AeroVironment, Inc.

Good day, and thank you for standing by. Welcome to the Air Environment fourth quarter and full fiscal year 2024 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 the question during this session, 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 for today, Jonah Teeter-Baylen. You may begin.

Thanks, and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fourth quarter and full fiscal year 2024 earnings call. This is Jonah Teeter-Baylen, 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. 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 statement portions of such filings. Copies are available from the SEC on the Air Environment website at www.avinz.com or from our investor relations team. 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, June 26, 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 the events or circumstances occurring after this conference call. Joining me today from AeroVironment 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, everyone, to our fourth quarter and full fiscal year 2024 earnings conference call. I will start by summarizing our performance and recent achievements, after which Kevin will review our financial results in greater detail. I will then provide our expectations for fiscal year 2025, and finally, Kevin, Jonah, and I will take your questions. I'm pleased to report strong results for the quarter and a record-breaking fiscal year for Air Environment. Our key messages, which are included on slide number three of our earnings presentation, are as follows. First, for the full fiscal year, revenue increased 33% to a record $717 million compared to $541 million last fiscal year. This is now our seventh consecutive year of top-line growth. Fourth quarter revenue rose to $197 million, a 6% increase from the same period last year, and a new fourth quarter record. Third, our loitering munitions system segment continues to accelerate with record full fiscal year revenues of nearly $200 million, a 60% increase compared to last fiscal year. And fourth, given our strong execution, key program awards, and growing pipeline of opportunities, we expect revenues between $790 million and $820 million, reflecting 10% to 15% top line growth in fiscal year 2025. During this past fiscal year, global demand continued to surge for autonomous systems, and AV responded accordingly. We invested across the organization to strengthen our team, expand our manufacturing capacity, and enhanced our solution offerings to meet the evolving needs of our customers. With these investments and our core strengths in innovation, capacity, and experience, we continue to lead in this growing market. In the past year, we added three strong directors to our board with impressive defense and global policy expertise, whose counsel has been instrumental to our continued growth. We also added key leaders at our headquarters in the DC area to enhance customer engagement and help shape and define future requirements. In addition, we made strides in expanding our manufacturing capacity while level loading production to improve operational efficiencies. Due to this hard work, we were able to grow revenue by more than 30% while retaining very high levels of product quality, performance, and profitability. With increasing orders pipeline, we plan to increase our production capacity even further in fiscal year 2025, while maintaining strong operational efficiencies. Finally, we leverage the combat experience of our products, nine of which are currently serving in Ukraine, and our close relationship with our customers to implement important product upgrades. Our solutions portfolio is more resilient in contested environments, more autonomous, more effective, and more interconnected than ever before. By utilizing our autonomy suite of solutions, including Avacor, Kinesis, Autonomy Retrofit Kit, or ARK, and Spotter Edge, our customers can now utilize autonomous vehicles to sense, make sense, and act on relevant information across the battlespace. We believe that AV is the best positioned defense tech firm to meet our customers' needs. Our uncrewed solutions and loitering munitions are helping our customers achieve their vital missions today, tomorrow, and into the future. We're proud of our accomplishments this year, and we have even greater expectations for the years ahead. With that, I'd like to discuss results from each of our three segments, starting with Loitering Munition Systems, or LMS. As we mentioned earlier, LMS segment was our strongest growth driver this past quarter and for the full fiscal year. Fourth quarter revenue grew 74% from the same quarter last year to $74 million. For the full year, revenue increased by 60%, totaling $193 million. Demand for both Switchblade 300 and 600 grew at an unprecedented rate this past year, and we expect this growth to continue in fiscal year 2025 and beyond. In the past few months alone, we've had numerous program wins and awards announcements, many of which are not yet reflected in our backlog. These key wins further validate the effectiveness of our solutions and act of conflict around the globe. and our ability to deliver in volume. For example, Switchblade 600 was selected by the U.S. Army as their first procurement under the Low Altitude Stalking and Strike Ordinance, or LASSO program, and was subsequently selected to participate in tranche one of the first iteration of the U.S. DoD's replicator initiative. In fact, we just delivered the first batch of Switchblade 600s to the U.S. Army. similarly switchblade 300 was selected by the united states marine corps for their first launch of their organic precision fires light or opfl program of record in addition to these three significant announcements switchblade was also announced for the recently authorized ukraine security assistance initiative the approximate value of these awards which are not yet under contract exceed $300 million. While demand from our U.S. DOD customers is growing, we also continue to see increasing interest from our international allies. We are getting closer to a U.S. DOD multi-year IDIQ contract that will better facilitate further future international sales to Ukraine and other foreign countries. In fact, we just received our first Lithuanian order for Switchblade 300 and 600. As demand for Switchblade continues to rise, AV stands ready to meet our customers' increasing expectations. Our current manufacturing levels have expanded to support more than $500 million in annual product revenue, and we're actively planning for additional capacity growth. We are factory ready today to supply the U.S. DoD and our allied countries with the products and technology they need to succeed in their missions. The LMS business has grown tremendously this past year, and we expect it to similarly lead our growth in fiscal year 2025. Now on to our uncrued systems segment, which was formerly referred to as our unmanned systems segment. Revenue for the fourth quarter was $104 million, slightly down from the same quarter last year, primarily due to award timing. However, revenue for fiscal year 2024 grew 30% from the prior year, totaling $448 million. Much of the uncrued system segment growth came from our PUMA and Jump20 systems. PUMA continues to lead the small UAS market as the dominant ISR workforce in current conflicts, providing much-needed reconnaissance and surveillance. As evidenced, Ukraine continues to utilize PUMA heavily on the battlefield, and we expect additional orders in the future quarters. We will continue to support PUMA to ensure the system remains best-in-class in contested environments while advancing the development of the next-generation small UAS products. We similarly continue to make enhancements to our Jump20 platform, especially for the maritime environment. We believe maritime operations are of growing importance to our customers, given recent and emerging geopolitical threats. As we are nearing the one-year anniversary of our Tomahawk robotics acquisition, we could not be more pleased with how well they are performing. We continue to integrate Tomahawk's Kinesis software with our other autonomous vehicles and are pleased by the amazing common control capabilities this technology provides to our customers. While we continue to define the uncrewed systems market, we are not standing idle as our adversaries adjust tactics and our customers' missions evolve in response. We're pushing ourselves to innovate every day remain best in class for our customers and prepare for future programs of record uncrued systems continue to be in high demand around the globe and we anticipate strong domestic and international demand for both puma and jump 20 in fiscal year 2025. moving now to our macquarie work segment This past year, the MacReadyWorks team continued their mission of incubating new solutions and expanding our AI and autonomy capabilities. We're heavily involved in developing the next generation of solutions for the USDOD's replicator program and hope to provide additional details soon. In addition, we continue to make progress on HAPS and in fact, just secured another $25 million contract with SoftBank that is reflected in our visibility for fiscal year 2025. We similarly continue to make strides with contested logistics, maritime uncrewed systems, space robotics, and other exciting platforms and innovations. Just recently, AV was down-selected by DARPA for continued development of its X-Plane design for the agency's ancillary program. Our solution, named Wildcat, is a Group 3 vertical takeoff and landing UAS that is developed specifically for ship-based operations in maritime environments. Wildcat also provides complementary capabilities for Jump 20 for future missions. Maritime missions are becoming more important as the U.S. DoD increases focus on the Indo-Pacom theater, and we're proud to continue our support of our customers in this region.