AeroVironment, Inc.

Good day, and thank you for standing by. Welcome to the AeroVironment fiscal 2025 second quarter 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 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 today, Jonah Peter-Baylen. Please go ahead.

Thanks, and good afternoon, ladies and gentlemen. Welcome to Air Environment's fiscal year 2025 second quarter earnings call. This is Jonah Teeter-Balin, Vice President 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.avinc.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, December 4th, 2024. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me from Air Environment are Chairman, President, and Chief Executive Officer, Waheed Nawabi, Senior Vice President and Chief Financial Officer, Kevin McDonald. We will now begin with remarks from Waheed Nawabi. Waheed?

Thank you, Jonah. Welcome, everyone, to our second quarter fiscal year 2025 earnings conference call. I will start by summarizing our quarterly performance, followed by Kevin, who will review our financial results in greater detail. I will then provide our expectations for the remainder of fiscal year 2025. And finally, Kevin, Jonah, and I will take your questions. I'm pleased to report another strong quarter with results in line with our fiscal year expectations. Our key messages, which are included on slide number three of our earnings presentation, are as follows. First, second quarter revenue rose to $188 million, representing a new second quarter record for the company. Second, our loitering munitions system segment continues to drive growth for the company with record second quarter revenues of nearly $78 million, a 61% year-over-year increase. Third, funded backlog continues to grow and is now at a healthy $467 million. And fourth, given our strong execution, key contract awards, robust pipeline, and 95% visibility to the midpoint of our guidance range, we reaffirm revenue, adjusted EBITDA, and non-GAAP EPS guidance for fiscal year 2025. Our strong second quarter results, coupled with other key achievements in the quarter, clearly positions us to continue creating value for all our key stakeholders. For example, we were awarded two large sole source Switchblade IDIQ awards representing a record $1.7 billion in contract ceiling. While the funded amounts under these awards were expected for this fiscal year, the long-term visibility and demand for Switchblade has improved even further. In addition, we launched our latest market-leading uncrewed system solution, the P550. This new Group 2 UAS further strengthens our portfolio and fills the gap between our PUMA and Jump 20 ISR platforms. The P550 offers unmatched payload capacity, endurance, flexibility, and adaptability for our customers' most demanding missions. The solution is performing well in the U.S. Army's long-range reconnaissance competition, which is valued at approximately $1 billion over the next decade. We're also receiving multiple additional domestic and international interest for this industry-leading solution. We believe the P550 will become another global franchise product similar to our Raven and PUMA solutions. With an expanding pipeline of opportunities and growing backlog, we continue to focus on increasing our production capacity and throughput to meet our customers' needs. We remain on track to achieve the production goals we shared last quarter. And last but not least, we took a major step towards achieving our future state when we announced our agreement to acquire Blue Halo, a defense technology leader operating in several key franchises in space, counter UAS, cyber, and electronic warfare. This acquisition will enable us to become an even stronger and more diversified defense technology provider delivering highly innovative mission-critical solutions with enhanced speed and agility. We believe our combined portfolio will provide us with industry-leading positions in space communication, unmanned aerial systems, counter UAS, loitering munitions, electronic warfare, and cybersecurity, all enabled by the best-in-class autonomy and AI software suite. On a performer basis, the combined company is expected to deliver approximately $1.7 billion in annual revenue. We continue to work diligently towards completing this transaction and expect it to close in the first half of calendar year 2025 subject to regulatory NAV shareholder approvals and other customary closing conditions. We're confident that as a combined business, we will leverage our strengths and deliver even better outcomes for our customers, employees, and shareholders. With that, I'd like to now discuss results from each of our three business segments, starting with Loitering Munition Systems, or LMS. As we stated previously, LMS was once again our strongest revenue growth driver for the quarter as expected. Revenue increased by more than two times from the same period last fiscal year. Revenues totaled about $78 million, a new second quarter LMS record. Our switchblade products are performing very well in the field and has become the global standard for loitering munitions globally. Our customers value SwitchBlade's unmatched ability to operate in heavily contested environments with very high success rates. SwitchBlade's 300 and 600 continue to strike very high value targets in a cost-effective manner, presenting an incredible value proposition for our customers. Additionally, demand for both SwitchBlade 300 and 600 continues to grow, as evidenced by our most recent multiple U.S. DoD IDIQ awards. These contracts enable our customers to procure greater quantities of our products more quickly. The U.S. Army announced a five-year sole source IDIQ award with a ceiling value of nearly $1 billion, and we've already received an initial $128 million task order under this contract for the U.S. Army's directed requirement for lethal unmanned systems. We also received a separate sole source