Good afternoon, ladies and gentlemen, and welcome to AeroVironment's Second Quarter Fiscal Year 2021 Earnings Call. This is Steven 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 the presentation on our website at avinc.com in the Events & Presentations section. The content of this conference call contains time-sensitive information that is accurate only as of today, December 08, 2020.

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 second quarter fiscal year 2021 earnings conference call. Before we discuss our business achievements in the second quarter, I would like to address our acquisition of the German robotics company, Telerob, which we announced a few moments ago and is summarized on Slide number 3 of our earnings presentation.

Telerob is a leader in advanced ground robotic systems with a strong global customer base and a best-in-class portfolio of unmanned ground vehicles or UGVs serving defense, first response, homeland security and other markets.

This is an outstanding growing business in its own right that is poised for further success in the United States and globally and we are excited for them to join our team to support our customers and expand our global footprint.

At AeroVironment, our goal is to drive superior shareholder value by developing and maintaining leadership positions in intelligent multi-domain robotic systems for defense, civil and commercial customers.

Our broad portfolio includes unmanned aircraft and tactical missile systems that are aerial robots with increasing levels of intelligence and autonomy that derive from our ongoing investments.

Telerob’s outstanding team, best-in-class product portfolio, long track record of success and extensive customer base represents an ideal complementary set of capabilities that deliver the ground element of our multi-domain portfolio.

Telerob was founded more than 25 years ago and its management team has extensive robotic experience that date back to the 1970s. The Telerob team has built an impressive list of customers around the world by applying their innovative robotics technologies to multiple growing applications and end-markets.

With Telerob, as part of AeroVironment, we will offer a broader set of solutions and capabilities to our customers. Once the transaction closes, we plan to integrate our technology roadmaps to develop aerial and ground system solutions that deliver more capability in more complex operating environments to customers in defense and other applications.

With this powerful multi-domain solution offering, we will introduce AeroVironment to Telerob’s existing customer base, which spans 45 nations and introduce Telerob’s unique portfolio to AeroVironment customers in the U.S. and 50 nations. To this point, in November, we submitted a joint proposal with Telerob to the U.S.

air force for a large new multi-year explosive ordinance disposal of robotics program where AeroVironment will be the prime contractor. The air force has not disclosed the potential value of this program, but it is significant.

We will also pursue additional significant domestic UGV opportunities with the United States Navy, Marine Corps, Air National Guard and various police forces.

Specific international opportunities include, UGVs for airport security in the Middle Eastern allied nations and multiple UAS programs with the German Federal Ministry of Defense, which a local presence would support.

As you can see, the opportunities between our two teams are numerous and have the potential to produce significant value for AeroVironment shareholders in the near and long-term. Upon German government clearance of the transaction, which we expect by spring 2021, Telerob will operate as a wholly-owned subsidiary of AeroVironment.

We’ve planned to retain the entire Telerob team. We expect this acquisition to be GAAP EPS accretive in two years and non-GAAP EPS accretive in fiscal year 2022 excluding intangible amortization and integration costs.

Under the terms of the agreement, we are investing approximately $45.4 million in cash, plus a three year milestone-based earn out of up to $7.3 million. We will also pay off $9.4 million in debt from Telerob at closing.

Our acquisition of Telerob supports our objectives of deploying our strong balance sheet to grow our business, expanding the value proposition of our offerings and creating long term shareholder value. I look forward to sharing more with you as we proceed toward closing. Now I will summarize our second quarter results.

On today’s call, I will emphasize three key messages included on slide number 4 of our earnings presentation. First, our team continues to deliver strong results during the unprecedented and challenging COVID-19 pandemic, keeping us on track to achieve our fiscal year 2021 objectives.

Second, we achieved significant milestones during the quarter in our key growth initiatives within tactical UAS, tactical missile systems, and HAPS. And third, we are successfully executing our long-term growth strategy supported by our strong balance sheet while delivering significant value to our shareholders.

Now let’s review our financial performance in the quarter, which is outlined on slide number 5 of our earnings presentation. We delivered second quarter revenue of $92.7 million, an increase of 11% year-over-year and consistent with our expectations.

