AeroVironment, Inc.

Good afternoon, ladies and gentlemen, and welcome to Arrow Environment's third quarter fiscal year 2021 earnings call. This is Stephen Gitlin, Chief Marketing Officer and Vice President of Investor Relations for Arrow Environment. At this time, all participants are in a listen-only mode. We will conduct a question and answer session after management's remarks. As a reminder, this conference call is being recorded for replay purposes. Before we begin, please note that in this call, certain information presented contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as believe, anticipate, expect, estimate, intend, project, plan, or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts, and assumptions that involve risks and uncertainties, including but not limited to, economic, competitive, governmental, and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. For further information on these risks, we encourage you to review the risk factors discussed in Air Environment's periodic reports on Form 10-K and Form 10-Q filed with the SEC and the Form 8-K filed today with the SEC, along with the associated earnings release and the safe harbor statement contained therein. This afternoon, we also filed a slide presentation with our earnings release and posted the presentation on our website at avinc.com in the events and presentation section. The content of this conference call contains time-sensitive information that is accurate only as of today, March 9th, 2021. The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call. Joining me today from Air Environment are President and Chief Executive Officer, Mr. Waheed Nawabi, and Senior Vice President and Chief Financial Officer, Mr. Kevin McDonald. We will now begin with remarks from Waheed Nawabi. Waheed?

