AeroVironment, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the AeroVironment fourth quarter and full fiscal year 2022 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. To ask a question during the session, you'll 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 0. I would now like to hand the conference over to Jonah Teeter-Balin. Thank you. Please go ahead, Sarah.

Thanks, and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fourth quarter and full fiscal year 2022 earnings call. This is Jonah Teeter-Balin, Senior Director of Corporate Development and Investor Relations for AeroVironment. 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. 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 meanings. Forward-looking statements are based on current expectations, forecasts, and assumptions, which 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 and our 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, June 28, 2022. 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 Arrow Environment are Chairman, 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 fourth quarter in full fiscal year 2022 earnings conference call. I'll start by summarizing last quarter in full fiscal year performance and discuss our recent achievements. Then Kevin will provide a more detailed summary of our financial results, after which I will follow up with a discussion of goals for fiscal year 2023 before Kevin, Jonah, and I take your questions. Let me emphasize a few key messages, which are included on slide number three of our earnings presentation. First, our team executed well during the fourth quarter, enabling us to meet our guidance for the year despite continued supply chain constraints, elevated material costs, and tight labor markets. Second, we're confident that fiscal year 2023 will be a solid organic growth year for the company, given our backlog and visibility for the year. And third, the world has changed considerably since we last spoke. The war in Ukraine has brought increased focus to our most innovative solutions, including small UAS, medium UAS, and tactical missile systems. We anticipate benefiting from strong and sustained demand from multiple domestic and international customers going forward. Before I provide greater detail on these themes, Let me summarize our financial results for the quarter and fiscal year. We delivered fourth quarter revenue of $133 million compared to $136 million last year and an increase of about 47% sequentially from $90 million in the third quarter. For the full fiscal year, we achieved record revenue of $446 million compared to $395 million last fiscal year. As previously discussed, our growth in fiscal year 2022 was primarily due to a higher sales of our median UAS product line as well as the impact from strategic acquisitions, which more than offset lower shipments of our small UAS product line. Gross profit for the fourth quarter was $48.6 million compared to $59.7 million in the prior year period. and our gross margin decreased to 37% from 44% in fiscal year 2021. This expected reduction primarily reflects product mix and the impact from ongoing supply chain inefficiencies. However, our performance improved significantly from Q3's 24%, and we anticipate this improvement to continue into this fiscal year. We reported non-GAAP adjusted net income of $7.3 million or 29 cents per diluted share as compared to $10.9 million or 44 cents per diluted share for the fourth quarter of fiscal year 2021. In summary, our results for the quarter were in line with our expectations and largely met our guidance for fiscal year 2022. Looking ahead, we're quite optimistic about our fiscal year 2023 and beyond. We believe recent world events and demand drop dynamics will further enhance our ability to grow and deliver more value to our shareholders, even as we manage through continuing macroeconomic headwinds. Since last quarter, we've continued to take steps to manage supply chain constraints in a tight labor market. With regards to supply chain, we're now in direct contact with component manufacturers such as Intel and NVIDIA to improve material lead times. We're also working directly with the Office of the Secretary of Defense to prioritize our raw material orders due to the Ukraine conflict. Finally, we've decided to buy inventory well ahead of our current forecasted needs to ensure stability of supply for this year and beyond. While we expect supply chain constraints to persist through this coming fiscal year and even longer, We believe these additional steps and those we've previously taken will improve our ability to meet increasing customer demand for our innovative solutions. In regard to tight labor markets, it's still a challenge to find and hire the top talent we need to support our continued growth. In addition to the steps I outlined last quarter, we're reprioritizing certain development activities to ensure the most important and urgent programs get the resources they need. That said, with the passage of the fiscal year 2022 defense budget, we now see some increased urgency in the U.S. DOD's acquisitions and contracting for the remainder of the government's fiscal year. This is a result of two primary factors currently in play. First, there is an urgency within the U.S. Department of Defense to obligate the remaining funds on approved programs and task orders now that an omnibus budget is in place. The government is no longer constrained by a continuing resolution, and at the same time has approximately three months to finalize and fund numerous programs. And second, AeroVironment has received increased attention lately because of the relevance of our innovative solutions in relations to the war in Ukraine. Now, before turning the call over to Kevin, I would like to provide an update on current developments within our individual product lines. I'll start with our tactical missile systems product line, where we have experienced significant heightened interest recently, primarily due to the war in Ukraine. Switchblade is highly relevant to the current conflict in Ukraine, given its unique advantages compared to any other weapon or missile system, including its longer range, significant loitering time on target, precision strike capabilities, and patented wave-off capability, to name a few. In April, I met with the Ukrainian ambassador and defense attache. Since then, Ukraine has effectively used our switchblade loitering missiles, which they have received through the U.S. Department of Defense as part of the presidential drawdown orders. Not surprisingly, Ukraine has asked for many more. In recent congressional legislation authorizing $40 billion in military and humanitarian aid signed by the president on May 21st, should help provide additional quantities. While the timing of such task orders is still being finalized, we anticipate a significant positive impact to our fiscal year and beyond, given the U.S. Army's plan to procure switchblades for the European