchblade production to increase further in the fourth quarter, setting LMS up for another record fiscal year and even greater success in the future. Since we foresee additional large orders for Switchblade on the horizon, we're investing to further increase our manufacturing capacity. While we have sufficient capacity for the next couple of years of increased demand, our team is also evaluating future expansion of facilities, geographies, and supply chain partners. In summary, we remain very optimistic about the growth potential in this business segment. Moving to our unmanned systems segment, revenue for the quarter rose 23% year-over-year to approximately $113 million. Top-line growth is broadly spread across our Puma and Jump 20 systems, reflecting a good mix of domestic and international customers. While AeroVironment remains the defense tech leader in unmanned aircraft systems, the Puma, now in its third generation, is undeniably the industry gold standard for small UAS.
Kevin Patrick McDonnell: We believe platform integrations will be a significant component of LMS revenues in future years.
Kevin Patrick McDonnell: We expect switchblade production to increase further in the fourth quarter setting LMS up for another record fiscal year and even greater success in the future.
Kevin Patrick McDonnell: Since we foresee additional large orders for switchblade on the horizon, we're investing to further increase our manufacturing capacity.
While we have sufficient capacity for the next couple of years of increased demand. Our team is also evaluating future expansion of facilities geographies and supply chain partners.
In summary, we remain very optimistic about the growth potential in this business segment.
Kevin Patrick McDonnell: Moving to our unmanned systems segment revenue for the quarter rose, 23% year over year to approximately $113 million.
Kevin Patrick McDonnell: Topline growth is broadly spread across our Puma and jumped 20 systems, reflecting a good mix of domestic and international customers.
Kevin Patrick McDonnell: While Aerovironment remains the defense Tech leader in unmanned aircraft systems.
Kevin Patrick McDonnell: Puma now in its third generation is undeniably the industry gold standard for small UAS.
Wahid Nawabi: In the last 12 months alone, we have shipped more than $400 million of this product to domestic and international customers. It is also important to mention that the third generation Puma we're shipping today has significant technological upgrades compared to the original one. These enhancements include higher resolution cameras, greater autonomous navigation, resiliency in contested environments, longer endurance, and vertical takeoff and landing or VTOL operations, to name a few.
Kevin Patrick McDonnell: In the last 12 months alone we have shipped more than $400 million of this product to domestic and international customers.
Kevin Patrick McDonnell: It is also important to mention that our third generation Puma.
Kevin Patrick McDonnell: <unk> today has significant technological upgrades compared to the original one.
Kevin Patrick McDonnell: These enhancements include higher resolution cameras.
Greater autonomous navigation resiliency in contested environments.
Kevin Patrick McDonnell: Longer endurance, and vertical takeoff and landing or VTOL operations to name a few.
Wahid Nawabi: We plan to continue these investments to keep the PUMA system best in class. As an example, we're upgrading our software stack to include new machine learning-enabled autonomy and computer vision image recognition features for this amazing product. In a similar manner, we're leveraging our most recent acquisition, Tomahawk Robotics, to bring open architecture common control systems to our full UAS portfolio. This business has now successfully transitioned into our unmanned systems segment, and we expect to integrate the Kinesis software platform with our UAS platforms later this year. I also want to address the U.S. Army's recent announcement that it plans to sunset the RQ-11 Raven, their workhorse small UAS, after more than 20 years of service. With approximately 20,000 units delivered, Raven is the most widely adopted military UAS in the world.
Kevin Patrick McDonnell: We plan to continue these investments to keep the Puma system best in class.
Kevin Patrick McDonnell: As an example, we're upgrading our software stack to include New machine learning enabled autonomy and computer vision image recognition features for this amazing product.
Kevin Patrick McDonnell: In a similar manner, we're leveraging our most recent acquisition Tomahawk robotics to bring open architecture common control systems to our full UAS portfolio.
Kevin Patrick McDonnell: This business has now successfully transitioned into our unmanned systems segment, and we expect to integrate the kinesis software platform, what our UAS platforms later this year.
Kevin Patrick McDonnell: I also want to address the U S. Army's recent announcement that it plans to sunset. The RQ11, Raven their workhorse small UAS after more than 20 years of service.
Kevin Patrick McDonnell: With approximately 20000 units delivered Raven is the most widely adopted military UAS and the world.
Wahid Nawabi: We are extremely proud of the support Raven has provided to the U.S. Army and our soldiers. At the same time, we stand ready to compete for the next generation small UAS on the U.S. Army's Medium-Range Reconnaissance, or MRR, program and the Long-Range Reconnaissance, or LRR, program. Our unmanned system segments continue to offer a strong, steady, and profitable revenue stream, and we remain optimistic about additional domestic and international orders in our pipeline. We also believe that our recent and future product enhancements for Puma 3AE, Jump 20, and Vapor 55 will drive enduring customer demand for the remainder of fiscal year 2024 and beyond. Moving to our McCreadyWorks segment, as expected, revenue was down slightly from the third quarter of fiscal year 2023.
We are extremely proud of the support Raven has provided to the U S Army and our soldiers.
Kevin Patrick McDonnell: At the same time, we stand ready to compete for the next generation small UAS.
Kevin Patrick McDonnell: On the U S Army's medium range reconnaissance or <unk>, our program and the long range reconnaissance or L a or our program.
Kevin Patrick McDonnell: Our unmanned systems segment continued to offer a strong steady and profitable revenue stream and we remain optimistic about additional domestic and international orders at our pipeline.
Kevin Patrick McDonnell: Okay.
Kevin Patrick McDonnell: We also believe that our recent and future product enhancements for Puma three AE jumped 20, and vapor 55 will drive enduring customer demand for the remainder of fiscal year 2024 and beyond.
Moving to our Maccready works segment as expected revenue was down slightly from third quarter of fiscal year 2023.
Wahid Nawabi: As we discussed last quarter, we're now realizing some program delays related to the continuing resolution and an associated reduction in customer-funded R&D. As Kevin will discuss, we now expect to increase R&D spend in the fourth quarter in order to progress these programs while we await funding approvals. That said, we continue to focus on many new and exciting opportunities, which will rapidly shape this business' growth. We are maintaining our investments in HAPS, Contested Logistics, Maritime UAS, and other exciting platforms and technologies. Many of these solutions require very advanced capabilities, which AeroVironment is uniquely capable of providing.
Kevin Patrick McDonnell: As we discussed last quarter, we're now realizing some program delays related to the continuing resolution and an associated reduction in customer funded R&D.
Kevin Patrick McDonnell: As Kevin will discuss we now expect to increase R&D spend in the fourth quarter in order to progress. These programs, while we await funding approvals.
Kevin Patrick McDonnell: Okay.
Kevin: That said, we continue to focus on many new and exciting opportunities, which will rapidly shape. This business has growth.
We are maintaining our investments in haps contest that logistics maritime UAS and other exciting platforms and technologies.
Kevin: Many of these solutions require very advanced capabilities, which aerovironment is uniquely capable of providing in fact, we recently won a $16 million U S. Navy contract for the advancement of video analytics and computer vision research to support multi domain robotics.
Wahid Nawabi: In fact, we recently won a $16 million U.S. Navy contract for the advancement of video analytics and computer vision research to support multi-domain robotics. This award leverages our development of shared software ecosystems that provide enhanced situational awareness on the battlefield. In this multi-year effort, we will explore and implement new technology that optimizes how intelligence, surveillance, reconnaissance, and targeting are performed throughout the U.S. DOD. Finally, I would like to note that our Ingenuity Mars Helicopter just ended its mission after making its 72nd flight. Ingenuity's performance was nothing short of outstanding, exceeding all mission objectives and expectations.
