AeroVironment, Inc.

Good day, and thank you for standing by. Welcome to the Air Environment Fiscal 2025 Third 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 1-1 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, Jonah Teter-Balin. Please go ahead.

Thanks and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fiscal year 2025 third 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 AeroVironment 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, March 4th, 2025. The company undertakes no obligation to update any forward looking statements, whether as a result of new information, future events, or otherwise. 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 MacDonald. We will now begin with remarks from Waheed Nawabi. Waheed? Thank you, Jonah.

Welcome, everyone, to our third quarter fiscal year 2025 earnings conference call. I'll start by summarizing our quarterly performance and provide an update on the Blue Halo transaction. followed by Kevin, who will review our financial results in greater detail. Next, I will provide an update on our expectations for the rest of fiscal year 2025 before Kevin, Jonah, and I take your questions. I'm pleased to report that we made significant progress on our long-term growth strategy this quarter, despite several short-term challenges. We continued to see strong demand for our solutions while expanding capabilities and capacity as the global leader in defense technology. Our key messages, which are included on slide number three of our earnings presentation, are as follows. First, we won large contract awards tied to key long-term strategic programs, including the U.S. Army's LASSO, U.S. DoD's Replicator, and the Danish Ministry of Defense while growing our backlog to our record $764 million. Second, we continue to make disciplined investments, expanding production capacity, launching innovative products and new capabilities and leveraging our acquisitions to strengthen our market leadership position. Third, despite our solid progress, Third quarter financial performance came in slightly below our expectations, primarily due to the unprecedented LA windstorms. And fourth, given recent challenges, we are lowering our guidance but remain on track for record fourth quarter revenue and accelerating growth in fiscal year 2026. While we encountered challenges in executing our plans this quarter, we remain firmly on track with our long-term growth strategy. The defense technology sector is experiencing a generational shift driven by distributed, autonomous, AI-enabled solutions. We continue to believe we are uniquely positioned to meet our customers' evolving needs by leveraging our core strengths, cutting-in technology, unmatched production capacity, and decades of battlefield experience. We are further strengthening these advantages through strategic organic and inorganic investments by developing new innovative products, expanding into adjacent markets, and increasing our production capacity. Given our progress and favorable market dynamics, we are confident that AV is well-positioned to deliver sustained growth while creating value for our stakeholders for years to come. The evolving global security landscape continues to highlight the critical needs for cost-effective AI-driven autonomous defense solutions. In response, the US Department of Defense and allied nations are prioritizing the rapid deployment of uncrewed systems and loading munitions technologies we pioneered. Recently, Secretary of Defense Speed Hexit reaffirmed the administration's focus on AI, drones, counter drones, and autonomous warfare capabilities. These priorities directly align with AV's core product offerings and long-term growth strategy. We have been proactively preparing for a shift in demand related to Ukraine this fiscal year. While AV shipments to Ukraine continue to decline, as expected, the conflict has underscored the battlefield effectiveness of our solutions, driving unprecedented high demand from the U.S. DoD, NATO, Indo-Pacific, and other allied partners. This shift aligns with evolving US defense policy and procurement priorities, further strengthening and validating our global expansion strategy. To illustrate this point, let me share the following facts. With approximately $40 million worth of Switchblade 600 deployments, Ukraine has destroyed nearly $3 billion worth of enemy military assets. In other words, for every Switchblade 600 launched, $13 million worth of enemy military assets have been destroyed. We are now nearing the end of this transition from Ukraine to larger and more enduring growth opportunities. For the full fiscal year, we expect all AV shipments to Ukraine to represent only 17% of revenues, compared to 38% of revenues last fiscal year. Further, in total, Ukraine will represent only about 6% of Q4 revenues and is not material to our future growth plans. Despite the significant shift, we remain on track to achieve more than 10% revenue growth and $1 billion in orders in fiscal year 2025. Beyond our organic successes, this quarter we made significant progress towards closing the Blue Halo transaction and preparing for integration. The Blue Halo transaction will further increase our total market opportunity and growth potential by adding space technologies, counter UAS, directed energy, electronic warfare, and cyber solutions to our portfolio. Through this combination, we will enhance our technology and capabilities, increase our facility footprint, and deliver a more comprehensive set of solutions across the air, land, sea, space, and cyber domains. Since announcing the transaction, we have engaged extensively with our customers and received overwhelming positive feedback. Customers recognize that AV brings a unique combination of innovation and product leadership and are excited that the future company will have the experience and resources to successfully deliver on major defense initiatives at scale. In terms of next steps, we have successfully secured key regulatory approvals, clearing HSR antitrust and SEC S4 reviews earlier this year. Our next major milestone is a shareholder vote to approve the transaction, which is scheduled for April 1st. While a few outstanding international regulatory reviews are still in progress, we remain on track to close the transaction in the second quarter of calendar year 2025. In parallel, our team has been actively preparing for integration and we look forward to sharing additional details in the coming months. As I mentioned earlier, we faced short-term challenges, including the unprecedented high winds and fires in Los Angeles, which tragically claimed lives, homes, and businesses in our community. Our hearts go out to those impacted, including many AV employees. While AV facilities were not directly