Earnings per diluted share of $0.09 declined from $0.31 in the prior year, primarily due to an accounting impairment related to our portion of a write-down in HAPSMobiles Inc.’s equity investment and Loon LLC. Kevin will provide more information on this item in his prepared comments.

Non-GAAP earnings per diluted share for the second quarter was $0.48, an increase of $0.14 or 41% year-over-year. Now I will review our business achievements in the second quarter. First, our small unmanned aircraft systems product line represented 63% of total revenue in the second quarter and we remain the leader in the global market for small UAS.

We continue to partner with industry leaders to deliver more valuable solutions to our customers. In October, we announced the contract with Viasat to develop an on-demand, Type 1 encrypted communications network delivered by small UAS for the U.S. Army.

This is another example of our applied innovation creating greater value for our customers and shareholders. Next our tactical missile systems product line represented about 20% of second quarter revenue. We continue to execute against the large army LMAMS contract with our Switchblade 300 during the quarter.

In recent years, DOD procurement budgets have provided strong funding for army LMAMS procurement. This funding has driven programmatic adoption of Switchblade 300 via the U.S. Army. In this fiscal year 2021 procurement request, the U.S. Department of Defense budget proposed about $85 million of funding to support the army LMAMS program.

Senate and House of representatives appropriations committees recently proposed reducing or eliminating LMAMS funding in government fiscal year 2021, partly because significant funding remains from prior budget for LMAMS procurement.

Weeks back the entire $85 million to be removed by the time the budget is enacted into law, but we’ll not know for certain until then. It is important to note that a new multi-year competitive LMAMS program is planned to begin after fiscal year 2021. We believe we are well positioned to compete for and secure that award.

In October, we unveiled our Switchblade family of loitering missile systems including our new Switchblade 600, which is the larger variant we have previously discussed.

Switchblade 600 weighs 50 pounds, carries a much larger warhead than Switchblade 300 is capable of more than 40 minutes of endurance and delivers precision effects against armored vehicles and other hardened targets over greater distance, all while maintaining its portability and patented wave-off and recommit capabilities.

As part of the Switchblade 600 system, we also introduced a new tablet touch control that improves the user experience and makes training even faster and easier. With Switchblade 600, we are targeting a tactical missiles market segment valued at more than $1 billion annually, based on current U.S. DOD procurement of Hellfire, Javelin and TOW missiles.

Developed in part with customer funding, we believe that Switchblade 600 is well positioned for the U.S. Marine Corp’s Organic Precision Fires Mounted for OPFM program. Supporting our competition for OPFM, we received a $5 million award late last fiscal year and another $1 million award in the second quarter.

Importantly, these funds are separate and in addition to customer funding we have received for Switchblade 600 development. We are now one of four suppliers who will compete as soon as this February for a down-select award.

That award will fund continuous development that could lead to low rate production and in volume procurement over a multi-year period.

Moving now to HAPS which represented 12% of second quarter revenue which is a significant project milestone in September when the Sunglider’s solar HAPS UAS soared into stratosphere for hours during a 20 hour mission at Spaceport America in New Mexico.

During this successful test flight, we also demonstrated broadband connectivity via an LTE payload carried onboard the Sunglider. In fact, we conducted video calls from New Mexico that connected us to Tokyo, Silicon Valley and Washington DC using a standard android smartphone.

The quality of the video call was as good if not better than most video meetings I have participated in from my office. This milestone offers a glimpse into the exciting possibilities HAPS represents for connecting the billions of people around the world who lack basic broadband access.

We remain confident that this partnership would deliver strong returns for our shareholders. We expect the HAPS program to transition to a testing and certification phase towards the end of our current fiscal year 2021.

We expect this testing and certification phase to continue for multiple years until we transition to production and commercial business launch. Now I will turn to the impact of the COVID-19 pandemic on our business.

We continue to experience some delays in customer contracting decisions as our domestic and international customers operate in unprecedented remote work situations. We are also experiencing some delays in limited areas of our supply chains resulting from the impacts of the pandemic.

However, our teams’ accomplishments in the important milestones they achieved during the quarter are particularly noteworthy given the challenges of the COVID-19 pandemic. The majority of our team members continue to work remotely and I am incredibly proud of the way they have continued to support each other and our customers.

