Good afternoon, ladies and gentlemen and welcome to AeroVironment's Fourth Quarter and Full Fiscal Year 2021 Earnings Call. This is Stephen Gitlin, Chief Marketing Officer and Vice President of Investor Relations for AeroVironment. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after management's remarks. As a reminder, this conference is being recorded for replay purposes. Before we begin, please note that on this call certain information presented contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include without limitation any statement that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan, or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties including but not limited to economic, competitive, governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. For further information on these risks we encourage you to review the risk factors discussed in AeroVironment's periodic reports on Form 10-K and Form 10-Q filed with the SEC and the Form 8-K filed today with the SEC along with the associated earnings release and the Safe Harbor statement contained therein. This afternoon, we also filed a slide presentation with our earnings release and posted a presentation on our website at avinc.com in the Events & Presentation section. The content of this conference call contains time sensitive information that is accurate only as of today June 29, 2021. 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 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, Steve. Welcome to our fourth quarter and full fiscal year 2021 earnings conference call. On today's call, I will emphasize an important message included on slide number 3 of our earnings presentation. That message is this: AeroVironment again delivered on its financial, operational, and strategic commitments despite the continued macroeconomic challenges. In fiscal year 2021, we applied AeroVironment's unique value proposition of innovation, customer intimacy and agility to help our customers succeed. We're proud to have delivered a fourth consecutive year of profitable revenue growth in the midst of the global pandemic. We deployed our balance sheet to expand our solutions portfolio and the value of our addressable markets. We successfully executed our growth strategy and created significant value for our three key stakeholders: our customers, employees, and shareholders. And the demand and preference for our innovative, reliable, and battle-proven solutions remains strong, reflecting our continued global leadership and our chosen market segments. Today, I will summarize our fiscal year 2021 performance and discuss our achievements during the fourth quarter and full fiscal year. Next, Kevin will provide a more detailed summary of our financial performance in the year. And then, I will follow-up with a brief discussion on our goals for fiscal year 2022 before Kevin, Steve, and I, take your questions. Now, let's move to our fiscal year highlights included on slide number 4. Our team has done an incredible job of staying focused on serving our customers and delivering profitable top line growth, despite a full fiscal year operating during the COVID-19 pandemic. We produced record fourth quarter revenue of $136 million and record full year revenue of $395 million. Full fiscal year revenue increased by 7.5%, including contributions from the Arcturus UAV and ISG businesses acquired in the year, which I will discuss in…

Thank you, Wahid. Today, I'll be reviewing the highlights of our fourth quarter and full-year financial performance. I'll be referring to both our press release and earnings presentation available on our website. Revenue for the fourth quarter of fiscal 2021 was $136 million, a slight increase from the fourth quarter FY '20 revenue of $135.2 million. Slide 6 of the earnings presentation provides a breakdown of revenue by product line to the quarter. The headlines here are that the newly acquired Arcturus business which now becomes our Medium UAS product line contributed approximately $6 million of revenue to the quarter and the year. This additional revenue was more than offset by a $16.3 million decline in our HAPS revenue versus last year's fourth quarter, which included the build out of the joint ventures flight test facility. TMS revenue was strong in the quarter at $39.2 million, but down slightly versus a very, very strong fourth quarter in FY '20. Small UAF also ended the year strong with $70.9 million of revenue, which is a $7.8 million or 12% revenue increase year-over-year. Other revenue in the quarter was down $3.5 million from the prior year. Revenue for the full fiscal year 2021 was $394.9 million, an increase of 7.5% from the 2020 revenue of $367.3 million. Reflecting continued leadership in our core products, we experienced strong year-over-year organic growth of 12% for the combined TMS and Small UAS product lines. However, this was largely offset by $21.7 million decline in HAPS and other revenue. As a consequence, overall organic revenue growth netted to 3% for the year. The contribution of newly acquired businesses boosted the overall growth to 7.5% level as previously noted. Turning to gross margin, gross margin for the fourth quarter was $59.7 million or 44% of revenue compared…