Kevin: This award Leverages, our development of shared software ecosystems that provide enhanced situational awareness on the battlefield.
Kevin: Under this multiyear effort, we will explore and implement new technology that Optimizes, how intelligence surveillance reconnaissance and targeting are performed throughout the U S. Vod.
Kevin: Okay.
Kevin: Finally, I would like to note that our ingenuity Mars helicopter just wound down its mission after making at 72nd flight.
Kevin: Flight.
Kevin: <unk> performance was nothing short of outstanding exceeding all mission objectives and expectations. We're very proud of our work on this program and look forward to supporting future planetary exploration initiatives.
Wahid Nawabi: We're very proud of our work on this program and look forward to supporting future planetary exploration initiatives. In summary, McRaneyWorks is achieving its mission to incubate new product lines and develop vital capabilities, and we look forward to sharing exciting developments in future quarters. With that, I will now turn the call over to Kevin McDonnell for a review of the quarterly financials.
Kevin: In summary, Maccready works is achieving its mission to incubate new product lines and develop vital capabilities and we look forward to sharing exciting developments in future quarters.
Kevin: With that I will now turn the call over to Kevin Mcdonnell for a review of the quarterly financials Kevin.
Kevin Patrick McDonnell: Thank you, Wahid. Today I will be reviewing the highlights of our third quarter performance, during which I will occasionally refer to both our press release and earnings presentation available on our website. Overall, we had another outstanding financial quarter as the third quarter finished strong in terms of revenue, adjusted gross margins, and adjusted EBITDA. We are on track to meet all our full-year objectives. As Wahid mentioned in his remarks, revenue for the third quarter of fiscal 2024 was $186.6 million, an increase of 39 percent as compared to the $134.4 million for the third quarter of fiscal 2023. Slide 5 of the earnings presentation provides a breakdown of revenue by segment for the quarter.
Kevin Patrick McDonnell: Today, I will be reviewing the highlights of our third quarter performance, which I will occasionally refer to both our press release and earnings presentation available on our website.
Kevin Patrick McDonnell: Overall, we had another outstanding financial quarter as the third quarter finished strong in terms of revenue adjusted gross margins and adjusted EBITDA. We are on track to meet all our full year objectives.
He mentioned in his remarks revenue for the third quarter of fiscal 2024 was $186 6 million and.
An increase of 39% as compared to the $134 4 million for the third quarter of fiscal 2023.
Kevin Patrick McDonnell: Slide five of the earnings presentation provides a breakdown of revenue by segment for the quarter. Our largest segment during the quarter was unmanned systems <unk>, which is a combination of our small UAS medium UAS <unk> and recently acquired Tomahawk businesses.
Kevin Patrick McDonnell: Our largest segment during the quarter was Unmanned Systems, UMS, which is a combination of our small UAS, medium UAS, UGV, and recently acquired Tomahawk businesses. UMS had revenue of $113.3 million in the quarter, which is up 23% from last year's $92.3 million. Puma demand remained strong, accounting for about half of UMS revenue, but we also saw meaningful contributions from our Jump 20 product, Tomahawk products, and ground vehicles during the quarter. Learning Medicines, or LMS, recorded revenue of $57.7 million, a 140% increase as compared to $24 million last year in Q3. A little more than half of the LMS revenues came from the Switchblade 600 products and services, while the remainder was primarily from the Switchblade 300 products. Revenue from our craning work segment came in at $15.6 million, a decrease of 13% as compared to the $18.1 million from the third quarter of last fiscal year. However, we had over a 20% increase in non-Hafstra revenue year-over-year as we continue to see strong demand for our machine learning and autonomy capabilities. However, the McCraney Works segment scroll has been muted because of the delays in establishing a government year 24 budget.
Kevin Patrick McDonnell: <unk> net revenue of $113 3 billion in the quarter, which is up 23% from last year's $92 3 million Puma demand remained strong accounted for about half of that revenue will be off.
Kevin Patrick McDonnell: It's all saw a meaningful contribution from our job quality product tomahawk products and ground vehicles during the quarter.
Kevin Patrick McDonnell: The recommendations our LMS recorded revenue of $57 7 million or 140% increase as compared to the $24 million last year during Q3, a little more than half of that one thats revenues came from the Switchblade 600 products and services, while the remainder is primarily from the Switchblade 300 products.
Kevin Patrick McDonnell: Revenue from our <unk> segment came in at $15 6 million, a decrease of 13% as compared to the $18 1 million from the third quarter of last fiscal year. However, we had over 20% increase in non <unk> revenue year over year as we continue to see strong demand for our machine learning and autonomy capabilities at Macquarie.
Kevin Patrick McDonnell: Work segments growth has been muted because of the delays and establishing a government year 'twenty for budget.
Kevin Patrick McDonnell: In slide five of the earnings presentation, there's a breakdown between product and service revenue. Specifically, during the third quarter, product revenue accounted for 84% of total revenues, an increase from 68% in the corresponding quarter of the previous year, primarily due to strong product revenue from both our small UAS and low remuneration assistance businesses. We expect product revenues as a percentage of revenue to remain above 80% for the foreseeable future. Moving on to gross margins. Slide 6 of the earnings presentation shows the trend of adjusted product and service gross margins, while slide 12 reconciles the GAAP gross margins to adjusted gross margins, which excludes intangible amortization expense and other non-cash purchase accounting items. In the third quarter, consolidated adjusted gross margins finished at 36%, up from 34% in the previous year.
Kevin Patrick McDonnell: In slide five of the earnings presentation, there's a breakdown between product and service revenue.
Kevin Patrick McDonnell: Specifically during the third quarter product revenue accounted for 84% of total revenues an increase of 68% in the corresponding quarter of the previous year, primarily due to strong product revenue from both our small UAS and Lori munition systems businesses, we expect product revenues as a percentage of revenue to remain above 80%.
Kevin Patrick McDonnell: For the foreseeable future.
Kevin Patrick McDonnell: Moving to gross margins.
Kevin Patrick McDonnell: Slide six of the earnings presentation shows the trend of adjusted product and service gross margins on slide 12 reconciles the GAAP gross margins to adjusted gross margins, which excludes intangible amortization expense and other noncash purchase accounting items in the third quarter consolidated GAAP gross margins finished at 36%.
Kevin Patrick McDonnell: Up from 34% in the previous year the improvement in GAAP gross margins was a result of improved.
Kevin Patrick McDonnell: The improvement in gap gross margins was a result of an improved product-service mix and higher service gross margins following the scaling down of our medium UAS cocoa business in the comparable period last year. In the third quarter, adjusted gross margins reached 38%, marking an increase from the 36% recorded in the same period last year. The improvement was driven by the same factors as for gap gross margin. Adjusted product gross margins of the quarter were 38 percent versus 41 percent in the third quarter of last fiscal year, reflecting the increase in Loader and Munition Systems product revenue in the overall mix this year. In terms of adjusted service gross margins, the third quarter was at 40 percent versus 27 percent during the same quarter last year.
Kevin Patrick McDonnell: <unk> service mix, and a higher and higher service gross margins following the scaling down of our medium UAS cocoa business in the comparable period last year.
Kevin Patrick McDonnell: Third quarter adjusted gross margin reached 38% market to increase from the 36% recorded in the same period last year. The improvement was driven by the same factors that's for GAAP gross margins.
