Good day, and thank you for standing by. Welcome to the AeroVironment Fourth Quarter and Full Fiscal Year 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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-Balin. 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-Balin, 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 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 Investors 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. Wahid Nawabi, and Senior Vice President and Chief Financial Officer, Mr. Kevin McDonnell. We will now begin with remarks from Wahid Nawabi. Wahid?

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 AeroVironment. Our key messages, which are included on Slide #3 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 Munition Systems 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 enhance 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…

Thank you, Wahid. Today, I'll be reviewing the highlights of our fourth quarter and full year fiscal FY '24 performance, during which I will occasionally refer to our press release and earnings presentation available on our website. As Wahid mentioned, we will now refer to the Unmanned Systems segment as the Uncrewed, or UxS, segment. FY '24 was a record year and the fourth quarter finished strong with our highest revenue quarter ever. We expect this business momentum to continue into FY '25. In terms of the full year, revenue totaled $716.7 million, an increase of 33% as compared to the $540.5 million for the fiscal year 2023. Our largest segment during the year was Uncrewed Systems, or UxS, which is a combination of our small UAS, which includes our Tomahawk acquisition, medium UAS and UGV businesses. UxS had revenue of $448 million in the year, up -- which is up 30% from last year's $343.9 million. Puma demand remained strong, accounting for 62% of UxS revenue, but the segment also generated $61.5 million from our JUMP 20 product, along with contributions from our ground vehicles and Tomahawk products during the year. Loitering Munition Systems, or LMS, recorded revenue of $192.6 million, a 60% increase compared to the $120.6 million last fiscal year. 62% of LMS revenue came from the Switchblade 600 products and services, while the remainder came primarily from the Switchblade 300 Block 20 products. Revenue from our MacCready Works segment came in at $76.1 million. This was flat compared to the $76 million from last fiscal year. MacCready Works growth was negatively impacted by the US government budget authorization delays. In terms of the fourth quarter revenue, we achieved a record total of revenues of $197 million, an increase of 6% as compared to the $186 million…

Thanks, Kevin. With a strong fiscal year 2024 behind us, we're pleased to provide our guidance for fiscal year 2025 on Slide #7 as follows: we anticipate revenue between $790 million and $820 million; we forecast net income between $74 million to $83 million, or $2.61 to $2.92 per diluted share; non-GAAP adjusted EBITDA of between $143 million and $153 million; and we expect R&D to be 12% to 13% of revenues. Our funded backlog at the end of fiscal year 2024 remained healthy at $400 million. As a result, visibility to the midpoint of our fiscal year 2025 revenue guidance range is at 55%. While this level of visibility is lower than recent years, it is important to note that our visibility reflects some uncertainty in the government contracting process. Many additional awards have been announced by our customers, but are not yet included in our backlog, including more than $300 million in orders for our LMS business alone. We are confident in achieving our full-year guidance and we'll update our visibility accordingly in future quarters as these awards and other opportunities in our pipeline convert to orders and revenue. We expect first half revenue to represent almost 45% of the full fiscal year. Further, we expect Q1 revenue to account for approximately half of the first half revenues. We anticipate accelerating global demand for autonomous AI-enabled uncrewed solutions to drive continued growth across our business. Given our strong performance and execution, we remain confident that fiscal year 2025 will be yet another record-breaking fiscal year for AeroVironment. We are uniquely positioned in this marketplace with decades of trusted experience, battle-tested solutions, an unparalleled installed base, best-in-class technology and unrivaled manufacturing capacity. We remain well-positioned to benefit from US DoD budget priorities as an industry leader and the original…

Thank you. [Operator Instructions] Our first question comes from the line of Greg Konrad with Jefferies. Your line is open.

Good evening.

Good evening, Greg.

Good evening, Greg.

You called out annual production capacity for LMS greater than $500 million, which is about 2.5 times or more than 2.5 times the fiscal year '24 sales. Can you maybe give a timeline given that you called out continued growth in LMS of kind of reaching that annual production capacity?

