Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First quarter revenue rose to $189.5 million, a 24% increase from the same quarter last fiscal year, setting a new first quarter revenue record for the company.
- Loitering Munition Systems segment achieved record first quarter revenues of nearly $52 million, a 68% year-over-year increase.
- AeroVironment Inc (AVAV, Financial) secured a $1 billion IDIQ contract with the US Army, which is expected to boost funded backlog in coming quarters.
- Strong execution and key program awards have led to the reaffirmation of previously stated guidance for fiscal year 2025.
- The company is expanding its production capacity to meet growing demand, with plans to support more than $500 million in annual Switchblade product revenue in fiscal year 2025.
Negative Points
- Revenue from the MacCready Works segment decreased by 24% to $17.5 million compared to the same quarter last fiscal year.
- Margins for the Loitering Munition Systems segment were negatively impacted by undefinitized orders during the quarter.
- Increased SG&A expenses, primarily due to higher sales and marketing costs and increased headcount, impacted profitability.
- R&D expenses increased to $25 million or 13% of revenue, up from $15 million or 10% of revenue in the prior year, affecting net income.
- The company faces uncertainty in pricing for some Switchblade contracts that are yet to be finalized, which could impact future margins.
Q & A Highlights
Q: Wahid, you maintained the full-year guidance with the IDIQ contract announced last week. How should we think about the task order timing and amounts under that in fiscal '25? Was the initial visibility or funding already factored into the '25 outlook?
A: Ken, that's correct. We're very pleased with the $1 billion sole-sourced IDIQ contract. We booked the first task order for approximately $128 million. Some of this was baked into our guidance, and we expect additional contracts and task orders under this IDIQ. The timing depends on the customer's ability to convert these to contracts.
Q: You mentioned some uncertainty on pricing for Switchblade contracts that are yet to be finalized. Can you range or bracket the discussions around pricing? How should we think about pricing on the 300 and 600 moving forward?
A: Kevin McDonnell: We expect overall improvements in LMS adjusted gross margin and adjusted EBITDA margin over last year. We can't speak to specific dollar amounts, but we are optimistic about the outcome.
Q: Wahid, you mentioned initial funding for Replicator LASSO and Organic Precision Fires. Do you expect other releases or tranches during this fiscal year?
A: We do. We expect more orders throughout this fiscal year, and we believe this fiscal year will be another record year for our Switchblade segment and Loitering Munitions. The timing is difficult to predict, but we expect multiple additional Switchblade orders.
Q: What programs are associated with the $990 million Switchblade IDIQ? Is it the successor to the LMAMS program? Is LASSO and Replicator outside of the $990 million IDIQ vehicle?
A: The $990 million IDIQ is similar to the previous LMAMS contracts, now called LUS (Lethal Unmanned Systems). It allows for multiple opportunities and needs to be contracted under this umbrella. Replicator initiatives and other services' needs can also be procured under this contract or additional separate contracts.
Q: What is the status of the FMS pipeline for Switchblade? Has the figure grown or is it roughly the same? How could we expect it to trend moving forward?
A: The list of active engaged customers is about half a dozen plus and growing. The pipeline is moving positively, and we expect many of these to convert to contracts over the next year or two. The recent approval for Taiwan is an example, and we expect more international orders.
Q: Can the $990 million IDIQ vehicle be used for international sales to Ukraine and other foreign countries?
A: Absolutely. The IDIQ can accommodate international FMS sales and help improve the speed of the process. Historically, we've performed well under such contracts, and we expect to achieve or exceed the ceiling limit.
Q: Given that different partners can leverage the IDIQ contract, will you need additional capacity? When do you expect to make a move, and how much additional capacity do you need?
A: We have the capacity to deliver close to $0.5 billion worth of Switchblades this fiscal year. We're planning additional capacity and selecting the next site for a new factory. Our current factories are flexible, and the capital requirements for expansion are manageable within our existing CapEx spend.
Q: Is the Taiwan FMS order that was cleared included in your funded backlog?
A: No, the Taiwan order and other potential Switchblade orders are not yet reflected in our backlog. We expect to book most of these throughout this fiscal year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