Kevin Patrick McDonnell: Adjusted product gross margins for the quarter were 38% versus 41% in the third quarter of last fiscal year, reflecting the increase of the loitering munition systems product revenue and the overall mix. This year in terms of adjusted service gross margins the third quarter was at 40% versus 27%.
Kevin Patrick McDonnell: During the same quarter last year the high level of service margins was primarily result of one time, a one time favorable contract closeout and the impact of our new Tomahawk acquisition.
Kevin Patrick McDonnell: The high level of service margins was primarily a result of a one-time favorable contract closeout and the impact of our new Tomahawk acquisition. We expect full-year fiscal 2024 adjusted gross margins to end up right around 40 percent following the continued proportional increase in lower diminution systems revenue and a decrease in small UAS revenue. In terms of adjusted EBITDA, slide 13 of the earnings presentation shows the reconciliation of GAAP net income to adjusted EBITDA.
Kevin Patrick McDonnell: We expect full year fiscal 2024, adjusted gross margins to end up right around 40%. Following the continued proportional increase in Lori ammunition systems revenue and a decrease in small UAS revenue.
Kevin Patrick McDonnell: In terms of adjusted EBITDA Slide 13 of the earnings presentation shows the reconciliation of GAAP net income to adjusted EBITDA.
Kevin Patrick McDonnell: In the third quarter of fiscal 2024, adjusted EBITDA was $29 million, representing an increase of $5 million, or 21 percent, from the third quarter of last fiscal year. The main factors contributing to this increase were stronger revenue and gross margin, which was partially offset by increased investments in R&D and incremental SG&A expenses. SG&A expense excluding intangible amortization and acquisition costs was $26 million or 14% of revenue compared to $21 million or 15% of revenue in the prior year.
In the third quarter of fiscal 2024, adjusted EBITDA was $29 million, representing an increase of $5 million or 21% from the third quarter of last fiscal year. The main factors contributing to this increase were stronger revenue and gross margin, which was partially offset by increased investments in R&D and incremental SG&A.
Expenses.
SG&A expense SG&A expense, excluding intangible amortization and acquisition related expense for the third quarter was $26 million or 14% of revenue compared to $21 million or 15% of revenue in the prior year.
Kevin Patrick McDonnell: The increase of SG&A expense is primarily partially result of the Tomahawk acquisition and continued expansion of our domestic and international sales teams.
Kevin Patrick McDonnell: R&D expense for the third quarter was $25 million or 13% of revenue compared to $16 million or 12% of revenue in the prior year. The increase of R&D expense in both terms and in both terms or dollar terms or percentage of revenue as a result of investments in our next generation group one UAV.
Kevin Patrick McDonnell: The increase in SG&A expenses partially results from the Tomahawk acquisition and continued expansion of our domestic and international sales team. R&D expense for the third quarter was $25 million, or 13% of revenue, compared to $16 million, or 12% of revenue in the prior year. The increase in R&D expense in both terms, in both terms, dollar terms, and percentage of revenue, is a result of investments in the next generation Group 1 UAV, the maritime version of the Jump 20, investment in our HAP solar aircraft, and investment in new products. We are continuing to spend AV R&D dollars on some of our U.S. DOD programs for which funding has been delayed due to the pending finalization of the U.S.
Kevin Patrick McDonnell: Time version of the jumped 20 investments are Hap solar aircraft and investment in new products, we are continuing to to spend R&D.
R&D dollars on some of our U S. CSD programs for what's funding has been delayed due to the pending finalization of the U S. Federal budget for government fiscal year 2024.
Kevin Patrick McDonnell: We now expect R&D to run in the high teens as a percentage of revenue in the fourth quarter as a result of.
Kevin Patrick McDonnell: Continued investment in our long term growth initiatives and a deal deep budget delays.
Kevin Patrick McDonnell: Now turning to GAAP earnings in the third quarter. The company generated net income of $13 9 million versus a net loss of <unk> 7 million recorded in the same period last year. The increase in net income of $14 6 million can be attributed to several factors, namely at $22 $5 million increase.
Kevin Patrick McDonnell: We now expect R&D to run in the high teens as a percentage of revenue in the fourth quarter as a result of continued investment in our long-term growth initiatives and the DOD budget delays. Now turning to gap earnings. In the third quarter, the company generated a net income of $13.9 million versus a net loss of $0.7 million recorded in the same period last year.
Kevin Patrick McDonnell: Adjusted gross margin of $3 million increase in other income of $2 $7 million decrease in interest expense of $1 $9 million decrease in intangible amortization and other acquisition related expenses.
These were partially offset by a $9 million.
Kevin Patrick McDonnell: The increase in R&D spending of $5 $7 million increase in SG&A expenses, excluding the intangible amortization and a $1 $8 million increase in taxes.
Kevin Patrick McDonnell: The increase in net income of $14.6 million can be attributed to several factors, namely a $22.5 million increase in adjusted gross margin, a $3 million increase in other income, a $2.7 million decrease in interest expense, a $1.9 million decrease in intangible amortization, and other acquisition expenses. These were partially offset by a $9 million increase in R&D spending, a $5.7 million increase in ST&A expenses, excluding intangible amortization, and a $1.8 million increase in tax. Slide 10 shows a reconciliation of GAAP and adjusted or non-GAAP diluted EPS. The company posted adjusted earnings per share of $0.63 for the third quarter of fiscal 2024 versus $0.33 per diluted share for the third quarter of fiscal 2023. Turning to the balance sheet, at the close of the third quarter, our total cash and investments amounted to $129 million compared to $121.5 million at the end of the second quarter. We had a very strong cash quarter, which enabled us to pay down $40 million in our term loan facility. Working capital decreased $29 million during the quarter, primarily due to a reduction in accounts receivable and inventories.
Kevin Patrick McDonnell: Slide 10 shows the reconciliation of GAAP and adjusted or non-GAAP diluted EPS. The company posted adjusted adjusted earnings per share of <unk> 63 for the third quarter of fiscal 2024 versus 33 cents per diluted share for the third quarter of fiscal 2023.
Kevin Patrick McDonnell: Turning to the balance sheet at the close of the third quarter, our total cash and investments amounted to $129 million compared to $121 5 million at the end of the second quarter, we had a very strong cash quarter, which enabled us to pay down $40 million of our term loan facility.
Kevin Patrick McDonnell: Working capital decreased $29 million during the quarter, primarily due to the reduction in accounts receivable and inventories. However.
Kevin Patrick McDonnell: However, we anticipate working capital usage to fluctuate quarter to quarter as we move forward.
Kevin Patrick McDonnell: We continue to have a strong balance sheet with over $100 million of cash and investments at approximately $100 million.
Kevin Patrick McDonnell: Available under our working capital facility.
Kevin Patrick McDonnell: I'd like to conclude with some highlights of our backlog metrics.
<unk> eight of the earnings presentation provides a summary of our current fiscal 2020 for visibility.
Kevin Patrick McDonnell: He'd mentioned our funded backlog at the end of the third quarter of fiscal 2024 finished at $463 million lower sequentially due to headwinds from the continuing resolution and the elongated foreign military sales process.
Kevin Patrick McDonnell: However, we anticipate working capital usage to fluctuate quarter-to-quarter as we move forward. We continue to have a strong balance sheet with over $100 million of cash and investments and approximately $100 million available under our working capital facility. I'd like to conclude with some highlights of our backlog mix. Slide 8 of the earnings presentation provides a summary of our current fiscal 2024 visibility. As Wahid mentioned, our funded backlog at the end of the third quarter of fiscal 2024 finished at $463 million, lower sequentially due to headwinds from the continuing resolution and the elongated foreign military sales process. Despite these challenges, we have over 100% order visibility to the midpoint of our revised revenue guidance range. Now I'd like to turn things back to Wahid.