Sure, Greg. So, we continue to expand capacity in production rates on an -- almost on a monthly basis. So, the rate keeps growing. And as you saw our fourth quarter, we finished the quarter with a $74-plus million worth of revenue. Just as fourth quarter and you see the increase from Q3 to Q4 was significant. We expect that same rate of increase to continue. Our goal is to always, always, stay ahead of our customers' demand in terms of capacity. So far, in the last three-plus years, especially during COVID era as well as the shortages of semiconductors and chips, we were successful at meeting our customers' demand appropriately. So, it is not that far away from today that we're going to be able to reach about [$0.5 billion] (ph) worth of production capacity. And that is going to be right in line with our customers' expectation and the demand signals that we're seeing, especially with the orders we expect to receive in the next couple of quarters.

And then maybe just as a follow-up, if I look at the guidance, EBITDA margins are up about 60 bps at the midpoint in '25. You called out expect R&D to stay in the 12% to 13% range in fiscal year '25. But can you maybe talk about the drivers? How much of that is LMS mix? Do you expect margin expansion within LMS or just some of the moving pieces of the margin expansion?

Sure. So, Greg, generally speaking, our margin for this -- for fiscal year '25 is going to be very healthy, despite the fact that we have a significant mix shift between our small UAS demand and our much faster-growing LMS business. While the growth in LMS is aggressive and it's quite robust, we've been able to successfully increase the margin profile of that mix within our LMS business as well. So, as we are negotiating new contracts with the US Army and our international allies, we expect to see those margins improve throughout the year. But overall, for the year, we believe that the market is going to continue to grow, LMS continues to be the faster-growing segment of our business, and the fact that we have capacity to increase and we're level-loading the factory, we believe that we're going to continue to be able improve the margin profile of our LMS business. All of that should translate into basically roughly the similar margins to 2024 for the full year.

So, our gross margin is slightly improving adjusted gross -- EBITDA.

That's right.

I'll leave it at that. Thanks.

Thank you, Greg.

Thank you. Please stand by for our next question. Our next question comes from the line of Peter Arment with Baird. Your line is open.

Hey, thanks. Good afternoon, Wahid, Kevin and Jonah, nice results.

Thank you.

Hey, Wahid, you mentioned that $300 million, you kind of listed them all off, LASSO, Replicator, OPF-L, some of that was in the Ukraine, I think, Lithuania was also mentioned. So, you kind of just talked about that fourth quarter run rate. So, how do we think about that $300 million kind of rolling through LMS? Is it kind of like an 18-month period and then we're going to see additional orders from domestic customers? Just how do we think about how those contracts roll through?

Sure. So, Peter, we're working on several fronts. The primary reason for those orders not be secured yet is the contracting capacity and timeline of our customers. The US government has been really challenged in terms of not having their budgets approved for almost half of their government fiscal year and now they're trying to contract all those with different suppliers, especially in our case because we are working on a multi-year contract that takes a little bit longer and especially since we're negotiating some of the key critical terms and conditions of that contract. So having said that, we expect pretty much all of those that $300 million worth of potential orders and even more than to that to materialize or convert into contracts this fiscal year. We expect all of that and then some more. I was just trying to point out that our backlog at the end of the year was not as strong and the visibility was not as strong as last fiscal year, even though our full-year number is much higher now. But we see significant upside on the orders that are in the works that we believe we're going to convert that into contracts in the next nine to 12 months.

And the timing of those contracts will kind of dictate our ability to recognize the revenue this year or next year.

That's right.

Understood. And just as a follow-up, Kevin, you mentioned the unbilled on the -- on your kind of prepared remarks. So, that was up for the year about $95 million year-over-year. But does it continue to grow? You mentioned that you're going to have a new contract and then that changes, I guess, maybe the terms. But how do we think about unbilled from here? And where that will go as we think about fiscal '25? Thanks.

Yeah. I mean, it will be a nice milestone when we get the new contracts. So, we'll be able to recognize or take progress payments for some of that revenue. But we're not expecting that in the near-term. So, you'll probably see some fluctuations in the unbilled in the near-term and then hopefully reach a point when we get the new contract that will start to come down as the older contracts go off and the new ones come on board. But I think overall for the year, we should kind of be about the same place that we are. We'll just bounce up and down a little bit.

Got it. Thanks, again.

You're welcome, Peter.

Thank you. Please standby for our next question. Our next question comes from the line of Ken Herbert with RBC. Your line is open.

Yeah. Hi. Good morning or good afternoon, Wahid and Kevin.

Good afternoon.

Good afternoon.

