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Highlights From AeroVironment's (AVAV) Q4 Conference Call: Record Q4 Revenues, Sees Continued Growth in '10


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June 24, 2009 11:19 AM EDT
AVAV Hot Sheet
Revenue Growth %: -14.7%

Financial Fact:
Total revenue: 71.96M

Today's EPS Names:
VSNT, CIM, KH, More
Last night, AeroVironment, (NASDAQ: AVAV) reported Q4 EPS of $0.27, 1 cent better than estimates. Revenues were $76.0 million vs. $71.22 million consensus. Shares are up 6.8% today

Highlights From AVAV's Q4 Conference Call:

  • (CEO) We had record revenue in Q4, driving year-over-year revenue growth of 15% with a 13% o
    operating margin.
  • Our Q4 was strong, with record quarterly revenues of $76 million resulting in full year revenue of $248 million, up 15% from fiscal 2008.
  • We achieved many important business and market milestones during the year that will be important drivers of future financial performance.
  • We continue to believe that we are strategically well-positioned with our Unmanned Aircraft Systems focused on actionable intelligence and communication, and our efficient energy systems focused on clean electric vehicles and energy.
  • We have seen a growing amount of our UAS funding reflected in DoD budget line items over the last few years. The current FY09 supplemental and FY10 DoD budget requests, although not yet final, suggest that this growth trend will continue.
  • We are looking forward to the growth potential in our on-going production programs through further market penetration and broader value creation. And we are at least as excited about the new growth
    opportunities promised by our UAS development initiatives in switchblade, Global Observer, Stealthy, Persistent, Perch and Stare and Nano Air Vehicle.
  • We believe adoption of Switchblade is increasingly probable and we expect some revenue in fiscal '10 as initial adoption begins.
  • Our Efficient Energy Systems business segment also had positive performance both in its existing product business, as well as in the development of potential new market and product opportunities.
  • General Motors (NYSE: GM) recently opened their global battery development lab in Michigan. They selected our EV Test Systems as their battery cycling solution procuring more than 30 systems just for that facility.
  • We think there remains a significant market opportunity for this line of industrial EV charging systems.
  • We conclude that for now, architectural win rooftop, clean energy generators are best suited for green customers and institutions that are less sensitive to energy pricing.
  • (CFO) Looking at revenue by segment, UAS revenue was 65.4 million, an increase of 17% over the prior year. The growth in UAS revenue was largely due to higher customer funded R&D and higher product deliveries, partially offset by lower services.
  • EES revenue was 10.6 million, an increase of 27% from Q4 last year, primarily due to higher deliveries of EV test systems.
  • Turning to gross margin, gross margin in Q4 was $26.4 million, up 15% from Q4 of the prior year.
  • R&D for the quarter was $7 million, or 9% of revenue, compared to the prior year amount of 4.7 million, or 7% of revenue. The growth in R&D was primarily due to increased investments in various UAS development initiatives.
  • Looking at backlog, funded backlog at the end of Q4 was $114.8 million, up 32.8 million, or 40% from April 30, 2008.
  • Turning to receivables, at the end of Q4, our accounts receivable, including unbilled receivables totaled 62.6 million, up 9.4 million from the prior quarter. Total day sales outstanding were approximately 74 days, compared to 92 days at the prior quarter-end.
  • (CEO, Chairman) I expect this year's operations and revenues to be heavily affected by the transition of Digital Data Link to production and the retrofit of Raven systems.
  • We anticipate that our FY10 revenue will grow 18 to 22% over FY09 with operating margin between 12 and 14%. For reasons that we have already stated and which I will repeat, we expect quarterly results to start lower and grow higher in FY10 than in prior years.
  • We anticipate lingering softness in PosiCharge revenue as a result of the continued impact of recession on capital spending, somewhat offset by new product and new distribution affects on revenue.
  • (Q&A) First, Steve, just two very quick questions for you, what was your unfunded backlog level? (A) Unfunded backlog at the end of the quarter was 511 million, and again, the caution there, Mike, this - we don't believe this is an indication of future sales. There is no expected value put on by management on those numbers.
  • But - and customer funded R&D, where did that come in, in the quarter? (A) Customer funded project R&D, 20.4 million in Q4.
  • With regard to the VTOL, the perch-and-stare technologies. We are starting to see more activity here, when do you believe the DoD is going to start to push these ISR R&D projects more aggressively? In other words, when do you anticipate more dollars will start to really swing into the R&D efforts versus what you've already announced than has been put out to the community? (A) As you know, that is currently a development funded by DARPA, and we recently announced another extension to that contract. It's going very well. I think we are going to have some beta versions in the field for
    evaluation through that contract operation. We'll get feedback from that. We expect to make adaptations and push those back out in for next generation of evaluations. So, we are still in the, I would say, relatively early development stages and we are not anticipating that that would transition into a production program in the near future, certainly not this year.
  • And then just a second question with regard to the way that you had addressed the guidance. I'm going to try, you may not answer the question, but do you see Q1 revenue around where we witnessed Q1 revenue in fiscal year '09, or directionally is that the area that we should anticipate to see coming up in July? (A ) I think what Tim said is traditionally we've seen heavier second halves and first halves, but this year it's accentuated by Digital Data Link, which is largely in the second half. So, I think we
    said up to two-thirds of the volume in the second half, one-third in the first half, and then further trailing up Q1 will be the pinch point, the lowest quarter followed by Q2 and then on.
  • There's also been some discussions about integrating fuel cell technology into some of the small UAVs. And I've seen your name mentioned a couple of times, how do you view that? What's the impact on AVAV if that actually happens? (A) Well, the implementation of fuel cells does have the potential to extend the duration of small UAVs beyond what they can achieve with batteries. We have demonstrated a number of fuel cell integrations and flight ops, and we've talked about those publicly in the context of a contract we have ongoing with Air Force Research Lab. We initially incorporated fuel cells in our Puma prototype airplane, and I believe exceeded nine hours of duration on the last test that we talked about. And we have ongoing development and integration programs on that AFRL contract, as well as others. So, the potential has been demonstrated to increase duration. And to the extent that our customers have an appetite for that, we will be in a position to provide it.


AeroVironment, Inc. designs, develops, and produces unmanned aircraft systems and efficient energy systems for various industries and governmental agencies.

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