Thanks, Kevin. We're planning for the return of many of our team members to our work sites as soon as next month, which is also when we will celebrate AeroVironment's 50th anniversary. Our growth portfolio is rich with opportunity. Our intelligent robotic systems in the air, on the ground, and in the water will work together to achieve mission success faster, safer and more cost effectively than otherwise possible. And that intelligence will be bolstered by our expanded AI and autonomy capabilities. In terms of the U.S. DoD budget environment, the President's Interim National Security Strategic Guidance provides strategic direction to the U.S. DoD and informs the department's priorities as reflected in the fiscal year 2022 budget request. This guidance states, "New technologies like artificial intelligence, autonomy and robotics will change the character of warfare, resulting in a faster, more lethal and more distributed battlefield." Additionally, proposed U.S. government fiscal year 2022 funding for defense procurement and research, development, testing and evaluation or RDT&E for unmanned technologies exceeds $7 billion. This includes $68 million for Army LMAMS procurement where our Switchblade 300 is the incumbent solution, $69 million for Army FTUAS RDT&E, which we are well positioned for with our MAUS JUMP 20 solution. Additionally, the Army added $72 million to their unfunded list in order to accelerate the FTUAS program by two years. Beyond UAS and TMS, Army Ground Robotics funding request total $124 million. In summary, our expanded portfolio of solutions gives us potential access to as much $450 million and the GFY 2022 budget request, a much larger set of DoD opportunities than ever before. Importantly, we have seen no decrease in demand for our solutions as a result of the military drawdown in Afghanistan. This is consistent with the manner in which Small UAS and TMS…

Thank you, Wahid.

You're welcome, sir.

[Operator Instructions] Our first question today comes from Pete Skibitski of Alembic Global. Pete?

Hey good afternoon, guys. Hope you're doing well.

Hi, Pete.

Quick question on fourth quarter revenue. It seemed a little soft versus expectations and just by my model excuse me, it seemed almost completely due to HAPS. I thought the expectation was for half revenue to be kind of stable year-over-year but it looks like it was maybe down about $18 million year-over-year. Was that a surprise to you guys? Was it due to the contract kind of change? And then, into fiscal '22, I know I'm going on, but should we kind of extrapolate the contract awards to think that HAPS will be up to $55 million in fiscal 2022?

So Steve, this is Wahid. Thanks for the comment. In regards to your question, obviously, we're very pleased with the record fourth consecutive year of profitable top line growth, both organically as well as inorganically. And we're also positioned extremely well for fiscal year 2022 with another year of consecutive growth expected. In terms of the fourth quarter, we faced a few challenges on supply chain, which we addressed most of that throughout the entire year extremely, extremely well. We -- given the fact that we were in a pandemic we addressed all those issues quite well. But there were some specific minor issues that caused some delays and a few revenue items that addressed our fourth quarter specifically. Again, record quarter, record year, record backlog, record visibility, and also record sort of top line growth for the past year and next year. And we're looking forward to another very high-growth year, both organically and inorganically, and we'll keep you updated on that. In terms of the HAPS, HAPS revenue should go up a little bit more next year. But really it depends on - that's a customer-funded R&D program, and that program is really - the fluctuations are not significant. But you're right. Year-over-year, the HAPS program was slightly slower, and again, that was affected to some extent by the global pandemic which we have not been able to travel internationally and our customer or partner has not been able to travel either. So, there's been some effect of that as well on the fourth quarter.

Okay, got you. Okay, I'll get back into the queue. Thanks, guys.

You're welcome.

Our next question comes from Peter Arment at Baird. Peter?

Hey, good afternoon, Wahid, Kevin, Steve. Hey Wahid, on the export for the Switchblade 300, could you maybe talk about -- you mentioned that there were others that were interested. Do you -- when do you expect to see potential orders there and maybe what's the path forward with that program?