Thank you, Steve. Welcome to our third quarter fiscal year 2021 earnings conference call. On today's call, I will emphasize three key messages included on slide number three of our earnings presentation. First, our team continues to deliver strong results despite the continued challenges presented by the COVID-19 pandemic. Second, we're on track to achieve our fiscal year 2021 objectives while delivering our fourth consecutive year of profitable double-digit top-line growth. And third, we're successfully executing our long-term growth strategy through our recent transformative acquisitions that will accelerate our success over the near and long term. Now let's review our financial performance in the quarter, which is outlined on slide number four of our earnings presentation. We delivered third quarter revenue of $78.8 million, an increase of 27 percent year-over-year, and consistent with our expectations. Earnings per diluted share of one cent increased from a loss of four cents in the prior year, primarily due to an increase in revenue and product margin. Non-GAAP earnings per diluted share for the third quarter was 14 cents, an increase of 15 cents as compared to the prior year. Our team continued to build on our positive momentum, supporting our U.S. and more than 50 allied customers and simultaneously executing on transformative acquisitions. While the pandemic continued to shift some orders due mainly to travel restrictions, we're still delivering on our commitments and and working toward a fourth consecutive year of profitable growth. During and shortly after the end of our third quarter, we announced three acquisitions that we're confident will significantly strengthen our company and extend Air Environment's track record of operational and financial success. With the acquisition of Telerob, we're expanding our portfolio of solutions with a leading family of unmanned ground vehicles. Based in Germany, Telerob has been in business for almost three decades and serves defense and public safety customers in 45 countries. We see significant opportunities across our customer base for cross-selling and await a decision from the U.S. Air Force on the large EOD robotics program, which we recently bid as a prime contractor. we expect to close the Telerab acquisition and learn the result of the Air Force competition by the end of our fiscal year 2021. Next, our acquisition of our tourist UAV, which closed on February 19th, provides us with class-leading medium UAS that can fly longer and further while carrying significantly larger payloads as compared to our small UAS. We now refer to PUMA LE JUMP-20 and T-20 as our medium UAS or MUAS solutions, providing endurance ranging from 6.5 hours to 24 hours. Our MUAS team continues to deliver intelligence as a service on the U.S. SOCOM ME UAS-4 program. In addition, Jump 20 is well-positioned for the U.S. Army's Future Tactical UAS Program, or FTUAS, a multi-year opportunity for the replacement of the Army's legacy Group 3 solution. We participated in a competitive FTUAS demonstration last week, providing the Army with a better understanding of the Jump 20's capabilities and suitability for this program. Our system performed extremely well in this demonstration, which should improve our competitive position for this program. Last, on February 24th, we announced our acquisition of Progeny Systems Corporation's Intelligence Systems Group, or ISG. ISG is a best-in-class developer and supplier of machine vision and perceptive autonomy software solutions. ISG's Virginia office will become Air Environment's artificial intelligence innovation center, serving as a focal point for our accelerated development of advanced capabilities that will significantly enhance the intelligence and autonomy of our entire solution set. For example, ISG's technology automatically processes imagery from any source to search for specific objects, detect changes over time, and develop pattern of life analysis. Once the ISG software identifies an object, a mission profile can be loaded into our unmanned systems, enabling them to search for and identify the object in the field, then modify their missions autonomously to take appropriate actions. I cannot overstate the value of the ISG team's ability to increase the capabilities of our solutions while also increasing our revenue from customer-funded R&D projects. ISG also helps us deepen our relationships with key U.S. government customers. The ISG team will merge with our McCready Works Advanced Solutions team and drive even more innovation into our portfolio for defense and non-defense customers. Our new Artificial Intelligence Innovation Center will also enhance our presence in the Washington, D.C. area. These are three exciting transactions that expand our business, our team, and our ability to drive shareholder value over the near and long term. Now, shifting to our business results, our small unmanned aircraft systems product line represented 64% of total revenue in the third quarter, and we remain the leader in the global market for small UAS. During the quarter, we announced a new extended range antenna for our small UAS that expands the command and control range of our solution set up to 40 kilometers. The international market for our small UAS remains strong, contributing to our healthy pipeline. While we are experiencing limitations in our ability to travel during the COVID-19 pandemic, which delayed some customer orders, we're confident in our ability to continue delivering strong results. In our tactical missile systems product line, which represented 25% of third quarter revenue, we received the first U.S. government approval for the export of Switchblade 300. We do not intend to identify the customer for this export. This is an important milestone for us as we market Switchblade's unique capabilities to international customers. We believe additional demand from close U.S. allies will also be forthcoming. We expect switchblade exports to take place within the U.S. government's Foreign Military Sales, or FMS, program as opposed to direct commercial sales. We previously stated that Switchblade 600 would compete for the United States Marine Corps Organic Precision Fires Mounted, or OPFM, program. A key competitive demonstration took place in February for this program. We're very proud of the performance of Switchblade 600 over numerous launches and harsh environmental conditions. The multi-pack launcher we developed for Switchblade 600 also performed as expected, providing the ability to transport and launch multiple loitering missiles from a mobile platform. Due to the impact of the pandemic on program timelines, we now expect a customer down select on this program by the end of our fiscal year 2021. We are building the demand pipeline for a switchblade product line as we continue to develop additional variants and as the U.S. Navy proceeds with its adoption of Blackwing. Moving now to HAPS, which represented 9% of third quarter revenue, SoftBank Corporation and AeroVironment remain committed to this opportunity and its value creation potential. we have collected a large volume of data from our first five successful test flights and are incorporating our learning into the design of the next aircraft. We're confident that the next version of SunGlider will facilitate the certification process and demonstrate both enhanced performance and improved manufacturability. Now I would like to discuss the ongoing impact of the COVID-19 pandemic on our business. We continue to experience some delays in customer contracting decisions on our domestic and international customers who operate largely in remote work configurations. We're also experiencing minor delays in limited areas of our supply chain without impact to our production timelines. While the rate of vaccination continues to rise, we're assuming that the current remote work situation is likely to continue through and beyond the summer. Now I will turn the call over to Kevin McDonald for a summary of third quarter and year-to-date financials. Kevin?