theater, particularly within NATO countries in Ukraine's proximity. I'm also pleased to inform you that we have been successful at attaining the U.S. government's approval to sell Switchblade 300 and Switchblade 600 to more than 20 of our allies around the world. We are now fielding FMS and DCS requests for Switchblade 300 and 600 from several allies seeking these innovative solutions. We're also experiencing increased demand for the Switchblade 300 sensor-to-shooter solution and our other small and medium UAS platforms, such as PUMA, Raven, WASP, and the Jump20. Further, we're seeing increased interest from industry partners, such as Northrop Grumman, to develop additional variants of Switchblade for new and expanded mission sets. In summary, all these positive and encouraging developments will take some time to mature and translate into orders and backlog. We expect global supply chain constraints will soon remain our primary challenge in converting all this demand into game-changing solutions ready to be shipped to our customers. Overall, we remain committed to assisting the US and our allies in Europe and elsewhere to prepare for threats and to combat them effectively. We're proud of this assistance we've already provided to the Ukrainian citizens and defending their country this year, and we expect strong double-digit growth in tactical missile systems in fiscal year 2023. Now let me turn to our small UAS product line. As I mentioned last quarter, our domestic customers are focused on developing requirements and initiating new acquisition programs for the next generation of small UAS. While we work with our U.S. DoD customers on these upcoming programs, we continue to expand the adoption of our small UAS within our growing international customer base. As an example, last quarter, we announced a $20 million order for our Puma systems for Ukraine. Additionally, we recently donated over 100 of our Quantix Recon unmanned aircraft systems and operational training services to the Ukraine Ministry of Defense. These Quantex recon systems are already performing life-saving missions for the Ukrainian military. We continue to invest in our small UAS solution portfolio with the intent of bringing several new products to the market over the next few years. These solutions are targeted to address both future USDOD and expanded international customer requirements. With these R&D investments, We will also continue providing enhanced capabilities to our installed base of tens of thousands of systems globally. Based on current trends, we believe our small UAS product line will grow in fiscal year 2023, primarily driven by an uptick in international demand. I'll now move on to our medium UAS product line. We continue to stay engaged with the U.S. Army in anticipation of its future tactical UAS or FTUAS increment one award. While the U.S. Army has not officially awarded this contract to anyone yet, we believe AeroViman is well positioned to win. We expected an award announcement by now. but suspect that the award timing is being negatively impacted by the war in Ukraine with the USDOD resources allocated to more urgent contracting needs. As a reminder, the U.S. Army's FDUAS program, in aggregate, is expected to be valued at more than $1 billion over a 10-year period. We remain optimistic about this major opportunity going forward. On the international front, we continue to engage with several countries who are interested in our Jump20 Medium UAS solution. To date, we have provided proposals to multiple international allies in Europe and the Middle East. We also remain the market share leader in the U.S. SOCOM's MEUAS4 program while providing intelligence, surveillance, and reconnaissance services with our Jump20 system. Overall, we believe our medium UAS product line should achieve solid growth in fiscal year 2023. Regarding our unmanned ground vehicles, our UGV product line, we're seeing strong customer interest in Asia and Europe and are actively working to expand into additional markets. Some of this interest is related to the war in Ukraine, where our UGVs are becoming more relevant with the need to remove mines and other explosive devices. Similar to the overseas sales potential for the Jump 20, we believe our UGV product line should continue to grow in fiscal year 2023. Within our HAVS product line, we continue to work on the next generation SunGlider solar aircraft under the terms of our Master Design and Development Agreement, MDDA, with SoftBank. During the term of the MDDA, AV has exclusive rights to design and manufacture SunGlider solar HAVS and any of its future variants based on certain terms. As was stated previously, the current phase of this partnership involves building a third aircraft and performing additional flight testing, demonstrating longer duration flights, and making progress towards FAA certification. We are now in negotiations with SoftBank on the second tranche of funding to advance the next steps of SunCollider's commercial development which we expect to generate between $25 million to $35 million in revenue this fiscal year. As we discussed previously, we have also been evaluating restructuring and financing options for HAPS Mobile. In furtherance of this effort, AV sold its 7% minority stake this past quarter back to SoftBank, which already owned a 93% majority share of the JBE. We will now work directly with SoftBank to fund the development and demonstration of solar-powered HAPs. Regardless of the sale, both companies remain fully committed to our partnership and realizing the market potential for delivering stratospheric telecommunications services. And finally, our McCready Works Advanced Solutions Group is actively engaged with several customers to develop next-generation autonomous multi-domain robotic solutions. Notably, we're now engaged with NASA's Jet Propulsion Laboratory on a future diversion of the Mars helicopter following Ingenuity's incredible success. Additionally, this past March, the Ingenuity Mars helicopter and our team of engineers received the 2022 Collier Trophy. As a reminder, the Collier Trophy is considered the most prestigious industry award in the field of aviation. We are very proud of our talented team's accomplishments in this incredible history-making achievement. But we're not stopping there. Our team is also working on future-defining capabilities that enable our solutions to operate in highly contested battle spaces in the presence of heavy jamming and electronic warfare. In summary, our environment is well positioned for organic growth as we experience continued robust demand for a portfolio of intelligent multi-domain robotic systems. At the same time, we remain committed to actively managing the headwinds facing our industry and economy. We're excited to continue building on this momentum to drive greater shareholder value in fiscal year 2023 and beyond. With that, I would like to now turn the call over to Kevin McDonald for a review of fourth quarter financials.