modification to an existing contract from the U.S. Army, which increased the contract ceiling for switchblade 300 and 600 by nearly $750 million. Under this U.S. Army IDIQ, we have received the task order value at roughly $55 million of switchblade 600 and 300s. Both IDIQ awards contain beneficial new terms that allow for progress payments, which will significantly improve our cash flow and working capital usage. These orders should also facilitate a faster procurement process for key additional domestic and international opportunities. In addition to increasing domestic demand and orders, our Switchblade product line continues to see more international demand. As part of the $55 million award I just mentioned, We received SMS orders from three additional allies Lithuania Romania and Sweden Moreover Taiwan and Greece have also publicly announced their intention to purchase significant quantities of switchblades in the near future Looking ahead We have even more countries in our pipeline planning to add switchblades to their other AV offerings to create a comprehensive family of systems solution set. Additionally, we're pleased to share that we delivered our first tranche of switchblades to the U.S. Marine Corps under the Organic Precision Spires Light Program, or OPFL. We expect additional switchblade task orders under the existing contract umbrella in the coming quarters. In support of all this growing demand, we remain focused on further scaling manufacturing to support more than $500 million in annual switchblade product revenue by the end of this fiscal year. We have also selected an additional new location where we will expand our loading munitions manufacturing beyond fiscal year 2025. In the meantime, AV's track record of delivering switchblades and high quality, high reliability, and high volume remains unmatched in the industry. Finally, we continue to invest in new switchblade variants and upgrades to current product. We hope to announce further details on these new offerings at a future date. In summary, we're very confident about the growth trajectory of our LMS business, and we anticipate continued momentum that goes well beyond fiscal year 2025. Now onto our uncrued system segment. Revenue for the second quarter was nearly $86 million, reflecting another quarter of solid performance. Our uncrued system segment remains a strong revenue and profitability driver for the company, largely due to our PUMA and Jump20 platforms. That said, we strengthened our portfolio with the P550, our latest uncrued systems product, which we showcased at the annual AUSA conference in Washington, D.C. in early October. Consistent with our track record, we expect the solution to be the gold standard for Group 2 UAS and create another global franchise in uncrued solutions for the company. The P550 is part of our recently submitted proposal for the U.S. Army's Long Range Reconnaissance Program, or LRR, and we hope to receive an update on our submission in the coming months. We also anticipate strong global demand for this product beyond the U.S. Army's program record, with additional interest coming from the U.S. Marine Corps, U.S. Navy, U.S. SOCOM, and multiple international customers. The P550 demonstrates our continued commitment to provide innovative, intelligent, autonomous platforms that ensure operational superiority for our customers, and we expect this platform to be a significant contributor to this segment's future growth. In addition, we're seeing continued momentum in our Jump 20 system. We now have a sales pipeline of more than half a billion dollars. and hope to share additional details on at least two expected wins soon. Additionally, we remain engaged with the U.S. Army's FTUAS program office to potentially compete for upcoming tranches. Given favorable feedback on our PUMA, Jump 20, and now the P550 platforms, we anticipate domestic and international demand for our UXS solutions to remain healthy in 2025 and beyond. Moving now to our McCready Works segment. McCready Works continues to make solid progress on its key opportunities with a goal to provide solutions and capabilities that meet our customers' evolving needs, especially though through the development of novel platforms and autonomous capabilities. As an example, this past quarter, we continued our flight test program with a defense variant of our HABS Sunglider, which demonstrated the ability to fly at high altitudes while providing persistent and reliable surveillance. As part of this flight test program, we flew a state-of-the-art synthetic aperture radar, or SAR payload, and demonstrated advanced surveillance capabilities. Additionally, our efforts with the USDOD are continuing to progress, and we were recently awarded another $7 million follow-on contract to continue the HAPS Defense Flight Test program. We remain convinced that our HAPS platform is another unique and game-changing capability for our customers' current and future missions. McCready Works continues to play a significant role in the overall development of AV's new and innovative solution offerings. We look forward to sharing more exciting announcements from this business segment in future quarters. In summary, our strong execution, key contract awards, and robust pipeline gives us confidence in the remainder of fiscal year 2025 and beyond. Our solid performance today, healthy backlog, and recent orders have increased our visibility to 95% of the midpoint of our revenue guidance range. But we still see some risks with order timing, especially given the continuing resolution environment and change in administrations. Therefore, we are reaffirming our fiscal year 2025 revenue, adjusted EBITDA and non-GAAP EPS guidance, and now expect third quarter revenue to represent about 40% of second half revenues. With that, I would like to now turn the call over to Kevin McDonald for a review of our second quarter financials.