Yeah. Hey, I just wanted to follow-up, on the -- for the top-line outlook next year, if we apply some of the numbers you're talking about for the LMS segment, it implies limited growth, obviously, in the former UAS segment. So, how do we think about growth respectively maybe to put a finer point on it between the two segments in fiscal '25?

So, Ken, we expect all of our segments to grow not only this year, but also in the next few years. All of our segments have very, very handsome attractive growth trajectories and forecasts for the multiple years, including fiscal year '25, number one. Obviously, Loitering Munitions is going to be one of the fastest growing ones because of very large announcements and awards that we won recently, which is going to translate into contract soon. In terms of the Unmanned -- Uncrewed Systems business, that demand really is based on contract timing. So, as you know, we've been notified and we were announced as part of the Ukraine assistance package for Ukraine. That's one potential growth opportunity, which is not reflected in our orders either. And we've got several international opportunities. A lot of our international allies are also loading up and increasing their inventories of our small UAS, especially given the performance of our solutions in Ukraine. And we will continue to see that grow because our pipeline is growing. So, overall, we do expect UxS, or our Uncrewed Systems, to grow, but the largest growth or the strongest/highest growth is going to come from our LMS business. And that picture is going to optically look different each quarter versus quarter or year, primarily because of the timing of the contracts that we're going to convert it into actual quarters.

Okay. Helpful. Thank you. And maybe if I could, just, obviously, a lot more discussion these days around the shifting competitive landscape. And as we look at some of the potential volume from some of the recent foreign military sales for companies like [Anduril] (ph) and others, seem to be -- they seem to be taking share fairly aggressively. Maybe, Wahid, you can just address the competitive landscape and where you view competitive strengths for AVAV in particular, and how we should think about your ability to maybe continue to take share or as the market grows, just how we think about your growth relative to other companies?

Sure. So that's a great question, Ken, and I'm glad that you are addressing it or asking us that question, because we are very close and we follow these things very closely. First and foremost, the recent announcement that you saw for the FMS, it's just an authorization. It's actually not a contract yet. It is just an authorization by the State Department that they will allow these companies. And there is a lot more work to be done for those to actually convert into contract and orders, number one. Number two, we know that Taiwan prefers and would like to acquire more of AV's solutions including Switchblade. Three, as I said before, this market is growing quite rapidly. So, it's very natural for a lot more competitors to show up, because it's going to attract more competition and the US military and our allies, by definition, are going to make sure that there's more than one player in the market. Given all that, the track record that we have in terms of our win rate and the ability for us to deliver in volume now, a battle-proven test and battle-tested solution, is unmatched. A lot of people can talk about they can deliver solutions or they have solutions, but there's a huge difference between prototypes and announcements than actually delivering battle-tested solutions in volume. So, we like our odds of success. The market is going to continue to grow. We will probably see more competition in the space, but that's not new to us. We've been competing in this space for lots and lots of years. And whenever -- we've seen this movie over and over again. Whenever competitors can't deliver on their promises, we stand ready to deliver, and that's been actually happening more than once in our history in the past. And so, there's no one there that can actually deliver these things in volume in a timely manner as we do, especially given the time sensitivity of the conflicts that are brewing in the Indo-Pacific right now.

Great. Thanks, Wahid.

Thank you, Ken.

Thank you. [Operator Instructions] Please stand by for our next question. Our next question comes from the line of Bryce Sandberg with William Blair. Your line is open.

Wahid, Kevin and Jonah, good afternoon.

Hey, good afternoon.

I'm wondering if you can talk a little bit about the P550 aircraft you announced. Like, what is the vision for that aircraft? And I guess, how does it differentiate from the long endurance Puma or the JUMP 20?

I'm sorry, I couldn't hear you that well. Could you repeat your question, please?

Yeah. Just wondering if you can talk a little bit about the P550 aircraft you announced. Like, what the vision is for that aircraft? And how does it differentiate from the long endurance Puma or the JUMP 20?

Got it. Okay. The P550. So, P550 is our next-generation Group 1/Group 2 UAS that is purpose designed for the US Army's long-range reconnaissance program requirements. If you look at the requirements that the US Army has for the LRR program and you look at the performance specifications that we've so far published, a limited amount of those, for the P550, it's really directly related to the needs of our customer, the requirements that they have written. We believe that this is a fantastic capability. It actually enhances the missions of our JUMP 20 as well as the Pumas. Long-term, I expect in multiple years down the road that the P550 will be a stronger seller than our Puma. So, essentially it's our way of continuing our innovation and continuing to lead the market with disruptive category innovations that is going to keep us ahead of all of our competition. And so that's what P550 is all about. We're going to share a lot more about that tomorrow with our investors at our Investor Day Conference here in New York City. And we look forward to competing on the LRR as well as many other opportunities that are out there. The LRR opportunity was published recently and we've actually delivered our proposals, and we're looking forward to their decision in the near future.