Kevin Patrick McDonnell: Despite these challenges we have over 100% order visibility to the midpoint of our revised revenue guidance range now I would like to turn things back to Wahid.
Wahid Nawabi: Thanks, Kevin with a strong third quarter performance behind us, we're increasing and narrowing our guidance range for fiscal year 2024 as follows.
Wahid Nawabi: We now anticipate revenue of $700 million to $710 million.
Wahid Nawabi: Full year net income of $51 million to $55 million or $1 86 to $2 per diluted share.
Wahid Nawabi: non-GAAP adjusted EBITDA of $122 million to $127 million.
Wahid Nawabi: non-GAAP earnings of $2 69 to $2 83 per diluted share.
Wahid Nawabi: Thanks, Kevin. With a strong third quarter performance behind us, we're increasing and narrowing our guidance range for fiscal year 2024 as follows. We now anticipate revenue of $700 million to $710 million. Full year net income of $51 million to $55 million, or $1.86 to $2 per diluted share, non-GAAP adjusted EBITDA of $122 million to $127 million, non-GAAP earnings of $2.69 to $2.83 per diluted share, and R&D spend totaling 13% to 14% of revenue will remain confident in our growth trajectory for the fourth quarter and fiscal year
And R&D spend totaling 13% to 14% of revenue.
Wahid Nawabi: Okay.
Wahid Nawabi: I'm confident in our growth trajectory for the fourth quarter and fiscal year 2025.
Wahid Nawabi: Our backlog remains strong our visibility is nearly 100% and our pipeline continues to expand.
Wahid Nawabi: While we await approvals on the continuing resolution and supplemental assistance package in Congress, we remain hopeful that a bipartisan agreement will be reached soon.
Wahid Nawabi: We stand ready with our cutting edge battle tested solutions and unmatched manufacturing capacity to meet our customers' needs.
Wahid Nawabi: Given our strong performance will remain on a trajectory of our best year ever again.
Wahid Nawabi: As stated in the past our expectations for this year and beyond are not driven by a single product or customer, but by the overall expanding global demand and our autonomous AI enabled unmanned solutions.
Wahid Nawabi: Our backlog remains strong, our visibility is nearly 100%, and our pipeline continues to expand. While we await approvals on the continuing resolution and supplemental assistance package in Congress, we remain hopeful that a bipartisan agreement will be reached soon. We stand ready with our cutting-edge, battle-tested solutions and unmatched manufacturing capacity to meet our customers' needs. Given our strong performance, we'll remain on a trajectory of our best year ever again.
Wahid Nawabi: We are ideally suited to continue this growth trajectory given our global installed base.
Wahid Nawabi: Battle tested solution offering successful track record move.
Wahid Nawabi: <unk> invest in glass technology.
Wahid Nawabi: Our product development cycle and unmatched manufacturing capacity.
Wahid Nawabi: As stated in the past, our expectations for this year and beyond are not driven by a single product or customer but by the overall expanding global demand and our AI-enabled unmanned solution. We are ideally suited to continue this growth trajectory, given our global installed base, battle-tested solution offering, successful track record, proven best-in-glass technology, agile product development cycle, and unmatched manufacturing capacity. As our addressable markets expand, we remain well positioned to benefit from budget priorities in the U.S. and abroad as an industry leader and the original defense technology innovator. Before I turn the call over to Q&A... Let me summarize the key points from today's call. First, we delivered outstanding third-quarter results with record-breaking revenue and strong profitability. Second, our loading munitions segment delivered impressive year-over-year growth and achieved its highest quarterly revenue to date.
Wahid Nawabi: Okay.
Wahid Nawabi: As our addressable markets expand we remain well positioned to benefit from budget priorities in the U S.
Wahid Nawabi: In the U S and abroad, as an industry leader and the original defense technology innovator.
Wahid Nawabi: Before I turn the call over for Q&A, let.
Speaker Change: Let me summarize the key points from today's call.
Speaker Change: First we delivered outstanding third quarter results with record breaking revenue and strong profitability.
Speaker Change: Second our loading munitions segment delivered impressive year over year growth and achieved its highest quarterly revenue to date.
Speaker Change: Third, we're raising and tightening our fiscal year 2024 guidance range.
Speaker Change: And fourth with the solid momentum, we anticipate double digit top line growth in fiscal year 2025.
Speaker Change: Thanks, again to our investors for their support of our mission and company and thank you to our customers for putting their faith and Aerovironment.
Finally, thank you to our highly capable employees, who strive to meet our customers' urgent needs and ensure our products deliver when it really counts.
Wahid Nawabi: Third, we're raising and tightening our fiscal year 2024 guidance range. And fourth, with the solid momentum, we anticipate double-digit top-line growth in fiscal year 2025. Thanks again to our investors for their support of our mission and company, and thank you to our customers for putting their faith in AeroVironment. Finally, thank you to our highly capable employees who strive to meet our customers' urgent needs and ensure our products deliver when it really counts. We are honored to support our country and allies at this critical time.
We are honored to support our country and analyzed at this critical time.
Speaker Change: As we close out fiscal year 2024, we look forward to further success in the years to come.
Speaker Change: And with that Kevin and John and I will now take your questions.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: We respectfully ask that callers limit themselves to one I'm, sorry to two questions and return to the queue to ask additional questions. Please standby will be compile the Q&A roster.
Speaker Change: Our first question comes from Peter Arment with Baird. Please proceed with your question.
Wahid Nawabi: As we close out fiscal year 2024, we look forward to further success in the years to come. And with that, Kevin, Jonah, and I will now take your questions. As a reminder, to ask a question, you will need to press star 11 on your telephone.
Peter J. Arment: Hey, Thanks, Good afternoon, Lockheed Kevin and Jonathan Nice results.
Peter J. Arment: Hi, Peter Thank you. Thank you.
Peter J. Arment: Hey, Wahid.
Peter J. Arment: You mentioned about capacity expansion.
Peter J. Arment: The expansion plans I wonder if you could give a little more color on.
Operator: We respectfully ask that callers limit themselves to two questions and return to the queue to ask additional questions. Please stand by while we compile the Q&A roster. Our first question comes from Peter Arment with Baird. Please proceed with your question. Hey, thanks. Good afternoon, Wahid, Kevin, and Jonah. Nice results. Hi Peter.
Peter J. Arment: Switchblade capacity I think we've all seen.
Peter J. Arment: Numerous reports of kind of.
Peter J. Arment: The opportunities that are in front of you for that product and I know that there was thought that you guys already had existing capacity of a couple of thousand units, maybe you could just give us your thoughts on what.
Peter J. Arment: Where do you think you are taking capacity.
Speaker Change: Thank you Peter So as I mentioned on the remarks up we have significantly increased our switchblade production capacity and the past several quarters with the expectation of our customers and the demand that we see across the globe number one number two we have sufficient capacity right now to meet.
Peter J. Arment: Thank you. Thank you. Hey, Wahid, you mentioned capacity, you know, kind of expansion plans. I wonder if you could give a little more color on, you know, switchblade capacity.
Wahid Nawabi: I think we've all heard the numerous reports of the opportunities that are in front of you for that product. And I know that it was thought that you guys already had existing capacity of a couple thousand units. Maybe you could just give us your thoughts on what, where you think you're taking capacity. Thank you, Peter.
Speaker Change: The increased demand that we're forecasting for the next two years.
Speaker Change: We believe that we're the only company.