Thank you, Waheed. Today I will be reviewing the highlights of our third quarter and year-to-date financial performance. I'll be referring to both our press release and earnings presentation available on our website. Revenue for the third quarter of fiscal 2021 was $78.8 million, an increase of 27%. from the third quarter of fiscal 2020 revenue of $61.9 million. The breakdown of revenue by product area is contained on slide six of the quarterly earnings presentation. During the quarter, we showed especially strong performance in our TMS product line, which was up 148 percent from the same period last year. Small UAS was also up 37 percent from the same period last year. These higher sales were partially offset by lower HAPs and other revenue. Revenue for the first three quarters of fiscal 2021 was $258.9 million, an increase of 12% from the first three quarters of fiscal 2020 revenue of $232.1 million. Again, the revenue growth was largely due to the 125% year-over increase in TMS sales, which were partially offset by reduced HAPS revenue. Turning to gross margin, slide 7 of the quarterly earnings presentation shows our product-service mix and overall gross margin trends over the past five quarters. Gross margin for the third quarter was $28.6 million, or 36% of revenue, compared to $23.5 million, or 38% of revenue, for the prior year third quarter. The lower year-over-year gross margin percentage was primarily due to an unfavorable product mix, which was partially offset by a higher proportion of product versus service revenues. Gross margin for the first three quarters of fiscal 2021 was $104.9 million, or 41% of revenue, compared to $99.9 million, or 43% of revenue, for the first three quarters of 2020. Again, the lower year-over-year gross margin was primarily due to an unfavorable product mix. Looking forward, we expect gross margin percentage to decline as a result of increasing intangible amortization expense from the announced acquisitions. While we are still in the process of completing the purchase accounting, we expect the decline in gross market percentage to be as much as four percentage points from increased intangible amortization. Next, I will turn to operating expenses. SG&A expense for the third quarter was $15.7 million, or 20% of revenue, compared to SG&A expense of $13.2 million, or 21% of revenue for the third quarter of fiscal 2020. SG&A expense for the first three quarters of fiscal 2021 was $42.6 million, or 16% of revenue, compared to $43.1 million, or 19% of revenue, for the first three quarters of fiscal 2020. The current quarter increase in SG&A expense was driven by an increase in acquisition-related expenses of $3.4 million, partially offset by a reduction in travel and trade show expenses resulting from COVID-related restrictions. We expect significant acquisition-related expenses in the fourth quarter as we complete and integrate the recently announced acquisitions. In addition, we should see higher SG&A as we consolidate the acquisitions and recognize a portion of the intangible amortization expenses as part of SG&A. Integration costs will also continue into fiscal 2022. Overall SG&A expense as a percentage of revenue will increase in fiscal 2022 as a result of the intangible intangible amortization and integration costs. R&D expense for the third quarter was $13.6 million, or 17% of revenue, compared to R&D expense of $11.4 million, or 18% of revenue, for the third quarter of fiscal 20. R&D expense for the first three quarters of fiscal 2021 was $36.7 million, or 14% of revenue, compared to $30.9 million, or 13% of revenue, for the first three quarters of fiscal 2020. We continue to make R&D investments across our product lines. In absolute dollars, this investment will increase as we absorb the acquisitions, but we expect a decline to approximately 10% of revenue on a full-year basis in fiscal 2022. Looking at the bottom line, net income attributable to Arrow Environment for the third quarter of fiscal 2021 was $211,000, or one cent per diluted share, compared to a loss of $1 million, or 5%. or minus 4 cents per alluded share for the third quarter of fiscal 2020. The $1.2 million increase in net income was largely a result of higher gross margins of $5.1 million, a higher benefit from income taxes of $.9 million, and a reduction in equity investment loss of $1.1 million. These improvements were largely offset by higher SG&A and R&D spending. For the first three quarters of fiscal 2021, Net income was $12.4 million, or 51 cents per diluted share, compared to $23.6 million, or 98 cents per diluted share, for the first three quarters of fiscal 2020. The $11.2 million reduction in net income was primarily due to the $8.4 million loss from our portion of the HAPS mobile impairment of its investment loon, together with higher R&D spending of $5.8 million and lower interest income of $3.3 million. These reductions in net income were partially offset by higher gross margin of $5 million. In terms of adjusted EPS, slide 11 shows the reconciliation of GAAP and adjusted or non-GAAP diluted EPS. Non-GAAP diluted earnings per share for the third quarter of fiscal 2021 was 14 cents per diluted share versus a diluted loss per share for the third quarter of fiscal 2020 of one cent. For the first three quarters of 2021, Non-GAAP diluted earnings per share was $1.06 per diluted share versus non-GAAP diluted earnings per share for the first three quarters of fiscal 2020 was $1.07 per diluted share. Turning to our balance sheet, our cash position was strong at the end of the third quarter of fiscal 2021 with cash, cash equivalents, and investments totaling $384.3 million, an increase of $66.6 million from the end of fiscal 2020. Total cash from operating activities during the first three quarters of the year was 79 million, of which 40.1 million was a result of working capital improvements and the remainder from operating activities. The working capital improvement came primarily from the collection of accounts receivables. In terms of capital expenditures, we spent 8.5 million during the first three quarters of 2021. Subsequent to the end of the third quarter, We had total cash outlays from our existing cash related to the acquisitions that closed in February of approximately $196 million. In addition, in conjunction with the Arturas acquisition, we entered into a $200 million term loan facility and a $100 million revolving credit facility with a group of banks. At the close of the Arturas transaction, we drew down $200 million on the term loan facility, which was used to fund the acquisition. the $100 million revolving credit facility remains unused. We expect an additional $54 million of cash outlays related to the Telerob acquisition, which is expected to close during the fourth quarter. Also at the close of the Arturas transaction, we issued approximately 574,000 shares of AV stock to the selling Arturas shareholders. This stock issuance is restricted and will become sellable in tranches over an 18-month period. I'd also like to note that we are adding adjusted EBITDA as a non-GAAP measure on a go-forward basis to better inform our investors, particularly given the fact that we now have significant intangible amortization and debt on our balance sheet. Now I'd like to highlight some of our backlog metrics. Our funded backlog at the end of Q3 was $103.9 million, a decrease of $22.1 million from the third quarter of fiscal 2020, and an increase of $103.9 and a decrease of $104.2 million from the fourth quarter fiscal 2020 backlog of $208.1 million. The backlog decline is primarily due to delays in orders resulting from the impact of the COVID pandemic. In terms of fiscal 2021 visibility, which is highlighted on slide eight of the earnings presentation, as of today, we have year-to-date revenue in fiscal 2021 of $259 million. Third quarter ending backlog that we anticipate to execute in fiscal 2021 of $76 million. Quarter to date bookings, including acquisition backlog assumed that we anticipate to execute in fiscal 2021 of $28 million. An unfunded backlog from incrementally funded contracts that they anticipate to recognize revenue during the balance of the year of $20 million. This adds up to $383 million. or 95% of our fiscal 2021 midpoint revenue guidance range. Now I'd like to turn things back to Wahid.