Great. Thanks, Wahid.

You're welcome.

Thank you. Please stand by for our next question. Our next question comes from the line of Andre Madrid with BTIG. Your line is open.

Hey, guys. Thanks for taking my question. I want to start first with maybe just talking a bit more about the Taiwanese FMS sale that was announced last week. So, if you think about the mix of that program vis-a-vis you and your competitor, I mean, how marketable do you think Switchblade can be in the Indo-Pacific, just given the limited range relative to competitors and the focus that there is on range in such a vast region as the Indo-Pacific? And are there any thoughts then within that context of maybe expanding up the range as you move further on the Switchblade product line?

Andre, so that's a great question again, and let me point out a couple of thoughts on that. Number one, those announcements were basically approvals, not yet orders. So, there's still a long way to go from there to actual orders being secured by both us and our competitors. Number two, the two solutions are actually not targeted for the same missions. They're quite different in terms of what type of missions they address, number two. Number three, Switchblade 600, as you saw, is the only loitering munitions that we know of that's publicly been announced as part of Replicator program. And we all know from public information that the Replicator initiative within the US DoD is, by far, highly, highly focused to the INDOPACOM theatre, and the conflicts are brewing there. So, obviously, our customers know what they need most and they selected our solution. And the reason public announcement by our customer was that they are going to be procuring over 1000 Switchblade 600s for the Replicator as part of the US Army's contribution to that. So, we let our record speak for itself. We've already delivered thousands of these systems. As I said, we will see more competitors in the space. We've been competing in the space for over a decade and we've delivered thousands and thousands of systems. And we're the only company that I know of who can deliver them in high volume in thousands at high level of reliability and battle-proven quality today, and that's really critical to the INDOPACOM conflict. And so, we're very proud of that and we think that that's unmatched in the industry. Announcement could happen a lot and as you've seen from many announcements in the past that the end outcome seems to be somewhat different than the one the announcements ended up being in the beginning. And so, we look forward to competing and we'll keep you updated as this progresses through the process.

Perfect. That's really helpful color. Thank you.

You're welcome.

And then, I guess just as we look more so on FMS and the prospect of further international sales and that mix shifting, I mean, what kind of quantitative metrics can you give as to the interest you've received? How much actual -- active conversations are going on? I know that's something that you've highlighted before with reference to the over 50 countries that you were approved for sales for. So, maybe just some degree of quantitative color on how those conversations are advancing and how much more demand you're getting from incremental US allies?

Sure, Andre. So, we -- as you know, we have received approval to market and engage with up to 50 of our allies on both Switchblade 300 and 600. As I said today on the call that we received our first international order for Lithuania for both Switchblade 300 and 600. In addition to that, we also -- as you saw the announcement from the State Department that they have approved Switchblade 300 for Taiwan. In addition to those, we still have a close to half a dozen plus countries that are very actively engaged in the various stages of the acquisition of Switchblade 300 and 600 for their needs. And these countries are pretty much both in European theater as well as in the Asia Pacific. And so, the process is long because the US State Department and the export arm of the US military has been very, very busy. The FMS office is extremely busy and the US exports and FMS sales have really, really skyrocketed. And so -- but we're engaged and we see that almost all of those cases are probably most likely in the next 12 to 24 months are going to convert into some sort of orders for us. The timing of that is extremely difficult to pinpoint exactly. It really depends on each and every case independently and through the process that we go through, but we're very engaged. The countries are interested. US Pentagon is supportive and State Department has been very receptive to us as well. It just takes time.

Super helpful. Thank you.

Thank you, Andre.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Jonah for closing remarks.

Thank you, once again, for joining today's conference call and for your continued interest in AeroVironment. As a reminder, an archived version of this call, SEC filings and relevant news can be found under the Investors section of our website. We look forward to seeing many of you tomorrow at our 2024 Investor Day and wish you a good evening.

That concludes today's conference call. You may now disconnect.