All of us at AeroVironment are united and our commitment to delivering strong operating and financial results while maintaining a safe work environment. This was a solid quarter of achievements. We are very excited about our acquisition of Telerob and the progress toward our multi-domain intelligent robotic portfolio it will drive.

And as you can see, we are not standing still. We continue to invest in the future-defining technologies that will drive higher levels of autonomy and capability for our customers and greater returns for our shareholders. Now, I will turn the call over to Kevin McDonnell for a summary of second quarter financials.

Kevin?.

Thank you, Wahid. Today, I'll be reviewing the highlights of our second quarter and year-to-date financial performance. I'll be referring to both our press release and earnings presentation available on our website.

Similar to last quarter, I will only be addressing the key financial metrics in my remarks and leaving some of the details in the press release and earnings presentation. Revenue for the second quarter of fiscal 2021 was $92.7 million, an increase of 11% from the second quarter of fiscal 2020 revenue of $83.3 million.

The breakdown of revenue by product area is contained on Slide 6 of the quarterly earnings presentation. During the quarter we showed strong performance in our TMS product line, which was up 139% from the same period last year. This was partially offset by lower HAPSMobile service revenue and lower Small UAS product revenue.

Revenue for the first half of fiscal 2021 was $180.1 million, an increase of 6% from the first half of fiscal 2020 revenue of $170.2 million. Again the increase in revenue was largely due to an increase in TMS revenue partially offset by reduced small UAS product revenue.

Turning to gross margin, Slide 7 of the quarterly earnings presentation shows our product, service mix and overall gross margin trends over the past five quarters. Gross margin for the second quarter was $40.9 million or 44% of revenue, compared to $35.2 million or 42% of revenue for the second quarter last fiscal year.

Gross margin for the first half of fiscal 2021 was $76.3 million or 42% of revenue, compared to $76.4 million or 45% of revenue for the first half of fiscal 2020. As we indicated last quarter, we do expect second half margins to be lower than the first half margins due to a less favorable product mix. Now I will turn to operating expense.

SG&A expense for the second quarter was $15 million or 16% of revenue, compared to SG&A expense of $16.3 million or 20% of revenue for the second quarter of FY 2020. SG&A expense for the first half of fiscal 2021 was $27 million or 15% of revenue, compared to $29.9 million or 18% of revenue for the first half of fiscal 2020.

The lower spend in current quarter and year-to-date SG&A is in large part related to the reduction in travel and trade show expenses resulting from COVID-related restrictions. R&D expense for the second quarter was $12 million or 13% of revenue, compared to R&D expense of $10.9 million or 13% of revenue for the second quarter FY 2020.

R&D expense for the first half of fiscal 2021 was $23.1 million or 13% of revenue, compared to $19.6 million or 11% of revenue for the first half of fiscal 2020. We continue to make significant R&D investments. These investments include enhancements to current products, new variance within our product lines, and product additions.

We believe these investments will enable our continued leadership in the small UAS space and drive growth in both small UAS and TMS product lines in the near future and longer term. Before I talk about the bottom-line, I’d like to discuss the impact of the HAPSMobile JV on our income statement.

As a reminder, we own approximately 7% of the HAPSMobile joint venture. In the second quarter of fiscal 2021, we recorded a loss of $9.5 million related to our investment in the HAPSMobile JV.

This includes an $8.4 million impairment loss, which represents our proportionate share of the HAPSMobile write-down of its investment in Alphabet Loon’s subsidiary.

In the first half, we recognized a total of a $10.8 million loss on our income statement related to our HAPSMobile investment compared to a loss of $2.2 million for the first half of fiscal 2020.

Finally, I should note that our accumulated losses in the JV have resulted in the carrying amount of our investment on the balance sheet to be zero as at the end of the second quarter and therefore we will not recognize any further losses related to our investment to-date in the HAPSMobile JV in future periods.

Looking at the bottom-line, net income attributable to AeroVironment for the second quarter of fiscal 20201 was $2.1 million or $0.09 per diluted share compared to $7.5 million or $0.31 per diluted share for the second quarter of fiscal 2020.

The $5.4 million reduction in net income was largely a result of our proportionate portion of the HAPSMobile impairment of its investment in Loon of $8.4 million, higher tax provision of $1.4 million, increased R&D investments of $1.1 million and reduced interest income of $1.2 million.