Thanks, Kevin. The global demand for our unique and broad set of solutions remains healthy. In overseas locations where the U.S. military has reduced its footprint, we have seen increased demand for ISR solutions, including UAS and ISR services, which our MUAS product line team delivers. To highlight this point, today we announced the latest task order award from U.S. SOCOM for its ME UAS 4 program, valued at approximately $7 million for our MUIS ISR services. We have also seen increased demand from allied nations for our capabilities to help them operate when faced with a smaller U.S. military presence. Supported by 95% visibility to the midpoint of our guidance range, we are narrowing our full fiscal year 2021 revenue expectations to between $400 million and $410 million, as summarized on slide number nine of our earnings presentation. This range corresponds to the upper half of our prior fiscal year 2021 revenue expectations. Our revised expectations include revenue from the acquired Arcturus UAV and ISG businesses and the pending Telerob acquisition, which we anticipate to close prior to the end of the current fiscal year. We expect that our full-year revenue, excluding incremental revenue from our acquired businesses, will achieve the low end of our prior revenue guidance range. We now expect to deliver adjusted EBITDA of $64 million to $69 million, earnings per diluted share of $0.76 to $0.96, and non-GAAP earnings per diluted share, which excludes acquisition-related expenses, amortization of acquired intangible assets, and the HAF's mobile investment impairment of between $1.74 and $1.94. Achieving these results will represent our fourth consecutive year of profitable double legit revenue growth. Consistent with last quarter's guidance, revenue mix will result in a lower gross margin percentage in fiscal year 2021 as compared to the prior year. We now expect research and development investments to total approximately 12% of revenue for this fiscal year. Our strategic acquisitions increase the talent pool across our team and make us a stronger company with a more expansive portfolio of solutions to address a wider variety of customer missions. We have carefully selected dedicated and capable leaders to manage each of these new businesses and are confident in their ability to integrate our new team members into our environment and execute our strategy for near and long-term value creation. As a result of the significant portfolio shaping we have undertaken to position us for continued growth and success, we're now providing preliminary expectations for fiscal year 2022 based on our current view of market conditions as follows. We expect $560 million to $580 million in revenue, $110 million to $115 million in adjusted EBITDA, earnings per diluted share between $1.38 and $1.58, non-GAAP earnings per diluted share between $2.50 and $2.70, and research and development investments of around 10% of revenue. We may provide more refined revenue and EPS expectations in our fourth quarter and full fiscal year 2021 earnings release in late June, after the completion of all acquisitions and associated purchase accounting. We continue to evolve our business and shape our portfolio to achieve our future state objectives of delivering a range of intelligent, multi-domain robotic systems. The three acquisitions I have discussed today represent major steps toward achieving that future state. Ultimately, our goal is to provide the solutions our customers increasingly will rely upon to achieve their objectives and thereby advance our growth and value creation strategy. In summary, to reiterate our main points for today's call, first, Our team continues to deliver strong results despite the continued challenges presented by the COVID-19 pandemic. Second, we are on track to achieve our fiscal year 2021 objectives while delivering our fourth consecutive year of profitable double-digit top-line growth. And third, we're successfully executing our long-term growth strategy through our recent transformative acquisitions that will accelerate our success over the near and long term. Before opening Q&A, I want to thank our talented team across the entire organization for their ongoing commitment to serving our customers and their dedication to doing so during this unprecedented pandemic. Thank you to our customers for continuing to rely on us to help them succeed and to our shareholders for your ongoing trust. Our commitment to all of our stakeholders remains to help you proceed with certainty. Kevin, Steve, and I will now take your questions.