damaged, we experienced extended periods of forced shutdowns and power outages. which disrupted both our manufacturing and supply chain logistics. Given the timing at the end of our fiscal year, these events partially constrained our ability to achieve our full operational goals, impacting our quarterly results and full year expectations. We are working hard to recover lost time while also executing our distributed manufacturing strategy to build resiliency for the future. just this week we also received stop work orders tied to four foreign military sales contracts representing about 13 million dollars in orders majority of which we expected to ship in q4 further the u.s government recently paused military aid to ukraine and implemented new tariffs The stop work orders will directly impact our Q4 deliveries, while the effect of the other evolving situations is less clear. We have incorporated the estimated impact of these events into our new revised guidance and will provide further updates when appropriate. With that, I would like to now provide updates on each of our three business segments, starting with Loitering Munition Systems, or LMS. The LMS team delivered record revenue this quarter, achieving several key strategic milestones. Starting with orders, the LMS team secured more than $350 million in switchblade contracts, including a single $288 million award under our $990 million IDIQ contract. This order is the single largest award in AV's 50-year history. global adoption is also increasing for both switchblade 300 and 600 with 10 countries having placed firm orders and more than 20 more inactive engagements to meet this growing demand we have aggressively expanded manufacturing capacity already additionally Our newly announced switchblade production facility in Utah will be more than five times larger than our current plant and is set to double production throughput again, positioning us to support over $1 billion in annual LMS revenue by the end of fiscal year 2027. We expect the facility to come online towards the end of this calendar year. Despite the extreme challenges posed by the high winds and LA fires, switchblade production remains on track to exit this Q4 at about a $500 million annualized run rate. We believe that our investments in Utah and other facilities nationwide, including those to be gained through our combination with Blue Halo, will enhance our operational resilience and mitigate future disruptions. In summary, the LMS segment continues to support our growth strategy through key awards and expanded production capacity. Now onto our uncrued systems segment, or UXS. The UXS segment continued to transition away from Ukraine, related revenue shifting to other long-term growth opportunities as demonstrated by several key strategic wins in the quarter. We recently secured a sole source contract with a $181 million ceiling to supply the Danish military with Jump 20 UAS over the next 10 years. This was a highly competitive bid process, which reinforces our confidence that Jump 20 is the best Group 3 UAS available today in the market. Additionally, we were awarded a major contract with the German Federal Armed Forces to supply more than 40 uncrewed ground vehicles. This was also one of the largest UGV awards in our company history. Our international pipeline continues to grow, and we expect to announce another major international Jump 20 award in the coming months. To support increasing demand, the team established the new P550 production line, positioning for future demand. We believe P550 will continue to lead the entire small UAS industry in terms of innovation and global adoption in future years, similar to Raven and PUMA. As you may be aware, Raven and PUMA UAVs have been multi-billion dollar product franchises for AV already. We expect the same from P550. We also expanded our European presence by opening a new office in the United Kingdom, strengthening our engagement with key European defense customers, and enhancing our ability to support regional programs. At the same time, the team continued to drive innovation, bringing new capabilities to market. For example, We recently launched the new Jump20x platform, an enhanced maritime variant of our Jump20 UAS optimized for shipboard operations. We also introduced new software capabilities for our PUMA AE and LE UAS that provide enhanced autonomy, flexibility, and performance in contested environments. While the UXS segment is in a transition year, We remain confident in its long-term growth trajectory, driven by a growing market, key contract wins, new product introductions, new USDOD programs of record, and an expanding global footprint. Moving now to our McCready Works segment, McCready Works continues to progress the development of next-generation technologies that drive the evolution of AI-enabled autonomous warfare systems. This quarter, the team made significant progress in our new software-defined autonomous one-way attack drones. This whole new family of systems is designed leveraging key battlefield insights and can be affordably mass-produced in very high volumes. We are seeing a lot of interest from our customers with units already delivered to early adopters. We believe this solution set will provide a crucial advantage for customers operating in high-threat contested environments, and we look forward to sharing more details in the coming months. We continue to expand Avacor autonomy capabilities across AV's entire portfolio, enhancing adaptive mission execution and real-time decision-making. Additionally, our Spotter Edge computer vision software is also now being integrated into multiple other uncrewed systems, delivering advanced AI-driven threat detection, tracking, and situational awareness. These technologies further strengthen our competitive differentiation, making AV solutions smarter, faster, and more effective in contested environments. McCready Works continues to push the boundaries of what is possible in autonomous warfare, reinforcing AV's position as the leading innovator in uncrewed systems and loitering munitions. In summary, the company achieved major milestones in the quarter that give us confidence in our future. However, the high winds and unprecedented fires in LA area impacted our operations, limiting our ability to meet our quarterly goals. Further, the recent stop work orders from the USDOD are impacting our ability to achieve fourth quarter goals. As a result, we're lowering our fiscal year 2025 revenue, adjusted EBITDA, and non-GAAP EPS guidance ranges. However, we have record backlog and a strong pipeline and remain confident in our long-term growth trajectory. With that, I would like to now turn the call over to Kevin McDonald for a review of our third quarter financials. Kevin? Thank you, Waheed.