Speaker Change: Out there in the entire world that can produce loitering munitions, such as switchblades by the thousands today and we've delivered thousands of them in the last year and two years alone as Youre Adriano.
Wahid Nawabi: So, as I mentioned in my remarks, we have significantly increased our switchblade production capacity in the past several quarters to meet the expectation of our customers and the demand that we see across the globe. Number one. Number two, we have sufficient capacity right now to meet the increased demand that we're forecasting for the next two years. We believe that we're the only company out there in the entire world that can produce loading munitions such as switchblades by the thousands today.
Speaker Change: And so beyond the next two years, we're already engaged in looking at new sites and new facilities and new expansion plans to go above and beyond that and especially with programs such as replicator, which we're very heavily engaged with the U S Department of defense and <unk>, we expect that companies like Aerovironment who has.
A very unique capability to be able to produce them in volume a program of record level level of rigor and reliability and safety.
Wahid Nawabi: And we've delivered thousands of them in the last year and two years alone, as you know. And so, beyond the next two years, we're already engaged in looking at new sites and new facilities and new expansion plans to go above and beyond that. And especially with programs such as Replicator, which we're very heavily engaged with the U.S. Department of Defense and DIU, we expect that companies like AeroVironment, which has a very unique capability to be able to produce them in volume, at a program record level of rigor, reliability, and safety, will benefit from this heightened demand and customer need. So we remain ready. We have been delivering products very, very effectively in the last several quarters and for a couple years, and we look forward to the additional demands that are coming our way, which is all very positive for us. Yeah, yeah. And just as a second question, could you give a little more color around the timing of lasso?
Speaker Change: Benefit from this heightened demand and customer need so we remain ready we have been delivering products very very effectively in the last several quarters and a couple of years.
Speaker Change: And we look forward to the additional demands that are coming our way, which is all very positive for us.
Speaker Change: Yes, yes, and just as my second question just could you give a little more color around timing of that.
Speaker Change: Just.
Speaker Change: Thats being held up by funding delays.
Speaker Change: We do get a resolution in March when would you expect to kind of begin to ship units. Thanks again, Mike.
Speaker Change: So the U S. Army has publicly stated that they are going to go.
Speaker Change: Go through multiple tranches and I believe that they've said that the first tranche aerovironment as the sole source provider of systems for the U S Army on their own public statements.
We are working with them directly if the budget approval happens through Congress.
Speaker Change: We're expecting that to turn into another contract, sometimes probably this summer or red thereafter, our actively engage with U S. Army, we know that Thats, a very key need by the U S Army as it's a directed requirement by general Raney from the Army futures command or engage with their office as well as the acquisitions exec.
Peter J. Arment: You know, is that being held up by the funding delays? And if we do get a resolution in March, when would you expect to kind of begin to ship units? Thanks again.
Speaker Change: <unk> within Pentagon.
Wahid Nawabi: So, the U.S. Army has publicly stated that they are going to go through multiple tranches, and I believe that they've said that the first tranche, AeroVironment, is the sole source provider of the systems for the U.S. Army in their own public statements. We are working with them directly. If the budget approval happens through Congress, we're expecting that to turn into another contract sometime this summer or right thereafter. We're actively engaged with the U.S. Army. We know that that's a very key need by the U.S. Army, as it's a directed requirement by General Rainey from the Army Futurist Command.
Speaker Change: And we're prepared to support them in fact.
Speaker Change: One of the reasons why we've increased our capacities because we're expecting them to.
Speaker Change: Work through the budget process, and eventually award contracts for us to deliver more.
Speaker Change: It is one of the key program of records that we're pursuing as I mentioned in my remarks, and there are many others besides that as well that we're pursuing.
Speaker Change: Peter.
Speaker Change: Thanks, so much I'll leave it at two Youre welcome. Thanks Peter.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Greg Konrad with Jefferies. Please proceed with your question.
Gregory Arnold Konrad: Good evening.
Greg Konrad: Sure.
Gregory Arnold Konrad: Hey, Greg.
Gregory Arnold Konrad: Hey.
Gregory Arnold Konrad: Maybe just to start.
Comments about phasing out Raven, how meaningful is raven today, and just thinking about <unk> and some of the service volume tied to that and how do you think about the phasing of.
Wahid Nawabi: We're engaged with their office, as well as the acquisitions executives within the Pentagon, and we're prepared to support them. In fact, one of the reasons why we've increased our capacity is that we're expecting them to work through the budget process and eventually award contracts for us to deliver more. It is one of the key program records that we're pursuing, as I mentioned in my remarks, and there are many others besides that as well that we're pursuing. Peter.
Gregory Arnold Konrad: Any replacement in terms of that whenever Raven does phase out.
Speaker Change: So Greg I'm glad you asked that question because <unk> as you know has been the workhorse of the U S. Militaries small UAS for the last two decades were very proud of that we've got over 20000 of those units shipped around the world and U S. Army is one of the largest customers of Reagan.
Peter J. Arment: Thanks so much. I'll leave it at two. You're welcome. One moment for our next question. Our next question comes from Greg Konrad with Jeffries. Please proceed with your question. Good evening.
Speaker Change: Last several years Raven has not been that.
Speaker Change: The primary driver of our revenue our shipments at all in fact, its been in a sustainment mode for the most part and so.
Gregory Arnold Konrad: Hi Greg. Hey there. Hey, maybe just to start, you know, your comments about phasing out Raven, how meaningful is Raven today and just thinking about OE and some of the service volume tied to that? And how do you think about the phasing of any replacement, you know, in terms of that bridge whenever Raven does phase out? So, Greg, I'm glad you asked that question because Raven, as you know, has been the workhorse of the U.S. military's small UAS for the last two decades. We're very proud of that. We've got over 20,000 of those units shipped around the world, and the U.S. Army is one of the largest customers of Raven. However, in the last several years, Raven has not been the primary driver of our revenue or shipments at all.
Speaker Change: Sunsetting that program by the U S Army <unk> will take several years, most likely it won't happen overnight.
Speaker Change: And be it more it's not going to be a material financial impact to Aerovironment. In fact, we're very bullish and we're very excited that the army did that so they can expedite the next generation of systems, which we are pursuing those requirements with our next generation of systems.
Speaker Change: The primary driver of our small UAS revenue as I mentioned on the remarks has been and continues to be the Puma system and.
Puma is really by far the most prominent driver of the revenue for small UAS.
Speaker Change: <unk> is almost insignificant and has been for the last <unk>.
Speaker Change: Two to three years at least and.
Wahid Nawabi: In fact, it's been in a sustainment mode for the most part. So, sunsetting that program by the U.S. Army, A, will take several years, most likely. It won't happen overnight. And B, it's not going to have a material financial impact on our environment.
Speaker Change: So we don't expect that to have any negative impacts and in fact, we consider that as a.
Speaker Change: Instigator of potentially expediting. The next program of record, which is referred to us and our medium range reconnaissance and alloy, which is the long range reconnaissance we have solutions for those requirements. We are working with the customers and we look forward to that and I think that is going to be another tranche of debt.
Wahid Nawabi: In fact, we're very bullish, and we're very excited that the Army did that so they could expedite the next generation of systems, which we're pursuing those requirements with our next generation of systems. The primary driver of our small UAS revenue, as I mentioned in my remarks, has been and continues to be the Puma system. And Puma is really, by far, the most prominent driver of the revenue for small UAS. Raven is almost insignificant, and has been for the last several, two to three years at least.
Speaker Change: Over the next several years.
Speaker Change: Aerovironment small UAS systems linkage.