Sure, Peter. So obviously, we're very pleased with the performance of our TMS business last year. It's been a growth year for us and they will continue to be a growth year for us next year, as Kevin and I outlined some of that growth toward next year. In terms of the export license for Switchblade 600 -- Switchblade 300, I'm sorry, we did receive the first one and we are expect -- we expect to ship that before the end of this fiscal year. We are talking to multiple other interested countries and allies, all of whom have an interest in this capability and its patented very unique value proposition. The timing of receiving additional export licenses and awards is again very difficult to predict exactly. However, I think that the fact that we received the first export license does position us well and allows us to have a higher probability of success with additional allies. We consider the international markets for Switchblade 300 and Switchblade 600 quite significant. And we believe that as we execute our strategy and progressed throughout the next few years, we'll continue to expand our Switchblade 600 exports internationally, [[Indiscernible].

Yes. Just as a follow-up to the Switchblade 600 comment, you mentioned that was being incorporated in some Navy vessels or at least the initial award. Can you talk about if there's interest from other services including the DoD?

Sure. So, we made a lot of really great progress in fiscal year 2021 on our TMS product line in general. We secured a number of awards for LMAMS contract, which I mentioned in the tune of $40-plus-million in my remarks. But also the export license for Switchblade 300. In terms of the Switchblade 600, we received a couple of key awards. One is our existing customer placed orders for us to deliver units for operational deployments, downrange, which is very positive, that means they really believe in the maturity of the product and the differentiated capability of the solution set. And additionally, we secured another contract over $20 million for the development of an additional variant of this for the ability for Switchblade 600 to be launched off of maritime vessels. So, this was a maritime variant of Switchblade 600, which is a development and development contract, which our customer is pleased with us so far and continues to work with us. Now, this is obviously a development agreement which will take us a little bit of time but it goes to show that the value proposition of this game-changing capability and the desire of our customers for this assets. Lastly, I would also mention that all the other branches of the services including the U.S. Army and U.S. Marine Corps and the Navy are looking at various types of loitering missiles to be basically embedded or integrated with other ground or maritime assets. So, it's very consistent with our strategy and it supports our theory and our belief that this capability could be very, very game-changing long-term for the U.S. war fighters.

Thank you, Peter. Our next question comes from Joe DeNardi at Stifel. Hi, Joe.

Hey, good afternoon. And Steve, sorry to see you go. You're one of the good guys in the industry and you'll be missed.

Thank you, Joe.

That's very true. We will miss him as well, Joe.

I think Steve has been on every call since the IPO if I'm not mistaken. But anyway, Wahid, just the -- can you give us the organic growth assumption embedded in the FY '22 revenue guidance?

Sure. So we'll provide more color when we get to our first quarter earnings. We're still in the midst of the integration of the businesses that we've just acquired, which all are going really well. I'm not sure if we're going be able to break out our specific product line growth by that time, but we will keep you updated. In general what I can tell you is that for fiscal year 2022, we still expect growth both on our acquisitions, on organic acquisitions that we've done as well as on our core businesses. And our core businesses, TMS and SUAS remains strong, the product gross margins going into next year also remain stable and healthy and so we expect growth on both organic businesses as well as our inorganic businesses for the next year. And as you heard my comments, this would be -- fiscal 2022 will be if we achieve the outcomes that we set for ourselves, a fifth consecutive year of double -- of top line profitable growth.

Is the organic growth greater than 10% at least?

We will provide the specific details later on our first quarter earnings call, Joe. But we feel pretty good about the growth of our businesses. And another key point that I would mention is that by these acquisitions and the growth of our product line, we're really a very well-diversified portfolio company now. We've got assets and capabilities in ground, in the air, and on the water, and we have UGVs and UAVs that are of different sizes, customers in different geographies. So the diversity of our portfolio, customer base, and geographic footprint all allows us to have a more -- a better business and a higher-growth business.

