AeroVironment, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the AeroVironment Fiscal Year 2022 Second Quarter Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded for replay purposes. If you require any further assistance, please press star zero. I would now like to hand the conference over to Jonah Peter-Balin. Thank you. Please go ahead, sir.

Thank you, and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fiscal year 2022 second quarter earnings call. This is Jonah Peter-Balin, Senior Director of Corporate Development and Investor Relations for AeroVironment. Before we begin, please note that on this call, certain information presented contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as believe, anticipate, expect, estimate, intend, project, plan, or words or 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 other filings with the SEC, along with the associated earnings release and safe harbor statement contained therein. This afternoon, we also filed a slide presentation with our earnings release and posted the presentation on our website at avinc.com in the Events and Presentations section. The content of this conference call contains time-sensitive information that is accurate only as of today December 7th, 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 this conference call. Joining me today from AeroVironment 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, Jonah. Welcome to our fiscal year 2022 second quarter earnings conference call. I will start by summarizing our second quarter performance and discuss recent achievements. Next, Kevin will provide a more detailed summary of our financial performance for the quarter, and then I will follow up with a discussion of our goals for fiscal year 2022 before Kevin, Jonah, and I take your questions. Let me emphasize three key messages, which are included on slide number three of our earnings presentation. First, we delivered solid financial results in our second quarter and first half of fiscal year 2022 in line with our expectations. Second, we are experiencing stronger macro hit wins this quarter. These hit wins include supply chain constraints due to the global COVID-19 pandemic, delayed awards of several customer contracts due to an uptick in pandemic-related travel restrictions, and lack of approval of National Defense Authorization Act for government fiscal year 2022, resulting in continuing resolutions and a tight labor market. All of the above factors are impacting our outlook for the second half of fiscal year 2022. And third, with a solid backlog and enduring long-term demand for our portfolio of solutions, we remain confident in our vision for the company and ability to create long-term shareholder value. Before going through these themes more in depth, let me summarize our financial results for the second quarter. We delivered revenue of $122 million compared to $92.7 million last year, a 32% increase year-over-year. The revenue growth was primarily due to increased sales, particularly in our medium unmanned aircraft system segment. These, along with other organic and acquisition increases, offset the negative impact from lower small unmanned aircraft systems product line shipments. We achieved solid backlog of $252 million driven by new wins across multiple business segments and in part by recent strategic acquisitions that are already yielding strong results. Gross profit for the second quarter was $42.5 million, an increase of 4% year over year. Gross margin percentage fell to 35 percent from 44 percent, reflecting product mix and supply chain effects. We reported net income of $2.5 million, or 10 cents per diluted share, as compared to $2.1 million, or 9 cents per diluted share, for the second quarter of fiscal year 2021. While we're pleased with our results this quarter and still expect year-over-year growth across our business, we're adjusting our guidance for the full fiscal year 2022 to account for the headwinds we expect in the second half of the fiscal year. On last quarter's call, I touched on three global issues that could impact our business. The U.S. withdrawal from Afghanistan, the COVID-19 pandemic, and the global supply chain disruptions. Today, I would like to provide an update on the latter two as well as additional headwinds affecting our business and the broader industry and economy. These additional headwinds include contract awards due to the global pandemic and current continuing resolution environment and labor shortages. As we mentioned last quarter, current supply chain constraints are impacting our business. There are two aspects of this. First and foremost is our ability to manufacture and deliver products to customers in a timely manner. Supply chain bottlenecks have hindered our ability to do this, even as our dedicated teams have focused on mitigating the situation to the best of their abilities in the last 12 months by working with new and existing suppliers to find component parts. The other aspect of this predicament is increased costs. reflecting higher material costs, shipping expenses, warehousing costs, inventory costs, and overall working capital management as we continue to build inventory to meet current and future demand for our innovative solutions. With regards to COVID-19 pandemic, increased concerns over the Delta and Omicron variants of the virus have resulted in further domestic and international travel restrictions. This, along with other pandemic-related delays, negatively impacts our ability to secure new contract wins in a timely manner, both domestically and internationally, even though our backlog remains robust. Additionally, due to the current U.S. DOD's continuing resolution budget environment in Washington, certain awards have also been negatively impacted. We expect this uncertainty to persist throughout the rest of this fiscal year. We have worked diligently to meet the administration's mandate to have all employees vaccinated by January 4th, 2022. However, this has led to increased challenges in hiring within an already tight labor market. The staffing challenge, to an extent, is hindering our ability to hire adequate, qualified engineering professionals across our growing business. It is important to emphasize that our commitment to air environment and delivering value for our shareholders and other stakeholders remains stronger than ever. So these challenges in aggregate, namely global supply chain constraints, ongoing pandemic-related constraints, U.S. DOD's continuing resolution in tight labor markets, have led to a slower contract avoid environment in general and is hindering our ability to achieve the expected full year results we initially intended. Due to these headwinds, we find it appropriate to adjust our guidance for fiscal