Speaker Change: Okay, and then just one follow up I think you said working capital would be lumpy.
Speaker Change: Given the <unk>.
Speaker Change: Inventory and receivable in the quarter, but I think that was the first down inventory sequentially in maybe five or six quarters.
Wahid Nawabi: So, we don't expect that to have any negative impacts, and in fact, we consider that as an initiator of potentially expediting the next program of record, which is referred to as NRR, medium-range reconnaissance, and LRR, which is long-range reconnaissance. We have solutions for those requirements. We're working with the customers, and we look forward to that. And I think that is going to be another tranche of demand over the next several years for our environment small UAS systems in the future. And then just one follow-up.
Speaker Change: Anything to read in terms of that in terms of supply chain stabilization or or anything else around that working capital move.
Speaker Change: Well I'll take that I mean, basically we've kind of reach if you look at our revenue trend. It's kind of reached another level of 180 or so million. So the working capital usage was to get us up to that level. Obviously, we're going to continue to increase and grow the business, but we know this.
Speaker Change: This is a 30% growth year when you look when people go to the mid point of our guidance range with a 20% growth year last year. So that's a lot of growth over over a two year period and you're right. It's the first quarter and I think over two years that we've had a down sequential working capital quarter, but as we move forward, we'll see quarters, where it will go up and down depending upon.
Gregory Arnold Konrad: I think you said working capital would be lumpy, you know, given the good inventory and receivable in the quarter, but I think that was the first downed inventory sequentially in maybe five or six quarters. Anything to read in terms of that in terms of supply chain stabilization or anything else around that working capital model? Well, I'll take that.
Speaker Change: The demand is in the following quarters.
Speaker Change: Well I'll leave it at that thank you.
Speaker Change: Thank you Greg.
Speaker Change: One moment our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Pete <unk> Kubicki with Alembic Global. Please proceed with your question.
Kevin Patrick McDonnell: I mean, basically, we've kind of reached, if you look at our revenue trend, it's kind of reached another level of 180 or so million. So the working capital usage was to get us up to that level. Obviously, we're going to continue to increase and grow the business. But, you know, this is a 30% growth year.
Peter John Skibitski: Hey, good afternoon guys.
Peter John Skibitski: Hey, Pete.
Peter John Skibitski: Hey, guys as you look into fiscal 'twenty five.
Peter John Skibitski: Double digit top line target.
Peter John Skibitski: I'm wondering given that on the gross margin line or should.
Should we expect the current the recent trends to continue in other words that revenue continues to shift towards product sales and within product sales, we continue to shift towards Ala mass and so maybe overall gross margin is sort of flattish in fiscal 'twenty five is that the right way to think about it.
Kevin Patrick McDonnell: When you look, you know, if you go to the midpoint of our guidance range, it was a 20% growth year last year. So that's a lot of growth over a two-year period. And you're right, it's the first quarter in, I think, over two years that we've had a down sequential working capital quarter. But, you know, as we move forward, we'll see quarters go up and down, depending upon what the demand is in the following quarter. I'll leave it at that.
Speaker Change: Yes, I think that's.
Pizza: A good way to think about it yes, absolutely pizza as I said on the remarks I mean, our gross margin is very healthy very solid.
Pizza: Made a lot of adjustments in our product portfolio and mix that has resulted in that.
Pizza: And we obviously provide you with our fiscal 'twenty guidance next quarter.
Gregory Arnold Konrad: Thank you. Thank you, Greg. One moment for our next question. Our next question comes from Pete Skibitski with Alembic Global. Please proceed with your question. Hey, good afternoon, guys. Hey, Pete.
Pizza: We have very strong businesses in a growth mode and both of our services as well as our products margins are quite favorable and improved quite a bit over the last several quarters.
Speaker Change: Okay got it thanks for that and then.
Peter John Skibitski: Hey, guys. As you look into fiscal 25 and you've given, you know, a double-digit top-line target, I'm wondering, given that on the gross margin line, should we expect the recent trends to continue? In other words, revenue continues to shift towards product sales, and within product sales, we continue to shift towards LMS, and so maybe overall gross margin is sort of flattish in fiscal 25. Is that the right way to think about it?
And then just just on Switchblade I guess for fiscal 2004 can you give us a sense of how many.
Speaker Change: International customers, you're actually delivering to obviously, Ukraine is one but.
Speaker Change: Any other major.
Speaker Change: Orders internationally that you've delivered to in fiscal 'twenty, four and any any.
Speaker Change: Kind of near term expected.
Peter John Skibitski: So Pete.
Peter John Skibitski: We are working with a very large number of customers as I said in my remarks.
Peter John Skibitski: Well over 20 countries that have shown and demonstrated a real strong desire to.
Wahid Nawabi: Yeah, I think that's a good way to think about it. Yeah, absolutely, Pete. So as I said in my remarks, our gross margin is very healthy, very solid. We've made a lot of adjustments in our product portfolio and mix that have resulted in that. And we will obviously provide you with our fiscal 25 guidance next quarter. But we feel very strong that our business is in a growth mode, and both our services as well as our products margins are quite favorable and have improved quite a bit over the last several quarters. Okay, I got it.
Peter John Skibitski: Quire Switchblade.
Peter John Skibitski: A third of those countries are and the actual export license.
Peter John Skibitski: The approval process with the U S State department, and with us and with their respective militaries Im.
I'm not able to specific specify our country because of the sensitivity of those countries.
Peter John Skibitski: Customers at risk.
Our interest type of our customers' needs for that.
Peter John Skibitski: What I can tell you is that the pipeline is robust the demand is going to be a long enduring demand in my view and I believe that the number of countries and customers are going to continue to grow and not shrink in fact over time.
Wahid Nawabi: Thanks for that. And then, um... And just on Switchblade, I guess for Fiscal 24, can you give us a sense of how many international customers you're actually delivering to? Obviously, Ukraine is one, but any other major orders internationally that you've delivered to in Fiscal 24, and any that are kind of near-term expected? So, Pete, we are working with a very large number of customers, as I said in my remarks, well over 20 countries that have shown and demonstrated a real strong desire to acquire SwitchBlade. About a third of those countries are in the actual export license approval process with the U.S. State Department and with us and with the respective militaries. I'm not able to specify a country because of the sensitivity of those countries and our customers' respect for our customers' needs for that.
Peter John Skibitski: They're all in different phases of the acquisition and many of them. We haven't delivered yet many of them. So a lot of that demand is still to come in fiscal year, 'twenty five and beyond and that's why we feel bullish about our switchblade business in general.
Peter John Skibitski: As the market.
Peter John Skibitski: As we grow into this business the market is expanding and our solutions track record also has literally convince customers that there is no alternative to switchblade. There is nothing that can match this capability of switchblade and the battlefield and so we're quite bullish on that as funds for the long run.
Okay. Appreciate it thanks guys.
Speaker Change: You're welcome.
One moment for our next question.
Speaker Change: Our next question comes from Louie Dipalma with William Blair. Your line is open.
Wahid Nawabi: What I can tell you is that the pipeline is robust, the demand is going to be a long-term demand, in my view, and I believe that the number of countries and customers is going to continue to grow and not shrink, in fact, over time. They're all in different phases of acquisition, and many of them we haven't delivered yet.
Michael Louie DiPalma: Wahid, Kevin and John and good afternoon.
Michael Louie DiPalma: And Louie Louie Louie.
Michael Louie DiPalma: Various media reports referenced the switchblade as a top contender for rapid Kantor I'm sure you saw.
