AeroVironment Inc Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue and Growth: Second quarter revenue reached $188 million, a new second-quarter record. Loitering Munition Systems had record second-quarter revenues of nearly $78 million, 61% Y/Y increase.
• Backlog: Funded backlog at $467 million, a healthy amount.
• Contract Awards: Awarded two large sole-source Switchblade IDIQ awards with a record $1.7 billion contract ceiling.
• New Product Launch: Launched P550 Group 2 UAS, part of US Army Long Range Reconnaissance program.
• Acquisition: Agreed to acquire BlueHalo, a defense technology leader, to become a stronger and more diversified defense technology provider.
• Technical Interchange Meeting: Hosted 24 countries to educate on market-leading solutions and gather feedback

Segment Performance

• Loitering Munition Systems: Second quarter revenue rose to nearly $78 million, a 61% year-over-year increase, driving growth. Received large sole-source Switchblade IDIQ awards with a record $1.7 billion contract ceiling, saw strong domestic and international demand including FMS orders from Lithuania, Romania, Sweden and interest from Taiwan, Greece, etc. Aim to scale manufacturing to support over $500 million in annual Switchblade revenue by end of fiscal year 2025. Revenue contribution: significant, driving overall growth.
• Uncrewed Systems: Second quarter revenue was nearly $86 million. Remains a strong revenue and profitability driver but down from last year due to decreased Ukraine revenue. Puma demand strong (71% of UxS revenue), launched P550 Group 2 UAS, part of US Army Long Range Reconnaissance program. Revenue contribution: substantial, but impacted by Ukraine shift.
• MacCready Works: Second quarter revenue $25.3 million, a 42% increase year-over-year, driven by HAPS revenue from SoftBank and US Department of Defense for stratospheric flight testing. Revenue contribution: smaller but growing due to HAPS activities

Guidance

• Reaffirmed revenue, adjusted EBITDA, and non-GAAP EPS guidance for fiscal year 2025.
• Third-quarter revenue expected to represent about 40% of second-half revenues.
• 95% visibility to the midpoint of revenue guidance range

Risks

• Order Timing: Risks due to continuing resolution environment and change in administrations impacting order timing.
• Protest on Contract: Pending decision from the Department of Justice on a protest related to an IDIQ contract, with government authorization to proceed to ship products in the meantime

Question and Answer

Q: Peter Arment asked about the Uncrewed Systems segment being the lowest revenue quarter in recent years and the P550 product. a: Wahid Nawabi stated UxS segment is a strong long-term driver, diversified from Ukraine demand, has over $0.5 billion pipeline for JUMP 20, and P550 will fuel future growth.

Q: Louie DiPalma asked about Switchblade in Kinesis Ecosystem and Ukraine impact on Loitering Munitions. a: Wahid Nawabi said progress on integrating Kinesis, and Loitering Munitions growth is global and multifaceted, not reliant on Ukraine alone.

Q: Greg Konrad asked about international Switchblade growth and risk from change in administration. a: Wahid Nawabi said international Switchblade orders are growing, reaffirmed guidance despite risks from administration change and CR, and progress on production capacity is solid.

Q: Pete Skibitski asked about Army programs Red Cat and MRR. a: Wahid Nawabi said intentionally not competing for Red Cat, monitoring MRR, and focused on Long-Range Reconnaissance program with strong position.

Q: Andre Madrid asked about Ukraine's impact on sales and number of countries engaging with Switchblade. a: Wahid Nawabi said diversified from Ukraine, and number of countries interested in Switchblade is growing with several new orders received