Thank you, Wahid. We will now begin the question and answer session. If you have a question, please press star and then 1 on your touchtone phone. If you wish to be removed from the queue, press the pound or hash key. If you are using a speakerphone, you may need to pick up your handset first before pressing the numbers. We respectfully ask that you limit your questions to two and please re-enter the queue to ask any further questions. Once again, to ask a question, please press star and then one on your touchtone phone. Our first question this afternoon comes from Peter Armand of Robert Baird. Peter?

Waheed, Kevin. Waheed, thanks for giving us kind of an initial sneak peek at fiscal 22. I think it's obviously helpful given all the M&A efforts that you've talked about, but obviously you had to come up with some sort of basis of what the operations would be. I think when you came into fiscal 21, you had a 60% visibility kind of on that revenue range. Maybe if you don't want to break down the specifics of the acquisitions, maybe you could just talk about some of the key pieces around that increase when we're thinking about fiscal 22. Thanks.

Thanks, Peter. Sure. So as I mentioned in my remarks, this will be the fourth consecutive year of profitable double-digit top-line growth. And our core businesses before the acquisitions are also within our guidance range. In terms of fiscal year 2022, given the significant positive impact of these acquisitions on our business, we believe it is very helpful for our investors to to understand how this will translate into our next fiscal year's anticipated results. So for that matter, we figured it'll be helpful if we could provide some level of clarity as a preliminary outlook for next year. In terms of the overall visibility, we will provide that and amongst other details as we always do on our fourth and full year fiscal year earnings call late in June. What I can tell you is that across our business, demand for solutions both domestically and internationally remains strong. These three acquisitions coupled with our existing portfolio of solutions and positions really positioned us incredibly well for a very large set of long-term growth and opportunities and value creation opportunities for us. So we're delighted. These are very deliberate and very carefully selected moves that we've made, and I firmly believe in the long-term value creation opportunities that these will provide for us and the value that it delivers to our customers' missions.

Peter. Thank you. Thank you for that. Just as a follow-up, if I could, on Just related to the Switchblade 300 to the First Allied Nation, obviously we've seen in the past how you've been able to just kind of continue to expand the opportunities with your core UAS platforms internationally. Does this follow a similar path, or is it something different just given that it's a loitering munition, and how do you expect that to kind of be adopted? Thanks.