Michael Louie DiPalma: On the call you discussed the tremendous demand for that.
Speaker Change: Kumar over the past two years is the Puma also a replicator contender.
Wahid Nawabi: So, a lot of that demand is still to come in fiscal year 25 and beyond. And that's why we feel bullish about our SwitchBlade business in general, as the market, as we grow into this business, the market is expanding, and our solutions track record also has literally convinced customers that there's no alternative to SwitchBlade. There's nothing that can match this capability of SwitchBlade in the battlefield.
Speaker Change: So I will not speculate on things that.
Speaker Change: <unk> is working on what.
Speaker Change: What I can tell you Louie that is we are very engaged with both <unk> as well as the Pentagon and different branches of the services.
Speaker Change: We do agree with you that our systems.
Peter John Skibitski: And so, we're quite bullish on that as funds for the long run. Okay, appreciate it, thanks guys. You're welcome.
Speaker Change: Essentially if you look at the Aerovironment portfolio the entire portfolio of our solution set.
Speaker Change: Is essentially a poster child of what the replicate our initiative is all about it's all about intelligent multi domain distributed unmanned systems and robotics that are coupled and.
Operator: One moment for our next question. Our next question comes from Louis DiPalma with William Blair. Your line is open. Wahid, Kevin, and Jonah, good afternoon. Hi, Louie. Hi, Louie.
Speaker Change: And integrated with AI and autonomy and battle and contested environments and it's also about the low cost high volume that is precisely what aerovironment is DNA and identity and background and current portfolio is all about and so multiple of our solutions could be candidates and should be.
Michael Louie DiPalma: Various media reports referenced the Switchblade as a top contender for Replicator. I'm sure you saw on the call you discussed the tremendous demand for the Puma over the past two years. Is the Puma also a Replicator contender?
Wahid Nawabi: So, I will not speculate on things that USDOD is working on. What I can tell you, Louis, is that we are very engaged with both DIU as well as the Pentagon and different branches of the services. We do agree with you that our systems, essentially, if you look at AeroVironment's portfolio, the entire portfolio of our solution set, is essentially a poster child for what the Replicator Initiative is all about. It's all about intelligent, multi-domain, distributed, unmanned systems, and robotics that are coupled and integrated with AI and autonomy in battle and contested environments.
Speaker Change: Candidates were applicator.
I am not in a position to speculate on any of the details. Although we're very heavily engaged with the U S Department of defense with Tru as well as the various.
Speaker Change: Services to make sure that we stand ready the other thing that's really important about the replicated that I want to highlight is as you as you have heard from the.
Speaker Change: Military leaders and from the Pentagon.
Speaker Change: The whole concept of replicate or supposed to be things that you can go into production past well.
Speaker Change: All of the systems that I've described to you today and you see in our portfolio is in production level today and where in most cases, we've produced thousands of them already so the ability for us to be able to deliver tens of thousands or even hundreds of thousands it's way way better than anyone else and the entire industry.
Wahid Nawabi: And it's also about low-cost, high-volume. That is precisely what AeroVironment's DNA and identity and background and current portfolio are all about. And so, multiple of our solutions could be candidates and should be candidates for Replicator. I'm not in a position to speculate on any of the details, although we're very heavily engaged with the U.S. Department of Defense, with DIU, as well as the various services to make sure that we stand ready. The other thing that's really important about the Replicator that I want to highlight is, as you heard from the military leaders and from the Pentagon, the whole concept of Replicator is supposed to be things that you can go into production fast. Well, all of the systems that I've described to you today and you see in our portfolio are at production level today. And in most cases, we have produced thousands of them already.
Speaker Change: And so we think that that would play a big role because scaling manufacturing and production at high levels of reliability and lower cost is key to the success of U S against our top adversaries in the World and replicated initiative is all about that so I think we're positioned quite well.
Speaker Change: Great and following up on Peter's question.
Speaker Change: The last trough.
Speaker Change: Tranche one.
Speaker Change: Award that you were I think verbally given is that now in <unk>.
Speaker Change: Backlog for the end of this quarter or.
Does there need to be that 2024.
Speaker Change: Digit appropriations to be passed.
Speaker Change: Honor for like that tranche, one award to be funded and for it to be formally given to you.
Wahid Nawabi: So the ability for us to be able to deliver tens of thousands or even hundreds of thousands is way, way better than anyone else in the entire industry. And so we think that that would play a big role because scaling, manufacturing, and production at high levels of reliability and lower cost is key to the success of the U.S. against our top adversaries in the world. And the Replicator initiative is all about that.
Speaker Change: I think that it's all based on the budget approval within.
Speaker Change: Within Congress Louie so.
Speaker Change: Those orders are not sites. So far are reflected in our backlog I won't be able to comment on any specific ones, but there are several of our potential opportunities that are still within the budget approval process and it's tied up in Congress and also there is additional as you know tranches that the USD and the White House is planning to.
Wahid Nawabi: So I think we're positioned quite well. Great. And following up on Peter's question, is the Lasso Tronch One award that you were verbally given, is that now in backlog for the end of this quarter? Does there need to be the 2024 budget appropriations to be passed in order for that Tronch One Award to be funded and for it to be formally given to you?
To Ukraine.
Speaker Change: And we believe that we should also be great candidates for those tranches as part of.
Speaker Change: Assistance packages.
Speaker Change: Great.
Speaker Change: One final one dependent.
Speaker Change: Fiscal 2025, a double digit growth on like major Ukraine stimulus funding.
Michael Louie DiPalma: I think that it's all based on budget approval within Congress, Luis. So many of those orders are not so far reflected in our backlog. I won't be able to comment on any specific ones, but there are several of our potential opportunities that are still within the budget approval process, and it's tied up in Congress. And also, there are additional, as you know, tranches that the U.S. DOD and the White House are planning to provide to Ukraine, and we believe that we should also be great candidates for those tranches as part of the assistance package. Great, and one final one, how dependent is the... fiscal 2025, like double-digit growth on like major Ukrainian stimulus funding? Not much at all, Louis.
Speaker Change: Not much at all we are expecting our 2025.
Speaker Change: To be very strong.
Speaker Change: Another record year for US obviously, we'll provide you the details next quarter, but we.
Speaker Change: We're setting it out.
Speaker Change: Very high level of the backlog right now.
Speaker Change: Our position in the market is very strong our track record of delivering and our top products performing in the battlefield real relevant battlefield today is extremely high and our customer satisfaction level is excellent and high.
Speaker Change: And I believe that the demand is going to continue to grow in many of those opportunities are not in our current.
Speaker Change: Backlog or expectations for next year.
Speaker Change: Okay.
Wahid Nawabi: We are expecting 2025 to be another record year for us. Obviously, we'll provide you with the details next quarter, but we're sitting at a very high level in the backlog right now. Our position in the market is really strong. Our track record of delivering and our products performing in the battlefield, the really relevant battlefield today, is extremely high. Our customer satisfaction level is excellent and high, and I believe that the demand is going to continue to grow, and many of those opportunities are not in our current backlog or expectations for next year. That's it for me.
Speaker Change: Awesome that's it for me thanks, Thanks, everyone.
Speaker Change: Thank you Luigi.
Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone.
Speaker Change: Our next question comes from Ken Herbert with RBC Capital markets. Please proceed with your question.
Speaker Change: Hollywood Kevin Jonas This is <unk> on for Ken Herbert Congrats on the quarter guys.
Speaker Change: Thank you hi, Steve So just wanted to start on.