These reductions were partially offset by higher gross margins of $5.7 million and lower SG&A spending of $1.3 million. For the first half of fiscal 2021, net income attributable to AeroVironment was $12.2 million or $0.50 per diluted share, compared to $24.6 million or $1.02 per diluted share for the first half of fiscal 2020.

The $12.4 million reduction in net income is again primarily due to the $8.4 million loss from our portion of the HAPSMobile impairment of its investment in Loon, together with higher R&D spending of $3.5 million and lower interest income of $2.3 million, partially offset by lower SG&A spending of $2.9 million.

In terms of adjusted EPS, Slide 12 shows a reconciliation of GAAP and adjusted or non-GAAP diluted earnings per share.

Non-GAAP diluted earnings per share for the second quarter of fiscal 2021 was $0.48 per diluted share and excludes $0.35 per diluted share for our portion of the HAPSMobile impairment of its investment in Loon and $0.02 per diluted share of intangible amortization expense associated with our Pulse Aerospace acquisition and an additional $0.02 diluted share for acquisition-related expenses.

Non-GAAP diluted earnings per share for the second quarter of fiscal 2020 was $0.34 per diluted share and excludes $0.03 per diluted share of deal, integration cost and intangible amortization expenses associated with our Pulse Aerospace acquisition.

For the first half of fiscal 2021, non-GAAP diluted earnings per share was $0.91 per diluted share and excludes the $0.35 related to our portion of the HAPSMobile impairment of its investment in Loon, as well as $0.06 per diluted share of acquisition-related and amortization expenses.

Non-GAAP diluted earnings per share for the first half of fiscal 2020 was $1.08 per diluted share and excludes $0.06 per diluted share related to deal integration cost and intangible amortization expense associated with our acquisition of Pulse Aerospace. Turning to the balance sheet, we continue to maintain a strong cash position.

Cash, cash equivalents and investments at end of the second quarter of fiscal 2021 totaled $368.2 million, an increase of $50.5 million from the end of fiscal 2020.

Total cash flow from operating activities during the first half of the year was $58.6 million, of which $25.3 million was a result of working capital improvements and the remainder from operating activities.

The working capital improvement came primarily from lower accounts receivables and unbillables, partially offset by lower accounts payable, accrued liabilities and higher inventories. In terms of capital expenditures, we spent $6.1 million during the first half of fiscal 2021. Next I'd like to highlight some of our backlog metrics.

Our funded backlog at the end of Q2 was $130.6 million, a decrease of $16.1 million from the second quarter of fiscal 2020 and a decrease of $77.5 million from the fourth quarter of fiscal 2020 backlog of $208.1 million. The backlog decline is impart due to delays in orders as a result of the COVID impacts.

In terms of fiscal 2021 visibility, which is highlighted on Slide 8 of the earnings presentation, as of today, we have year-to-date revenue in fiscal 2021 of $180 million. Second quarter ending backlog that we anticipate to execute in fiscal 2021 of $120 million.

Q3 quarter-to-date bookings that we anticipate to execute in fiscal 2021 of $4 million, unfunded backlog from internally funded contracts that we anticipate to recognize revenue during the balance of the year of $26 million. This adds up to $330 million or 83% of our fiscal 2021 midpoint revenue guidance range. Now I’d like to turn it back to Wahid..

Thanks, Kevin. As we noted, we are strengthening our leading market positions achieving critical milestone in the development and introduction of potentially valuable new capabilities, expanding our offering, deploying our balance sheet to grow our business strategically and delivering on our commitments to our customers.

We are developing the solutions and capabilities our defense customers need to confront insurgencies as well as peer and near peer adversaries in both premises and contested environments.

And we continue to execute our strategy to offer a multi-domain portfolio of intelligent unmanned solutions and capabilities integrating robotics, sensors, software analytics and connectivity technologies to equip our defense and other customers with the tools to win.

By doing so, we believe we will continue to deliver even greater value to our shareholders and our customers. Supported by 83% visibility to the midpoint of our guidance range, we are reaffirming our full fiscal year 2021 guidance of revenue of between $390 million and $410 million as summarized on Slide number 10 of our earnings presentation.