Sure. Thanks, Peter. Yes, the short answer is absolutely yes. As I've said before, yes, First and foremost, the international market adoption for our switchblade, the entire family actually, just not the switchblade 300, but now also the expansion into our switchblade 600 and other variants, definitely represents an equal if not larger opportunity for us globally, internationally, outside the domestic markets. We are extremely delighted that after a very long, many years of hard work, that we were able to achieve successfully obtaining an export license for an allied nation for our Switchblade 300. We are not in a position to be able to disclose the name of that customer for sensitivity purposes, but this is absolutely a paradigm shift in terms of the future of our TMS business and this disruptive capability that we brought to the market. We also are engaged, as I've said in my remarks, with multiple other allied countries. Obviously, these things take time, but I think that the opportunity is great, and our team has been incredibly good at executing our plans, as we have said before. So we look forward to updating you in the future on that.

Thank you, Peter. And our next question comes from Pete Skibitsky of Alembic Global. Pete?

Hey, good afternoon, guys, and congrats on accomplishing all the hard work this quarter.

Good afternoon. Thank you, Peter.

Just want to ask a little, just to follow up on Peter's questions. For both fiscal 21 and fiscal 22 in your revenue guidance, are you assuming kind of some incremental – you touched on this, Waheed, a little bit in your opening remarks, but are you kind of assuming some incremental headwind from international small UAS? Yes.

Actually, what I mentioned in my remark, Pete, is that in general, primarily because of the COVID pandemic and the restrictions that it has placed for our domestic and international customers to travel, to come for acceptance tests and flight demos and do trainings, we have seen some delays because of that restriction in terms of contract timing. We've seen some in our supply chain, but we've really managed all of those and mitigated them extremely well. I'm very proud of our team's achievements in that regard. Going into next fiscal year, we have a very healthy pipeline of opportunities internationally for our small UAS. No doubt that the change in the U.S. posture is and the drawdown of our troops has also motivated our international customers to take a harder look in terms of equipping themselves with ISR services and capabilities to sort of make up for that. So I think that going into fiscal 22, we have a very healthy pipeline of international opportunities. It's pretty diverse and robust in terms of size and volume of customers as well. And I don't see any major issues, especially if we can get this pandemic behind us, sometimes hopefully towards the end of the summer or so. But in general, you know, we've seen some delays and overall pretty good, pretty healthy demand overall.

Okay, great. I appreciate that. Just one follow-up. Just on the HAPs, it sounds like the test events are coming along nicely. You're going to make some improvements. Should we expect kind of a new contract at some point for kind of the next kind of uprated Sunrider, you know, in the next couple of quarters or so? What's the right way to think about that?

Yeah, so as I mentioned on the remarks, Pete, that both companies are committed to the long-term value creation opportunity of the HAPs and what value it brings and how large of a multi-billion dollar market it is going after and attacking. In terms of the short term, we are working with our partner. We've had five consecutive successful flights, as I said, and we have an enormous amount of learning from that. There's tremendous amount of data that we've collected, all of which was our original plan to incorporate into the building and designing of the next generation of that airplane. It's very, very natural in terms of the development exercise. and progression of that. So we are working with our customer to figure out a way to either augment the existing contract or put in place a new contract to continue the work. We do not foresee any disruptions there short term, but obviously we're entering a phase where we're gonna be continuing to improve the product improve its certification chances, and improve its ability to be able to manufacture it more reliably and cost-effectively. And we'll keep you updated. And, you know, I'm very proud of the team, again, despite the COVID pandemic, how well we've executed throughout these difficult times this very critical program in our business so far.

Thank you, Pete. Our next question comes from Ken Herbert at Canaccord Genuity. Ken?

Yeah, hi. Good afternoon. Waheed, I wanted to just first ask, the guidance, the initial look at 22 implies some nice margin expansion, but does the guidance imply maybe a step down in the margins or the contribution as a percentage from exurus as you have that for a full year?