Speaker Change: The seasonality of the business I was hoping you could kind of discuss what would that kind of means for your business moving forward historically fourth quarter represented 30% of your revenue and looking at the guide it looks like it's going to be about flat either sequentially or year over year. So just trying to think about.
Michael Louie DiPalma: Thanks. Thanks, everyone. Thank you, Luigi.
Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone. Our next question comes from Ken Herbert with RBC Capital Markets. Please proceed with your question. Hi, Wahid, Kevin, and Jonah. This is Steve Strackhouse on behalf of Kenneth Herbert.
Speaker Change: To get a gauge for how we should think about that moving forward.
Speaker Change: Sure So Steve I'm glad that you noticed that because I mean, I'm, specifically I mentioned in my remarks that.
Kenneth George Herbert: Congratulations on the quarter, guys. Thank you. So just want to start on the seasonality of the business. I was hoping you could kind of discuss what that kind of means for your business moving forward. Historically, the fourth quarter represented 30 plus percent of your revenue.
Speaker Change: Due to the fact that we've been able to have a very large backlog.
Speaker Change: At the beginning of the fiscal year it allowed us to level load our factories in terms of production, which helped not only deliver.
Speaker Change: Deliver product on a <unk>.
Speaker Change: Equally increments each quarter, so level load our revenue for the quarters, but also improved our throughput and increased our efficiencies in terms of margins improvements. So all of that has been a very very positive for us. So we intentionally this past year than <unk>.
Wahid Nawabi: And looking at the guide, it looks like it's going to be about flat, either sequentially or year over year. So just trying to think about just trying to get a gauge for how we should think about that moving forward. Sure, so Steve, I'm glad that you noticed that because I specifically mentioned in my remarks that due to the fact that we were able to have a very large backlog at the beginning of the fiscal year, it allowed us to level load our factories in terms of production, which helped not only deliver product in equal increments each quarter, so level load our revenue for the quarters, but also improved our throughput and increased our efficiencies in terms of margin improvements.
Speaker Change: Fortunate and intentionally decided to level load our factories and it's quite.
Speaker Change: Remarkable how well we've been able to achieve that throughout the whole year. Given the fact that we are growing we're growing 30, nearly 30% of the midpoint of our guidance for the year, we've been level loaded the year in each quarter almost equal quarters.
So thats really good at going forward. It obviously is too early to determine that but we are always.
Speaker Change: Trying our best to level load our factories to have a large backlog going into the next year that allows us to afford all the synergies that it helps us improve a lot of things not to mention also that we our customers would prefer to receive products.
Wahid Nawabi: So all of that has been very, very positive for us. So we intentionally this past year have been fortunate and intentionally decided to level load our factories. And it's quite remarkable how well we've been able to achieve that throughout the whole year. Given the fact that we've grown, we're growing 30, nearly 30% of the midpoint of our guidance for the year, we've been level-loaded throughout the year, and each quarter is almost equal. So that's really good. Going forward, it obviously is too early to determine that, but we are always trying our best to level load our factories to have a large backlog going into the next year that allows us to afford all these synergies that help us improve a lot of things. Not to mention also that we, our customers, would prefer to receive products as early as possible.
Speaker Change: As early as soon as possible. So those things all are our intentions and more to come on that for next fiscal year.
Speaker Change: Great and then maybe just one more as a follow up just wanted to get your thoughts on the recent CR and the fiscal budget for 'twenty four it sounds like most people as you've gone through this earnings season have kind of just continue to push it to the rates for his expectations.
Speaker Change: Outlines moves yours as to kind of where we sit now.
Steve: So Steve.
Speaker Change: Given our strong backlog and visibility for this fiscal year and fourth quarter.
Speaker Change: The continuing resolution is not going to impact our revenue for fiscal year 2020 for this fiscal year.
Wahid Nawabi: So those things are all our intentions, and more to come on that for next fiscal year. Great, and then maybe just one more as a follow-up. I just wanted to get your thoughts on the recent CR and the fiscal budget for 2024. It sounds like most people, as we've gone through this earnings season, have kind of just continued to push it to the right as far as expectations.
Speaker Change: And since we have a fairly strong backlog, even the first quarter of next year should be quite manageable. However, if these continuing resolution were to elongate and go beyond beyond this fiscal year of Aerovironment.
Speaker Change: Obviously, it's not going to be a good news for anybody and so from that perspective, we're hopeful that a bipartisan budget is passed.
Wahid Nawabi: Can you maybe just outline some of yours as to kind of where we sit now? So, Steve, given our strong backlog and visibility for this fiscal year and fourth quarter, the continuing resolution is not going to impact our revenue for fiscal year 2024 or this fiscal year. And since we have a fairly strong backlog, even the first quarter of next year should be quite manageable. However, if the continuing resolution were to elongate and go beyond this fiscal year of AeroVironment, obviously, it's not going to be good news for anybody. And so from that perspective, we're hopeful that a bipartisan budget is passed. There have been fairly good signs this past couple of weeks in Congress.
Speaker Change: Fairly good signs this past couple of weeks in Congress. There are many other experts that know a lot more about that deny so I won't speculate but what I can tell you is that we're prepared we believe that our systems are high priority, we believe that our military really.
Speaker Change: Needs these capabilities and the stockpiles are still quite low in terms of loading munitions and small unmanned systems and the war in Ukraine, and the Middle East is continuing and we don't see an end to that anytime soon but from what I'm reading and I'm understanding from what's going on so therefore, I think we're positioned quite well.
Speaker Change: But we just need Congress.
Speaker Change: You get over the hurdle and pass a budget and I think everything will be much better off.
Wahid Nawabi: There are many other experts that know a lot more about that than I do, so I won't speculate. But what I can tell you is that we're prepared. We believe that our systems are high priority. We believe that our military really needs these capabilities, and the stockpiles are still quite low in terms of loading munitions and small unmanned systems.
Speaker Change: I appreciate it.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: That concludes the question and answer session. At this time I would like to turn the call back to Joseph for closing remarks.
Joseph: Thank you once again for joining today's conference call and for your interest in Aerovironment as.
As a reminder, an archived version of this call SEC filings and relevant news can be found under the investors section of our web site.
Wahid Nawabi: And the war in Ukraine and the Middle East is continuing, and we don't see an end to that anytime soon from what I'm reading and what I understand from what's going on. So therefore, I think we're positioned quite well, but we just need Congress to get over the hurdle and pass a budget. And I think everything will be much better off.
Joseph: We wish you a good evening and look forward to speaking with you again following next quarter's results.
Joseph: This.
Speaker Change: Today's conference call you may now disconnect.
Speaker Change: Okay.
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Kenneth George Herbert: I appreciate it. I'll jump back in the queue. Welcome. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Jonah Teeter: That concludes the question and answer session. At this time, I would like to turn the call back to Jonah for closing remarks. Thank you once again for joining today's conference, Paul, and for your interest in AeroVironment. As a reminder, an archived version of this call, SEC filings, and relevant news can be found in the investor section of our website. We wish you a good evening and look forward to speaking with you again following next quarter's results. This concludes today's conference call. You may now disconnect.
Speaker Change: Okay.
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Speaker Change: So.
Speaker Change:
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Speaker Change: Yes.
Speaker Change: Okay.
Operator: You can find me on Facebook at https://www.facebook.com, Twitter.com, Instagram.com, and Twitter.com. You can find me on Facebook at https://www.facebook.com, Twitter.com, Instagram.com, and Twitter.com. You can find me on Facebook at https://www.facebook.com, Twitter.com, Instagram.com, and Twitter.com. ?? ?? ?? ??
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Speaker Change: Okay.
Speaker Change: [music].