We expect to deliver operating margin of between 12% and 12.5% and now expect revised earnings per diluted share of $1.28 to $1.48 as a result of HAPSMobile Inc.’s impairment of its equity investment in Loon LLC.

We continue to expect non-GAAP earnings per diluted share, which excludes acquisition-related expenses, amortization of acquired intangible assets, and the HAPSMobile investment impairment of between $1.74 and $1.94.

Similar to last year, we expect about one-third of second half revenue in our third quarter based on the midpoint of our revenue guidance range and we expect an EPS loss similar to the third quarter of our fiscal year 2020.

As Kevin mentioned earlier, revenue mix will result in a lower gross margin percentage in fiscal year 2021 as compared to the prior year. We also expect research and development investments to range between 11% and 12% of revenue this fiscal year.

In summary, to reiterate our main points for today’s call, first, our team continues to deliver strong results during the unprecedented and challenging COVID-19 pandemic keeping us on track to achieve our fiscal year 2021 objectives.

Second, we achieved significant milestones during the quarter and our key growth initiatives within Tactical UAS, Tactical Missile Systems, and HAPS.

And third, we are successfully executing our long-term growth strategy including deploying our strong balance sheet as we did with the Telerob acquisition, while delivering significant value to our shareholders.

Before we open the call to Q&A, I want to say thank you to our customers, our team members, and our shareholders for your ongoing engagement and for challenging us always to deliver excellence. We continue to focus on delivering on our promise to help you proceed with certainty. Kevin, Steve, and I will now take your questions..

Thank you, Wahid. We will now begin the question and answer session of today’s call. [Operator Instructions] Our first question this afternoon comes from Ken Herbert at Canaccord Genuity.

Ken?.

Hi, Steve. Good afternoon everybody. .

Good afternoon, Ken. .

Wahid, I just wanted to first ask on LMAMS, if in fact the fiscal 2021 budget has zeroed out the funding, can you just remind us how much of the appropriated money has not yet been spent and what that contribution you think for your full year 2021 what the guidance implies from the LMAMS contract for the year?.

Sure, Ken. So, as I mentioned in my remark, the original budget line item request was roughly about $85 million. The House of Representative recommended $69 million roughly. And then, the senate has actually put a zero on that line item as a recommendation. Now, none of this is final.

So, the actual authorization is still is around the $69 million, but what gets appropriated is what’s going to matter. No one really knows exactly what will be appropriated. We are in very close contact with our customer. There is still – we are planning on it being zeroed out essentially.

However, the reason why I said in my remarks that there is since still significant funds remaining, this is because we’ve had significant dollars of funding on fiscal 2019, fiscal 2020, even beyond before that, there is a significant amount of dollars that are not still awarded to us as part of the existing JUONs contract that we have.

That’s number one. Number two, we do have the details in terms of how much revenue we recognize, I believe Steve, you have the specific details of that that you can just iterate for this year. But we are still expecting to achieve our full fiscal year expectation on the Switchblade 300 based on the contract that we have today.

So, there is not going to be, in our view, no change on that as of today. We believe that we are going to be able to execute on that. And we are currently executing that as we speak anyway. .

Okay. Great. And if I could, just a follow-up really quickly on Telerob, it’s looks like a nice acquisition.

Can you provide any more details in terms of has the business been growing sort of in line with the 15% that you called out for the UGV industry or anything we should – we can think about in terms of the potential revenue contribution of this business once the deal is closed. Thank you. .

Sure, Ken. So, we are – I am personally extremely excited and bullish about this acquisition. It makes a whole lot of sense in terms of long-term shareholder value creation. It’s the right move for us strategically. Then there is tremendous amount of synergies on the revenue side and on the top-line.

In terms of the business itself, first and foremost, it’s a very well established business that have been around for decades. They have made a very strong name for themselves. They are known for very best-in-class technology. They’ve got some very unique technology and IP related to their design of their systems, number one.

Number two, forty plus countries, they do business with already. The business is growing – has been growing in the past few years. Obviously, the company is private right now and we cannot get into the details of that until the deal closes, which we expect that to happen sometimes in the spring, early next calendar year.

But we believe that’s going to be accretive GAAP-wise on that in two years and it will be non-GAAP EPS accretive at our fiscal year 2022, really depending on when the close actually takes place. The number one criteria for the close is really the approval of the German government for the acquisition to go through. We have worked it for a while.