Hi, Ken. I would say that we're very, very delighted with the potential growth outlook for fiscal 22, both in terms of our core business and in the acquisitions. Overall, I would say it's very much in line with what we expected, and the progress that we're already making so far is with both ME UAS 4 program, which we announced an award, a $7 million award today, and a very successful demonstration that we did for the Army's FT UAS program. So it gives me a lot of confidence that we're positioned extremely well. Keep in mind, these are strategic long-term projects. moves and acquisitions that we've done. Not only are they actually bringing and delivering incremental significant, both top line and bottom line, EBITDA improvements in our financials, but they also represent a very large opportunity long term. You know, billions of dollars of market opportunities. The MUIS alone represents over a billion dollar market opportunity for us, so what we're trying to do is we just closed the acquisition, we're engaged with the team, Everything that we're engaged with them so far looks quite good, but there's a lot more work to be done, and we'll keep you updated throughout next quarter as we go forward.

Okay, that's great. And if I could, just to follow up on the FTUAS, what should we expect in terms of the next milestones or timelines, and can you give any more detail around the demo flights a few weeks ago and how the system performed?

Sure, so this was actually a formal invitation by the US Army to conduct a demonstration, you know, all the key selected players to come in and demonstrate their capability. This was primarily to see how far along and mature the solution sets are from various competitors, as well as to inform them in terms of the requirements that they are going to sort of finalize and conclude before they actually really hold the competition in terms of a formal RFI or RFP. They haven't announced any specific milestones as a result of this so far. It is a longer-term program, which I believe it's expected to be able to be awarded within another year and a half to two years. But in general, what really impressed me and what I'm very pleased about is that our solution set performed extremely well. despite the very difficult challenges in terms of the environmental conditions, wind conditions, and the scenarios that the customer obviously creates for us, we believe that our team and our system really performed well. So that is a fairly positive sign for us that at least positions us quite well. We still have to compete, and we're not unfamiliar with that. We're very familiar with that, but I think we're positioned quite well.

Thank you, Ken. Now we'll turn to Louis de Palma at William Blair. Hi, Louis.

Hi, Steve, and hi, Waheed and Kevin. Good afternoon. Good afternoon. How are you, Louis? I'm doing well. Over the past three months, there has been increased investor appetite for next-generation space technologies. Many investors view space air environment with Sunglider in this next-gen space category. Can you discuss the competitive environment for Sunglider and how your aircraft stands versus others that are pursuing the same type of HAPS aircraft? And on this topic, do you have specific patents on the aircraft engineering that will prevent like other aerospace giants from attempting to, you know, copy what you have done, you know, after, you know, you've been doing what appears to be all of the heavy lifting and like certification process. Thanks.

Louis, so great questions. Let me address both of them one at a time. The first one, in terms of the competitive landscape and the value proposition of our SunGlider versus all the other near space, alternatives, and competitive platforms. I can tell you that both our partners, strategic partners and ourselves, feel quite confident. This is a space or a category where Air Environment has an enormous amount of track record and successful experiences, which is unmatched in the entire industry and the world. There is nobody that I know of that has achieved as much as we have and as much progress we've made so far as we have in the space. We also feel very strongly about the competitive differentiators of SunGlider against not only other solar HAPS platforms, but also other competitive alternatives, such as balloons or micro or geosynchronous or LEO satellites. And we really believe that HAPS has a compelling value proposition in that space. In terms of patent and our ability to sustain that differentiated competitive advantage, it is fundamentally part of our strategy from the beginning to defend and have a competitive advantage in that area. We have numerous, numerous patents from past as well as from the last two to three years' work that we have filed. both jointly at HAPS Mobile, also separately at Air Environment. So there are a number of patents that we have in terms of the design of the architecture, the constellation, the different subsystems of the airplane, the way it actually even provides communication, et cetera, et cetera. So if you like, we could provide you with more details in a separate discussion later, but in general, These are stuff that we file publicly, and they're available, and we feel very good about our competitive position in terms of us versus all the other players who claim that they can compete in this space, and we welcome that competition.