Yes. And organic growth for the core products, as I mentioned, was 12% year-over-year, and that's combined TMS and Small UAS business. What kind of dragged us down organically was the HAPS and other service revenue.

Thank you for your question, Joe. [Operator Instructions] And our next question comes from Ken Herbert at Canaccord. Hi, Ken.

Hey. Good afternoon, Wahid, Steve, and Kevin. Wanted to dig first in.

Good afternoon.

Yes. I wanted to dig first into Arcturus, and it seems like the run rate for your fiscal first quarter -- or, I'm sorry, fiscal fourth quarter consistent with what you've guided to after the third quarter but maybe a little bit lower than the run rate when you acquired the business. How should we think about that business now that you're just a few months into ownership? But is it on track to see organic growth in your fiscal '22? And maybe if you could discuss a little bit more detail, Wahid, on some of the timing around the FTUAS opportunity and how we should think about that. Is that -- anything this year, or is that really late '22, maybe '23 type opportunity?

Sure. So, Ken, in terms of the Arcturus UAV, we're very pleased with that acquisition. Obviously, the actual close of that deal happened quite late in the quarter, somewhat later in the quarter, and so the contributions on the revenue was not very significant. For fiscal year 2022, we expect that business to grow, and it's really, really well positioned. As I mentioned on our comments, in the fiscal year 2021, at the last quarter, we even received a renewal of one of our sites and we're kind of gaining share in that MEUAS IV program against the incumbents that have been there for many years. And our customers really see the value of our solution very, very strongly. In terms of FTUAS, what I can tell you is that the timing of this is all in the hands of the U.S. Army. What they have mentioned is that in the government fiscal year 2022 proposed budget, there is additional line items for the FTUAS program as I mentioned in my remarks. And those line items actually even increased by the U.S. Army in order to sort of expedite or -- expedite the whole process a little bit. Now, these are all obviously in the future that needs to happen. But the combined amount is like $69 million on the budget for RDT&E for FTUAS and additional $73 million is unfunded list in order to accelerate the FTUAS program. We are as you know down selected on that FTUAS program. We are very focused on making sure that we're positioned well and we compete in order to win. And we like our chances. But it is a very competitive program and it's a very large program. So everything in that program for us is a gain in share and gain in market penetration in addition to our MUAS SOCOM contract and other potential international customers that are interested.

Okay. That was…

I would add that for that division that they'll have some bumps in revenue during the year as they have deployments. So that'll also bump up the recurring revenue.

Okay, that's great. And if I could on the fiscal '22 guide, the total guidance implies roughly sort of flat EBITDA margin in '22 over '21 As you get a greater contribution from some of the higher margin businesses like Arcturus, is it fair to say that much of the headwind would be coming from lower half revenues or is there something else we should be thinking about as a headwind to margins in '22?

I think we were acquiring these businesses. We're putting them together. I think we've tried to do our best on estimating what the margin percentage is. I think over time we'll see more leverage there.

Thank you very much for your question, Ken. Our next question comes from Louie DiPalma at William Blair. Good afternoon, Louie.

Good afternoon, Steve, Wahid, and Kevin. And, Steve, good luck on your future endeavors.

Thank you, Louie. Thank you.

Wahid, you discussed how the three acquisitions significantly expanded your total addressable market. If you were to compare your bidding pipeline today and all the opportunities that you mentioned such as FTUAS, if you were to compare that pipeline to what it was a year ago, how has that pipeline changed now with the three acquisitions?