We are very familiar with the company. We’ve been working with these guys for a significant amount of time. We assess the market. We believe they are very well positioned to compete in both the domestic opportunities, as well as international ones.

And a great example of that is, just recently not more than a few weeks ago, two or three weeks ago, we submitted a joint proposal for a U.S. Air Force robotics RFP which AeroVironment is acting as the prime contractor.

So, we could not announce the details of that at that time due to its disclosure issues, but we believe that long-term, this is a very, very good acquisition for both our short-term as well as long-term strategy and value creation. .

Thank you. .

You are welcome, Ken. .

Thank you, Ken. And before we go on and respond to your question, Wahid, as we said in our first quarter earnings call, a quarter ago, we expect about $42 million of revenue this year from the army LMAMS contract that was announced on April 30 of this year. So, hopefully, that fills in the answer to that question.

We’ll now turn to Pete Skibitski from Alembic Global for our next questions.

Pete?.

Yes. Thanks guys. Nice quarter.

Just to follow-up on Switchblade and this appropriations issue, is it reasonable for us to expect that fiscal 2022 Switchblade revenue for you – the 300, the LMAMS will decline? Or how should we think about that?.

Thanks, Pete. This is Wahid. So, in terms of fiscal 2022, we are going to provide guidance on that on our fourth quarter earnings. However, this is not something that we believe is going to affect us in terms of our revenue and our relationship and the adoption of Switchblade 300.

As you know, we’ve been very successful over the last decade to continue to grow that business. We have been the – by far the almost the sole source provider of this capability to the US Military on a number of competitions, which we have won those hands down across the board in the last several, several years.

There is significant amount of dollars already in the budget process from government fiscal year 2018, 2019 and 2020, as I mentioned.

A significant portion of that is still not contracted and awarded to us and we expect to get those awards sometimes this fiscal year or the beginning of next fiscal year depending really on how the government proceeds and the COVID situation continues. So I personally do not consider this to be a major issue.

I just wanted to communicate to all of you what we have learned so far and what's out there, so you are aware of it. Additionally, last point I want to make on this. The US Army already has a potential competition planned for the phase beyond this JUONS that we have a three year contract on.

So, we are working with our customer to make sure that we compete for that and we believe that we are positioned very well for that.

So when that award takes place, sometimes probably next calendar year, then it will be a smooth transition from the existing contract and the revenue stream that we have and the awards that we've received to continue beyond that.

So, our position is that a, we've had significant revenue, strong growth, and, b, we believe that there is still significant dollars unawarded yet, which we are expecting to receive that, which will sort of bridge the gap between our fiscal year 2021 and the government fiscal year 2021, which will then get to the next competition and next award hopefully..

Okay. Got it. I guess, just one follow-up for me on a different topic. There is some chatter out there I think on the Navy Submarine launch UAV program that there has been a lot of exercises and progress has been made and I think there was an RFI out there.

So, can you maybe update us on? Are you expecting maybe in calendar 2021 to see maybe a competition for that mission area as well?.

Sure. So, the specific Navy Submarine launch UAV that you are referring to is very much geared towards our Blackwing platform and variant of Switchblade.

As you know, in the past couple of years, I have been providing updates on our success and our progress with the navy on piloting this and actually doing field trials in the sea with various submarines. So we continue to make progress there. We have had a lot of really good success in terms of trials and real demonstrations and field deployments.

Obviously, it's a very critical growth opportunity for us. But the adoption rate within this Navy Submarine is quite slow. So, we expect in that Navy Submarine launch RFI that you see that we will be able to compete, we are positioned really well and we continue to make progress on that front with our customer.

So, expect us to obviously compete on that again and we are very well aware of it and engaged with it and we've already delivered a certain number of units to our customer throughout the last year-and-a-half or two..

Thank you, Pete. Our next question comes from Peter Arment at Baird.

Peter?.

Yes. Good afternoon Wahid, Kevin, Steven. Hey, Wahid, question I guess on the Switchblade 600. You mentioned the February kind of timeframe for a potential decision there.

Can you maybe just describe what you are expecting there in terms of a competition?.