Thanks, Waheed. And I also wanted to say congrats on the Switchblade export approval. That is something that many investors have been waiting for a long time. And my last question is, does the preliminary fiscal 2022 guidance assume any contributions from those three program competitions that you referenced, such as the Telerob explosive disposal competition, the long-range precision fires mounted, or the the FTUAS, are there assumed contributions from those competitions in the forward guidance?

Louis, we will provide you with a lot more details in our next earnings conference call when we go into detailed summary of our outlook for fiscal year 22. We believe that the current preliminary numbers that we provided you Because of the significant strategic move that we've made that has an impact on our next fiscal year, we felt that this level of visibility at this time was critical for shareholders and analysts. In general, I could tell you that we have a very large portfolio of opportunities, both in our core businesses and in our acquired businesses that we're integrating with the rest of our businesses. Our position in this space is incredibly strong. our breadth and depth of our portfolio of opportunities is pretty large and diversified. We're very fortunate to have access to such large opportunities at various different ends of the spectrum, and I believe that we're uniquely positioned against all other competitors in this space to provide a multi-domain, intelligent, robotic system solution coupled with AI and autonomy and artificial intelligence capabilities. As you saw from our comments, you know, revenue range of about $560 to $580 million is a significant growth on our current numbers, and obviously a very strong growth on our non-GAAP earnings for diluted share going all the way up to $2.50 and $2.70 range. So we look forward to providing more details in the next call.

Thank you, Louie. Once again, to ask a question or to re-enter the queue for a follow-up, please press star and then one on your touch-tone phone. And our next question comes from Joe Dinardi at Stifel. Good afternoon, Joe.

Hey, good afternoon, Steve, Wahid, Kevin. Hi, Joe. Wahid, yeah, sorry to kind of beat this one to death, but I think it's what folks are kind of focused on a little bit. And just to clarify, you said that absent the acquisitions, you would have come in at the low end of the FY21 revenue guidance. Is that right? And then can you just quantify how much organic revenue growth is implied in the FY22 guidance for us?

Joe, as I said in my remarks, that yes, if you look at our original guidance that we provided at the beginning of our fiscal year 21, about a year ago from now, our organic businesses, our core businesses, if you refer to it as that, would still be within our guidance range, although on the lower end. Again, there's a variety of outcomes at any given time that we look at that gives us a probability of risk-adjusted probability of where we think we're going to land. With these acquisitions, although one of them are still not closed, but we expect that to close this quarter, which is this month, we still believe that we're going to be within our guidance but at the upper limit. So we're very pleased with that. One of the things that has affected us, and I've said throughout the entire year, is that this pandemic has had some timing delays on the actual timing of these orders. We have a very healthy pipeline. We're involved with lots of different customers and opportunities across our entire portfolio. We've got a pretty significant quarter, which we're ready for, and we expect it as we planned. And we look forward to delivering that. So, again, this will be a fourth consecutive year of double-digit top-line profitable growth. And I can't think of another company that's positioned so well as we are in our space for the long-term value creation opportunities that we have in front of us. The size of the markets, the breadth of our solution – the ability for us to solve our customers' problems end-to-end is really, really unmatched in the industry. So we look forward to that for the long run.

Okay. And the organic revenue growth implied in the FY22 guidance?

We will be providing those details, Joe, as we said, on our fourth quarter and full fiscal year earnings conference call coming up in the next one. At this point, we've provided the amount of preliminary information that we can based on what we see. Keep in mind, we still haven't closed one of the acquisitions. We still haven't finished this year, which we intend to do and deliver on our commitments and our expectations and look forward to another year. And again, the amount of progress we've made on our key growth initiatives is remarkably impressive based on what we've done so far, given all the headwinds with the COVID pandemic, change of administration, change of political parties in terms of power in the Congress, et cetera, et cetera. But we're in a good position.

We have no further questions at this time, and so we thank you for your attention and for your interest in our environment. An archived version of this call, all SEC filings, and relevant company and industry news can be found on our website, avinc.com. We wish you a good day and look forward to speaking with you again following next quarter's results.