year 2022 as follows. Full year revenue is now expected to be between $440 million and $460 million. Net loss from continuing operation, is forecasted to be between $12 million and $8 million. Adjusted EBITDA is anticipated to be between $59 million and $65 million. Our diluted loss per share will be between 47 cents and 33 cents. And non-GAAP diluted EPS is forecasted to be between $1.23 and $1.37. While these results differ from our initial expectations, rest assured our team is dedicated to mitigating the issues. Some of these issues may be transitory in nature. However, supply chain constraints and tight labor markets in particular do not appear to be short-term, and we've already begun working to mitigate their impact this fiscal year. We're optimistic that such issues will also eventually work themselves out but we currently lack visibility in terms of when that may occur. Before turning the call over to Kevin, I'd like to provide some updates on current developments within our individual product lines. I will start with our small unmanned aircraft systems, our largest product line, where we are pleased to see growth opportunities ahead. We continue to see strong demand for our Puma AE and Raven systems, both domestically and abroad, and recently showcased a sensor-to-shooter demonstration, including chrysalis integration. This took place in September as part of NATO's robotic experimentation and prototyping augmented by Maritime Unmanned Systems 2021 event, Europe's largest maritime unmanned systems experimentation exercise. hosted at the Portuguese Navy Center in Troia, Portugal. The successful maritime demonstration of APUMA-3AE small UAS and Switchblade 300 tactical missile system was part of a U.S. and NATO interoperability to interchangeability initiative. It showed that our sensor-to-shooter solution dramatically elevates operator situational awareness and and reduces the chances of mistargeting, which we believe should help with broader adoption of these intelligent systems for naval applications worldwide. In September, we announced that the U.S. Army exercised its third and final option under the Flight Control Systems, or FCS, domain of a multi-year small UAS contract. The value of this option was approximately $11.7 million, including flight control system kits, ground control stations, and various spare parts for the Army's existing fleet of air environment systems. Delivery of this contract award is scheduled to be completed by September of next year. Next, within our tactical missile systems segment, we continue to see growing demand for our products and believe there is a great opportunity to replace traditional munitions on ground, air, and sea vehicles. In the quarter, we successfully demonstrated the integration of our Switchblade 300 loitering missiles in Jump 20 medium UAS for increased mission autonomy and efficacy. This air launch effects proof of concept demonstration took place in August, launching an inert Switchblade 300 from the Jump 20 and successfully recovering both air vehicles. This end-to-end integrated solution provides customers with greater time on station than if they were to deploy a switchblade on its own, resulting in the ability to conduct more real-time surveillance, increasing the probability of identifying correct targets and minimizing collateral damage. We continue to make progress on our Switchblade 600. we are actively manufacturing low-rate initial production quantities for operational fielding of the ground version while developing the maritime variant under our existing customer-funded R&D contract through its integration into naval vessels for the U.S. Special Operations Command. I will now move on to our medium unmanned aircraft system segment, which has been quite active this year. Following our recent success with SATCOM, we submitted a Jump 20 proposal for the U.S. Army's Future Tactical UAS, or FTUAS, Increment 1, and will soon submit a proposal for Increment 2 opportunities. In aggregate, the U.S. Army's FTUAS program is expected to be worth over $1 billion in potential opportunity over a 10-year period. As a reminder, The U.S. Army's proposed fiscal year 2022 budget calls for over $140 million of funding for progressing this potential program. We're very focused in competing for this large growth opportunity and expect to be awarded a contract for the increment one opportunity soon. We're also engaged with international customers to bid on additional future potential opportunities and ensure strong growth in the years to come. It has been an exciting few months for our unmanned ground vehicles product line, which was created through our acquisition of Germany's Telerat. Telerat recently received a multi-million dollar firm fixed price order from the Latvian Ministry of Defense for Telmax Evo hybrid and Teodor Evo unmanned ground vehicles, along with engineering support. We also delivered a Telmax EVO hybrid to the U.S. Pentagon Force Protection Agency earlier this summer. Designed to be operated by EOD and HAZMAT technicians, the Telarod UGV can safely and effectively dispose of explosive ordnance, hazardous material, and chemical, biological, radiological, and nuclear threats. We're pleased with the expanding interest shown in these products since our purchase of Telerop earlier this year and believe in the significant value potential for our shareholders. In our HABS product line, we continue to move ahead in designing the next generation aircraft under the terms of our five-year master design and development agreement with SoftBank. As we said last quarter, we are progressing with phase two of our partnership during which we will build a third aircraft to perform further flight testing, demonstrate longer duration flights, and progress through FAA certification. At the same time, we continue to assess various USDOD opportunities that can leverage SunGlider's unique capabilities. As a reminder, our solar HAF's performance characteristics provide unique defense applications for both counterinsurgency and peer-near-peer conflicts. And finally, our McCready Works Advanced Solutions Group continues to develop new applications in autonomy and artificial intelligence. We are engaged in many customer-funded R&D projects in the area of autonomous multi-domain robotic solutions and have seen new levels of interest since the success of Ingenuity, the Mars helicopter which our McCready Works team helped design for NASA. We are very proud of these accomplishments which underscore our leadership in designing and delivering state-of-the-art solutions with high reliability and ruggedness for extreme environmental conditions. With that, I would like to now turn the call over to Kevin McDonald for a review of second quarter financials. Kevin?