Sure. So, I think, Peter you're referring to the Marine Corps OPFM, Organic Precision Fire Mounted potential program and competition. As I mentioned in my remarks, we have already received about $5 million worth of funding as part of a selection process last fiscal year.

And we – this past quarter of this year we've also received an additional $1 million to keep improving the capability, which involves our Switchblade 600 with our customer being the Marine Corps. We think that we are positioned very well, but there are other competitors that are also competing in this competition.

However, as you know Switchblade 600s capability is very unique and very, very compelling. We also have a tremendous, I would call it a leg up for sort of advanced progress because of our track record with our original Switchblade in this field.

So, the customer intends to have the competition and fly off sometimes in February of this year, which obviously because of COVID it is not guaranteed, but that's what we are – we expect that to happen as of now. And once they do that they expect to down-select to the most mature solution and the best solution to go proceed further.

There is approximately $20 million-ish or so in the government fiscal year 2021 budget for the OPFM program and it continues after that to become into an initial rate of – low initial rate of production.

And then beyond that, the US Marine Corps has publicly stated that they would like to get into a full production eventually as a result of this competition and down-select.

So, the short of it is Peter that we believe A, we're positioned really well, B, our progress and our success so far, gives us a unique advantage in my view to be able to compete, just like we've always done in this space.

And three, it is a long-term program that we are really keeping an eye on that we think it's a good starting point for Switchblade 600 amongst other opportunities and we'll keep you updated as we make progress..

That's really helpful color. Thanks Wahid. Just and - just as a follow-up. Kevin, you mentioned, I am sorry if I missed this. You said that there were some delays tied to COVID on orders. Did you quantify that? Or if you can give us a little color that would be helpful? Thanks..

No, we don't have an exact quantification of that. But we are maintaining our guidance for the year and – but obviously with COVID restrictions there has been situations where demos and things like this gets delayed..

Just to add to Kevin's point, Peter, as we said on our remarks, we expect that some of these delays during our fourth quarter earnings call, which was the beginning of our fiscal year 2021 and we provided that, and we actually planned for that as part of our objectives and guidance that we provided.

Obviously, this COVID-19 pandemic has been beyond belief, more difficult and also it extended further longer. None of it's actually been outside of our scope and prospective and forecast that we expected. However, given that the pandemic still continues, we still expect some delays. I am so proud of our team.

The job, they have done in terms of addressing both the contracting obstacles and delays that we have been experiencing with customers as well as the supply chain issues that we've experienced with some suppliers, not all, just very select some of them. So overall we're making great progress.

We are on track, and as you can see from our results that supports it. And then also, for the second half of the year we are positioned well, although we just want to give you all the color as to what the landscape looks like going into the second half of this year. And we'll keep you updated..

Thank you, Peter. [Operator Instructions] Our next question comes from Joe De Nardi at Stifel.

Joe?.

Hey. Good afternoon everybody..

Hey, Joe..

Wahid, you mentioned that you are not expecting, I guess, the LMAMS funding issue to impact, I guess revenue for next year. But as it relates to some of the order delays that you are seeing now, should we take that into account as we think about next year's revenue.

Is that a potential risk? Are you assuming that that does kind of negatively impact the business next year?.

So, Joe, I mean, we are very, very focused on executing our fiscal year 2021 right now. We will provide specific color to fiscal 2022 on our fourth quarter earnings call.

I do however underline or emphasize that our three consecutive years of top-line growth and profitability shows the diversification and the resiliency of our portfolio now versus many years ago. Not only do we have a diversified customer base, but also in terms of countries, geographies, product-line portfolio and opportunities.

We feel very good about our chances of long-term value creation and growth. I believe that there are several factors that we are looking forward to and updating you as we progress in terms of opportunities that we have. But I think the long-term picture for us right now as of today looks quite good.

And I really like our cars, given what's going on in the world and what our customers’ need and what opportunities we've got in front of us irrespective of the LMAMS. I think that that's going to be – it's just one element of many, many other growth opportunities that we have and even in that growth opportunity we've been growing.

We've been growing our LMAMS business for several years. There is significant dollars in the pipeline. We are talking to our customers very, very regularly, obviously remotely and we think that we're going to overcome these issues, especially now that the vaccines are becoming available quite soon..

Okay.