Louie, so the three acquisitions really transformed our portfolio and position in the market. We now have access to a much larger total addressable market which in the past we really didn't have the ability to be able to compete or participate in. An example of that is our Arcturus UAV, the Jump 20 and T20 product line, addresses a billion dollar-plus market opportunity alone on those two platforms. And we have also obviously ideas about integrating our solutions together which even increases the value proposition further and opens up new opportunities for us that doesn't even exist today based on our customers' needs and requirements that we know of. And of course similar thing could apply to the UGV business that we have. Obviously, that's a smaller business today. But we're going to be a key player in that space and we like our solution. We like our position. And a very disruptive capability that product line offers to us. So in general, I would say it has really transformed our portfolio. It has dramatically increased our markets size and opportunity in front of us. And what I'm also really pleased is that long term besides just giving us access to these specific markets the integration of AI and autonomy with ISGs, artificial intelligence and computer vision technologies. We will be able deliver even more value to our customers and open up more opportunities for us in the long run. So it's pretty quiet transformative for us.

Great. Thanks, Wahid.

You're welcome, Louie.

Thank you, Louie. [Operator Instructions] We have a follow-up question from Joe DeNardi. Joe, please go ahead.

Yes, thanks. Wahid, just on OPSM [ph]. I mean, AeroVironment doesn't lose very often so I would imagine that was a bit of a surprise for you. So can you just talk about what happened there? And if you've learned kind of what, why you lost?

Sure. So Joe, as I mentioned we have not won -- we were not awarded specific phase of the contract which is the second phase. And my estimate is that that's roughly about $20-ish-million worth of an award that we did not receive. To our knowledge, the customer has not disclosed publicly the winner of that program. To our knowledge, the customer has not disclosed publicly the winner of that program, and we were very surprised by that, obviously. So we continue to seek the customer's feedback on why they think that we were not awarded, and we will continue to learn more from that and keep you updated as we learn more about it, although the customer right now is in a position where they are sensitive to being able to communicate with different contractors until they make a public announcement probably somehow. I would also mention something else which you're right. Our win rate is extremely high. We did, however, in other areas win other opportunities, which does support our thesis on Switchblade 600 and the larger-size market and adoption of it. While this was really a development activity for the U.S. Marine Corps, it does not rule out for our ability to come in and compete on the third base which is really the larger acquisition for deployment and operational production contracts, and the U.S. Marine Corps has not made any statements related to that yet. So that's one. Two is, we've secured a contract to deliver units for operational use today with our existing customers. So our systems are, while this contract was a development contract, we're already deploying systems for operational use. And then, lastly, an additional customer has seen a lot of value in our solutions which they have placed in order for the tune of $20-plus-million for the maritime variant of it so there's also additional other opportunities that we're tracking. So, like you said, we're disappointed with that. We were not awarded, but we've not given up on that, and we're keeping very close eye on it, and that war is not over yet.

Okay, that's helpful. And then, you mentioned briefly the semiconductor shortage may impact you. Are there certain programs where that's more acute? And can you -- I mean is that embedded in your guidance? How meaningful could that be?

Sure. So, let me say that because the company we are, we use the latest, greatest cutting edge technology in all of our solutions in terms of the latest greatest computer vision, processors, graphics, microprocessors and components that cross our portfolio. So far in fiscal year 2021, we really address vast majority of those challenges quite well in advance and effectively. So far in fiscal year 2022, we think that we have managed most of that so far as well. But as you know, there's a global shortage of these parts. And the timing of the shortage is really unknown and how bad could it get is also still to some extent unpredictable. There's likely less impact of that on our production contracts and more likely to affect our engineering development contracts or development activities for new products because that's where we use a lot of these systems for development of new capabilities. But so far, we've managed it well and that's already comprehended in our guidance. However, there's always a risk on that and I wanted to make sure that I communicate that to all of you upfront.

Thank you for the follow-up question Joe. We have no further questions at this time. On a personal note, it's been a real privilege to represent AeroVironment and the entire team to the investment community for the past 14 years. I truly value the relationships I developed here and with the investment community. Thank you for your attention and for your interest in AeroVironment. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website at avinc.com. We wish you a good day. And the AeroVironment team looks forward to speaking with you again following next quarter's results.