And then, Wahid, is there any update on kind of international Switchblade opportunities timing and does that’s being a reality for you?.

Nothing really has changed materially since last quarter, because we are still engaged with customers. Obviously, this COVID situation has made it difficult engaging with international customers and having them to work with our – the Department of State, as well as the Pentagon.

But we still see potential - multiple countries that are interested, engaged. And as we have more updates we'll let you know. It's just a matter of when versus if you ask me still. Nothing materially has changed from that. We'll continue to make progress, but at a slower rate due to COVID..

Thank you for your questions, Joe. [Operator Instructions] We'll now take the next question from Louie DiPalma from William Blair.

Louie?.

Wahid, Kevin, and Steve, good afternoon..

Good afternoon, Louie..

Regarding the Switchblade 600 makeup for the Organic Precision Fires Mounted program, I was wondering how strong are AeroVironment's patents for the Switchblades wave-off capability?.

Very good question and great insight, Louie. Our wave-off is A, one of the most important patents on our Switchblade portfolio, but it's not the only one. We believe that that patent is very critical. It's very defensible.

We have multiple patents both in terms of specific narrow technology patents that address the specifics very deep narrow technology area, but also quite broad ones like the wave-off. So, we have – when we make these investments in R&D to develop these capabilities, we always think about how to make sure how we defend that.

And we also have a track record of defending our technology and our IP, as you've seen from previous gains that we've had in litigations of similar type of matters. So, again, I think that our technology is strong, I think our position and our progress so far gives us also an advantage. But we're not relying just on that.

We believe that we want to make sure irrespective of technology that our solution is the best solution for our customers when it comes to their selection. And we feel good about it. So, when we look forward to the competition as we always do, that's the business that we are very familiar with competing and having a high win rate in our competitions..

Sounds good. And you guys made great progress with the Sunglider and you spoke about the video call and the high-quality resolution.

And Kevin, you indicated that HAPSMobile had a write-down associated with its investment in Loon, And I was wondering what are the implications of Google potentially, no longer looking to fund Loon? And like, is there an opportunity for AeroVironment to potentially acquire like Loon's technology assets in order to have that intellectual property for the telecom that's involved in the radio access layer and provide connectivity? Thanks..

So, Louie, this is Wahid. A great question again. In terms of the impairment, it was really just an accounting exercise on our side.

It was related to an investment that HAPSMobile made into Loon LLC that based on Alphabet and Loon LLC's own decision and process – accounting process triggered a devaluation of that investment, which then triggered an impairment in our side, one-time of course and it sort of expedited the impairment losses of our investments into HAPSMobile.

So it has nothing to do with our business operations, particularly and it has almost it literally happen to do with the HAPSMobile's relationship with us of AeroVironment. In terms of Loon, that's really a question related to Alphabet and Loon themselves. I am not in a position to have insight into that.

Obviously, we are not involved in their business. We feel very good about our relationship in general as they are sort of like a supplier to us on the payload of the HAPSMobile. We flew that payload. We demonstrated the capability. We continue to talk and work together.

And all of us, both SoftBank and AeroVironment is quite bullish about our beliefs and Sunglider's prospects for success in the long run. We've always believed in that.

I think that our track record of success so far substantiates and supports and improves the fact that this is a very viable platform for the connectivity of the global population of human being on this globe. So, we look forward to that..

Thank you, Louie. We'll now turn back to Joe DeNardi from Stifel with follow-up question.

Joe?.

Thanks. Just two for Kevin, I think.

Can you give us what's international sales were in the quarter? Just total international including HAPS?.

Total international is actually split 50-50. It was just around $46 million, little over $46 million..

Okay. Great. And you talked about kind of lower G&A, I guess, as a result of travel and trade shows. How much of that is structural? I mean, how material could that be on the other side of this? Do you expect it to be for most of it to come back or to be reinvested elsewhere? Thank you..

It's difficult to say when comeback will happen. So, but obviously there would be some reinvestment at that time and we're not really putting the number on it right now..

Okay. Thank you..

Thanks for the follow-up question, Joe. Yes, and we appreciate it. And at this point we have no further questions today. We 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 avinc.com.

We wish you a joyous and a healthy holiday season and New Year and we look forward to speaking with you again following next quarter's results. Good day..